MULTINATIONAL

CORPORATIONS
OBJECTIVES

Definitions

Features

Investment Motives

Reasons for Growth of MNCs

Pros and Cons of MNCs

Recent trends

Changing attitudes

MNCs in India

Different Business Sectors

DEFINITIONS

Refers to those corporations which have head

office in one country and business operations
spread across in many countries including
country of origin.
Corporations which have their home in one
country but live and operate under the laws and
customs of other countries as well are MNCs
Majority of MNCs are of American origin
CATEGORIES & FEATURES OF MNCS
Categories:
A Multinational
A Global
An International
A Transnational

Features:
Large size and profit motive
Cost and quality conscious
Multifarious activities
Invest funds in developing countries
Dominate global economy
Operate as per host country laws
Difficult to control and monitor their operations
Enjoy efficient management and functioning
INVESTMENT MOTIVES
Home countries enter or venture into developing
countries (host countries) for following reasons:
I. Strategic motive
a) Control over key sectors
b) Technological Monopoly
c) Market Development
d) Cheap Inputs
e) Political Safety
II. Economic motive
a) Financial strengths
b) Sources of funds
c) Earning higher profits
d) Economies of scale
e) Skilled manpower
REASONS FOR GROWTH OF MNCS

MARKET SUPERIORITIES
FINANCIAL SUPERIOROTIES
TECHNOLOGICAL SUPERIOROITIES
PRODUCT INNOVATION
BENEFITS RECEIVED FROM MNCs
Investment, income and employment

Transfer of technology

Increase in export and decrease in import

Equalizing cost of production around the world

Integration of national economy into the world economy

Contribution to research and development

Quality improvement and reduced domestic monopoly

Increased standard of living

Professionalization of management in the host country

Improve balance of payment position

MNCs are profit making organizations which pay high

dividends, motivating resource mobilization among
investors in host country
OPPOSITION LINES OF ARGUMENT
It does not stand for social welfare, rather for profit
maximization
Mis-utilisation of power and flexibility

MNCs can have unfavorable effect on the balance of

payment position of the country through outflow of large
sums of money in the form of dividends, profits, royalties,
interest, technical fees
MNCs can cause distraction and cause monopoly powers
in the long run
A grave threat to sovereignty of the nations

Direct and indirect interference in the political and other

strategic affairs
Depletion of nonrenewable natural resources
WHY INDIA IS ATTRACTING THE MNCS?
Fastest Growing economy

Huge market potential

FDI attractiveness

Labor competitiveness

Macro economic stability

 MNCS IN INDIA
India is the home of a number of multinational companies
since the countrys market was liberalized in 1991.
Initially The MNC from United States account 37% of
turnover of first 20 firm operated in India
Now scenario has changed a lot more enterprises from
European union like Britain, France, Netherlands, Italy,
Germany, Belgium and Finland have come to India and
outsourced their work to this country
Example Finnish mobile giant Nokia has their second
largest base in India
Many Indian firms have slowly and surely embarked on
global path and lead to the emergence of Indian
multinational companies.
MNCS OF INDIA
Tata Motors sells its passenger car Indica in UK through
a marketing alliance with Rover and has acquired a
Daewoo Commercial vehicles unit giving it access to
markets in korea and china
Ranbaxy is the ninth largest generics company in the
world. An impressive 76% of its revenue come from
overseas
Asian paints is among the 10 largest decorative paints
maker in the world and has manufacturing facilities
across 24 countries
Infosys has 25,634 employees including 600 from 33
nationalities other than Indian. It has 30 marketing
offices across the world and 26 global development
centers in US, Canada, Australia, UK and Japans
HISTORY OF MNC

First MNC in the World First MNC in India Indian MNC

RECENT TRENDS IN MNCS

Optimism MNCs have now started investing in

medium and small factories and developing them
to compete in the national market
Technology import due to favorable economy
and policies, MNCs are upgrading their
technologies and also importing new ones to
enhance functioning and systems
Open door policy encouragement to FDIs and
increasing their caps in different sectors has lead
to massive growth opportunities for MNCs
CHANGING ATTITUDES OF MNCS

Competition among MNCs

Legal provisions and rules pressure
Less dependence of MNCs
MNCs are considerate towards the host
countries
Shift of power
MNC AND MAKE IN INDIA
Help to reduce import and save on duty and
logistics cost
Lead time to deliveries reduced and stocks or
inventory management eased
Employment opportunities

Increased standard of living

Improvement in skills, technology and

management systems for India
BUSINESS SECTORS

Public Sectors
Departmental form
Public Corporation
Government Company
Private Sector

Joint Sector

Co-operative Sector
PUBLIC SECTOR
The business units owned, managed and controlled by
the central, state or local government are termed as
public sector enterprises or public enterprises.
These are also known as public sector undertakings.

Public enterprises consist of nationalized private

sector enterprises, such as, banks, Life Insurance
Corporation of India and the new enterprises set up
by the government such as Hindustan Machine Tools
(HMT), Gas Authority of India (GAIL), State Trading
Corporation (STC) etc.
CHARACTERISTICS OF PUBLIC SECTOR

(a) Government Ownership and Management

(b) Financed from Government Funds
(c) Public Welfare
(d) Public Utility Services
(e) Public Accountability
(f) Excessive Formalities
ADVANTAGES OF PUBLIC SECTOR

Balanced regional development

Boost the basic industries of an economy

Concentrate on public welfare activities

Promote export

Price control of essential goods

Limit the influence of private monopoly.

Ensure security of the country.

Minimise economic inequalities.

 Public Sector
Enterprises

Public
Departmental Form
Corporation

Government
Company
 DEPARTMENTAL FORM OF PSU
Departmental undertakings are the oldest among the
public enterprises.
Departmental Undertaking form of organization is
primarily used for provision of essential services such as
railways, postal services, broadcasting etc.
A departmental undertaking is organized, managed and
financed by the Government.
This form is considered suitable for activities where the
government desires to have control over them in view of
the public interest.
FEATURES OF DEPARTMENTAL PSU
a) It is established and controlled by a specific
department of the government. Each such department
is headed by a minister.
b) All policy matters and other important decisions are
taken by the controlling ministry.
c) The Parliament lays down the general policy for such
undertakings.
d) The enterprise is financed by annual appropriation
from the treasury and all or major share of its
revenues are paid into the treasury.
e) It is subject to budgetary, accounting and audit control.
f) Its policy is laid down by the government and it is
accountable to the legislature
 PUBLIC CORPORATIONS (STATUTORY)
Statutory corporation is also known as public corporation.
Statutory Corporation refers to a corporate body created by
the Parliament or State Legislature by a special Act which
define its powers, functions and pattern of management.
Its capital is wholly provided by the government. Its
management pattern, its powers and functions, the area of
activity, rules and regulations for its employees and its
relationship with government departments, etc. are
specified in the concerned Act.
Examples of statutory corporations are State Bank of India,
Life Insurance Corporation of India, Industrial Finance
Corporation of India, State Trading Corporation etc.
It may be noted that more than one corporation can also be
established under the same Act. State Electricity Boards
and State Financial Corporation fall in this category.
 FEATURES
1. It is wholly owned by the State.
2. It is generally created by a special law defining its powers and
duties
3. As a corporate body it is a separate entity for legal purposes
and can sue and be sued, enter into contract and acquire
property in its own name.
4. A public corporation is usually independently financed.
5. It is generally exempted from most regulatory and
propitiatory statues applicable to expenditure of public
funds.
6. It is ordinarily not subject to budget accounting and audit
laws and procedure applicable to non corporate agencies.
7. In majority of cases, employees of public corporations are not
civil servants and they are recruited and remunerated under
terms and conditions, which the corporation itself
determines.
 GOVERNMENT COMPANY
Government Company refers to the company in which
51 percent or more of the paid up capital is held by the
government.
It is registered under the Indian Companies Act, 1956
and is fully governed by the provisions of the Act.
Most business units owned and managed by
government fall in this category.
It has a separate legal entity. It can sue and be sued,
and can acquire property in its own name.
The annual reports of the government companies are
required to be presented in parliament.
 The capital is wholly or partially provided by the
government.
It is managed by the Board of Directors. All the
Directors or the majority of Directors are appointed
by the government, depending upon the extent of
private participation.
Its accounting and audit practices are more like
those of private enterprises and its auditors are
Chartered Accountants appointed by the
government.
Its employees are not civil servants. It regulates its
personnel policies according to its articles of
associations.
 PRIVATE SECTOR
Completely owned, managed and controlled by
private individual or group of individuals.
No government interference except for social norms,
sole authority in decision making and profit sharing
Types:

Sole Proprietorship
Partnership
Joint Hindu Family
Joint Stock Company
 SOLE PROPRIETORSHIP
A sole proprietorship is a business owned and
operated by one individual.
The shops or stores which you see in your locality
- the grocery store, the vegetable store, the sweets
shop, the chemist shop, the paan-wala, the
stationery store, the STD/ISD telephone booths
etc come under sole proprietorship.
When the ownership and management of a
business are in control of one individual the form
of business is called sole proprietorship.
CHARACTERISTICS
The business enterprise is owned by one single
individual (i.e. both profit and risk belong to him)
Owner is the Manager

Owner is the only source of Capital

The proprietor and business enterprise are same in

the eyes of the law.
Suitability of SP:

For business where capital required is small and

risk involvement is not heavy, this type of firm is
suitable.
It is also considered suitable for the production of
goods which involve manual skill e.g. handicrafts,
filigree works, jewellery, tailoring, haircutting etc
Advantages:
Easy to start

No registration

No profit sharing

Easy decision-making

Easy to windup

Secrets (information about business techniques)

No corporate taxes

Disadvantages:

Unlimited liability

Employee benefits such as medical insurance

premiums not deductible(taxes)
Difficulty in raising funds

Limited Life
 JOINT HINDU FAMILY BUSINESS
Comes into existence as per the Hindu Inheritance Act of
India
This form of business found only in India
All members of the Hindu Undivided Family(HUF) own the
business jointly
The affairs of the business are managed by head of the
family called Karta. All other members are called Co-
partners
Membership is restricted only to members of the Joint
family. No outsider can become the member
Karta has unlimited liability while all other members have
limited liability
The share of each member keeps on fluctuating
Business continues to exist upon the death of any member
or Karta.
 ADVANTAGES OF HUFs:
Every co-partner has an assured share in profits
The business has continued existence
Decision making is quick as the powers are with
the Karta
No corporate tax
People use it mostly for tax benefits these days

DISADVANTAGES OF HUFs:
Absolute power in the hands of Karta.
Instability
Limited Resources can be raised
Scope for conflict
PARTNERSHIP

A Partnership is a legal relationship formed by the

agreement between two or more individuals to carry
on a business as co-owners.
Each member of such a group is individually known as
partner and collectively the members are known as a
partnership firm.
These firms are governed by the Indian Partnership
Act, 1932.
A Partnership consists of two or more individuals in
business together
 CHARACTERISTICS OF PF
1. Number of Partners: Maximum limit is 10 in case of
banking business and 20 in case of all other types of
business.
2. Contractual Relationship: The agreement in writing is
known as a Partnership Deed.
3. Competence of Partners: Minors and insolvent persons
are not eligible.
4. Sharing of Profit and Loss: In absence of an agreement,
they share it equally or as decided in agreement
5. Transfer of Interest: No partner can sell or transfer his
interest in the firm to anyone without the consent of other
partners.
6. Voluntary Registration: Registration of partnership is not
compulsory. But since registration entitles the firm to
several benefits, it is considered desirable.
Advantages:
Relatively easy to start
The ability to raise funds
More skilled persons
Loss sharing
Disadvantages:
Unlimited liability
Profit sharing
Conflicts
Limited life
Transferability is difficult
Suitability of PF:
Retail and wholesale trade,
Professional services,
Medium sized mercantile houses and
Small manufacturing units.
JOINT STOCK COMPANY
A voluntary association of persons to carry on
business.
Members of a joint stock company are known as
shareholders and the capital of the company is
known as share capital.
The companies are governed by the Indian
Companies Act, 1956.
Tata Iron & Steel Co. Limited, Hindustan Lever
Limited, Reliance Industries Limited, Steel Authority
of India Limited, Ponds India Limited etc.
FEATURES OF JSC
1) Artificial Person
2) Separate Legal Entity for management and
ownership
3) Common Seal
4) Perpetual Existence
5) Limited Liability
6) Transferability of Shares through which capital is
raised
7) Membership: Minimum 2 persons and maximum
fifty for a Private Limited Company. Public Limited
Company, the minimum 7 and the maximum
membership is unlimited
Advantages of JSC:
Limited Liability.
Continuity of existence.
Benefits of large scale operation.
Professional Management.
Social Benefit.

Disadvantages of JSC:
Formation is not easy.
Control by a Group.
Excessive government control.
Delay in Policy Decisions.

Suitability of JSC: A joint stock company is suitable

where the volume of business is quite large, the area
of operation is widespread; eg - banking and
insurance.
IMPORTANCE OF PRIVATE SECTOR
Improves the economic development of the country
Increases employment opportunities direct and
indirect
Enhances quality of goods and services delivered
Increases standard of living
Competition leads to efficiency and variety for choice
Helps in attaining global recognition and
benchmarking
Contributes to the economy also by paying taxes,
duties and other such revenue sources to government
Attracts FDI
Reduces red tapism and corruption
Platform for technological advancement and utilization
of resources
DRAWBACKS OF PRIVATE SECTOR
Lengthy procedures for entry, licensing and exit
government regulations
Heavy taxes and duties

Increasing cost of productions labor, raw materials

and equipment
Heavy competition from MNCs and other national
firms for SMEs
Unethical practices observed and frauds

Exploitation of workers and resources for profit

maximization
Ignoring social concern
 Distinction between Private Sector and Public
Sector
Private Sector Public Sector

Profit motive is of primary Profit motive is of secondary

importance. importance.

Owned and managed by Owned and managed by Central or

individuals. State Govt.

Limited capital. Large capital.

Limited Capital. Large amount of capital is needed.

Equitable distribution of wealth

It causes concentration of wealth.
and income.
Face competition in the market. Absence of competition.

It dominates in the production of It dominates in the production of

consumer goods. producer goods.

Chances of exploitation of general

Protect people from exploitation.
public.

It does not undertake risky

It undertakes risky ventures.
ventures.

It leads to unbalanced growth of It encourages industrial growth of

industries. under-developed regions.

Wastage of material and labour is Wastage of material and labour is

minimum. maximum.
JOINT SECTOR

Joint sector industries are owned jointly by the

government and private individuals who have
contributed to the capital.
In joint sector, both public sector and private sector
join hands to establish new enterprise. It combines
merits of both public and private sector. The concept
of joint sector matches with the concept of mixed
economy.
As mixed economy is the combination of both
capitalism and socialism, joint sector is combination
of both public sector and private sector.
FEATURES

In joint sector financial participation is 26 % from

the government, 25% from private enterprise and
49% from public and financial institutions.
In case of a foreign collaboration or participation
with domestic partner, the share of government will
be 25%, Indian business concern 20%, foreign
investor 20% and public 35% in the paid up capital.
No single party can hold more than 25% of the
shares without the sanction of central government.
SCOPE OF JOINT SECTOR
Social control over industries: preventing monopoly by private
sector
Merging private and public Sector. Efficiencies and technology of
private sector and funds and government support from public
sector
Acceleration Of Economic Growth: for all sections of the
economy and also SMEs
State Sponsored Industrialization: the government decides on
the choice of projects which are desirable from a social point of
view and persuades private parties to join hands
Extension Of Public Control: improved version of public sector
for betterment of the people and society
Mobilization Of Financial, Technical and Managerial Resources:
from private sector to moderate the flow of resources into the
economy for increased per capita income
Instrument of industrial growth and regional development
DRAWBACKS OF JOINT SECTOR

1. Choice of Project
2. Matrix management and structure issues
3. Limitations of public sector red tapism and
corruption
4. Limitations of private sectors lack of social welfare
and exploitation of resources
5. Extent of government interference and profit
distribution issues
COOPERATIVE SECTOR
It refers to the sector which is voluntary association of
persons owned and managed for their or sometimes the
communities benefit. A cooperative is a legal entity with
several Corporate features, such as limited liability, an
unlimited life span, an elected board of directors.
Members or Owners pay annual fees to the cooperative
and share profits.
A cooperative organization is an association of persons,
usually of limited means, who have voluntarily joined to
achieve a common economic and through the formation
of a democratically controlled organization, making
equitable contributions to the capital required and
accepting a fair share of risks and benefits of the
undertaking.
A cooperative is defined as an autonomous
association of persons united voluntarily to
meet their common economic, social, and
cultural needs and aspirations through a
jointly-owned and democratically-controlled
enterprise.

A cooperative may also be defined as a

business owned and controlled equally by the
people who use its services or who work at it.
 Co-operatives are autonomous associations formed and
democratically directed by people who come together to
meet common economic, social, and cultural needs.
Founded on the principle of participatory governance,
co-ops are governed by those who use their services:
their members.
The International Labor Organization stated it as :
A Co-operative organization is an association of persons
who have voluntarily joined together to achieve a
common economic end through the formation of a
democratically controlled organization, making
equitable contributions to the capital required and
accepting a fair share of risks and benefits of the
undertaking.
FEATURES
Voluntary association
Open membership min 10
Legal entity
Equal voting right
Service Motive
Co-operation among Co-operatives
Concern for community
Self help and mutual assistance

The five pillars of a co-operative organization are :

Mutual Trust
Mutual Supervision
Self-reliance
Spontaneity
Equality
TYPES OF COOPERATIVES

Consumers Cooperative Societies

Producers Cooperative Societies

Housing Cooperative Societies

Credit Cooperative Societies

 Co-operative
Sector
Enterprises

Producers Housing
Co-operative Co-operative
Society Society

Consumers Credit
Co-operative Co-operative
Society Society
 Producers Co-operative Society :
In this form, the workers wish to be their own
masters. They elect their own managers. They are
their own employees.
The profit goes to the actual workers. There are no
strikes and lock-outs.
Egs haryana handloom, APPCO
Examples :
Agricultural Industries.
Cottage Industries.
Shortcomings :
Inadequate capital
Inefficient management
Lack of discipline
 Housing Co-operative Society:
These are formed for the purpose of getting plots or
constructing house for the needy persons.
Government provides great facilities for this
purpose.
These societies are formed to provide residential
houses to members. They purchase land, develop it
and construct houses or flats and allot the same to
members. Some societies also provide loans at low
rate of interest to members to construct their own
houses.
The Employees Housing Societies and Metropolitan
Housing Co-operative Society are examples of
housing co-operative society
 Credit Co-operative Society :
Its object is to finance the poor cultivators by providing loans at
low rate of interest for the development of land, purchase of
agricultural machinery, fertilizers etc.
Advantages :
Provide better methods and tools of production to small
manufacturers and craftsmen
Help the farmers in farming and marketing their products
efficiently
Provide financial assistance at moderate rate of interest
Opening of super bazaar types of stores gives relief to the weaker
section of the society
Disadvantages :
Lack of Co-ordination
Chances of undue advantages
Favorism
Limited Capital
Inefficient Management
Political influence
 Consumers Co-operative Society :
The consumers living in a particular area combine
together. Each contributes a small capital.
A store is opened in which articles of common use
are stocked and sold at reasonable prices. Such
stores are found in colleges and schools.
Advantages :
Much capital is not needed
The management is simple and honorary
There is legal control and inspection
Disadvantages :
They offer very little selection for consumers
The honorary office bearers do not take much pains,
they are sometimes dishonest
 Consumers Co-operative Society: These societies are formed to
protect the interest of general consumers by making consumer
goods available at a reasonable price. They buy goods directly
from the producers or manufacturers and thereby eliminate the
middlemen in the process of distribution. Kendriya Bhandar,
Apna Bazar and Sahkari Bhandar are examples of consumers
co-operative society
Co-operative Marketing Society: These societies are formed by
small producers and manufacturers who find it difficult to sell
their products individually. The society collects the products
from the individual members and takes the responsibility of
selling those products in the market. Gujarat Co-operative Milk
Marketing Federation that sells AMUL milk products is an
example of marketing co-operative society.
Co-operative Farming Society: These societies are formed by
small farmers to work jointly and thereby enjoy the benefits of
large-scale farming. Lift-irrigation cooperative societies and
pani-panchayats are some of the examples of co-operative
farming society
MERITS OF COOPERATIVES

Easy Formation
Open membership

Democratic Control

Limited liability

Elimination of Middlemens profit

State Assistance

Stable Life
DEMERITS OF COOPERATIVES

Limited Capital
Problems in management

Lack of motivation

Lack of Cooperation

Dependence on government
EXAMPLE

Amul (Anand Milk Union Limited), formed in

1946, is a Dairy co-operative movement in
India. Which today is jointly owned by some
2.6 million milk producers in Gujarat , India.
Indian Coffee House

Adrash Co-operative Bank

Shri Mahila Griha Udyog Lijjat Papad

 Distinction between Co-operative and Joint
Stock Company
Parameters Co-operative Society Joint Stock Company
Under Co-op. Society
Formation Under Companies Act.
Act.
Limits to Minimum 2 for Private Ltd.
Minimum 10
membership and 7 for Public Ltd.

Local or regional
Membership Wide spread membership
territory.

Capital Limited. Large capital.

Transfer of Shares are not

Shares are transferable.
shares transferable.

Liability Limited. Limited.

 Spirit of
Spirit of competition.
Co-operation.
Fundamental Promote self-help and No need for unity of
Principles mutual assistance. purpose.
Large number of
Unity of purpose.
shareholders.
Maximum dividends on
Distribution of shares 12 p.c. No limit on dividend.
profit
Not profit motive. Profit motive.

Privileges Special privileges. No special privileges.

Democratic with equal Democratic with unequal
Management
voting rights. voting rights.

Contact Good contact. No such contact.

Life Short. Permanent existence.