Professional Documents
Culture Documents
Generally, any company or group that derives a quarter of its revenue from operations
outside of its home country is considered a multinational corporation.
Introduction Since 1991, India has experienced a dramatic increase in the presence of
Multinational Corporation (MNCs), and with it, a tremendous expansion in the
amount of FOREIGN DIRECT INVESTMENT inflows to the Indian economy.
DEFINITION:
According to ILO report (i.e. International Labour Organisation) The essential
nature of the multinational enterprises lies in the fact that its managerial headquarters
are located in one country, while the enterprise carries out operations in number of
other countries.
According to Prof. John H. Dunning, "A multinational enterprise is one which
undertakes foreign direct investment, i.e., which owns or controls income gathering
assets in more than one country; and in so doing produces goods or services outside
its country of origin, i.e., engages in international production."
MNCS will have a demand for many services such as meals, transport, raw materials,
maintenance services that will be provided by domestic businesses, indirectly
increasing employment. Wages should increase as MNCS will want the best people
that the country has to offer.
Wages may be lower on international standards but should be higher than the local
standard, as logically the business will pay its workers more in order to motivate
them. Often MNCS are criticised for their wage policies but recent research and
statistics prove this wrong.
(4) A transnational enterprise that combines the previous three approaches. According
to UN data, some 35,000 companies have direct investment in foreign countries, and
the largest 100 of them control about 40 per cent of world trade.
Foreign involvement
export via agent or distributor
export through sales rep or subsidiary
Local packaging or assembly
FDI
License
Time
CHARACTERISTICS OF MNCS
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2. Origin: The development of MNCs dates back to several centuries, but their real
growth started after the Second World War Majority of the MNCs are from developed
countries like U.S.A, Japan, UK, Germany and European countries. In recent years
MNCs from countries like Korea, Taiwan, India, China, etc. are operating in the world
markets.
4. Profit motive: MNCs are profit oriented rather than social oriented. Such
corporations do not take much interest in the social welfare activities of the host
country.
5. Management: The Parent company works like a holding company. The subsidiary
companies are to operate under control and guidance of parent company. The
subsidiaries functions as per the policies and directions of parent organisation.
7. Quality consciousness: MNCs are quality and cost conscious and managed by
professionals and experts. They have their own organisation culture and systems.
MNCs believe in the concept of total quality management.
8. Branding strategies of mncs in international markets: In todays global
marketplace, MNCs need to set up effective branding strategies in order to be
competitive. Depending on the structure of the company and the products offered,
MNCs can use different strategies.
9. Their main aim is to obtain the HIGHEST POSSIBLE PROFIT
10. They invest LARGE SUMS OF MONEY
11. THEY AID LOCAL COMPANIES &attain their benefits
12. They operate in more than one country at the same time
13. Big size
14. Huge intellectual capital
15. Operates in many countries
16. Large number of customer
17. Large number of competitors
18. Structured way of decision making
19. Single managerial authority control
20. Worldwide integration, better profitability
21. Global perspective
22. Close coordination in parents & affiliates
23. Worldwide market
OBJECTIVE of MNCS
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the products.
Make best use of technological advantages by setting up production
facilities abroad.
Establish an international corporate image
MNCS STRUCTURE
1. Horizontally integrated multinational corporations: Horizontally
integrated multinational corporations manage production establishments located in
different countries to produce the same or similar products.(example:
McDonald's )
2. Vertically integrated multinational corporations: Vertically integrated
multinational
corporations
manage
production
establishment
in
certain
Transfer
of
technology,
capital
and
entrepreneurship.
Increase in the investment level and thus, the income and employment in the
host Country.
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.
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COMPANY PROFILE:
Procter & Gamble Co. (P&G) is an American company based in Cincinnati, Ohio that
manufactures a wide range of consumer goods. In India Proctor & Gamble have two
subsidiaries: P&G Hygiene and Health Care Ltd. and P&G Home Products Ltd. P&G
Hygiene and Health Care Limited is one of India's fastest growing Fast Moving
Consumer Goods Companies with a turnover of more than Rs. 500 crores.
It has in its portfolio famous brands like Vicks & Whisper. P&G Home Products
Limited deals in Fabric Care segment and Hair Care segment. It has in its kitty global
brands such as Ariel and Tide in the Fabric Care segment, and Head & Shoulders,
Pantene, and Rejoice in the Hair Care segment.
Business Growth and Divestitures
Folgers Sale
On June 4, 2008, P&G sold its Folgers coffee unit to J.M. Smucker Co for $2.95
billion. As part of the deal, P&G shareholders will receive a 53.5 percent stake in
Smuckers and the company will assume $350 million of Folger's debt.
Gillette Acquisition
Procter & Gamble acquired Gillette in 2005 for over $50 billion in its largest
acquisition to date. In 2004, the last full year before the acquisition, Gillette generated
over $10 billion in sales, about $6 billion of which came from razors and Duracell and
Braun products and the remainder sourced from the Oral-B brand, which was moved
into the Health & Well-Being segment. A key piece of the acquisition beyond
Gillette's product lines was its distribution network and supply chain. Gillette's
distribution network and supply chain in emerging markets had been extremely
successful for Gillette and, once acquired, has worked to complement P&G's own
distribution network.
Sale of Pharmaceutical Unit
In 2009 P&G sold its pharmaceutical unit to Warner Chilcott Plc for $3.1 billion in
cash. The company expects to book a 43 cent per share earnings boost in Q2 of fiscal
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2010 as a result of the sale. The deal allows P&G to focus on its personal care, beauty,
and household product divisions. In 2006, the company started winding down its
discover-phase pharmaceutical products in favor of licensing late-stage compounds,
and announced in 2008 it would exit the drug industry entirely.
Online Sales
In January 2010, the company announced it would pursue its own online retail store to
sell its consumer products to US end-users, putting it in direct competition with major
retailers in reaching consumers. P&G CEO Bob McDonald said the company could
increase its online sales "substantially" over the next few years. In fiscal 2009, P&G's
existing online sales accounted for $500 million, or 0.6% of total revenue. The
company plans a full scale launch in spring 2010 after a pilot test with 5000
consumers.
Different product price points provide some insulation against recession
Household staples are somewhat protected from the US recession and global
economic downturn. However, in a recession consumers often turn to cheaper private
label or store brands instead of "brand name" products from P&G. To combat private
label encroachment, P&G offers at least two product forms in many product
categories. For example, the company has seen increases sales in Luvs from Pampers
diapers and an increase in Gain detergent sales from Tide. In addition, P&G offers
"Basic" versions of its Charmin toilet paper and Bounty paper towels. The company's
broad offerings, combined with the necessity of household items, provide a degree of
insulation against recession.
Retail Consolidation
The rise of a handful of powerful low-priced retailers has negatively impacted
consumer products companies. A handful of big retailers have captured a large share
of the market. For example, from 1999 to 2004, the top 10 food retailers in the US
increased their share of food retail sales from 53.4% to 58.9%. These large retailers
have shifted the balance of power within the supply chain. For example, the
company's largest customer, Wal-Mart, accounted for 15% of net sales in 2006, 2007,
and 2008. Wal-Mart has exerted its power over other suppliers to their detriment in
the past, such as forcing record companies to produce clean-label CDs and pulling
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products in those markets. In 2008, the company's distribution network reached 800
million people in China and 80% of the population in Russia. P&G has created
products designed specifically to target developing nations. For example, in many
countries consumers wash clothing by hand with limited amounts of water. In
response, P&G has launched Downy Single Rinse in Mexico, China, Philippines, and
9 other countries. While the average Mexican spends about $20 a year on P&G
products, Chinese per-capita spending is only about $3 and India per-capita spending
$1. Increasing sales in China and India to the levels in Mexico would add $40 billion
in sales to the company's overall revenue.
Research & Development focuses both inside and outside the company
In 2009, P&G spent approximately $2.04 billion on Research & Development, nearly
$1 billion more than its closest competitor, Unilever. The two most important factors
in P&G's innovation process are its practice of consumer demand research and its
"Connect and Develop" R&D structure. First, when entering new markets, P&G sets
up in-home visits with consumers in order to fully understand the needs and desires
consumers have for household and personal products. This way, P&G gets directly to
its customers and is able to cater to their needs. P&G also incorporates consumers'
input into the R&D process through its "Connect and Develop" initiative. Through
"Connect and Develop" P&G has an online interface set up where people can submit
product ideas and provide input on topics that P&G places on the web-portal. P&G
staff then sort through the ideas and work with the most promising ones. This process
is not responsible for all of the R&D that P&G does, but approximately 42% of new
products in the last several years were influenced by or originated from "Connect and
Develop."
Early returns on new products released in 2009 are encouraging. Tide Stain Release, a
stain-removing detergent released in July 2009, has garnered 10% market share in the
US as of November 2009. The Bounce Dryer Bar, an automatic laundry freshener
released in August 2009, has captured 7% of the North American fabric sheet market
as of November 2009.
Commodity Prices
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P&G Home Products Limited was incorporated as 100% subsidiary of The Procter &
Gamble Company, USA in 1993 and it launched launches Ariel Super Soaker. In the
same year Procter & Gamble India divested the Detergents business to Procter &
Gamble Home Products. In 1995, Procter & Gamble Home Products entered the Hair
care Category with the launch of Pantene Pro-V shampoo.
Procter & Gamble Home Products launches Head & Shoulders shampoo. In 2000,
Procter & Gamble Home Products introduced Tide Detergent Powder - the largest
selling detergent in the world.
Procter & Gamble Home Products Limited launched Pampers - world's number one
selling diaper brand. Today, Proctor & Gamble is the second largest FMCG Company
in India after Hindustan Lever Limited.
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We will provide branded products and services of superior quality and value that
improve the lives of the world's consumers. As a result, consumers will reward us
with leadership sales, profit, and value creation, allowing our people, our
shareholders, and the communities in which we live and work to prosper.
is
its
people
and
the
values
by
which
we
live.
We attract and recruit the finest people in the world. We build our organization from
within, promoting and rewarding people without regard to any difference unrelated to
performance. We act on the conviction that the men and women of Procter & Gamble
will always be our most important asset.
LEADERSHIP:
OWNERSHIP:
We all act like owners, treating the Company's assets as our own and
behaving with the Company's long-term success in mind.
INTEGRITY
TRUST
PRINCIPLES
We value differences.
We believe that doing what is right for the business with integrity will
lead to mutual success for both the Company and the individual. Our
quest for mutual success ties us together.
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We only do work and only ask for work that adds value to the business.
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HISTORY OF P & G
Procter & Gamble Co. (P&G) is an American company based in Cincinnati, Ohio that
manufactures a wide range of consumer goods. In India Proctor & Gamble has two
subsidiaries: P&G Hygiene and Health Care Ltd. and P&G Home Products Ltd.
Procter & Gamble's relationship with India started in 1951 when Vicks Product Inc.
India, a branch of Vicks Product Inc. USA entered Indian market. In 1964, a public
limited company, Richardson Hindustan Limited (RHL) was formed which obtained
an Industrial License to undertake manufacture of Menthol and de mentholated
peppermint oil and VICKS range of products such as Vicks VapoRub, Vicks Cough
Drops and Vicks Inhaler. In May 1967, RHL introduced Clearasil, then America's
number one pimple cream in Indian market. In 1979, RHL launches Vicks Action 500
and in 1984 it set up an Ayurvedic Research Laboratory to address the common
ailments of the people such as cough and cold.
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In October 1985, RHL became an affiliate of The Procter & Gamble Company, USA
and its name was changed to Procter & Gamble India. In 1989, Procter & Gamble
India launched Whisper - the breakthrough technology sanitary napkin. In 1991, P&G
India launched Ariel detergent. In 1992, The Procter & Gamble Company, US
increased its stake in Procter & Gamble India to 51% and then to 65%. In 1993,
Procter & Gamble India divested the Detergents business to Procter & Gamble Home
Products and started marketing Old Spice Brand of products. In 1999 Procter &
Gamble India Limited changed the name of the Company to Procter & Gamble
Hygiene and Health Care Limited.
In 1993, Procter & Gamble Home Products is incorporated as a 100% subsidiary of
The Procter & Gamble Company, USA. Procter & Gamble Home Products launches
Ariel Super Soaker.
In 1993, Procter & Gamble India divests the Detergents business to
Procter &
During this period, Procter & Gamble Home Products also re-launched the
international range of Head & Shoulders, best-ever Anti-dandruff shampoo with an
improved formula, new pack-design and logo, in three variants - Clean & Balanced,
Smooth & Silky and Refreshing Menthol, which offers the fine combination of antidandruff efficacy and hair conditioning.
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In January 2001, Procter & Gamble Home Products Limited and Whirlpool India Ltd.
launched a special 'Ariel - Whirlpool Superwash' offer, making washing machines
more affordable to the people of Hyderabad.
On purchase of either a 500gms, 1kg or 1.5kg economy pack of New Ariel Power
Compact, consumers are automatically eligible to buy a Whirlpool Washing Machine
for as low as Rs.238/- in Equal Monthly Installments for 24 months, by filling in the
application form that comes with the Ariel pack and contacting any one of the
Whirlpool dealers mentioned on the pack.
In June 2001, Procter & Gamble in partnership with the Association of Beauty
Therapy & Cosmetology (ABTC), India hosted the Pantene Artist 2001 a national
stylist competition, which included categories such as Bridal Dressing, Hair Cutting
and Body Painting. Present at the event was world-renowned hairdresser and stylist
Jun L. Encarnecion, who demonstrated the hottest international haircuts and styles in
vogue via an interesting hairhsow. Mr. Encarnecion has trained students in leading
hairdressing schools like Robert Fielding School of Hair Dressing (U.K), Pierre
Alexander International Academy (U.K), Vidal Sassoon Academy, (U.S.A) among
others and also enjoys the reputation of being the official hairdresser for the 1993
Miss Universe pageant.
In April 2002, Procter & Gamble Home Products Limited announced the launch of a
special Ariel Bar Refund Offer along with its new Advanced Ariel Compact. Under
the Ariel Bar Refund Offer, consumers could exchange their detergent bar on purchase
of Advanced Ariel Compacts 1kg and 500gms packs, and avail of a Rs.15 and Rs.7
discount respectively on MRP.
Additionally, Procter & Gamble Home Products announced the Beat The Summer
Dandruff offer on which 200ml Head & Shoulders bottle was available for Rs.99/only, thus giving a benefit of a Rs.23/- discount to consumers.
In June 2003, Procter & Gamble Home Products Limited launched Pampers - worlds
number one selling diaper brand with sales of US$ 6 billion annually. Pampers
provides superior dryness for uninterrupted overnight sleep, with just one pampers
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diaper. In India, Pampers Fresh & Dry is available in a variety of three sizes 4s, 10s
and 25s.
In July 2003, Procter & Gamble Home Products Limited launched Pantene Long
Black, the ultimate solution for achieving the Long and Black hair look, and Head &
Shoulders Silky Black - the only shampoo in India to offer the dual benefits of 100%
dandruff-free as well as silky black hair.
In January 2004, Procter & Gamble Home Products Limited announced the launch of
Rejoice Asias No. 1 shampoo, in India. Rejoices patented Micro-Silicone
conditioning technology gives twice as smooth, and easy to comb hair versus ordinary
shampoos, at affordable prices in 100 ml bottles and 7.5 ml sachets.
In April 2006, Procter & Gamble Home Products Limited announced the launch of
Pantene Hair Fall Control, which is designed to free women of their hair fall concerns
by reducing hair fall due to breakage by up to 50% within just two months, thus
giving them stronger, thicker looking and beautiful hair. The prices of Pantene 100ml
and 200ml bottles were reduced by 16%, offering superior value to consumers.
In August 2007, Procter & Gamble Home Products Limited signed Preity Zinta
Bollywood's no.1 Actress, as Brand Ambassador for its Head & Shoulders antidandruff shampoo that gives 100% dandruff-free soft beautiful hair.
In October 2008, Procter & Gamble Home Products Limited launched New Pantene
Amino Pro-V Complex shampoos, which makes hair ten times stronger.
P&G India has three arms -- P&G Hygiene and Health Care, P&G HOME
PRODUCTS and GILLETTE INDIA.
P&G Hygiene and Health Care:
Procter & Gamble Hygiene and Health Care Limited is an India-based fast moving
consumer goods company. The Company is engaged in the manufacturing and
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marketing of health and hygiene products. The Company's portfolio includes VICKS,
a healthcare brand and WHISPER, a feminine hygiene brand. Its healthcare product
portfolio includes Vicks VapoRub, Vicks Inhaler, Vicks Formula 44, Vicks Cough
Drops and Vicks Action 500+. Vicks VapoRub is available in five pack sizes of 50
grams jar, 25 grams jar, 10 grams, five grams and two grams dibbi. Under feminine
care, its brands include Whisper Maxi Regular, Whisper Maxi XL Wings, Whisper
Ultra with Wings, Whisper Ultra XL Wings and Whisper Choice. The Procter and
Gamble Company is its ultimate holding company and Procter and Gamble Asia
Holding BV is its holding company.
P&G HOME PRODUCTS:
Procter & Gamble Home Products Limited manufactures and distributes fabric care,
hair care, and baby care products. The company was incorporated in 1989 and is
based in Mumbai, India. P&G Home Products is a subsidiary of Procter & Gamble
Co.
P&G Home Products Limited is one of India's fastest growing Fast Moving Consumer
Goods Companies that has in its portfolio P&G's global brands such as Ariel and Tide
in the Fabric Care segment, and in the Hair Care segment: Head & Shoulders world's largest selling anti-dandruff shampoo; Pantene - world's No. 1 beauty
shampoo; and Rejoice - Asia's No. 1 shampoo.
P&G Home Products Limited is a 100% subsidiary of The Procter & Gamble
Company, USA, that in India, has carved a reputation for delivering superior quality,
value-added products to meet the needs of consumer.
GILLETTE INDIA:
Gillette India Limited (GIL) is one of India's well-known FMCG Companies that has
in its portfolio GILLETTE MACH 3 TURBO, ORAL-B and DURACELL - world's
leading brands and has carved a reputation for delivering high quality, value-added
products to meet the needs of consumers.
Incorporated in the year 1985 as Indian Shaving Products Limited, now Gillette India
Limited, its products speak for themselves. The company is always been known for
24
the strength of its brands, and always continues to penetrate deeper into the hearts of
Indian Consumers.
In the year 1990-91, the company launched two products, first was 7 0'Clock EJTEK
PII Shaving System and second was shaving cream with three variants. This was the
First time that a shaving cream was introduced in Indian markets with special
features.
Company successfully relaunched Gillette Foam in 4 Variants .Duracell also launched
its Ultra M 3 AA batteries, which was well received by consumers. Oral Care
launched Power Oral Care brushes, which were well received in the market. Towards
the End of 2003, Company launched Gillette Vector Plus.
The Company launched Storm Force, a revolutionary after shave splash and New
Ultra Comfort Shaving Gel .In the fourth Quarter, Company launched two new
Gillette Series Tube Shave Gel variants, namely for Sensitive skin and Moisturizing,
to suit different skin types.
Company launched ?New Improved Gillette Vector Plus featuring all new
contemporary look. The Gillette Company, USA was acquired worldwide through
merger in October, 2005 by Procter& Gamble Company, USA creating the largest
Consumer products Company in the World.
In the year 2006-2007, Company launched Gillette Presto Plus for more discerning
consumers. Oral B brand launched Oral B Vision and Kid in Premium Market
Segment.
In the year 2007-2008, Company launched The Gillette Winners program that had
sports legends Roger Federer, Thierry Henry and Tiger Woods and Rahul Dravid. An
innovative program "Free Dental Check up" was organized to enable consumers to
benefit from expertise of professional dentists at no cost. Oral-B brand launched a
new variant "Shiny Clean" targeted at the value segment.
PRODUCTS LINE
Fabric Care:
25
Procter & Gamble has two of its world-leading detergents Tide and Ariel, in India to
cater to the main concerns of the Indian households, namely, outstanding whiteness
and stain-removal.
Ariel Front-O-Mat
Ariel 2 Fragrances
Tide Detergent
Tide Bar
Hair Care:
P&Gs Beauty Business is over US$ 10 Billion in Global Sales, making it one of the
worlds largest beauty companies. The P&G beauty business sells more than 50
different beauty brands including Pantene, Olay, SK-II, Max Factor, Cover
Girl, Joy, Hugo Boss, Herbal Essences and Clairol Nice n Easy. In India,
P&Gs beauty care business comprises of Pantene, the worlds largest selling
shampoo, Head & Shoulders, the worlds No. 1 Anti-dandruff shampoo and Rejoice
Asias No. 1 Shampoo.
Procter & Gamble is committed to making every day in the lives of its consumers
better through the superior quality of its products and services.
Panteen Pro V
Head & Shoulders
Rejoice
Baby Care:
Pampers
CORPORATE STRUCTURE
P&Gs corporate structure has contain four pillars which are as follows:
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Global Business Units (GBU) build major global brands with robust business
strategies.
Global Business Services (GBS) provide business technology and services that
drive business success.
P&G approaches business knowing that we need to Think Globally (GBU) and Act
Locally (MDO). This approach is supported by our commitment to operate efficiently
(GBS) and our constant striving to be the best at what we do (CF). This streamlined
structure allows us to get to market faster.
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In the 1940s and 1950s, P&G embarked on a series of acquisitions. It acquired Spic
and Span (1945), Duncan Hines (1956), Chairman Paper Mills (1957), Clorox (1957;
sold in 1968) and Folgers Coffee (1963)...
The AcquisitionAs per the P&G and Gillette merger deal, P&G would exchange 0.975
shares of P&G common stock for each share of Gillette. It represented an 18%
premium to Gillette shareholders based on the closing share prices on January 27,
2005. However, the merger was subject to approval by the shareholders of both
Gillette and P&G. The merger was expected to get regulatory clearance by 2005.
P&G planned to buy back $18-22 billion of its common stock immediately after the
merger. The buy back process could take around 18 months to complete. This would
make the deal structure a 60% stock and 40% cash deal, although on paper it was a
pure stock-swap.
According to marketing guru, Al Ries, "The extra 18% premium paid by
P&G for Gillette's stock is going to make it 18% more difficult for the deal
to pay dividends to stock holders."P&G would have to borrow funds to
finance the planned repurchase of its stock. In light of this move, credit
rating agencies put both companies under a review for a possible
downgrade. S&P placed all ratings for P&G on Credit Watch with negative
implications based on the likelihood that P&G's leverage would increase
significantly due to the merger. As of September 30, 2004, P&G had debts
of $21.4 billion and Gillette of $3.1 billion.
At P&G, Social Responsibility stems from our Corporate PVP (Purpose, Values and
Principles). Social Projects are in keeping with P&Gs credo of Business with a
Purpose. P&G has always demonstrated its commitment to the community not just
through the quality of its products and services, but also through socially responsible
initiatives for the community. We believe in building the community in which we live
and operate by supporting its ongoing development.
(1998)
Project Peace: Environment Education Programme (1996)
SWOT ANALYSIS
STRENGTH:
New Management
Diversified brand portfolio: more than 300 brands with more than 79 billion in
Revenue
Tightly integrated with the largest retailers in the US and around the world
Product innovation
Talented management
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Distribute to 80 Countries
WEAKNESS:
THREATS:
30
OPPORTUNITIES:
Continue to divest brands that don't align with the company's long-term goals
(i.e., Folgers)
Emerging markets
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projects. However, in some industries 100 per cent export-oriented units (EOUs) can
be set up. It may be noted, like domestic investment, foreign investment has also a
multiplier effect on income and employment in a country.
3. Technology Transfer:
Another important role of multinational corporations is that they transfer high
sophisticated technology to developing countries which are essential for raising
productivity of working class and enable us to start new productive ventures requiring
high technology.
Whenever, multinational firms set up their subsidiary production units or jointventure units, they not only import new equipment and machinery embodying new
technology but also skills and technical know-how to use the new equipment and
machinery.
As a result, the Indian workers and engineers come to know of new superior
technology and the way to use it. In India, the corporate sector spends only few
resources on Research and Development (R&D). It is the giant multinational
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corporate firms (MNCs) which spend a lot on the development of new technologies
can greatly benefit the developing countries by transferring the new technology
developed by them. Therefore, MNCs can play an important role in the technological
up-gradation of the Indian economy.
4. Promotion of Exports:
With extensive links all over the world and producing products efficiently and
therefore with lower costs multinationals can play a significant role in promoting
exports of a country in which they invest. For example, the rapid expansion in Chinas
exports in recent years is due to the large investment made by multinationals in
various fields of Chinese industry.
Historically in India, multinationals made large investment in plantations whose
products they exported.
5. Investment in Infrastructure:
With a large command over financial resources and their superior ability to raise
resources both globally and inside India it is said that multinational corporations could
invest in infrastructure such as power projects, modernisation of airports and posts,
telecommunication.
The investment in infrastructure will give a boost to industrial growth and help in
creating income and employment in the India economy. The external economies
generated by investment in infrastructure by MNCs will therefore crowd in
investment by the indigenous private sector and will therefore stimulate economic
growth.
In view of above, even Common Minimum Programme of the present UPA
government provides that foreign direct investment (FDI) will be encouraged and
actively sought, especially in areas of
(a) infrastructure,
(b) high technology
(c) exports, and
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(d) where domestic assets and employment are created on a significant scale.
MNCs are source of FDI, the movement of capital across national borders that grants
the investor control over an acquired asset.
FDI may comprise > 20% of global GDP.
In its recent foreign direct investment (FDI) policy, the Government of India had
announced additional methods for issue of shares for consideration other than cash,
such as: (a) import of capital goods/ machinery/ equipment (including second-hand
machinery); (b) pre-operative/ pre-incorporation expenses (including payments of
rent, etc.). The RBI has now implemented these schemes by prescribing the detailed
conditions on which this share issuance facility will be available to Indian
companies.)
Foreign direct investment (FDI) has become a key battleground for emerging markets
and some developed countries. Government-level policies are needed to enable FDI
inflows and maximize their returns for both investors and recipient countries.
Foreign direct investment (FDI) has become a key battleground for emerging markets
and some developed countries. Government-level policies are needed to enable FDI
inflows and maximize their returns for both investors and recipient countries.
Foreign direct investment (FDI) policies play a major role in the economic growth of
developing countries around the world. Attracting FDI inflows with conductive
policies has therefore become a key battleground in the emerging markets.
Developed countries also seek to bring in more FDI and use various policies and
incentives to attract overseas investors, particularly for capital-intensive industries and
advanced technology.
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The primary aim of these policies is to create a friendly business environment where
foreign investors feel comfortable with the legal and financial framework of the
country, and have the potential to reap profits from economically viable businesses.
The prospect of new growth opportunities and outsized profits encourages large
capital inflows across a range of industry and opportunity types.
Investors tend to look for predictable environments where they understand how
decision-making processes work. Governments therefore are incentivized to build up
a track record of rational decision making. The business environment often requires
work to remove onerous regulations, reduce corruption and encourage transparency.
Governments often also seek to improve their domestic infrastructure to meet the
operational needs of investors.
Providing fiscal incentives for attracting FDI is a subject of controversy analysts
have argued both in favour and against the idea. A general consensus is developing in
favour of certain incentives which have been proven historically to grow profits and
therefore foreign investments.
When policies are effective, significant FDI investments are injected into countries
that help the domestic economy to grow. Different countries and regions offer various
kinds of fiscal incentives, with a related variance in the level of FDI investments
attracted.
Governments are increasingly setting up promotional agencies to foster foreign direct
investment. These agencies promote FDI-friendly policies, identify prospective
sectors and investors, and structure specific deals and incentives for major foreign
investors such as multi-national corporations (MNCs).
Global trade associations also play a major role in some of these investment activities.
These associations are tasked with creating a positive environment for foreign direct
investors and ensuring that both investors and recipient countries enjoy a favourable
environment.
The formation of human capital is vital for the continued growth of FDI inflows. To
enable the most beneficial, technology and IP-driven FDI, highly skilled personnel are
necessary. Governments must therefore enact policies to provide training and skills
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upgrading to develop their workforce and meet the employment needs of foreign
investors.
The advantages of FDI are as follows.
1. It supplements the meagre domestic capital available for investment and helps set
up productive enterprises.
2. It creates employment opportunities in diverse industries.
3. It boosts domestic production as it generally comes in a package - money,
technology etc.
4. It paves the way for internationalisation of markets with global standards and
quality assurance and performance based budgeting.
5. It pools resources productively - money, manpower, technology.
6. It creates more and new infrastructure.
7. For the home country it a good way to take advantage in a favourable foreign
investment climate (e.g. low tax regime).
8. For the host country FDI is a good way of improving the BoP position.
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GROWTH IN FDI
FDI equity inflows into India:
FDI inflows have somewhat flattened out over the course of the last three
years However, the pace of inflows has been stable This is including during
EFFECTS OF MNCS:
The case against MNCs has been spearheaded by radical-structuralists. At the most
general level, they argue that MNCs integrate poor nations into an unequally
structured world system, with poor countries languishing on the periphery, heavily
dependent for their development on the decisions and actions of capitalists ensconced
in MNC headquarters in rich core nations. The policy implications of the most radical
of the dependency school arguments is for poor countries to cut their dependence by
closing their doors to MNCs.
We examine at a lower level of analysis, some of the possible specific negative effects
of MNC investment on, first, the host, and then the home countries.
HOST COUNTRY EFFECT
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In several caces, MNCs may borrow the Money for foreign investment in the local
host market rather than transfer it from its home base. MNCs may squeeze out young,
potentially viable local firms from the local market and retard the independent
development of indigenous businessess.
Doubts have also been raised about the benefits of the transferred technology,
especially for poorer developing countires. First the vast bulk of the research and
development capability of MNCs remains at home in the parent company. Very little
is carried out in developing countires. Therefore, MNCs, it is argued, do not help
develop an independent capacity to generate new technology in the host countries.
Since locals receive little training and experience developing new products and
processess, when the MNCs leave, little that was of lasting benefit remains. This
would be particularly true for MNCs producing for export in low labor-cost locations,
fort hey are likely to be short-term residents in these countires.
Second, there is the question of the appropriateness or suitability of the transferred
technology fort he host nation. MNCs that set up subsidiaries in host countries
primarily to service the local market, as is often the case with FDI in developed
nations, are likely to develop contractual linkages with local firms. Those primarily
interested in outsourcing-that is, producing in overseas locations for export, usually
back to the home market then not to develop extensive lingages with local firms.
Critics charge that MNCs tend to exploit workers in developing countries by paying
them low wages and by providing them with inadequate benefits and unsafe working
conditions. Some MNCs have also been accused of transferring enviromentally unsafe
production processes to poorer countries to escape strict U.S. or European
environmental regulations.
Finally, we need to consider briefly the effects of MNCs on the political conditions in
host countries. What is certainly the case is that MNCs are not in the business of
promoting democracy or any other human rights. MNCs have operated quite happily
in countires ruled by left-wing and right-wing authoritarian regimes.
Sometimes, when their interest were threatened, some MNCs have pressed their home
governments to intervene in the internal political affiars of other nations. It is only fair
to point out that MNCs are also subject to political pressures.
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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 somehow 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:
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
1. Capturing Markets:
First, it is alleged that multinational corporations invest their capital and locate their
manufacturing units on their own or in collaboration with local firms in order to sell
their products and capture the domestic markets of the countries where they invest
and operate. With their vast resources and competitive strength, they can weed out
their competitive firms.
For example, in India if corporate multinational firms are allowed to sell or produce
the products presently produced by small and medium enterprises, the latter would not
be able to compete and therefore would be thrown out of business. This will lead to
reduction in employment opportunities in the country.
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in the such countries, there is a tendency among the MNCs to locate the polluting
industries in the poor countries, where environmental legislation is non-existent or is
not properly implemented, as exemplified in the Bhopal gas tragedy.
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the potential disadvantage even when compared with loan finance, that there may be
outflow of profits that lasts much longer.
and growth
Labour competiveness
FDI attractiveness
GOVERNMENT SUPPORT:
Both revenue and capital expenditure on R&D are 100% deductible from
taxable income under the Income Tax Act.
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Customs and excise duty exemptions for capital equipments and consumables
required for R&D.
Excise duty exemption for three years on goods designed and developed by a
wholly owned Indian company and patented in any two countries out of: India,
the United States, Japan and any country of the European Union.
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CONCLUSION:
We have seen above foreign investment by multinational companies have both
advantages and disadvantages. Therefore, they need regulation and should be
permitted in selected sectors and also subject to a cap on their investment in particular
fields. If objective of economic growth with stability and social justice is to be
achieved, there should not be complete open door policy for them.
It is true that multinational corporations take risk in making investment in India, they
bring capital and foreign exchange which are non-debt creating, they generally
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promote technology and can help in raising exports. But they must be regulated so
that they serve these goals.
They should be allowed to invest in infrastructure, high-technology areas, and in
industries whose products they can export and if they help in generating net
employment opportunities. We agree with Colman and Nixon who write:
Transnational corporations cannot be directly blamed for lack of development (or the
direction development is taking) within less developed countries. Their prime
objective is global profit maximisation and their actions are aimed at achieving that
objective, not developing the host less developed country. If the technology and
products that they introduce are inappropriate, if their actions exacerbate regional and
social inequalities, if they weaken the balance of payments position, in the last resort
it is up to the government of less developed country to pursue policies which will
eliminate the causes of these problems.
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