ROLE OF MNC'S IN THE ECONOMIC DEVELOPMENT OF A

COUNTRY: AN ANALYSIS

Economics-I

Submitted by
Moon Mishra
SF0117029

Submitted to :
Ms. Dipakshi Das
Assistant Professor of Economics

NATIONAL LAW UNIVERSITY, ASSAM

1
Table of contents

1. Introduction...........................................................................................................................................3
1.1. Research Questions.......................................................................................................................4
1.2. Scope and Limitations...................................................................................................................4
1.3. Literature Review...........................................................................................................................4
1.4. Research Methodology..................................................................................................................5
2. Role of MNC's in developing countries: in context with India.............................................6
2.1. Arguments for and against MNC's....................................................................................6
3. Globalisation through MNC's..................................................................................................10
3.1. Human Resource Management and MNC's....................................................................11
4. Dependency on Foreign Direct Investment.............................................................................13
4.1. How does MNC enable sustainable development............................................................14
5. Obstacles while establishing an MNC in India.......................................................................17
6. Conclusion: Does MNC's accelerate or decelerate the economic development of a
country? ..........................................................................................................................................19
Bibliography.........................................................................................................................................21

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 1. INTRODUCTION

Prior to 1991 Multinational companies did not play much role in the Indian economy. In the pre-
reform period the Indian economy was dominated by public enterprises. To prevent concen-
tration of economic power industrial policy 1956 did not allow the private firms to grow in size
beyond a point. By definition multinational companies were quite big and operate in several
countries. While multinational companies played a significant role in the promotion of growth
and trade in South-East Asian countries they did not play much role in the Indian economy
where import-substitution development strategy was followed. Since 1991 with the adoption of
industrial policy of liberalisation and privatisation rote of private foreign capital has been
recognized as important for rapid growth of the Indian economy. Since source of bulk of foreign
capital and investment are multinational corporation, they have been allowed to operate in the
Indian economy subject to some regulations.

These are enterprises or organizations with services spread across more than one country on a
global scale. India is a home to a number of multinational companies since the country’s market
was liberalized in 1991. India houses majority of multinational companies hailing from the
United States. There are also multinational companies from other countries. Multi National
Corporations (MNCs) are huge industrial organizations which extend their industrial and
marketing operations through a network of their branches or their majority owned Foreign
Affiliates (MOFAs). MNCs are also known as Transactional corporations (TNCs). Instead of
aiming for maximization of their profits from one or two products, the MNCs operate in a
number of fields and from this point of view, their business strategy extends over a number of
products and over a number of countries.1 Multinational corporations are practically in every
sphere of modern life, from policy making in regard to the environment and international
security; from problems of identity and community; and from the future of work to the future of
the nation state.

This paper will try to analyse the role of MNC's in the economic growth of a country in context
with India. Various spheres which determine the economic growth of a country like globlised

1
Dr. Ashok Pawar, Role Of Multi National Companies In India, International Journal of Scientific Research,
Volume 2, Issue 10, October 2013

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markets, sustainable development approach, Foreign Direct Investment, etc will be taken into
account for analyses.

1.1 Research Questions

 How does establishment of Multi-national corporation in a country accelerate or
decelerate its economic development?
 What is the role of globalisation in inducing MNC's towards economic development?
 How does an MNC enable sustainable development?
 Is the establishment of an MNC healthy or unhealthy for a domestic economy?

1.2. Scope and Limitations

The research paper is limited to understanding the role of Multi-national corporations in
economic development of a country taking into account other phenomenon like
sustainable development, globalisation and FDI.
1.3. Literature Review
 Jörn Kleinert, The Role of Multinational Enterprises in Globalization: An Empirical
Overview, Kiel Institute of World Economics, August 2001
The activities of multinational enterprises drive the economic globalization process to a very
large degree. This paper lists some facts about their dominant role in all channels of
globalization. Therefore, the importance of multinational enterprises in foreign direct investment
and production abroad is examined as well as their contributions to the international transfer of
knowledge and technology and to foreign trade.
 J. Steven Landefeld, Globalization and Multinational Companies: What Are the
Questions, and How Well Are We Doing in Answering Them?, Conference of European
Statisticians Globalization Seminar, Geneva June 12, 2003
Globalization has placed new demands on statistical agencies to provide the information
necessary to inform policy in today’s increasingly interdependent world economy. This
globalization has manifested itself in the interdependence of financial markets and the increasing
role of multinational corporations. This paper discuss the role of globalisation in enabling the
establishment of Multi-national corporations and related arenas.

4
  Izdihar Baharin and Dr. Ilham Sentosa, Sustainable Development and Multinational
Business, IOSR Journal of Business and Management, Volume 1, Issue 3, May-June
2012
The issue of sustainability development in business had been debated at the highest level of the
world governing bodies and had strong following from nations across the globe. Business today
no longer sees the incorporations of sustainable development dimensions of economy,
environmental, social and cultural into their business practice as additional cost structures but
more as a business strategy to win over customers and markets. Since these additional costs are
expensive, multinationals are the beast conduits to pursue the amalgamation of sustainable
development in business. The research paper talks about sustainability in consensus with Multi-
national corporations, i.e. the role MNC;s in enhancing sustainable development of an economy.

1.4. Research Methodology

Analytical and Descriptive Research Methodology has been employed in order to come out
with the study of 'role of Multi-national corporations in economic development: an analysis'.
Analytical and Descriptive Research Design: Descriptive Research aims at describing a
particular state of affair or an incident. It does not provide any reason as such why, how, when
and by whom a particular event happened. It does not consider any facts or findings.
The use of secondary sources of literature such as books, journals, articles, etc. has been done.
There was no empirical research done.

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 2. ROLE OF MNC's IN DEVELOPING COUNTRIES : IN CONTEXT WITH INDIA

"A Critical Appraisal Of MNC Operations On Indian Economy"

The operations of MNCs open up the possibilities of interference in the industrial (and other)
activities of the recipient country and are thus resented by the ‘nationalist’ thinkers. Their argu-
ments against the operations of MNCs can be summed up as follows:
 Payment of dividends and royalty: A large sum of money follows out of the country in
terms of payments of dividends, profits, royalties, technical fees and interest to the
foreign investors.
 Distortion of economic structure : MNCs can inflict heavy damage on the host countries
in various forms (such as suppression of domestic entrepreneurship extension of oli-
gopolistic practices such as unnecessary product differentiation, heavy advertising or
excessive profit taking ) supplying the economy with unsuitable technology and
unsuitable products, worsening of income distribution by the production structure of need
the requirements of high-income elites, etc.
 Political Interference: Because of their immense financial and technical power, the
MNCs have gained the necessary strength to influence the decision making processes in
underdeveloped countries. Though they do help in transferring technology to
underdeveloped countries, it has been often found that models and patterns to industrial
development and technologies transfer are not in harmony with the interests of the host
countries. The governments of underdeveloped countries have also felt threatened by the
direct and indirect interference of MNCs in their internal affairs. The autonomy and
sovereignty of the host countries is in danger. Because of these reasons, the governments
of various countries have sought to restrict the activities of MNCs in their economies
through a battery of administrative controls and legal provisions.

2.1. Arguments for and against MNC's2

Arguments in favour MNC (the positive role) : The MNCs play an important role in the
economic development of underdeveloped and developing countries.

2
ibid

6
  Filling Savings Gap:
The first important contribution of MNCs is its role in filling the resource gap between targeted
or desired investment and domestically mobilized savings. If the country can fill this gap with
foreign direct investments from the MNCs, it will be in a better position to achieve its target rate
of economic growth.

 Filling Trade Gap:

The second contribution relates to filling the foreign exchange or trade gap. An inflow of foreign
capital can reduce or even remove the deficit in the balance of payments if the MNCs can
generate a net positive flow of export earnings.

 Filling Revenue Gap:

The third important role of MNCs is filling the gap between targeted governmental tax revenues
and locally raised taxes. By taxing MNC profits, LDC governments are able to mobilize public
financial resources for development projects.

 Filling Management/Technological Gap:

Fourthly, Multinationals not only provide financial resources but they also supply a “package” of
needed resources including management experience, entrepreneurial abilities, and technological
skills. These can be transferred to their local counterparts by means of training programs and the
process of ‘learning by doing’. Moreover, MNCs bring with them the most sophisticated
technological knowledge about production processes while transferring modern machinery and
equipment to capital poor LDCs. Such transfers of knowledge, skills, and technology are
assumed to be both desirable and productive for the recipient country.

 Other Beneficial Roles:

The MNCs also bring several other benefits to the host country. The domestic labour may benefit
in the form of higher real wages. Investments by MNCs will also induce more domestic
investment. For example, ancillary units can be set up to ‘feed’ the main industries of the MNCs.
Added, MNCs expenditures on research and development(R&D), although limited is bound to

7
benefit the host country. Apart from these there are indirect gains through the realization of
external economies.

Arguments Against MNCs (The negative role):3 : Although MNC's bring about employment and
money, it can have a negative impact on the growth of an economy.
 MNCs provide capital, but they may lower domestic savings and investment rates by
stifling competition through exclusive production agreements with the host
governments. MNCs often fail to reinvest much of their profits and also they may inhibit
the expansion of indigenous firms.
 Although the initial impact of MNC investment is to improve the foreign exchange
position of the recipient nation, its long-run impact may reduce foreign exchange
earnings on both current and capital accounts. The current account may deteriorate as a
result of substantial importation of intermediate and capital goods while the capital
account may worsen because of the overseas repatriation of profits, interest, royalties,
etc.
 While MNCs do contribute to public revenue in the form of corporate taxes, their
contribution is considerably less than it should be as a result of liberal tax concessions,
excessive investment allowances, subsidies and tariff protection provided by the host
government.
 The management, entrepreneurial skills, technology, and overseas contacts provided by
the MNCs may have little impact on developing local skills and resources. In fact, the
development of these local skills may be inhibited by the MNCs by stifling the growth of
indigenous entrepreneurship as a result of the MNCs dominance of local markets.
 MNCs’ impact on development is very uneven. In many situations MNCs activities
reinforce dualistic economic structures and widens income inequalities. They tend to
promote the interests of some few modern-sector workers only. They also divert
resources away from the production of consumer goods by producing luxurious goods
demanded by the local elites.
 MNCs typically produce inappropriate products and stimulate inappropriate consumption
patterns through advertising and their monopolistic market power. Production is done
3
ibid

8
 with capital-intensive technique which is not useful for labour surplus economies. This
would aggravate the unemployment problem in the host country.
 The behaviour pattern of MNCs reveals that they do not engage in R & D activities in
underdeveloped countries. However, these LDCs have to bear the bulk of their costs.
 MNCs often use their economic power to influence government policies in directions
unfavourable to development. The host government has to provide them special
economic and political concessions in the form of excessive protection, lower tax,
subsidized inputs, cheap provision of factory sites. As a result, the private profits of
MNCs may exceed social benefits.
 Multinationals may damage the host countries by suppressing domestic entrepreneurship
through their superior knowledge, worldwide contacts, and advertising skills. They drive
out local competitors and inhibit the emergence of small-scale enterprises.

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 3. GLOBALISATION AND ECONOMY

Globalisation has transformed the ways human beings used to live. It has brought peoples around
the world in close proximity with each other. Distances have been shortened, ideas been fluid
and economies interconnected. The chains of multinational corporations have spread in every
state of the world. The process of globalisation has opened up new economic avenues even for
the poor inhabitants of the developing world with the help of multinational corporations. In turn,
these corporations have also brought cultural changes in the economic systems of the states
enmeshed in globalisation. These changes pose new challenges for the human resource
management systems in organisations. Globalisation has attained rapid pace in recent decades. It
is a development that has significant implications for the control and regulation of multinational
business and investment portfolios. Globalization is, in common lexicon, signifies improvement
in globally trade and deals in an open, incorporated, border-less, international and free economy.
There has been amazing development in such businesses and deals. This development is
occurring not only in traditional globally business in products or services, but also in deals of
currencies, in investment profile, in technological innovation and cultural exchange, in people
going through international journey and migration, and in global fluidity of information,
knowledge, ideals and lifestyles. There is global liaison in every sphere of public and private life
through globalisation.

In the present day world of Globalization, Multinational Companies have played an important
role in the development of home countries where the MNCs are operating. Foreign direct
investment by multinational companies involves much more than just transfer of capital as it
brings with them technologies of production, managerial services and other business practices.
Employment opportunities created by the MNCs have solved an important problem of
unemployment which is an important characteristic of the underdeveloped as well as developing
countries.4 With the shortage of savings for financing developmental projects, there is need to
depend on foreign capital. Inviting and making ways for MNCs to operate in India will enhance

4
Multinational Companies In India -An Analysis. Available from:
https://www.researchgate.net/publication/281280263_MULTINATIONAL_COMPANIES_IN_INDIA_-
AN_ANALYSIS [accessed May 9, 2017].

10
the economic development of the country. Prime Minister Narendra Modi’s initiatives for ‘Make
in India’ and ‘Skill India’ campaigns, inviting Global Companies to invest in India as well as
efforts to simplify the Foreign Direct Investments regulations will certainly make India a
favourite destination of MNCs.

3.1. Human Resource Management and Globalisation

Human Resource Management, HRM, is the organisational operation that concerns with matters
related to people such as settlement, selection, performance management, company progress,
protection, health and fitness, benefits, personnel inspiration, interaction, administration and
training. Human Resource Management is also an ideal and comprehensive approach to handling
individuals and the office culture and atmosphere. Effective HRM strategies allow workers and
employees to contribute successfully and proficiently to the development of an organisation and
the fulfilment of its stated objectives. HRM is now swiftly shifting its focus away from
conventional employees, administration, and transactional tasks, which are now, by and large,
contractual. Effective HRM strategies allow workers and employees to contribute successfully
and proficiently to the development of an organisation and the fulfilment of its stated objectives.
HRM is now swiftly shifting its focus away from conventional employees, administration, and
transactional tasks, which are now, by and large,
contractual. Human resource management needs to take benefits of technological innovation and
information flow to build an international HR information programme that can garner
information from multiple sources. This programme can substantially assist to evaluate the
information to provide novel business ideas, estimate upcoming needs and create techniques to
complete them.
There is an explosion of growth in the world market. It has resulted in increased international
competitors in regional market places. This competition forces the small-and-medium-sized
organisations to update their operations and even consider growing at global level. 5 There has
also been increment in demand, which facilitates the development of global production-base and
market places when the markets are global. The task of the manager in planning portfolio
becomes quite challenging on one hand and allows more effective usage of available options on
the other hand. financial and economic globalisation of modern age is driven by multinational

5
ibid

11
corporations (MNCs). MNCs create transnational economic linkages across the whole world.
Cross border financial projects, securing of natural resources and rapid access to global
economic markets entice MNCs to operate at transnational level. Transfer of investment,
technology and managerial practices also formulates a global corporate system necessitating a
dynamic human resource management system to optimise human resource all over the world. As
the world has become an open space for talent to be tapped, human resource management has
become crucial for transformation of a company into globally acknowledged corporation. As
efficiency, diversity and capacity building have become new trademarks in global economy;
human resource management is rapidly enveloping these trends into its fold to synchronise with
global trends.

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 4. DEPENDENCY ON FOREIGN DIRECT INVESTMENT

As the third-largest economy in the world in PPP terms, India is a preferred destination for
foreign direct investments (FDI); India has strengths in information technology and other
important areas such as auto components, apparels, chemicals, pharmaceuticals, jewellery and so
on. Although India has always held promise for global investors, but its rigid FDI policies were a
significant hindrance in this context. India's recently liberalised FDI policy permits up to a 100%
FDI stake in ventures.6 Industrial policy reforms have substantially reduced industrial licensing
requirements, removed restrictions on expansion and facilitated easy access to foreign
technology and FDI. The upward moving growth curve of the real-estate sector owes some credit
to a booming economy and liberalized FDI regime. A number of changes were approved on the
FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as
diverse as civil aviation, construction development, industrial parks, commodity exchanges,
petroleum and natural gas, credit-information services, Mining and so on. But this still leaves an
unfinished agenda of permitting greater foreign investment in politically sensitive areas like
insurance and retailing. According to the government's Secretariat for Industrial Assistance, FDI
inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April-March). This was
more than double the total of US$7.8bn in the previous fiscal year. Between April and
September 2007, FDI inflows were US$8.2bn. There is no doubt about the fact that there has
been a worldwide stir about foreign direct investment in India. India's growth rate of 8%
certainly owes a lot to foreign equity capital and foreign direct investment.
In the backdrop of this flourishing Indian economy The Associated Chambers of Commerce and
Industry of India (ASSOCHAM) has projected India to double its GDP reaching a phenomenal
USD 1100 billion from present USD 550 billion by 2010. Why do you think so? Well statistics
also say that an average Indian will be growing richer as per capita income rises from USD 600
per annum to USD 1200 per annum by 2010.

Indian Government has a key role to play as far as investment laws are concerned. In this regard
it is noteworthy to highlight some of the positive reforms that have brought a positive growth in
the Indian economy in terms of GDP growth.7
6
http://www.indianmba.com/Faculty_Column/FC819/fc819.html
7
ibid

13
1. Govt. has removed 10% voting limit in banks.
2. Higher ceiling in FDI in airport revamp ventures and real estate investment.
3. Revisit foreign shareholding norms in telecom is welcome change.
4. Removal of unwarranted restrictions on hindrances to foreign investments has exceptionally
increased FDI in India.
5. Govt. of India has already allowed FDI up to 51% with prior government approval in the retail
trade of "single brand" products.

Government of India accepts the key role of Foreign Direct Investment (FDI) in economic
development not only as an addition to domestic capital but also as an important source of
technology and global best practices. The Government of India has put in place a liberal and
Transparent FDI policy. FDI up to 100% is allowed under the automatic route in most
sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging
economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior
approval in most of the sectors including the services sector under automatic route. FDI in
sectors/activities under automatic route does not require any prior approval either by the
Government or the RBI. FDI is not permissible in Gambling and Betting, or Lottery Business,
Business of chit fund, Nidhi Company, Housing and Real Estate business, Trading in
Transferable Development Rights (TDRs), Retail Trading, Atomic Energy Agricultural or
plantation activities or Agriculture (excluding Floriculture, Horticulture, Development of Seeds,
Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc. under controlled
conditions and services related to agro and allied sectors) and Plantations(other than Tea
plantations).
4.1. MNC's and Sustainable Development

The Brutland Report8 defined sustainable development as “development that meets the needs of
the present without compromising the ability of future generations to meet their own needs”.
Multinationals business today are facing even more delicate issues in the areas of environment,
social and government, and most of them circumvent the issues by way of corporate social

8
World Commission on Environment and Development Report, (WCED, 1987).

14
responsibilities. Even though concerns on these issues are increasingly dominating business
strategy and operations, corporate sustainability rarely became the main agenda to the business
core. Sustainability today is a main global agenda and a vital factor in determining the success
and failures of business. Sustainable development practices had created new markets, products
and demand and drive new business models that is heavy on innovation and light on the cost
structures. Corporate sustainability now is the backbone of any business and the early movers
towards sustainable business practice will definitely enjoys unparalleled advantages against
competitors [14]. Businesses that ignores sustainability agenda will definitely loose out in terms
of profitability and market share and worse, might even risk losing monetary wealth and
reputation. Triple Bottom Line (TBL) is a concept that measure the performance of a business
from the three dimensions of sustainable development, which are corporate profits and the
impact of its operations on environment and social sphere. 9 In a way, it is a method of measuring
and disclosing the corporate sustainability performance of a business entity. Corporate
sustainability is a concept in where business operations are built around its social and
environment context. It encapsulates and extends the earlier concepts of corporate social
responsibility and corporate citizenship. In a nutshell, the corporate sustainability concept goes
beyond the TBL dimension. It is the whole of TBL plus the cultural diversity dimension. TBL
measures the process and report the impact of business operations on the economic, social and
environmental dimension where the business operates. The focus of TBL is to provide and
disclose information to all stakeholders, not just the shareholders, such as the employees,
investors, government and the society at large.10 TBL has the capacity, capability and framework
to report business performance according to concerns of business sustainability
Sustainable business is not a new concept. It had existed for many years and had evolved ever
since. The impetus of sustainable development started somewhere in the 70’s under the disguised
of corporate social responsibility (CSR), then later corporate responsibility (CR) and at present
under a new name of corporate sustainability (CS). Sustainable development is a good business.
MNCs in the advanced countries which incorporated their business strategies with the
sustainable development dimension had consistently outperformed their competitors that neglect

9
Macdonal, M. a. P., K.A.,Review of Corporate Sustainability Reporting, (Sustainability Reporting Programme,
2003)
10
Elkington, J.,Cannibals with Forks: The Tripple Bottom Line of 21st Century Business, (New Society Publisher,
1997).

15
the elements of sustainable development. Companies such as Novo Nordisk, ABB, Wal Mart and
many more had successfully integrated sustainable development into their business practices
which not only yielded better economic returns but also positive contributions towards their
operating environment, social sphere and cultural diversity.11
Incorporating sustainable development dimensions into business practices is difficult since it is
mostly seen as an additional cost to the business. Most businesses in the developing countries
just do not have the financial resources and technical capabilities to practice corporate
sustainability even do they want to. Furthermore the framework at the national levels of the
developing countries might not be attractive enough for them to promote sustainability business.
As such it is a civic duty for the MNCs, which have enormous resources and influence to
promote corporate sustainability especially when operating in the developing world.

Izdihar Baharin and Dr. Ilham Sentosa, Sustainable Development and Multinational Business, IOSR Journal of
11

Business and Management (IOSRJM), Volume 1, Issue 3 (May-June 2012), PP 50-56

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 5. OBSTACLES IN SETTING UP MNCs IN INDIA
The biggest challenge that most multinational companies face is the unique architecture of the
Indian governance framework, which is badly intertwined between the Central and State
structures. Hence, the attractiveness of contiguity of geography needn't enable simplicity of
market access, and may not even offer benefits of scale due to logistics optimisation. The reasons
are simple. State laws and incentives are structured to attract investments which local leadership
see as critical to driving economic growth, and are also dependent on electoral constituencies of
ruling parties. These come into play in a substantial way when planning investments in India.
Very often, companies get lured with incentives and/or hinterland market access, yet realise
much later that it doesn't translate to improved returns on capital employed. A classic example is
the currently applicable duty on automobiles,12 which includes customs duty, CENVAT, excise
duty, central sales tax, motor vehicles tax, passenger and goods tax, state sales tax, and additional
road user/toll taxes. All of which ensure that you could buy a car manufactured in Gurgaon at a
much cheaper price 2,000 km away in Goa or Pondicherry. In addition, duties and levies see
frequent changes in the Annual Central and State budgets presentation exercise.

And not all MNCs are able to cope with the uncertainty and want of clarity around the policy
environment. A good example of the recent past is the telecom sector, which saw a huge
enthusiastic entry of large MNCs when the sector was opened up for FDI, and soon enough,
many exited, thanks to the ever-changing policy framework. The few that survived were mostly
Indian, and earned good returns. The boldest of them all, Vodafone, a start-up MNC, continues
to battle the Government in the Indian courts. The risk of an uncertain regulatory environment
eventually ensures that those who survive usually do so with good returns. This brings us to an
interesting conundrum, when we compare ourselves with China. While most statistics reveal that
FDI in China is almost three times that of India, yet, in terms of GDP growth, China delivers just
a percentage point more than India. Consequently, it may be assumed, with some degree of
certainty that the return on capital for investments, made by foreign firms in India is, on an
average, higher than China. Very few markets on the planet continue to offer the opportunity of
scale to drive interest from policymakers at a Government-to-Government level. This, in a sense,
forces the Government to ensure moderation in policy level interventions, and limits the risk of
any potentially-destabilising policy dispensation. Simultaneously, it leaves enough on the table
12
http://www.thehindubusinessline.com/opinion/challenges-of-doing-business-in-india/article2681474.ece

17
to help enhance returns by carefully understanding the policy regimen. As all countries emerge
from their current crises, there will be increased regulation, and business leaders need to build a
deep understanding of the regulatory environment and governance frameworks, to deliver
improved returns for their enterprise.

Other than these, factors like high labour costs, new business environment, tight policy, lack of
local raw material suppliers, pressure of global financial crisis and high competition are added
factors.13

13
ibid

18
 6. CONCLUSION

While government is greatly liberalizing the regimes of the MNCs as it brings positive effects
along with it, on the other hand MNCs are always not desirable as they also bring a lot of
negativity with them. Some of the benefits of these MNCs are that they do help in creating a lot
of wealth and jobs. The inward investments by these companies are a great source of prosperity
for the developing countries. The huge size and scale of their operations also enables them to
benefit from economies of scale, with low costs and prices for consumers. This greatly impacts
the manufacture and airline industries in a positive way. On the other hand, may criticisms have
also been witnessed for MNCs. They have been looked upon as a serious cause for hampering
the economic development of nations. They often have monopoly power with which they make
excess profit even at the expense of their consumers. The citizens are forced to pay high amount
for products provided by them. MNCs’ market dominance is a great threat for small local firms.
In a country like India where majority population is engaged in running small stores, these
supermarkets squeeze the margins of local vendors. All these greatly reduce the economic
development.

Wealth, denoting the economy of the country is divided in 3 sections in our society, namely, rich
class, middle class and poor class. The two extremes still manage to be within their blocks; but
the middle class, with their eagerness to rise beyond their reach, get easily attracted to the
lucrative offers of these companies. They are the ones who are ready to compromise everything,
to earn and lead a life of luxury. In turn, they become the victims and get stuck in the quicksand
of multiple loans.

Undoubtedly, the living standard of an average Indian has risen up; still he lacks the strength and
confidence to portray his luxurious life as his own. An era of EMI is the bi-product of these
MNCs. Everything that we purchase is on EMI, and the day we end up paying the instalments for
a thing and proudly announce as our own, the product would have already undergone much wear
and tear to the extent, that it demands a replacement. And here, the human mentality and greed
makes us enter the same vicious circle again and again, as we always prefer a replacement with a
higher ranged product. We have gained the confidence to bear the EMI because of the lucrative

19
salary offer by these MNCs. When we peep within, what we own today with that high paying
job, is simply “Nothing”. And this standard of living with a high burden of loan is what we
happily call Economic Development today. Again, value of health has degraded with the
upgradation to MNC's. MNCs have brought the concept of “Rotational Shifts”. Today's youth
blindly accepts this without foreseeing its impact on one's health and personal life. Money earns
such importance that one is ready to compromise his immune system, forget his social life and
runs round the clock. India is facing an alarming increase in new health concerns especially in
the 20s and 30s age group. It is rightly said that manpower is the most important factor in
determining economic development of a country. With such deteriorating health status of our
manpower can MNC's be called to uplift the economic condition of our country is ambiguous.
But certainly today, or tomorrow, MNC's will serve as a catalyst for economic development.

20
 Bibliography

Books and Articles

 Jörn Kleinert, The Role of Multinational Enterprises in Globalization: An Empirical

Overview, Kiel Institute of World Economics, August 2001
 J. Steven Landefeld, Globalization and Multinational Companies: What Are the
Questions, and How Well Are We Doing in Answering Them?, Conference of European
Statisticians Globalization Seminar, Geneva June 12, 2003
 Izdihar Baharin and Dr. Ilham Sentosa, Sustainable Development and Multinational
Business, IOSR Journal of Business and Management, Volume 1, Issue 3, May-June
2012

 Stephen Viederman, Multinational Corporations are Incompatible with Sustainable

Development, Jessie Smith Noyes Foundation, June 23, 1997

 Subho Mukherjee, Role of Multinational Corporations in the Indian Economy!,

http://www.economicsdiscussion.net/multinational-corporations/role-of-multinational-
corporations-in-the-indian-economy/10917

 Raja Irfan Sabir , Challenges for establishing foreign multinational companies in western
market, 2nd international conference on business and economic research (2nd icber 2011)

Web sources

 http://www.thehindubusinessline.com/opinion/challenges-of-doing-business-in-
india/article2681474.ece

 http://www.publishyourarticles.net/knowledge-hub/company-accounts/multinational-
corporations-characteristics-and-significance-of-mncs/4396/

 http://www.yourarticlelibrary.com/microeconomics/foreign-investment/role-of-
multinational-corporations-mncs-in-foreign-investments/38224/

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