A Seminar report On

MULTI-CORPORATIONS IN INDIA:ARE THEY DEVILS IN DISGUISE?

Submitted Submitted By:Ms. Mekhla, Faculty Roll.no.:-1181/09 TIMT, MBA(P) :-S-2

to:-

Shilpa

Chawla MBA Yamunanagar.

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Tilak Raj Chadha Institutute of Management & Technology(TIMT)

(Affiliated to Kurukshetra University, Kurukshetra and Approved By AICTE)

Ph. 01732-220103,234110. Fax:+91-1732-220103

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CONTENTS 1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Meaning & Definitions of MNC Features/ Characteristics of MNC Configuration of MNCs Why MNCs exists in India How a company become MNC Major MNCs in India Where Indian MNCs succeed Where Indian MNCs Lack

10. Example 11. Conclusion 12. References .

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INTRODUCTION
Today is the era of advancement, due to this advancement the consumer needs are increasing internationally. To fulfill these needs, the concept of Multinational corporations come into existence and this was fulfilled by the globalization. Globalization gave chance to big corporate houses to do business globally in face of multination corporations. Corporation that has production facilities or other fixed assets in at least one foreign country and makes its major management decisions in a global context. In marketing, production, research and development, and labor relations, its decisions must be made in terms of host-country customs and traditions. In finance, many of its problems have no domestic counterpart-the payment of dividends in another currency, for example, or the need to shelter working capital from the risk of devaluation, or the choices between owning and licensing. Economic and legal questions must be dealt with in drastically different ways. In addition to foreign exchange risks and the special business risks of operating in unfamiliar environments, there is the specter of political risk-the risk that sovereign governments may interfere with operations or terminate them altogether.

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MEANING OF MNC
Multinational Corporation is the combination of three words- multi + national + corporation. Multi means two or more than two, national means countries and corporation means a corporate entity doing business of products and services and producing there products and services in more than one nation with their own assets in those countries A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. Sometimes referred to as a "transnational corporation". Corporation that has production facilities or other fixed assets in at least one foreign country and makes its major management decisions in a global context; sometimes called transnational corporation. Definitions of MNC:1. Multinational corporation is one that a. operates in many countries, b. caries out research, development, marketing and manufacturing in many countries, c. has a multinational management,
d. has a multinational stock ownership. ------- I.B.M. A world famous corporation. 2.

Enterprises whose area of working- factories, mines, sales offices and the like are in two or more countries. ------- United Nations.

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FEATURES\ CHARACTERISTICS OF MNCS

Main features of MNCs are as under:1. Giant size:-

MNCs are giant of size. Their assets, sales and profits run into multi-crores. For instance, sales of global chain Wal mart Stores, General Motors, Ford Motors, Vodafone are more than GDP of many nations. Sales of top 200 MNCs were about 30% of world GDP in the year 2000.
2. International operations:-

Activities of MNCs are spread over many nations. Their parent corporation is located in one country and their subsidiaries are scattered in many countries of the world. Parent company may have 51% to 100% share in its subsidiaries. Parent corporation has full control over subsidiaries.
3. Transfer of resources:-

Parent corporation of MNCs transfers its resources, technique, managerial ability, raw material, etc. to its subsidiaries, operating in many countries.
4. Varied activities:-

MNCs are engaged in various types of activities. These corporations are engaged in basic industries, consumer goods industries, service sector, exporty oriented industries, etc. Of their total investment in India 17.54% is invested in computers & electronics, 12.69% in financial services, 9.31% in transportation and 10.39% in telecommunications.

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5. Multinational Ownership:-

Citizens of many countries have share in the capital of MNCs. Shares of MNCs are bought and sold at international level.
6. Multinational Management:-

Multinational corporations are managed at international level. Their managing board is composed of experts of several countries.
7. Huge financial resources:-

Multinational corporations have huge financial resources. Their capital is very large. The capital of these corporations runs in millions & billions.
8. Use of advanced technology:-

MNCs use modern and advanced technology. Research and development activities of MNCs are very strong. MNCs like Ford, Pfizer, Siemens, Toyota, General Motors spend more than US $ 5 billions annually on R&D.
9. Marketing superiority:-

Multinational corporations enjoy marketing-superiority because of well reputed brands, international-image, good experience of launching new products in different countries.

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CONFIGURATION CORPORATE

OF

MULTINATIONAL

Multinational corporations can be divided into three broad groups according to the configuration of their production facilities: Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. Vertically (example: McDonalds) integrated multinational corporations manage production (example:

establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. Adidas) Diversified multinational corporations do not manage production

establishments located in different countries that are horizontally nor vertically nor straight, nor non-straight integrated. (example: Microsoft)

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WHY MNCs EXISTS IN INDIA

MNCs are the move forward route which India would have been a failed state in the early 90's. When India was seeing only unemployed ppl on every parapet walls the opening gave them colour to life..... Ppl were given jobs. If we need to compete with other nations, we need to have the back up of the MNCs. MNCs are boon to be more precise good in disguise... 1. Economic reforms:In 1992 government of India introduced economic reforms to enhance the industrialization in the country. These economic reforms are:1.1 Liberalization:In 1992 government of India liberalized the policies related to licensing, liberal FDI policy etc. Government allowed free flow of capital in all types of sectors of the economy. Government give freedom the Indian economy. 1.2 Privatization:Privatization is not merely the transfer of ownership of government or publicly owned assets into private hands; it also refers to a process in which major economic decisions concerning production, exchange, distribution and consumption are entrusted to the market forces and decisions are taken by large number of individuals and private economic units. Thus this induced to foreign companies to set their units in the Indian economy. from location requirements and government clearance, free entry of foreign companies in

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1.3 Globalization:It is a process of global integration of products, technology, labour, investment, information and even cultures. Globalization means integrating the economy of a country with the economies of other countries under condition of freer flow of trade and capital and movement of persons across borders. Thus through globalization the foreign companies set their units in India.
2. Huge natural resources :-

India is a country with huge natural resources. It has huge land, water, huge quantity of raw material in the country limits. Thus the companies getting resources of production easily in the Indian country. The foreign companies looked at this as an opportunity and they set their units in India.
3. Huge middle class:-

The population of India is mostly of the middle class 65% approx. Thus the Indian consumers of middle class has great demand for consumable products and services thus the foreign companies establish their units in India.
4. Cheap availability of labour:-

India is at the 2nd place at after china in population. Thus India has large number of workers and labour. This labour easily available at very cheap wage rate and salary. Thus multinational companies can get easily the labour at cheap rates which reduce the cost of production. Thus the foreign companies come into India.
5. Large size of population :-

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India has very large size of population, thus the demand of consumer goods and services is very large in India. Foreign companies look this as an opportunity for them to expand their business in the countries like India. Thus foreign companies came into India and establish their units in India.
6. Skilled labour :-

India has very large number of skilled labour and this skilled labour is available at very low rates comparatively with other countries. Thus foreign companies establish their companies in India.
7. Low cost of raw material :-

India has very large sources of raw material for the production process; foreign companies want to establish their units in those countries where the raw material is easily available at low prices. This condition was available in India and thus foreign companies establish their units in India.
8. Large money market available in India :-

There was a large money market in India. In India, there are stock exchanges like Bombay Stock Exchange and National Stock Exchange, Over The Counter Exchange of India (OTCEI) etc. Foreign companies establish their units in those countries where they can easily issue their IPOs and this is possible only through money market which was available in India.

9. Less competitors in Indian market :-

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At the time when MNCs came in India, there were very few corporations in the Indian economy and these were also not producing good quality products and the prices of the products were also high. Thus the foreign companies got fewer competitors in the Indian market and thus they establish their unit in India
10. Open door policy towards FDI :-

Government of India adopted open door policy towards the foreign direct investment (FDI). Indian government allowed free inflow of foreign capital in the Indian economy since 1991 and government promoted foreign companies to establish their units in India.
11. Large size of economy:-

The size of Indian economy is very large comparatively the size of economy of other developing & underdeveloped countries. The foreign companies want to establish their units in those countries where they can easily found large economy and this was available in India.
12. Good international economic and political relations :-

Foreign companies establish their units in those countries only which have good relations with other countries. These relations can be of both economic and political. India has very good relations with other countries in respect of economic, political and business matters.

HOW A COMPANY BECOMES MNC

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Step 1.:- Sells through agents and dealers Step 2.:- Company starts to sell directly in foreign country Step 3.:- Company opens its own office in foreign country Step 4.:- Company establish a unit there Step 5.:- Company starts production there by using local resources and becomes a domestic company in foreign country and becomes a MNC

Process of MNC

Step 1. Sells through agents & dealers

Step 2. Sells directly in other countries

Step 3. Opens office in the other country

Step 4. Establishes a unit in other country

WHERE INDIAN MNCS SUCCEED

Step 5. Starts production by using local resources

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MNCs have unique capacity to increase production and large scale distribution. Wherever they go, they make radical changes in the existing production system of that country. Their superior technology, professional managerial competences are of significant importance to the host country. Main advantages of MNCs to India are as follow:1. Increase in world trade:Before coming of MNCs in India, the share of India in total world trade was 0.1% but this has been increased to 0.6% in 2007 and the target setup by the government to 1% for 2008. This all was because of Multinational Corporations. They performed a very dominant role to enhance the share of India in the world trade. 2. Increase in exports:Multinational corporations played very dominant role to enhance the exports of India to other developed and developing countries. Before entrance of multinational corporations in India, Indias share in world exports was 0.15% but it has been increased to 0.8% in 2007. 3. Decrease in imports :Multinational corporations helped the Indian economy to decrease the imports of India. The reason behind is that these companies started to produce those products in India which were previously imported by India. Thus MNCs helped Indian economy to save the foreign currency which to be paid to other countries for purchases from them.

4. Inflow of foreign capital:-

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The inflow of foreign capital in India was Rs. 0.4 Thousand crores in 1991 which has been increased to around Rs 15 Thousand crores in 2007. This was because of the entry of multinational corporations in India. With the entry of MNCs, they bring foreign capital with them as the initial investment. 5. Development of infrastructure:Before the entry of Multinational Corporation in India, the infrastructure was not so developed. Due to the entry of multinational companies, the government of India developed the infrastructure facilities like roads, flyovers, railways, transportation facilities, power supply, petroleum etc. 6. Introduction of technologies:Before the entry of Multinational Corporations in India, the technology used in the production units was not so modernized and the public sector enterprises were not informed about the latest technologies. These technologies introduced by multinational companies when they started production of goods and services in India. 7. High quality goods and services:Before the entry of Multinational Corporations in India, the quality of produced goods and provided services was not so good and the consumers were compel to buy these products. When the MNCs came into India, they started production of high quality goods and services in India.

8. Revenue to government:-

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With the entry of multinational corporations in India, the production of goods and services increased with very rapid speed. With the increase in production, the sales of these goods and services also increased and which increased the revenue through various mode of taxes like sales tax, income tax, wealth tax, service tax etc. to the government. 9. More choice available to customers:When the MNCs were not present in India, the mostly production was done by the public sector units and which were not providing choice to customers. So the customers had to buy the goods produced by these companies, but with the entry of multinational corporations in India, these companies started producing goods and services in different kind of product mix which provide more choice to customer while doing purchasing. 10. Providing more employment:With the entry of MNCs in India, the demand for employees was made by these companies to start their production in India. Thus they provide employment to the people in India because if they bring workers from their native land that proved to be costlier to these MNCs. 11. Economic development:Above discussed all point such as revenue to government, inflow of foreign capital, infrastructure development, increase in production, increase in employment etc. give rise to economic development because these elements play a very dominant role in the development of any economy.

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WHERE INDIAN MNCS LACK

The main objective of MNCs is to earn profit. To achieve this objective, they indulge in activities which are detrimental to host country. Following arguments are usually advanced against MNCs:1. Setback of local corporations:Due to the entry of MNCs in India, they shocked the local corporations. With the entry of MNCs, the local companies were not able to compete with them. Thus the some Indian companies had to compress or stop their production. Example:- With the entry of Samsung & LG, the local companies like Onida, Texla, Videocon etc. had to contract their production. The entry of Coca-Cola & Pepsi in the Indian economy, the Indian companies like Campa cola, Gold Spot had to shut their units. 2. Use of the limited resources of the economy:Each economy has limited natural resources with in the boundaries of it. Thus when the multinational corporations came into India, they started to use limited natural resources of India. It created a shortage of resources for the local corporations which created a problem for them. 3. Increase in the environmental pollution:As we all know increase in the industries increases the pollution in the environment because as an industry starts production, it releases polluting elements and dangerous gases in the environment. Thus as the number of

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multinational corporations increased in India, it also increased the pollution in the environment. 4. Departure of the income to foreign countries:Multinational Corporations started earning huge income by producing the products and services by using the local resources and selling these goods and services to the Indian customers. But they started to depart these huge amounts of profits to their own native land, just by paying a nominal rate of tax on it. 5. Loss to small scale industries:Multinational corporations started to produce goods and services at a very large scale. By which they were able to produce at very low cost, but the small scale industries were not able to reduce the cost of goods & services produced. Thus, the small scale industries had to face a loss due to the entry of MNCs in the Indian economy. 6. Brain drain from India:Due to the entry of MNCs in India, the problem of brain-drain arise in India because firstly these companies hire the employees for local offices and then after some time they send the skilled employees to their own countrys offices.
7. Lack in morality and ethics:-

Some MNCs indulge in unethical and corrupt practices for their self interest. They do not hesitate to offer bribe to highly placed officials and politicians to allow them to enter into such transactions which only serve their own interest.
8. Tax evasion:-

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Government of the host country imposes corporation tax on the income of companies and corporations, with a view to increase its revenue. In order to avoid corporation tax, MNCs reduce the amount of their profits by adopting transfer pricing method. According to this method, MNCs buy intermediate goods from their subsidiaries abroad at high price and thus reduce their local profits. Similarly MNCs export their products to their subsidiaries abroad at lower prices, so as to under-value the exports to show lower local profits. Thus MNCs overinvoice the imports and under-invoice the exports, so as to show less profits. That way through manipulation of bills MNCs evade tax. 9. Harmful for consumers:MNCs are harmful to consumers because of the following: a. Excessive advertisements, thus charging high price from consumers. b. Adopting unfair trade practices like deceptive advertisement.
10. Unbalanced regional growth & development:-

MNCs set up their industries in developed towns & cities of India where infrastructural facilities are easily available and not in backward areas. This leads to further development of already developed areas and the backward areas remain untouched. Thus regional disparities increase. 11. Effect on youth education:Indian youth leaves education in a midway and join MNCs. This is not a good indication. 12. Invitation to cheap and filthy material:-

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India has opened its doors not only to MNCs but also give invitation to cheap and filthy material. Outcome of this is evident in more datings, celebration of friendship days/valentine day, rising number of call girls and also underage pregnancies that is likely to affect people emotionally and physically and make them more prone to sexually transmitted diseases (STD). 13. Unfair events and accidents:In India, landline or basic phone was a prestige symbol few years back but now we can find people riding bicycle with a mobile in hand, talking or listening music or even clicking cameras of their phones targeting pretty girls and ladies. With this the number of accidents also increased enormously. 14. Exploitation of labour:MNCs are exploiting labour by taking more work from them even greater than their capacity. They are being given more stress about the work which sometimes result in depression. MNCs are also encouraging child labour which is illegal and also unethical.

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EXAMPLE
How MNCs Product replacing Indian domestic Product
Example Colour Television (CTV) The Indian colour TV (CTV) market is arguably one of the most fascinating markets now in Asia or perhaps even the world. Size of the Indian market:- 5million sets mark
In 1984- 85 growth rate was 140.3% which fell down to 68.6% in 1986-

86. In 1988-89 it was 15% and touched to a level of 5 % in 1989-90.

In 1991-92 the sales of color televisions were at -14.5%.

In Jan-Mar 2003 the TV market has grown to 373.5% Main Players in Indian Market: Indian: BPL, Onida, Videocon European: Philips American: Thomson Korean: Samsung, LG Chinese: Akai, Sansui Japanese: Aiwa, Sony, Panasonic, Sharp Till the late 1990s, the market was dominated by older domestic players such as BPL, Videocon and Onida.

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Although they are still present in the market, they are steadily losing ground to multinational players such as LG and Samsung.

Why Indian companies lost its market share to MNCs This is primarily due to the following Reasons: They lagged behind in technology They offered a small range of products They provide less margin to dealers Less number of outlets Poor after sales services What MNCs did? Multinationals such as LG and Samsung managed to increase their market on the strength of aggressive marketing. What Indian companies are now doing to regain their market share: Better innovation to products Better pricing techniques Better positioning of the brand Following an aggressive marketing Trying to move the after sales service to a new level Segmentation of the product range by creating specific sub-brands. share

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Major MNCs in INDIA Major MNCs in INDIA

Automobile Chemicals & Fiat Auto Pharma AKZO Daewoo NOBEL Daimler CIBA India Benz Auto Components Denso Corporation Graziano Telecom AT&T

Swiss Telecom

Sinco Engg. Bayer General EMS Inventa Motors AG Honda Hyundai Mining Suzuki Ashton Toyota American Volvo Exploration Rio Tinto
Ford Trading Metro Cash & Carry GMBH FIDIA Oil & Gas Hardy Oil & Gas International Mitsubis Petroleum hi SHV Energy SHV Unocal Macro Van Ommeren

Robert Bosch Carraro SIAP S.P.A Toyota

Deutsche Telekom AG Motorola STET International Telesystem International Telstra Corp

Power Power Gen

SIET International Consumer Goods Fosters AB Electrolux Kellogg Nestle SA Perfetti Coca Cola Pepsi

Siemens

ST Power System Miscellaneous Asea Brown Boveri Buhler*

Schindler Italcementi

Cerestar Holding

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CONCLUSION
At last it can be concluded that MNCs are acting not only as agents of development, but also as agents of exploitation. The problem before India is how to control and curtail the damaging effect of MNCs and to use them for the maximum benefit of our country. By establishing manufacturing plants in critical areas i.e. energy, telecommunications, electronics etc. and by providing managerial, technical and marketing skills, MNCs can help in the economic development of India. Thus at the last it can be said that the MNCs are changing their appearance as devils but side by side they played and also playing an important role in the development of the country.

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REFERENCES

Raghunathan V, Rajib Parbina, Stock, Investments and Derivatives, Tata McGraw Hill Publishing Company Limited, New Delhi, Pandian punithvathy, Security Analysis & Portfolio Management, Himalaya Publications, New Delhi, Pp-117,126 Bedi, Suresh Business Environment, Excel Books, New Delhi, pp 259,263. Jain T.R., Trehan Mukesh, Trehan Ranju, Business Environment, V.K. (India) Enterprises, pp 262, 265, 267. Goyal Alok Business Environment V.K. (India) Enterprises, pp 121, 122. The Times of India, New Delhi, Aug. 27, 2008. Vikalpa July 2006 pp 95, 103, 107,117. Synergy July 2006, pp 35. Southern Economist October 2007, pp 45, 47. Facts For You, May-2007, page no.42, 43. ICFAI December-2007. Indian Journal of Marketing October-2007. www.answers.com/multi%20nationalt%20corporations.htm http://en.wikipedia.org/wiki/Multinational_corporation

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