INTRODUCTION :-

The term multinational corporation is used to identity an

enterprise which control assets, factories, mines, sales and
other offices in two or more countries. The MNCs are
oligopolistic in nature and gigantic in size. The total value of
their individuals assets and turnover run into billion dollars.
There are over 800 such giants in the world to- day. More 86%
of the MNCs have their parent companies in USA, UK, France
and W. Germany. This parent companies take decisions and
control the operation of their branches or subsidiaries in other
countries. These multinational corporation have spread their
branches throughout the world and have dominated the socio-
economic and political scenario in number of countries. These
MNCs have become a problem for number of developing
countries which are unable to free themselves from the
clutches of these MNCs.

MEANING :-
Multinational company is the company which is registered
in one country but conduct its business operations in multiple
countries. It evolved during the 19th century. First multinational
company was formed in 1860 in U.S.A. At present these
companies are operating world wide.
Multinational company are not only found in USA, but also
in many other countries like china, England, france, Germany,
Japan, South korea etc. These companies are doing well in india
also. Multinational companies are also know as Trans-National
corporations or the international corporations or the global
giants. Hindustan lever limited, Hero Honda, Reliance Infosys,
etc. are some examples of multinational companies operating
in india.

DEFINITIONS OF MNCs :-
According to UNO, multinational companies means,
Those enterprises which own or control production or services
facilities outside the country in which they are based.
 According to N.H. Jacob, A multinational corporation
owns & manages its business in two or more countries.

CHARACTERISTICS OF MULTINATIONAL COMPANIES:-

The distinctive features of multinational companies are as
follows:-
1. Large Size:-
A multinational company is generally big in size. Some of
the multinational companies own and control assets worth
billions of dollars. Their annual sales turnover is more than
the gross national product of many small countries.

2. Huge Capital:-
These companies can easily raise huge capital by way of
issuing shares to general public, within & outside the
country. They exercise great degree of economic
dominance. A large part of the capital assets of the parent
country are owned by the citizens of the home country.

3. Worldwide Operations :-
A multinational corporation carries on business in more
than one country. Multinational corporations such as coco
cola has branches in as many as seventy countries around
the world.

4. International Management:-
The management of multinational companies are
international in character. It operates on the basis of best
possible alternative available any where in the world. Its
local subsidiaries are managed generally by the nationals
of the host country. For example: The management of
Hindustan lever lies with Indians. The parent company
Unilever is in The United States Of America.

5. Mobility Of Resources :-
The operation of multinational company involves the
mobility of capital, technology, entrepreneurship and other
factors of production across the territories.
 6. Integrated Activities:-
A multinational company is usually a complete
organisation comprising manufacturing, marketing,
research and development and other facilities.

7. Several Forms:-
A multinational company may operate in host countries n
several ways i.e.; branches, subsidiaries, franchise, joint
ventures. Turn key projects.

8. Centralised Control:-
These multinational companies have their branches
worldwide. They control all its branches through head
office which is situated in home country of those
companies.

9. Employment:-
It provides with employment opportunities to a large
number of unemployed individuals in the respective
countries of their operation.
In 2006, foreign affiliates of MNCs employed over 73
million people, compared of 25 million in 1990.

CLASSIFICATION OF MNCs :-

MNCs can be classified on the basis of several criteria , such as

function, control, investment, origin, turnover, products, etc.
On the basis of functional criterion, the MNCs are broadly
grouped into:
Classification Of MNCs:-
1. Service MNCs
2. Manufacturing MNCs
3. Trading MNCs.

1. Service MNCs:-
A service MNCs is defined as a transnational company which
derives more than 50 percent of its revenues from services.
Services MNCs are found in areas such as banking, insurance,
finance, transport, tourism, etc.

2. Manufacturing MNCs:-
A manufacturing MNCs is one which derives at least 50
percent of its revenue from manufacturing activity. A large
number of MNCs has entered into the manufacturing
sector. Out of the top 200 MNCs, 118 firms are
manufacturing MNCs. They produce a variety of goods.
For e.g. parry and Cadbury fry produce chocolates, colgate
and Palmolive produce soaps and detergents, ponds
cosmetics goods, Olivetti Tele printing equipments,
Dunlop good year, ceat- tyres and tubes.

3. Trading MNCs:-
A trading MNCs is the one which derives at least 50
percent of its revenue from trading activity. These are the
oldest form of multinationals. Trading MNCs control about
60 percent of the worlds export trade. Tatas, Liptons,
Brooke bond, Hindujas etc. are the trading MNCs.

Strategic Approach to Multinationals:

To run a new and potentially profitable project, a good understanding of multinational

strategies is necessary.

The three broad categories of multinationals and their associated strategies

are explained below:

A. Innovation Based Multinationals:

Companies such as IBM, Philips and Sony create barriers to entry for
others, by continually introducing new products and differentiating existing
ones. Both domestically and international companies in this category spend
large amounts on R&D and have a high ratio of technical to factor
personnel. Their products are typically designed to fill a need perceived
locally that often exists abroad as well.

B. The Mature Multinationals:

The primary approach in such companies is the presence of
economies of scale. It exists whenever there is an increase in the scale of
production, marketing and distribution costs could be increased in order to
retain the existing position or more aggressive.The existence of economics
of scale means there are inherent costs advantages of being large. The
more significant these economies of scale are, the greater will be the costs
disadvantage faced by a new entrant in the same field in a given market.

(i) Reduction in Promotion Costs:

Some companies like Coca-Cola and Proctor and Gamble take
advantage of the facts that potential entrants are wary of the high costs
involved in advertising and marketing a new product. Such firms are able to
exploit the premium associated with their strong brand names. MNCs can
use single campaign and visual aspects in all the countries simultaneously
with different languages like Nestles Nescafe.

(ii) Cost Advantage through Multiple Activities:

Other companies take advantage of economics of scope.
Economies of scope exists whenever the some investment can support
multi-profitable activities, which are less expensive.

Examples abound of the cost advantages of producing and selling multiple

products related to common technology, production facilities and
distribution network. For example, Honda has increased its investment in
small engine technology in the automobile, motorcycle, marine engine, and
generator business.

C. The Senescent Multinationals:

There are some product lines where the competitive advantage is very fast.

The strategies followed in such cases are given below:

1. One possibility is to enter new markets where little competition currently
exists. For example Crown Cork & Seal, the Philadelphia-based maker of
bottle tops and cans, reacted to the slowing of growth and heightened
competition in business in the United States by expanding overseas, its set
up subsidiaries in such countries as Thailand, Malaysia, and Peru,
estimating correctly that in these developing and urbanizing societies,
people would eventually switch from home grown produce to food in cans
and drinks in bottles.

2. Another strategy often followed when senescence sets in is to use the

firms global scanning capability to seek out lower cost production sites.
Costs can then be minimized by integration of the firms manufacturing
facilities worldwide. Many electronics and textile firm in the United States
(US) shifted their production facilities to Asian locations such as Taiwan and
Hong-Kong to take advantage of the lower labour costs.

Advantages of Multinational Company

At the beginning, the concept of multinational company was introduced in western

countries. The liberal economic and trade policy in developing countries at the end of the

20th century facilitated multinational companies to invest in developing countries.

1. Huge capital and modern Technology

Investment of huge capital and introduction of modern technology is the host country is

one of the most important advantages of a multinational company. It helps to minimize

the scarcity of capital in the host country. Similarly, modern technologies are introduced

in production of goods and services. Therefore, multinational companies contribute to

resource mobilization and technology development for the economic prosperity of the

host country.

2. Mass qualitative products

The main advantages of multinational company is that is produces goods at a larger

scale. It maintains international standard in its products and services. It lays emphasis

on quality. For mass and quality production, it mobilizes skilled and efficient manpower

and modern technology.

3.Efficient management
The success or failure of an organization totally depends on its management system.

Multinational company gives priority to efficient and up to date management system. For

this, it hires skilled and technical employees and introduce modern system of

management. In other words, the main reason behind the success of multinational

companies is their efficient management system.

4.Minimum cost of production

The huge investment and mass production helps to minimize per unit cost of products

because the fixed cost remains constant at any level of output. Therefore, a multinational
company lays emphasize on mass production of goods and services. Such technique

helps minimize the per unit cost of production and can supply quality products in the

competitive market. The customers of the host country are benefited by quality products

in minimum cost.

5.Research and development

Research and innovation is essential for the development of an organization. Research

and investigation help discover new knowledge and ideas. These innovations and

discoveries help in introducing new products, services, and knowledge. Multinational

companies give importance to research and development. Investment in research and

development in the main reason for the success of multinational companies.

6.Employment opportunities

Multinational companies are important sources of employment. They provide

employment opportunities to the people of host countries both in the administrative and

technical jobs. People can get employment opportunity in production process, financial

activities, management and promotional works.

7.Maximize government revenue

Multinational companies contribute more to the increment in government revenue. They

involve in mass production and distribution activities throughout the country. As a result,

they earn more profits and pay income tax, Besides income tax, multinational companies

pay various taxes to the government like value added tax, export duty etc.

8.Elimination of trade barriers

Multinational companies play important roles in eliminating trade barriers and

obstructions in international trade. Multinational companies perform business under an

efficient management system using the latest technology and sell quantity products at

moderate price. As a result, they put pressure on the authorities oh host countries to

eliminate the trade and other administrative barriers. Free and open trade is beneficial

both for multinational companies and to the host country. Thus, multinational companies

are playing an important role for the development of global economy.

9.Maintain balance in trade

Multinational companies contribute to maintaining balance in international trade of the

host country. They introduce products in host countries which may substitute for import.

This helps minimize import from foreign countries and can save foreign currencies.

Similarly, surplus products of subsidiaries of multinationals can also be exported to

foreign countries. Therefore, multinational companies helps to maintain a balance in

trade of the host country.

10.International cooperation

Multinational companies play important role in the development of mutual cooperation

among various countries of the world. Today, international relation and cooperation is

based on financial assistance and economic development. For this, multinational

companies contribute more in developing mutual cooperation among friendly nations.

The establishment of a multinational company is beneficial both to the host and guest

countries. Hence, multinational companies are important media of international

cooperation.

Disadvantages of Multinational Company

The main objective of the establishment of a multinational company is to earn maximum

profit by supplying goods and services to the customers of the host country. Similarly,

multinational company produces goods and services at large scale by using modern

technology. As a result, the host country and its entrepreneurs suffer a lot.

1.Displacement of local industries

Displacement of local industries is the major disadvantages of a multinational company.

Local industries cannot compete with multinational companies because the later produce

goods and services at a larger scale by using modern technology. Medium and small

scale cottage industries of the host country are either displaced or they surrender to the

multinational companies. Multinational companies have a negative impact on local

industries and the economic and the economic environment of the host country.

2.Outflow of capital

Generally, in the initial stage, multinational companies bring in huge capital in the host

country. They invest capital for establishment of plants and to manage working capital.

But, as professional business concerns, their main objective is to earn maximum profit.

Therefore, in the long run, multinational companies earn more profit by implementing

their efficiency and network. They transmit huge profit to their parent country after the

payment of necessary taxes. As a result, more money will flow out from the country in

terms of dividend which decreases foreign exchange reserve of the country. It creates a

shortage of foreign currency reserve in the host country.

3.Economic exploitation

To earn maximum profit, a multinational company utilizes raw materials and labor force

of the host country at a cheaper price. It means, it purchases raw materials at a

minimum cost. Similarly, it pays minimum wages to employees as compared to

employees of the parent country. But, it charges a high price for the finished products by
using its own brand name. Therefore, developed countries economically exploit the

developing countries through multinational companies.

4.Consumer exploitation

Multinational companies enjoy monopoly in the market. They capture the market by

using various techniques like developing network for promotion, product differentiation,

maintaining brand image and fame etc. They charge any price for the products and

exploit customers by charging a huge price.

5.Inequality to staff

A multinational company appoints staff both from the parent country and the host

country. It hires higher level authority from the parent country and their remuneration,

allowances and other facilities are also high. However, it appoints lower level employees

from the host country who are paid less remuneration and facilities. Besides, there is

also discrepancy in remuneration and facilities of two employees of the same level but

from two different countries. Therefore, a multinational company treats the local

employees as second grade citizens by providing minimum remuneration and

allowances.

6.Inappropriate technology

Technology transfer to the host country is one of the parts of a multinational company.

But in practice, a multinational company hardly transfer advanced technology. It hands

over only outdated or inappropriate technology to the host country. They keep modern

technology to themselves to maintain monopoly and capture the market.

7.Influence in politics
Multinational companies are financially strong. As a result, they influence policy makers

of developing countries in introducing rules and regulations in their favor. They hardly

care for the welfare and development of the host countries and their people.

8.Social inequality

Multinational companies never think about the needs and wants of the poor people.

Their aim is to attract the higher income group of society towards their luxury products.

The poor section of the society cannot buy their products. As a result, they create the

gap between the rich and the poor. Multinational companies also spoil the culture,

tradition, honesty, habits and feelings of the people of the host country.

Types of Multinational Company

Raw material seekers

These are the earliest forms of multinational companies. These multinational companies

spread in different parts of the world in search of raw materials. They purchased the best

raw materials from local markets in the cheapest price, processed the raw material

locally and delivered them in their home country for production of finished products. In

the colonial era, multinational companies of Western European countries exploited

maximum raw materials found in many overseas countries. The present multinational

companies involves in raw material dealing are crude oil, gas and mining companies.

These companies purchase raw materials from the international market and deliver them

to their home country for processing.

Market seekers

These are common types of present day multinational companies. They enter the foreign

market to produce and sell their products. The main motive of such multinational

companies is to expand their business at international level. Import restriction policy of

some countries also encourages multinational companies to operate production and

selling activities in those countries. At present many multinational companies of the USA,

Japan and other developed countries have started investing in India and China by

considering the huge market.

Cost Minimizer

These multinational companies seek to invest in countries where the production cost is

low. The main motive of such companies is to minimize cost of produce and service.

They install plants in the countries where labor and energy cost is low. This helps to

meet the purchasing power of customers of host countries. For examples, many

Japanese companies like Sony, Toyota, National Panasonic, Honda, Suzuki etc. have

established their production plants in China, India, Malaysia, Singapore, Taiwan,

Thailand etc. This is helpful in minimizing cost of Japanese branded products because

comparatively these countries have low labor and energy cost.

PROS AND CONS OF MULTINATIONAL CORPORATION :-

Multinational corporations provide the developing countries around the world with the
necessary financial infrastructure to achieve economic and social development. But
though they bring about several benefits to such nations, they also come with ethical
conducts that happen to exploit the neediness of these countries. So, are
multinational corporations really good for both the country of origin and the country of
operation? Let us take a closer look at their pros and cons.

List of Pros of Multinational Corporations

1. Their size benefits consumers.
The operational size and scale of these corporations can give them the chance of
taking advantage of the economies of scale, which paves the way for lower average
costs and prices for consumers. This is particularly important to industries that carry
extremely high fixed costs, such as car manufacturers and airlines.
2. They can help a country in many ways.
Multinational corporations have the ability to bring advanced technology to poorer
countries, while bringing low-cost products to the wealthier ones.

3. They are cost-effective.

By utilizing labor in parts of the world where the low cost of living does not require
high wages for production, these companies can keep consumer costs down. As a
result, many industries can also benefit.

4. They can create jobs and wealth.

These global companies inward investments offer the much needed foreign currency
for developing economies, which in turn help with creating jobs and increasing
expectations of things that will likely happen.

5. They help other companies.

Through merger and acquisition, multinational companies can help other commercial
organizations with achieving economies of scale in distribution and marketing,
allowing well-managed businesses to take over those that are poorly managed.

6. They adhere to the best brand standards.

This is one of the best qualities of these corporations. For example, McDonalds is
still McDonalds wherever it is operating in the world. There is a standard that this
restaurant chain is expected to adhere to. The same goes to the manufacturing
sector, where standards are set and are expected to be adhered to. This builds trust
and confidence among consumers, which is then converted to consumer loyalty.

7. They ensure minimum standards.

Somehow connected to the previous pro, the main reason for the success of
multinationals is that consumers would usually purchase products and services on
which they can go for minimum standards.

8. They help improve standard of living.

Multinational corporations have the capability to improve the worlds standard of
living, providing people with access of quality products regardless of the place.

9. Their large profits are consumed for development and research.

Taking into consideration pharmaceutical companies, they can easily afford to pour
millions of dollars into their research and development efforts. The same goes for
automobile manufacturers and other large corporate entities. Without their global
presence and large profit margins, they will not be able to do this. Another good
example is oil exploration, which is both costly and risky. As such, only large firms
can undertake it by using significant amount of money and other resources.

10. They allow for a wider market.

With these big businesses, huge markets have been created both domestically and
internationally.

List of Cons of Multinational Corporations

1. They might unfavorably dominate the market.
Remember that the market dominance of multinational corporations would make it
hard for smaller local companies to thrive and succeed. For example, arguments
state that the larger supermarkets can squeeze out local corner stores notable
margin, leading to lesser diversity.

2. They might exploit the workforce.

These corporations are not well-known for treating people fairly and are instead
known for ignoring rules and regulations, as well as turning a blind eye to injustice in
the workplace. They are put into the spotlight for outsourcing to the lowest bidders
and for skimping on quality. They are not known for having what smaller businesses
havethe human touch. Many of them are even found exploiting workers and
natural resources without considering the economic well- being of any country. In
fact, some of them are criticized for using slave labor, where workers are paid with
very small wages.

3. They take advantage of consumer expense.

Usually, companies are interested at consumers expense, but multinational
companies, with more power, is taking this to another level.
4. They can push local firms out of business.
Giant multinationals use the scale of developing economies to push the local firms
out of their business.

5. They are willing to gain ridiculous profits at any cost.

These companies are able to realize tremendous profits and do not share their
wealth. For example, these organizations that have manufacturing plants in China,
where wages are very low, do not increase worker salaries when actually they have
very huge amounts of extra revenues.

6. They strive for a monopolized business.

Naturally, many of the largest corporations are monopolizing their industries. They
are very powerful, which makes it very difficult, if not impossible, for start-ups and
smaller businesses to compete. By monopolizing, they cut out the competition, which
eventually stunts economic growth. Plus, authorities might put power in the hands of
these global corporations, so they will be able to set the rules.

7. They a great environmental threat.

In the name of profit, multinational corporations commonly contribute to pollution and
make use of non-renewable resources, which can pose a threat to the environment.
They often abuse the environment and are typically not very careful when using their
resources. Moreover, they are well known for leaving an environmental mess in their
wake and even have a strong reputation for dumping waste and utilizing natural
resources until they are depleted. In general, they are not being very good as
keepers of the earth.

Reasons for the Growth of MNCs:

(i) Non-Transferable Knowledge:

It is often possible for an MNC to sell its knowledge in the form of patent
rights and to licence foreign producer. This relieves the MNC of the need to
make foreign direct investment.
However, sometimes an MNC that has a Production Process or Product
Patent can make a larger profit by carrying out the production in a foreign
country itself. The reason for this is that some kinds of knowledge cannot
be sold and which are the result of years of experience.

(ii) Exploiting Reputations:

In some situation, MNCs invest to exploit their reputation rather than
protect their reputation. This motive is of particular importance in the case
of foreign direct investment by banks because in the banking business an
international reputation can attract deposits.

If the goodwill is established the bank can expand and build a strong
customer base. Quality service to a large number of customers is bound to
ensure success. This probably explains the tremendous growth of foreign
banks such as Citibank, Grind-lays and Standard Chartered in India.

(iii) Protecting Reputations:

Normally, products, develop a good or bad name, which transcends
international boundaries. It would be very difficult for an MNC to protect in
reputation if a foreign licensee does an inferior job. Therefore, MNCs prefer
to invest in a country rather than licensing and transfer expertise, to ensure
the maintenance of their good name.

(iv) Protecting Secrecy:

MNCs prefer direct investment, rather than granting a license to a foreign
company if protecting the secrecy of the product is important. While it may
be true that a license will take precautions to protect patent rights, it is
equally true that it may be less conscientious than the original owner of the
patent.

(v) Availability of Capital:

The fact that MNCs have access to capital markets has been advocated as
another reason why firms themselves moved abroad. A firm operating in
only one country does not have the same access to cheaper funds as a
larger firm. However, this argument, which has been put forward for the
growth of MNCs has been rejected by many critics.

(vi) Product Life Cycle Hypothesis:

It has been argued that opportunities for further gains at home eventually
dry up. To maintain the growth of profits, a corporation must venture abroad
where markets are not so well penetrated and where there is perhaps less
competition.

This hypothesis perfectly explains the growth of American MNCs in other

countries where they can fully exploit all the stages of the life cycle of a
product. A prime example would be Gillette, which has revolutionized the
shaving systems industry.

(vii) Avoiding Tariffs and Quotas:

MNCs prefer to invest directly in a country in order to avoid import tariffs
and quotas that the firm may have to face if it produces the goods at home
and ship them. For example, a number of foreign automobile and truck
producers opened plants in the US to avoid restrictions on-selling foreign
made cars. Automobile giants like. Fiat, Volkswagen, Honda and Mazda
are entering different countries not with the products but with technology
and money.

(viii) Strategic FDI:

The strategic motive for making investments has been advocated as
another reason for the growth of MNCs. MNCs enters foreign markets to
protect their market share when this is being threatened by the potential
entry of indigenous firms or multinationals from other countries.
(ix) Symbiotic Relationships:
Some firms have followed clients who have made direct investment. This is
especially true in the case of accountancy and consulting firms. Large US
accounting firms, which know the parent companies special needs and
practices have opened offices in countries where their clients have opened
subsidiaries.

These US accounting firms have an advantage over local firms because of

their knowledge of the parent company and because the client may prefer
to engage only one firm in order to reduce the number of people with
access to sensitive information. Templeton, Goldman Sachs and Earnest
and Young are moving with their clients even to small countries like Sri
Lanka, Panama and Mauritius.

Methods of Reducing Country Risk and Control:

1. Controlling Crucial Elements of Corporate Operations:

Most of the MNCs try to prevent operations in developing countries by
other local entities without their cooperation. This can be achieved if the
company maintains control of an element of operations.

For example, food and soft drink manufacturers keep their special
ingredients secret. Automobile companies may produce vital parts such as
engines in some other country and refuse to supply these parts if their
operations are seized.

2. Programmed Stages of Planned Disinvestment:

There is an alternative technique to handover ownership and control to
local people in future. This is sometimes a requirement of the host
government. There is a calculated move to involve themselves in stages.
3. Joint Ventures:
Instead of promising shared ownership in future, an alternative technique
for reducing the risk of expropriation is to share ownership with private or
official partners in the host country from the very beginning. Such shared
ownerships, known as joint ventures rely on the reluctance of local
partners, if private, to accept the interference of their own Government as a
means of reducing expropriation.

When the partner is the government itself, the disincentive to expropriation

is concerned over the loss of future investments. Multiple joint ventures in
different countries reduce the risk of expropriation, even if there is no local
participation. If the government of one country does expropriate the
business, it faces the risk of being isolated simultaneously by numerous
foreign powers.

Problems from the Growth of MNCs:

Much of the concern about MNCs stems from their size, which can be
formidable. MNCs may impose on their host governments to the
advantages of their own shareholders and the disadvantages of citizens
and shareholders in the country of shareholders in the past.

It can be difficult to manage economics in which MNCs have extensive

investments. Since MNCs often have ready access to external sources of
finance, they can blunt local monetary policy. When the Government
wishes to constrain any economic activity, MNCs may nevertheless expand
through foreign borrowing.

Similarly, efforts at economic expansion may be frustrated if MNCs move

funds abroad in search of advantages elsewhere. Although it is true that
any firm can frustrate plans for economic expansion due to integrated
financial markets, MNCs are likely to take advantage of any opportunity to
gain profits.

As we have seen, MNCs can also shift profits to reduce their total tax
burden by showing larger profits in countries with lower tax rates citizens
and shareholders in the country of shareholders in the past.

It can be difficult to manage economics in which MNCs have extensive

investments. Since MNCs often have ready access to external sources of
finance, they can blunt local monetary policy. When the host Government
wishes to constrain any economic activity, MNCs may nevertheless expand
through foreign borrowing.

Similarly, efforts at economic expansion may be frustrated if MNCs move

funds abroad in search of advantages elsewhere. Although it is true that
any firm can frustrate plans for economic expansion due to integrated
financial markets, MNCs are likely to take advantage of any opportunity to
gain profits. As we have seen, MNCs can also shift profits to reduce their
total tax burden by showing larger profits in countries with lower tax rates.

Multinational Corporations in India:

MNCs have been operating in India even prior to Independence, like
Singer, Parry, Philips, Unit- Lever, Proctor and Gamble. They either
operated in the form of subsidiaries or entered into collaboration with Indian
companies involving sale of technology as well as use of foreign brand
names for the final products. The entry of MNCs in India was controlled by
existing industrial policy statements, MRTP Act, and FERA. In the pre-
reform period the operations of MNCs in India were restricted.
New Industrial Policy 1991 and Multinational
Corporations:
The New Industrial Policy 1991, removed the restrictions of entry to MNCs
through various concessions. The amendment of FERA in 1993 provided
further concession to MNCs in India.

At present MNCs in India can

(i) Increase foreign equity up to 51 percent by remittances in foreign
exchange in specified high priority areas. Subsequently MNCs are free to
own a majority share in equity in most products.

(ii) Borrow money or accept deposit without the permission of Reserve

Bank of India.

(iii) Transfer shares from one non-resident to another non-resident.

(iv) Disinvest equity at market rates on stock exchanges.

(v) Go for 100 percent foreign equity through the automatic route in
Specified sectors.

(vi) Deal in immovable properties in India.

(vii) Carry on in India any activity of trading, commercial or industrial except

a very small negative list.

Thus, MNCs have been placed at par with Indian Companies and would
not be subjected to any special restrictions under FERA.

Criticisms against MNCs in India:

The operations of MNCs in India have been opposed on the following
grounds:
(i) They are interested more on mergers and acquisitions and not on fresh
projects.

(ii) They have raised very large part of their financial resources from within
the country.

(iii) They supply second hand plant and machinery declared obsolete in
their country.

(i v) They are mainly profit oriented and have short term focus on quick
profits. National interests and problems are generally ignored.

(v) They use expatriate management and personnel rather than competitive
Indian Management.

(vi) Though they collect most of the capital from within the country, they
have repatriated huge profits to their mother country.

(vii) They make no effort to adopt an appropriate technology suitable to the

needs. Moreover, transfer of technology proves very costly.

(viii) Once an MNC gains foothold in a venture, it tries to increase its

holding in order to become a majority shareholder.

(ix) Further, once financial liberalizations are in place and free movement is
allowed, MNCs can estabilize the economy.

(x) They prefer to participate in the production of mass consumption and

non-essential items.