MULTINATIONAL CORPORATION INDEX

MEANING AND DEFINATION OF MNC:

Any business corporation which has holdings, management, production and marketing extended over several countries , owns huge resources and extensive potentiality , and encourages a collective transfer of resources among various countries with a view of increasing profitability under a centralized ownership is called a multinational corporation.

Jacques Maisonrouge, president of IBM world trade corporations defines an MNC as a company that meets five criteria: 1) It operates in many countries at different levels of economic developments. 2) Nationals manage its local subsidiaries. 3) It maintains complete industrial organizations, including R and d and manufacturing facilities in several countries. 4) It has a multinational central management. 5) It has multinational stock ownership. James C. Baker also defines MNCs as a company: 1) Which has direct investment base in several countries. 2) Which generally derives from 20% to 50% or more its net profits from foreign operations. 3) Whose management makes policy decisions based on the alternatives available anywhere in the world.

A significant share of the worlds industrial investment, production, employment and trade are accounted for by these more than 65000 MNCs with over 8,00,000 affiliate

Characteristics of multinational corporations (MNCs):

The multinational corporations have certain characteristics which may be discussed below :

(1) Giant Size :

The most important feature of these MNCs is their gigantic size. Their assets and sales run into billions of dollars and they also make supernormal profits. According to one definition an MNC is one with a sales turnover of f 100 million. The MNCs are also super powerful organisations. In 1971 out of the top ninety producers of wealth, as many as 29 were MNCs, and the rest, nations. Besides the operations, most of these multinationals are spread in a vast number of countries. For instance, in 1973 out of a total of (,000 firms identified nearly 45 per cent had affiliates in more than 20 countries.

(2) International Operation :

A Fundamental feature of a multi-national corporation is that in such a corporation, control resides in the hands of a single institution. But its interests and operations sprawl across national boundaries. The Pepsi Cola company of the U.S operates in 114 countries. An MNC operates through a parent corporation in the home country. It may assume the form or a subsidiary in the host country. If it is a branch, it acts for the parent corporation without any local capital or management assistance. If it is a subsidiary, the majority control is still exercised by the foreign parent company, although it is " incorporated in the host country. The foreign control may range any-where between the minimum of 51 per cent to the full, 100 per cent. An MNC thus combines ownership with control. The branches and subsi-diaries of MNCs operate under the unified control of the parent company.

(3) Oligopolistic Structure :

Through the process of merger and takeover, etc., in course of time an MNC comes to assume awesome power. This coupled with its giant size makes it oligopolistic in char-acter. So it enjoys a huge amount of profit. This oligopolistic structure has been the cause of a number of evils of the multinational corporations.

(4) Spontaneous Evolution :

One thing to be observed in the case of the MNCs is that they have usually grown in a spontaneous and unconscious manner. Very often they developed through "Creeping incrementalism." Many firms become multinationals by accident. Sometimes a firm established a subsidiary abroad due to wage differen-tials and better opportunity prevailing in the host country.

(5) Collective Transfer of Resources :

An MNC facilitates multilateral transfer of resources Usually this transfer takes place in the form of a "package" which includes technical know-how, equipment's and machinery, materials, finished products, managerial services, and soon, "MNCs are composed of a complex of widely varied modern technology ranging from production and marketing to management and financing. B.N. Ganguly has remarked in the case of an MNG "resources are trans-ferred, but not traded in, according to the traditional norms and practices of international trade."

(6) American dominance :

Another important feature of the world of multinationals is the American dominance. In 1971, out of the top 25 MNCs, as many as 18 were of U.S. origin. In that year the U.S. held 52 per cent of the total stock of direct foreign private investment. The U.E. has assumed more of the role of a foreign investor than the traditional exporter of home products

FUNCTIONAL NATURE OF MNC:

Functional nature of MNCs means the functions of Multinational Organizations which they follow and succeed

There may be five different functions of MNCsPlanning Organizing Staffing Leading and; Controlling

Planning in MNC
Involves Study of International and External environment to do SWOT analysis. Setting the objectives. To compete in world markets, form GSP (Global Strategic Partnership) with the local players.

Organizing in the MNC

To achieve corporate objectives Can appoint VP for all foreign branches. He will control these branches from Head Office.

A MNC may organize the structure on the basis of production line. E.g; one manager will be incharge of one product

Staffing in MNC
Select managers from the home country. These mangers will know the values of the company clearly Select mangers from the host country. They will know the culture of the host country. Select mangers from the third country

Leading in MNC
Involves motivating and communicating. Managers must have effective leadership qualities

Staffing in MNC
Select managers from the home country. These mangers will know the values of the company clearly Select mangers from the host country. They will know the culture of the host country. Select mangers from the third country. Leading in MNC Involves motivating and communicating. Managers must have effective leadership qualities

IMPORTANCE OF MNCS AND THEIR BENEFITS TO HOME/HOST COUNTRIES: Importance of MNCs

1.Vehicles of technology transfer to developing countries

2.They work to equalize the cost of factors of production around the world.

3.Efficient means of integrating national economies.

4.Contribute to R & D due to enormous resources.

5.Help to increase competition & break down domestic monopolies .

Benefits of MNCs to home country:

1) Facilitate inflow of foreign exchange: - MNCs collect funds from the enterprises of other countries in the form of fees, royalty, and service charges. This money is taken to the country of their origin. MNCs make their home countries rich by facilitating inflow of foreign exchange from other countries. 2) Promote global co-operations: - MNCs provide co-operation to poor or developing countries to develop their industries. The countries of their origin participate in such international cooperation, which is beneficial to all countries- rich and poor. 3) Ensure optimum utilization of resources: -MNCs ensure optimum utilization of natural and other resources available in their home countries. This is possible due to their worldwide business contacts. 4) Promote bilateral trade relations: -MNCs facilitate bilateral trade relations between their home countries and the other countries with which they have business relations.

Benefits of MNCs to host countries:

1) Raise the rate of investment: - MNCs raise the rate of investment in the host countries and thereby bring rapid industrial growth accompanied by massive employment opportunities in different sectors of the economy. 2) Facilitate transfer of technology: -Multinationals act as agents for the transfer of technology to developing countries and thereby help such countries to modernize there industries. They remove technological gaps in developing countries by providing techno-managerial skills. 3) Accelerate industrial growth: - multinationals accelerate industrial growth in host countries through collaborations, joint ventures and establishment of subsidiaries and branches. They facilitate economic growth through financial, marketing and technological services. MNCs are rightly called messengers of progress. 4) Promote export and reduce imports: - MNCs help the host countries to reduce the imports and promote the exports by raising domestic production. Marketing facilities at global level are provided by MNCs due to their global business contacts. 5) Provide services to professionals: - MNCs provide the services of the skilled professional managers for managing the activities of the enterprises in which they are involved/interested. This raises overall managerial efficiency or enterprises connected with multinationals. MNCs bring managerial revolution in host countries. 6) Facilitate efficient utilization of resources: - Multinationals facilitate efficient utilization of resources available in host countries. This leads to economic development. 7) Provide benefits of R and D activities: -Multinationals has enormous resources at their disposal. Some are utilized for R and D activities. The benefits of R and D activities are passed on to the enterprises operating in the host countries. 8) Support enterprises in host countries: - MNCs support to enterprises in the host countries in order to support their own operations indirectly. This is how MNCs support enterprises in the

host countries to grow. Even consumers get new goods and services due to the operations of MNCs. 9) Break domestic monopolies: - MNCs raise competition in the host countries and thereby break domestic monopolies.

DEMERITS
1) Provide outdated technologies: - MNCs design the technologies, which can be used in different countries. They dont supply technology to poor countries for industrial development but for profit maximization. The technologies designed for profit maximization and not purely for meeting the needs of developing countries. The technologies supplied may be costly and may be outdated and obsolete or may not be suitable for the needs of developing countries. 2) Harm the national interests: - the activities of MNCs in the host countries may be harmful to the national interests as MNCs are solely guided by the profit maximization. They ignore the interests of host countries. MNCs even make profits at the cost of developing countries. 3) Charge heavy fees: - MNCs charge heavy fees and service charges from the enterprises in the host countries. They repatriate profits of their subsidiaries to their home countries. This leads the outflow of countries. 4) Develop monopolies: - MNCs restrict competition and acquire monopoly power in certain areas in the host countries. 5) Use resources recklessly: -MNCs use the resources in the host countries in a very reckless manner, which leads to fast reduction of non-renewable natural resources. 6) Dominate domestic policies: -MNCs use their money power for political purposes. They take undue interest in political matters in the host countries. MNCs are being openly termed as an extension of the imperialistic forces. 7) Adverse effects on life style/culture in the host countries: - MNCs create demand for goods and services in developing countries through advertising and sales promotion techniques. As a result, people purchase costly/ luxury goods which are not really useful nor within their capacity

to purchase. MNCs create adverse effects on the cultural background of many developing countries. 8) Interfere in economic and political systems: - they put indirectly pressures for the formulation of policies that are favorable to them. They even topple the government in the host countries if its policies are against the MNCs and their operations. 9) Avoid tax liabilities: - transfer pricing enables multinational corporations to avoid taxes by manipulating prices in the case of intra company transactions. 10) Lead to brain drain in developing countries: - multinationals are now entering in countries like India in a bigger way. They hire qualified technocrats and managerial experts. These people work for a few years in India, acquire experience and relocated as experts in Singapore, Korea or the United States for managing the activities of MNCs. This leads to brain drain in developing countries.

MNCS have helped and also harmed the developing countries. It is a peculiar mixture of virtues and vices, boons and banes. However no country can afford to avoid MNCs only because it has dangers associated with them. It may be concluded that MNCs constitute a mixed blessing to developing countries. They are helping as well as harming the developing countries. It is rightly said MNCs are bound to exist and eveloping countries have to learn to live with Them.

GROWTH OF MNC:
The MNCs share in global investment, production, employment and trade has assumed considerable proportions. According to the UN, there are 63,000 MNCs with 6,90,000 affiliates all over the globe with 2,40,000 in China and only 1400 in India. The US was the forerunner in giving births to MNCs. Today, biggest MNCs are Japanese. T He global liberalization wave, paved the path for faster expansion and growth of MNCs. The value added by the foreign affiliates of MNCs, as a percentage of global GDP grew from 5% in the 1980s to about 7% by the end of 90s. The MNCs control about a third of world output and the total sales of their foreign affiliates is almost equal to the GNP of all developing countries. The value of the annual sales of the largest manufacturing multinational General Motors, was about $178bn in 1996. The total sales of the 3 largest automobile firms of the world, namely, General Motors, Ford and Toyota is greater than the value of Indias GDP. In terms of direct employment, the MNCs accounted for 73mn people worldwide and if indirect employment is considered, the figure approximates 150mn people. Over 350m people were employed by the foreign affiliates of MNCs in 1988. A number of factors have contributed to the phenomenal growth of MNCs. Some of the important factors are as follows: -

1) Expansion of market territories: Rapid economic growth in a number of countries resulting in rising GDPs and per capita incomes contributed to the growing standards of living. This in turn contributed to the continuous expansion of market territories. MNCs, both contributed to the expansion of market territories and also grew in size and spread as a result of expansion of market territories.

2) Market superiorities: -

In many ways, MNCs have an edge over domestic firms, such as: a) Availability of reliable and current data, b) MNCs enjoy market reputation, c) MNCs encounters relatively less problems and difficulties in marketing the products, d) MNCs adopt more effective advertising and sales promotion techniques, and e) MNCs enjoy faster transportation and adequate warehousing facilities

3) Financial superiorities: MNCs also enjoy a number of financial advantages over domestic firms. These are: a) Availability of huge financial resources with the MNCs helps them to transform business environment and circumstances in their favor. b) MNCs can use the funds more effectively and economically on account of their activities in numerous countries. c) MNCs have easy access to international capital markets, and d) MNCs have easy assessed to international banks and financial institutions.

4) Technological superiorities: MNCs are technologically prosperous on account of high and sustained spend on R&D. developing countries on account of their technological backwardness welcome MNCs to their countries because of the attendant benefits of technology transfer.

CHALLENGES FACED BY MNC:

There is no company without problems it is facing. Whether an organization is big or small, there will certainly be some sort of problems or negative factor/influence militating against its survival or continuity. Weihrich and Koontz (1994) states that the operation of multinational companies needs to be weighed against the environmental challenges and most of the challenges being faced by multinational companies are:

1. There is usually acute shortage of manpower - people with lack of managerial and technical skills 2. The challenge of unfriendly business environment 3. There is usually the problem of conflicting interest among the three parties - the government, the MNC and the general public 4. There may be huge cost of labour in the host country, at least to get the expatriate managers from home country or somewhere else

Conclusively, the above mentioned authors have given all round and comprehensive note on the benefits of MNCs to the host country where they operate and as well highlighted the derivable benefits to the MNCs themselves from the host country. Likewise, in spite of the challenges and the problems being faced by these MNCs, they still continue to survival and waxing stronger.

ROLE OF MNC IN INDIA

There are a number of reasons why the multinational companies are coming down to India. India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India.

For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result, there was lesser number of companies that showed interest in investing in Indian market. However, the scenario changed during the financial liberalization of the country, especially after 1991. Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indian market.

Profit of MNCs in India

It is too specify that the companies come and settle in India to earn profit. A company enlarges its jurisdiction of work beyond its native place when they get a wide scope to earn a profit and such is the case of the MNCs that have flourished here. More over India has wide market for different and new goods and services due to the ever increasing population and the varying consumer taste. The government FDI policies have some how benefited them and drawn their attention too. The restrictive policies that stopped the company's inflow are however withdrawn and the country has shown much interest to bring in foreign investment here.

Besides the foreign directive policies the labour competitive market, market competition and the macro-economic stability are some of the key factors that magnetize the foreign MNCs here.

Following are the reasons why multinational companies consider India as a preferred destination for business: Huge market potential of the country FDI attractiveness Labor competitiveness Macro-economic stability Advantages of the growing MNCs to India

There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. They are as under: Initiating a higher level of investment. Reducing the technological gap The natural resources are utilized in true sense. The foreign exchange gap is reduced Boosts up the basic economic structure. Disadvantages of MNCs

Roses does not come without thrones. Disadvantages of having an MNCs in a developing country like India are as under-

Competition to SMSI Pollution and Environmental hazards Some MNCs come only for tax benefits only Exploitation of natural resources Lack of employment opportunities Diffusion of profits and Forex Imbalance Working environment and conditions Slows down decision making Economical distress Top MNCs in India

The country has got many M. N. C.s operating here. Following are names of some of the most famous multinational companies, who have their headquarters of operational branches based in the nation:

IBM: IBM India Private Limited, a part of IBM has been operating from this country since the year 1992. This global company is known for invention and integration of software, hardware as well as services, which assist forward thinking institutions, enterprises and people, who build a smart planet. The net income of this company post completion of the financial year end of 2010 was $14.8 billion with a net profit margin of 14.9 %. With innovative technology and solutions, this company is making a constant progress in India. Present in more than 200 cities, this company is making constant progress in global markets to maintain its leading position.

Microsoft: A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S. (United States) based Microsoft Corporation, one of the software giants has got their headquarter in New Delhi. Starting its operation in the country from 1990, this company has got the following business units:

Microsoft Corporation India (Pvt.) Limited (Marketing Division) Microsoft Global Services India Microsoft Global Technical Support Centre Microsoft India Development Center Microsoft IT Microsoft Research India The net income of Microsoft Corporation grew from $ 14, 569 million in 2009 to $ 18, 760 million in 2010. Working in close association with all the stakeholders including the Government of India, the company is committed towards the development of the Indian software as well as I. T. (Information Technology) industry.

Nokia Corporation: Nokia Corporation was started in the year 1865. Being one of the leading mobile companies in India, their stylish product range includes the following: Normal mobile handsets Smartphones Touch screen phones Dual sim phones Business phone

The net sales of the company increased by 4 % in the last financial year with sales of EUR 42.4 billion as compared to 2009's EUR 41 billion. Over the past few years, this company in India has been acquiring companies, which have got new and interesting competencies and technologies so as to enhance their ability of creating the mobile world. Besides new developments to fight against mineral conflicts, they are even to set up Bridge Centers in the country for supporting reemployment. Their first onsite for the installation of renewable power generation are already in place.

PepsiCo: PepsiCo. Inc. entered the Indian market with the name of PepsiCo India from the year 1989. Within a short time span of 20 years, this company has emerged as one of the fast growing as well as largest beverage and food manufacturer. As per the annual report of the company in the last business year, the net revenue of PepsiCo grew by 33 %. By the year 2020, this food manufacturing company intends to triple their portfolio of enjoyable and wholesome offerings. The expansion of their Good-For-You portfolio is believed to be assisting the company in attaining the competitive advantage of the growing packaged nutrition market in the world, which is presently valued at $ 500 billion.

Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest pharmaceutical companies in India, started their business in the country from the year 1961. The company made its public appearance in 1973 though. Headquartered in this nation, this international, research based, integrated pharmaceutical company is the producer of a huge range of affordable cum quality medicines that are trusted by both patients and healthcare professionals all over the world. In the business year 2010, the registered global sales of the company was US $ 1, 868 Mn. Successful development of business forms the key component of their trading strategy. Apart from overseas acquisitions, this company is making a continuous endeavor to enter the new global markets, which have got high potential. For this, they are offering value adding products as well.

Reebok International Limited: This global brand is a famous name in the field of sports as well as lifestyle products. Reebok International Limited, a subsidiary of Adidas AG, is based in U. S. A. (United States of America) started its operation in 1890s. During the last financial year, Adidas's currency neutralized group sales increased by 9 %. Apart from their alliance with CrossFit that is among the largest contemporary fitness movements, in the current year, Reebok's announcement of its partnership with artist, designer and producer Swizz Beatz reflects its long term future growth.

Sony: Sony India is a part of the renowned brand name Sony Corporation, which started their business operation in the year 1946 in Japan. Established in India in November 1994, this company has captured one of the leading positions in the field of consumer electronics goods. By the end of the business year 2010 on 31st March, 2011, the company showed a remarkable increase in the share related to numerous categories. Sony India is planning to invest around INR. 150 crore for the marketing of the activities related to ATL and BTL. As far as Bravia TVs are concerned, they are looking forward to hold their market share of 30 %. In between the last and the current financial year, the number of their outlets in the country increased by 1, 000.

Tata Consultancy Services: Commonly known as T. C. S., this multinational company is a famous name in the field of I. T. (Information Technology) services, Business Process Outsourcing (B. P. O.) as well as business solutions. This company is a subsidiary of the Tata Group. The first center for software researching was established in the country in 1981 in the city of Pune. Tata Consultancy earned a growth of 8.9 % during the latest quarter of this financial year, which ended on 30th September, 2011. This renowned company is presently looking forward to the 10 big deals that they have received besides the Credit Union Australia's contract as well as Government of Karnataka's INR. 94 crore deal for a total period of 6 years. In this current business year, they are about to employ 60, 000 people to meet their business requirement.

Vodafone: Vodafone Group Plc is an international telecommunication company, which has got it's headquarter based in London in the United Kingdom (U. K.). Earlier known as Vodafone Essar and Hutchison Essar, Vodafone India is among the largest operators of mobile networking in the country. The parent company Hutchison started its business in the year 1992 along with the Max Group, which was its business partner in India. Much later in 2011, Vodafone Group Plc decided to buy out mobile operating business of Essar Group, its partner. The turnover of the Vodafone Group Plc after the completion of the last financial year grew to 44, 472 m from 41, 017 m that was the turnover of the business year 2009.

Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is among the leading commercial vehicles manufacturer in the country. They are one of the top 3 passenger vehicle manufacturers. Established in the year 1945, this company, a part of the famous Tata Group, has got its manufacturing units located in different parts of the nation. Some of their well known products of the company are categorized in the following heads:

Commercial Vehicles Defence Security Vehicles Homeland Security Vehicles Passenger Vehicles Post completion of the financial year 2010 to 2011, the global sales of the company grew by 24.2 % with sales crossing INR. 1MILLION

2012 Top Fortune Global 500 Companies (CNN Money July 23, 2012 issue) Rank 1 2 3 4 5 6 7 8 9 10 Company ROYAL DUTCH SHELL EXXON MOBIL WALL MART STORES BP SINOPEC GROUP Revenues (USD Mi) 484,489 452,496 446,950 386,463 375,231

CHINA NATIONAL PETROLEUM 338,356 STATE GRID CHEVRON CONOCCOPHILLIPS TOYOTA MOTORS 259,192 245,621 237,372 235,269