INTRODUCTION

Multinational companies are the enterprises or organizations that manage production or offer
services in more than one country. India has been the home to a number of multinational
companies. Indeed, since the financial liberalization in the country in 1991, the number of
multinational companies in India has increased noticeably. Although majority of the
multinational companies in India are from the U.S., however one can also find companies
from other countries as well. Multinational companies in India are taking their toll on family
businesses. They are not only destroying the household economies for small business people
but also leading to the cultural uniformity of the global brands in the market place in India.
There are many 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 the most important
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 economic liberalization of the country, especially later 1991 Government,
nowadays, makes constant efforts to attract foreign investments by relaxing several of its
policies. As a result, a number of multinational companies have shown interest in the Indian
market.

MEANING-Multinational companies are those enterprises whose management, ownership

and controls are spread in more than one foreign country.

DEFINITION-According to an ILO report, 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 a number of other countries as well.

WHY IS INDIA ATTRACTING THE MULTINATIONAL COMPANIES?

India is one of the fastest growing economies of our times. The country has a huge market for
goods and services due to its vast population and consumer power. The policy of the
government towards foreign direct investment contributed immensely to attracting the
multinational corporations to India. In the past, before the boom of foreign investments, India
had strict policy of terms in FDI. Thus, there were fewer companies interested in investing in
India until in the year 1991 when the policy was changed to start attracting FDI. More and
more companies find their way to India now and then. Some of the notable multinational
companies that are currently operating in India include British Petroleum, LG, Skoda Motors,
Hyundai, Samsung, Vodafone, Ford Motors, Reebok and Accenture among others.
A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is
registered in more than one country or that has operations in more than one country. It can
also be referred to as an international corporation. They play an important role in
globalization. The first multinational corporation was the Dutch East India Company,
founded March 20, 1602.

Strategies

Corporations may make a foreign direct investment. Foreign direct investment is direct
investment into one country by a company in production located in another country either by
buying a company in the country or by expanding operations of an existing business in the
country.

A subsidiary or daughter company is a company that is completely or partly owned and

wholly controlled by another company that owns more than half of the subsidiary's stock.
A corporation may choose to locate in a special economic zone, which is a geographical
region that has economic and other laws that are more free-market-oriented than a country's
typical or national laws.

COMMUNICATION BETWEEN DIFFERENT CULTURES

Multinational corporations need to deal with different cultures of their employees, partners,
suppliers and customers. Cross-cultural communication (frequently referred to as intercultural
communication) is a field of study that looks at how people from differing cultural
backgrounds communicate, in similar and different ways among themselves, and how they
end favour to communicate across cultures.

Intercultural competence is the ability of successful communication with people of other

cultures. A person who is intercultural competent captures and understands, in interaction
with people from foreign cultures, their specific concepts in perception, thinking, feeling and
acting. Earlier experiences are considered, free from prejudices; there is an interest and
motivation to continue learning.

CONFLICT OF LAWS

Conflict of laws is a set of procedural rules that determines which legal system and which
jurisdictions applies to a given dispute. The term conflict of laws itself originates from
situations where the ultimate outcome of a legal dispute depended upon which law applied,
and the common law courts manner of resolving the conflict between those laws. In civil law,
lawyers and legal scholars refer to conflict of laws as private international law. Private
international law has no real connection with public international law, and is instead a feature
of local law which varies from country to country.

The three branches of conflict of laws are

Jurisdiction whether the forum court has the power to resolve the dispute at hand
Choice of law the law which is being applied to resolve the dispute
Foreign judgments the ability to recognize and enforce a judgment from an external forum
within the jurisdiction of the adjudicating forum

Globalization

Multinational corporations are important factors in the processes of globalization. National

and local governments often compete against one another to attract MNC facilities, with the
expectation of increased tax revenue, employment, and economic activity. To compete,
political entities may offer MNCs incentives such as tax breaks, pledges of governmental
assistance or subsidized infrastructure, or lax environmental and labor regulations. These
ways of attracting foreign investment may be criticized as a race to the bottom, a push
towards greater autonomy for corporations, or both. MNCs play an important role in
developing the economies of developing countries like investing in these countries provide
market to the MNC but provide employment, choice of multi goods etc.

On the other hand, economist Jagdish Bhagwati has argued that in countries with
comparatively low labour costs and weak environmental and social protection, multinationals
actually bring about a 'race to the top.' While multinationals will certainly see a low tax
burden or low labour costs as an element of comparative advantage, Bhagwati disputes the
existence of evidence suggesting that MNCs deliberately avail themselves of lax
environmental regulation or poor labour standards. As Bhagwati has pointed out, MNC
profits are tied to operational efficiency, which includes a high degree of standardisation.
Thus, MNCs are likely to adapt production processes in many of their operations to conform
to the standards of the most rigorous jurisdiction in which they operate (this tends to be either
the USA, Japan, or the EU).

As for labour costs, while MNCs clearly pay workers in developing countries far below
levels in countries where labour productivity is high (and accordingly, will adopt more
labour-intensive production processes), they also tend to pay a premium over local labour
rates of 10 to 100 percent.[8] Finally, depending on the nature of the MNC, investment in any
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country reflects a desire for a medium- to long-term return, as establishing plant, training
workers, etc., can be costly. Once established in a jurisdiction, therefore, MNCs are
potentially vulnerable to arbitrary government intervention such as expropriation, sudden
contract renegotiation, the arbitrary withdrawal or compulsory purchase of licenses, etc.
Thus, both the negotiating power of MNCs and the 'race to the bottom' critique may be
overstated, while understating the benefits (besides tax revenue) of MNCs becoming
established in a jurisdiction.

TRANSNATIONAL CORPORATIONS

A Transnational Corporation (TNC) differs from a traditional MNC in that it does not
identify itself with one national home. Whilst traditional MNCs are national companies with
foreign subsidiaries, TNCs spread out their operations in many countries sustaining high
levels of local responsiveness.

An example of a TNC is Nestl who employ senior executives from many countries and try
to make decisions from a global perspective rather than from one centralized headquarters.
However, the terms TNC and MNC are often used interchangeably.

CRITICISM OF MULTINATIONALS

Main articles: Anti-globalization and Anti-corporate activism

Anti-corporate advocates criticize multinational corporations for entering countries that have
low human rights or environmental standards.
They claim that multinationals give rise to huge merged conglomerations that reduce
competition and free enterprise, raise capital in host countries but export the profits, exploit
countries for their natural resources, limit workers' wages, erode traditional cultures, and
challenge national sovereignty.

FEATURES OF MULTINATIONAL CORPORATIONS (MNCS)

The multinational corporations have certain characteristics which may be discussed below :

(1) Giant Size:

The most important feature of these MNCs is their gigantic size. Their assets and sales run
into billions of dollars and they also make supernormal profits. According to one definition
an MNC is one with a sales turnover of f 100 million. The MNCs are also super powerful
organisations. In 1971 out of the top ninety producers of wealth, as many as 29 were MNCs,
and the rest, nations. Besides the operations, most of these multinationals are spread in a vast
number of countries. For instance, in 1973 out of a total of (, 000 firms identified nearly 45
per cent had affiliates in more than 20 countries.

(2) International Operation:

A Fundamental feature of a multinational corporation is that in such a corporation, control

resides in the hands of a single institution. But its interests and operations sprawl across
national boundaries. The Pepsi Cola Company of the U.S operates in 114 countries. An MNC
operates through a parent corporation in the home country. It may assume the form or a
subsidiary in the host country. If it is a branch, it acts for the parent corporation without any
local capital or management assistance. If it is a subsidiary, the majority control is still
exercised by the foreign parent company, although it is incorporated in the host country. The
foreign control may range anywhere between the minimum of 51 per cent to the full, 100 per
cent. An MNC thus combines ownership with control. The branches and subsidiaries of
MNCs operate under the unified control of the parent company.

(3) Oligopolistic Structure:

Through the process of merger and takeover, etc., in course of time an MNC comes to
assume awesome power. This coupled with its giant size makes it oligopolistic in character.
So it enjoys a huge amount of profit. This oligopolistic structure has been the cause of a
number of evils of the multinational corporations.

(4) Spontaneous Evolution:

One thing to be observed in the case of the MNCs is that they have usually grown in a
spontaneous and unconscious manner. Very often they developed through "Creeping
instrumentalism." Many firms become multinationals by accident. Sometimes a firm
established a subsidiary abroad due to wage differentials and better opportunity prevailing in
the host country.

(5) Collective Transfer of Resources:

An MNC facilitates multilateral transfer of resources Usually this transfer takes place in the
form of a "package" which includes technical know-how, equipment's and machinery,
materials, finished products, managerial services, and soon, "MNCs are composed of a
complex of widely varied modern technology ranging from production and marketing to
management and financing. B.N. Ganguly has remarked in the case of an MNG "resources
are transferred, but not traded in, according to the traditional norms and practices of
international trade."

(6) American dominance:

Another important feature of the world of multinationals is the American dominance. In

1971, out of the top 25 MNCs, as many as 18 were of U.S. origin. In that year the U.S. held
52 per cent of the total stock of direct foreign private investment. The U.E. has assumed more
of the role of a foreign investor than the traditional exporter of home products.

(7) Operations in several countries:

These corporations operate in a number of countries. The parent corporation is in home
country and production and marketing activities are carried on in a number of host countries.
These corporations operate through subsidiaries or branches set up in different countries.

(8) Centralised Management:

The management of MNCs is centralized. The plans and policies are framed in the parent
country and subsidiaries and branches in host countries only implement them. The MNCs
have controlling equities in subsidiary companies and implement their main policies
everywhere

(9) Professional Management:

Since multinationals have large financial resources at their command, they appoint
professional managers to undertake various activities. The specialists in the fields of finance,
production, marketing etc .are appointed to look after various functions.

SIGNIFICANCE OF MULTINATIONAL CORPORATIONS (MNCS):

The multinational corporations today have a revolutionary effect on the international

economic system. It is so because the growth of international transactions of the
multinationals has affected the more traditional forms of capital flows and international trade
for many economies. Today they constitute a powerful force in the world economy.

The value of the products sold by the MNCs in 1971 was more than $ 500 billion which was
about one-fifth of the GNP of the entire world, excepting that of socialist economies. In the
host countries, the volume of their production was about $ 330 billion. The present growth
rate of their output in the host countries is a spectacular 10 per cent per annum which is
almost double the growth rate of the world GNP.

In the field of international trade and international finance, the multinational firms have come
to exercise enormous power. In early seventies the MNCs accounted for about one-eighth of
all international trade- From the nature of their growth it may be presumed that in the early
eighties their share will raise to one-fourth.

Among the developing countries only India had an annual income twice that of General
Motors, which is the biggest multinational corporation. Otherwise the annual income of the
other less developed countries is much less than that of the giant MNCs. By their sheer size
the MNGs can disrupt the economies of the less developed countries, and may even threaten
their political sovereignty.

We may comprehend the relative economic power of the MNCs visa-a-visa the nation-states
by ranking them together according to gross annual sales and gross national product
respectively. As Lester R. Brown has shown, out of 100 entries in the merged list 56 were
nation-states and as many as 44 were MNCs. According to one estimate by early eighties
some 300 large MNCs will come to control 75 per cent of the world's manufacturing assets.

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METHODS OF OPERATIONS

1. Franchising

In this form, Multinational Corporation grants firms in foreign countries the right to use its
trade marks, patents, brand names etc. The firms get the right or licence to operate their
business as per the terms and conditions of franchise agreement. They pay royalty or licence
fee to multinational corporations. In case the firm holding franchise violates the terms and
conditions of the agreement, the licence may be cancelled. This system is popular for
products which enjoy good demand in host countries.

2. Branches
In this system Multinational Corporation opens branches in different countries. These
branches work under the direction and control of head office. The headquarters frames
policies to be followed by the branches. Every branch follows laws and regulations of the
head office and host countries. In this way multinational companies operate through
branches.

3. Subsidiaries
A multinational corporation may establish wholly owned subsidiaries m foreign countries. In
case of partly owned subsidiaries people in the host countries also own shares. The
subsidiaries in foreign countries follow the polices laid down by holding company (Parent
company). A multinational company can expand its business operations though subsidiaries
all over the world.

4. Joint Venture

In this system a multinational corporation establishes a company in foreign country in

partnership with local firms. The multinational and foreign firm share the ownership and
control of the business. Generally, the multinational provides technology and managerial skill
and the day to day management is left to the local partner.

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For example, in Maruti Udyog the Government of India and Suzuki of Japan have jointly
supplied capital. Suzuki supplies technology and the day to day management lies with the
Government of India.

5. Turn Key Projects

In this method, the multinational corporation undertakes a project in foreign country. The
multinational constructs and operates the industrial plant by itself. It provides training to the
staff in the operation of plant. It may also guarantee the quality and quantity of production
over a long period of time.

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Impact of MNCs on Indian Industrial Sectors

So far, we have analyzed the Indian Economy and the way in which multinational have added
more value and increased the exports, GDP and productivity, resulting in all round
development. Furthermore, we have the actual analysis of the effect of MNCs on various
Indian Industrial Sectors. Certain important sectors are considered and the actual effects of
MNCs i.e. the practical way in which they are affected are studied viz.
1. Cement
2. Aviation
3. Automobiles
4. Auto Components
5. Biotechnology
6. Financial Services
7. Food Industry
8. Gems and Jewellery
9. Healthcare
10. Information Technology
11. IT enabled Services
12. Media & Entertainment
13. Oil & Gas
14. Pharmaceuticals
15. Real Estate
16. Retail
17. Research & Development
18. Science & Technology
19. Steel
20. Textiles
21. Telecommunications
22. Tourism & Hospitality
23. Training & Education

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Impact of MNCs on Automobile industry

The present scenario is a highly transformed one. Multinational giants are vying with one
other to launch their models. Big names of the vehicle industry like the Korean giant,
Hyundai, General Motors, and Mitsubishi etc. have already opened their account. In other
vehicle segments too, Volvo, Mercedes Benz, Audi etc. have carved out their niche. In the
two-wheeler segment besides the other major MNC brands made available to the Indian
Consumers.
As a result conducting business in the Automotive Industry has become more competitive
and sophisticated, which increases the demand for multi skilled personnel. Employment
opportunities are emerging with Manufacturers, Dealership Operations including Parts, Sales,
Service, Leasing & Financing, as well as in the fast developing Automotive Aftermarket
sector. On the other hand, Manufacturing in India has also come of age.

The post liberation economical scenario has resulted in all the big names such as General
Motors, Ford, Toyota, Honda, Suzuki, Mitsubishi, Mercedes-Benz, Fiat to come up with
plants in India. The Indian automotive giants like Telco, Mahindra, Ashok Leyland, Bajaj are
revamping their production strategies and launching new models designed and developed
indigenously.
This has opened up numerous opportunities or employment in this sector for trained and
skilled professionals who are well versed in the latest manufacturing process. The growth
curve of India Auto Inc. has been on an upswing for the past few years. The high growth
observed since 2001-02 in automobile production continued in the first three quarters of the
2004-05.
Annual growth was 16.0 per cent in April-December, 2004; the growth rate in 2003-04 was
15.1 percent. Consequent to liberalisation, the arrival of new and contemporary models, easy
availability of finance at relatively low rate of interest and price discounts offered by the
dealers and manufacturers appear to have stimulated the demand for vehicles and a strong
growth of the industry. The automotive industry is the barometer of any major economy and
the same holds true for India as well. There has been a phenomenal growth in the automotive
manufacturing sector in our economy.

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India has become a launch pad

Rising sales and strong growth prospects heightened the popularity of auto stocks in July
2004 as foreign institutional investors (FIIs) increased their stakes in key automobile
companies like Mahindra & Mahindra, Ashok Leyland, Maruti Udyog, TVS Motors and
Hero Honda. Global names such as Daimler Chrysler and Porsche have begun introducing
their new offerings in India. DaimlerChrysler plans to launch the new Mercedes SLK
roadster, which has just hit European roads, in India by October-November 2004. Porsche is
bringing in the Cayenne and Toyota is planning a simultaneous release of its IMV.

Manufacturing sector
The resurgence of India's manufacturing sector has been quite magical. Not only are profits
soaring, the sector is fast spreading its tentacles abroad as many Indian manufacturing firms
inch close to becoming true blue multinationals. The Indian economy grew by 7.4 percent in
the April-to-June quarter, FY2005, buoyed by growth in manufacturing and services.
Manufacturing grew 8 percent in the quarter, compared with 7.6 percent in the previous
Quarter. The picture is about to brighten further.

Some large Indian investments

ONGC's 25 per cent stake buy-out in a Sudan oil firm from Talisman Energy of
Canada for $720 million (around Rs 3,312 crore)

The Hinduja's purchase of controlling interest in C3, a call centre in the Philippines

Msource's Spanish language centre in Tijuanna, Mexico

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Impact on Telecom Industry

One of the fastest growing sectors in the country, telecommunications has been growing at a
feverish pace in the past few years. The speed of growth can be gauged by the fact that in
2004, ten years after private telephony was introduced in India, the mobile subscriber base
had crossed the number of fixed line connections.

While fixed lines touched 44 million at the end of 2004, the cellular user base
registered a 68 per cent growth to touch the 48-million mark. More than a third of
these subscribers were added during 2004.

The total telecom subscriber base, consisting of fixed as well as mobile users,
registered a growth of 31.42 per cent to touch 92.76 million at the end of 2004. The
gross telecom user base stood at 70.58 million at the end of 2003. (According to the
Telecom Regulatory Authority of India (TRAI), the growth in the mobile subscriber
segment picked up in December 2004 after remaining at around 1.5 million per month
for the previous two months.)

The year 2004 ended with the tele-density reaching an all-time high of 8.62, as
compared to 6.65 at the end of 2003, an increase of over 30 per cent.

In the mobile segment, additions consisted of 1.42 million GSM subscribers and 0.53
million CDMA subscribers. The total of 19.51 million mobile users in 2004 marks an
increase of 11.5 per cent over the 17.49 million additions made in 2003.

Even in fixed line, 2.67 million subscribers were added as compared to 2.15 million
new users during 2003, registering an increase of 24 per cent.

The non-voice market (message and data services) for mobile operators has also registered
tremendous growth in 2004. According to a study by IDC, it had a growth of 139 per cent
year on year in 2004. At present non-voice revenue contributes around 4.7 per cent to the
total mobile services revenue, which is around Rs. 14,560 crore (US$ 3.3 billion). Analysts
believe that if the current rate of growth is maintained, it could add up to amazing figures in
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the next few years. A study released by Ernst and Young says revenues from the sector could
touch US$ 25 billion by 2007.

Indian companies going global

India offers an unprecedented opportunity for telecom service operators, infrastructure

vendors, manufacturers and associated services companies. As the sector has been
performing well, the bulging bottom lines of Indian telecom companies are making them
invest in assets.

The Tata group's Videsh Sanchar Nigam Ltd. (VSNL) struck a $130-million deal to
pick up Tyco Global Network's (TGN) 37,208-mile (60,000 kilometre) submarine
fibre optic network that connects northern Asia, America and Europe. As part of the
TGN deal, VSNL also received a dark ( uncommissioned) fibre that links Japan to
Singapore and 200 employees of TGN. The Tyco cable has the largest capacity
globally. It is of the order of 7 terabits on the Pacific route. Within days of bagging
TGN, VSNL inaugurated its own 3,175-kilometre, 5.12-terabit Chennai-Singapore
submarine link. Tyco has supplied the optic fibre for the Chennai-Singapore link.

VSNL's was the second submarine cable deal struck by an Indian company in 2004.
Reliance Info comm. had also picked up FLAG Telecom for $210 million a few
months before VSNL bought TGN.

The Tata Group has also won a bid to acquire 26 per cent stake in South Africa's
second network operator (SNO) that gives the company a mandate to develop and
operate both national long distance (NLD) and fixed-line networks in the country. The
development helped Tata gain a foothold in the South African market.

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Impact on Food and Beverages Sector

New Delhi: India's booming tourism sector and its rapidly growing Western-style fast food
joints offer unlimited opportunities for foreign food and beverage exporters, as Indian food
imports are likely to grow 6-7 per cent over the next few years, says a study. Eyeing the over
250 million-strong middle class, a US department study says the prospects for investment in
Indian markets could be gauged from the fact that total Hotel, Restaurant and Institutional
(HRI) service sector sales of F and B amounted to $ 8 billion during 2003-04.

An upswing in the Indian hotel industry since 2003 following turnaround of the global
tourism industry, positive impact of 'Incredible India' tourism promotion campaign and the
world's increasing interest in India's rapidly growing economy are some of the main reasons
cited for growth. Though Indian consumers, on an average, spend only 2.5 per cent of their
food expenditure in hotels and restaurants, the HRI service sector is expected to grow by 6-7
per cent over the next few years.

"Though new, unorganised and untapped so far, the HRI service sector in India has vast
potential for growth as there are approximately 55,000 registered restaurants in the organised
sector and in the range of 1,00,000 to 5,00,000 in the unorganised sector, comprising
innumerable roadside eateries and tea/snack shops," the study noted.

The institutional food service sector consists of food service facilities for Railways,
government and corporate offices, education institutions, hospitals, prisons, armed services,
and airlines. The Indian middle-class, which some estimate is 250 million-strong and growing
at 30-40 million a year, is the main drivers of the economy, the study pointed out. The
economy of the country is widely anticipated to double by 2010 (Merrill Lynch 2004) to
become the world's third largest by 2050 (Goldman Sachs).

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Should MNCs be favoured or not?

Mncs should definitely be favoured, as they HELP HOSTCOUNTRIES. They help in
training of local labour with more sophisticated techniques which on the long run will bring
external benefits to the host country when these techniques can be used in all economic
sectors.hey raise the growth rate of host nation by introducing new investment and new
technology and also induce their local rivals to become more innovative and competitive.
They contribute to taxes, plus provide the host country with foreign exchange that can be
used to purchase vital imports. By initiating a higher level of investment, reducing the
technological gap, the foreign exchange gap is reduced and The natural resources are utilized
fully. The country has got many M. N. C. s operating here. Following are names of some of
the most famous multinational companies, who have their headquarters of operational
branches based in the nation:

IBM India Private Limited, a part of IBM has been operating from this country since the year
1992. This global company is known for invention and integration of software, hardware as
well as services, which assist forward thinking institutions, enterprises and people, who build
a smart planet. The net income of this company post completion of the financial year end of
2010 was $14.8billion with a net profit margin of 14.9 %. With innovative technology and
solutions, this company is making a constant progress in India. Present in more than 200
cities, this company is making constant progress in global markets to maintain its leading
position.

A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S. (United

States) based Microsoft Corporation, one of the software giants has got their headquarter in

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New Delhi. Starting its operation in the country from 1990, this company has got the
following business units:
Microsoft Corporation India (Pvt.) Limited (Marketing Division)
Microsoft Global Services India
Microsoft Global Technical Support Centre
Microsoft India Development Centre
Microsoft IT
Microsoft Research India
The net income of Microsoft Corporation grew from $ 14,569 million in 2009 to $ 18, 760
million in 2010. Working in close association with all the stakeholders including the
Government of India, the company is committed towards the development of the Indian
software as well as I. T.(Information Technology) industry.

Nokia Corporation was started in the year1865. Being one of the leading mobile companies
in India, their stylish product range includes the following:
Normal mobile handsets
Smart phone
Touch screen phones
Dual sim phones
Business phone
The net sales of the company increased by 4 % in the last financial year with sales of EUR
42.4 billion as compared to 2009's EUR 41 billion. Over the past few years, this company in
India has been acquiring companies, which have got new and interesting competencies and
Technologies so as to enhance their ability of creating the mobile world. Besides new
developments to fight against mineral conflicts, they are even to set up Bridge Centres in
the country for supporting re-employment. Their first onsite for the installation of renewable
power generation are already in place.

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PepsiCo. Inc. entered the Indian market with the name of PepsiCo India from the year 1989.
Within a short time span of 20 years, this company has emerged as one of the fast growing as
well as largest beverage and food manufacturer. As per the annual report of the company in
the last business year, the net revenue of PepsiCo grew by 33 %. By the year2020, this food
manufacturing company intends to triple their portfolio of enjoyable and wholesome
offerings. The expansion of their Good-For-You portfolio is believed to be assisting the
company in attaining the competitive advantage of the growing packaged nutrition market in
the world, which is presently valued at $ 500 billion.

Reebok International Limited: This global brand is famous name in the field of sports as
well as lifestyle products. Reebok International Limited, a subsidiary of Adidas AG, is based
in U. S. A. (United States of America) started its operation in 1890s. During the last financial
year, Adidas's currency neutralized group sales increased by 9 %.Apart from their alliance
with Cross Fit that is among the largest contemporary fitness movements, in the current year,
Reebok's announcement of its partnership with artist, designer and producer Swizz Beatz
reflects its long term future growth.

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Sony: Sony India is a part of the renowned brand name Sony Corporation, which started their
business operation in the year 1946 in Japan. Established in India in November1994, this
company has captured one of the leading positions in the field of consumer electronics goods.
By the end of the business year 2010 on 31st March, 2011, the company showed a
remarkable increase in the share related to numerous categories. Sony India is planning to
invest around INR. 150 crore for the marketing of the activities related to ATL and BTL. As
far as Bravia TVs are concerned, they are looking forward to hold their market share of 30 %.
In between the last and the current financial year, the number of their outlets in the country
increased by1, 000.

Vodafone: Vodafone Group Plc is an international telecommunication company, which has

got it's headquarter based in London in the United Kingdom (U. K.). Earlier known as
Vodafone Essar and Hutchison Essar, Vodafone India is among the largest operators of
mobile networking in the country. The parent company Hutchison started its business in the
year 1992 along with the Max Group, which was its business partner in India. Much later in
2011, Vodafone Group Plc decided to buy out mobile operating business of Essar Group, its
Partner. The turnover of the Vodafone Group Plc after the completion of the last financial
year grew to 44, 472 from 41, 017 m that was the turnover of the business year 2009.

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Shining Indian Multinationals

Tata Consultancy Services: Commonly known as T. C.S., this multinational company is a

famous name in the field of I. T. (Information Technology) services, Business Process
Outsourcing (B. P. O.) as well as business solutions. This company is a subsidiary of the Tata
Group. The first centre for software researching was established in the country in 1981 in the
city of Pune. Tata Consultancy earned a growth of 8.9 % during the latest quarter of this
Financial year, which ended on 30th September, 2011. This renowned company is presently
looking forward to the 10big deals that they have received besides the Credit Union
Australia's contract as well as Government of Karnataka'sINR. 94 crore deal for a total
period of 6 years. In this current business year, they are about to employ 60, 000 people to
meet their business requirement.

Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest

pharmaceutical companies in India, started their business in the country from the year
1961. The company made its public appearance in 1973though. Headquartered in this nation,
this international, research based, integrated pharmaceutical company is the producer of a
huge range of affordable cum quality medicines that are trusted by both patients and
healthcare professionals all over the world. In the business year 2010, the registered global
sale of the company was US $ 1, 868.Successful development of business forms the key
component of their trading strategy. Apart from overseas acquisitions, this company is
making a continuous Endeavour to enter the new global markets, which have got high
potential. For this, they are offering value adding products as well.

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Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is
among the leading commercial vehicles manufacturer in the country. They are one of the top
3 passenger vehicle manufacturers. Established in the year 1945, this company, a part of the
Famous Tata Group, has got its manufacturing units located in different parts of the nation.
Some of their well known products of the company are categorized in the following heads:

Commercial Vehicles

Defence Security Vehicles

Homeland Security Vehicles

Passenger Vehicles

Multinational businesses (also called MNCs or multinational corporations) are large

companies that are located and/or operate in several countries. While an MNC can be very
beneficial to its home country and host country, it can also include drawbacks. The topic of
the advantages and disadvantages of MNCs has been an ongoing debate in business circle.

Labour
MNCs increase the productivity of labour by supplying foreign technology and employing
better training methods. The negative aspect of this is that unemployment will increase due to
labour-saving technology used by these MNCs. Wages also are often higher than average
jobs, but the jobs generated and goods produced often benefit only the richest portions of
society, thereby increasing income inequality.

Technology
MNCs have large amounts of capital; they indulge in huge amounts of research and develop
new technologies. At the same time, the transfer of technology to host countries limits the
technical knowledge of local subsidiaries. Though domestic industries in the host countries

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are developed, they rarely know the technical aspects of the technology they are using, which
creates a handicap.

Tax Benefit
In the host countries in which these MNCs operate, they end up paying taxes; this can lead to
the MNCs being favoured by the government. The MNCs use this government leverage to
receive subsidies and tax benefits; they can also evade taxes by increasing the price of
imports and decreasing the price of exports of the products they manufacture. Though they
increase the employment and revenue in the host countries, their unfair influence with
government can stifle other local businesses.

Growth
MNCs promote growth in the field of their specialization; they make exports profitable and
markets competitive. This increases the national income and the profits of the MNCs. Many
MNCs have several fields of operation in which they promote development and research. The
disadvantage of this is that the growth is concentrated as the investment in small- and
medium-sized industries is often neglected. The MNCs can also promote the growth of local
businesses and enhance competition, but their local subsidiaries end up purchasing goods
from the parent company at higher prices, thereby increasing the prices in the local markets.

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Arguments for MNCs (The positive role):

The MNCs play an important role In the economic development of underdeveloped countries.

1. Filling Savings Gap:

The first important contribution of MNCs is its role in filling the resource gap between
targeted or desired investment and domestically mobilized savings. For example, to achieve a
7% growth rate of national output If the required rate of saving Is 21% but if the savings that
can be domestically mobilised is only 16% then there is a saving gap of 5%. If the country
can fill this gap with foreign direct investments from the MNCs, it will be in a better position
to achieve its target rate of economic growth.
2. Filling Trade Gap:

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

3. Filling Revenue Gap:

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

4. Filling Management/Technological Gap:

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

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5. Other Beneficial Roles:

The MNCs also bring several other benefits to the host country
(a) The domestic labour may benefit in the form of higher real wages.
(b) The consumers benefits by way of lower prices and better quality products.
(c) Investments by MNCs will also induce more domestic investment. For example, ancillary
units can be set up to feed the main industries of the MNCs
(d) MNCs expenditures on research and development (R&D), although limited is bound to
benefit the host country.
Apart from these there are indirect gains through the realization of external economies,

Arguments Against MNCs (The negative role):

There are several arguments against MNCs which are discussed below.

1. Although MNCs provide capital, they may lower domestic savings and investment rates by
stifling competition through exclusive production agreements with the host governments.
MNCs often fail to reinvest much of their profits and also they may inhibit the expansion of
indigenous firms.

2. Although the initial impact of MNC investment is to improve the foreign exchange
position of the recipient nation, its long-run impact may reduce foreign exchange earnings on
both current and capital accounts. The current account may deteriorate as a result of
substantial importation of intermediate and capital goods while the capital account may
worsen because of the overseas repatriation of profits, interest, royalties, etc.

3. While MNCs do contribute to public revenue in the form of corporate taxes, their
contribution is considerably less than it should be as a result of liberal tax concessions,
excessive investment allowances, subsidies and tariff protection provided by the host
government.

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4. The management, entrepreneurial skills, technology. and overseas contacts provided by the
MNCs may have little impact on developing local skills and resources. In fact, the
development of these local skills may be inhibited by the MNCs by stifling the growth of
indigenous entrepreneurs hip as a result of the MNCs dominance of local markets.

5. MNCs impact on development is very uneven. In many situations MNCs activities

reinforce dualistic economic structures and widen income inequalities. They tend to promote
the interests of some few modern-sector workers only. They also divert resources away from
the production of consumer goods by producing luxurious goods demanded d by the local
elites.

6. MNCs typically produce inappropriate products and stimuli ate inappropriate consumption
patterns through advertising and their monopolistic market power. Production is done with
capital-intensive technique which is not useful for labour surplus economies. This would
aggravate the unemployment problem in the host country.

7. The behaviour pattern of MNCs reveals that they do not eng age in R & D activities in
underdeveloped countries. Howe vel; these LDCs have to hear the hulk of their costs.

8. MNCs often use their economic power to influence government policies in directions
unfavourable to development. The host government has to provide them special economic
and political concessions in the form of excessive protect ion, lower tax, subsidized inputs,
cheap provision of facto y sites. As a result, the private profits of MNCs may exceed social
benefits.

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Reasons for the growth of MNCs:

Reasons for the growth of multi nationals are manifold, the important ones being as follows:

1) Expansion of market territory.

2) As the operations of a large size firm expand and as its international image builds up, it
seeks more and more extens ion of its activities beyond the physical boundaries of the
country in which it is incorporated.

3) Marketing superiorities: A multinational firm enjoys a numb er of marketing superiorities

over the national firms:
A) It possesses a more reliable and tip to date market information system.
B) It enjoys market reputation and faces less difficulty In selling in production.
C) It adopts more effective advertising and sales promotion technique use and
D) It has efficient warehousing facilities due to lower inventory requirements.

4) Financial superiorities: A multinational firm enjoys the following financial superiorities

over the national firm
A) It has huge financial resources with which it can easily turn on circumstances in its favour.
B) It maintains a high level of funds utilization by generating funds in one country and using
them in another.
C) It has easier access to external capital markets.
D) Because of its international reputation It Is able to rise more international resources even
Investors and banks of the host country are eager to invest in it.

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Advantages of MNCs:
To the Host country:

(1) Research and development activities:

Developing countries lack in research and development areas. Expenditure on research and
development is essential for the promotion of technology. Multinational corporations have
greater capability for research and development activities in comparison to national
companies. Multinationals survive in the international market through their advanced
research and development activities.

(2) Far-reaching effects on the economic, social andpolitical conditions of the host
country:

Multinational corporations provide a number of benefits to the hostcountry in the form of

(a) Economic growth;
(b) increased profits ;
(c) Developing of new products;
(d) Reduced operational costs;
(e) Reduced labour costs;
(f) Changing social and political structure, etc. Thus, it helps in the exploitation of resources
of host countries frothier own economic advancement.

(3) Product innovation:

Multinational corporations have research and development departments engaged in the task
of developing new products, diversification in the product line, etc. Their production
opportunities are far greater as compared to national companies.

(4) Marketing superiority:

Multinational corporations enjoy market reputations and face less difficulty in selling their
products by adopting effective advertising and sales promotion techniques

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.5) Financial superiority:

Multinational corporations generate funds in one country and use such funds in another
Country. They have huge financial resources at their disposal as compared to national
companies. Moreover, multinational corporations have easier access to external capital
markets.

(6) Technological superiority:

Multinational corporations can participate in the industrial development programmes

of underdeveloped countries because of their technological superiority. They can produce
goods having international standards and quality specifications by adopting the latest
Technology. Generally, multinationals transfers technology through joint venture projects.

(7) Potential source of capital and advanced technology:

Economically backward countries invite multinational corporations as a potential source of

capital and advanced technology to generate economic growth and to create employment
opportunities.

(8) Expansion of market territory:

Multinational corporations enjoy extension of activities beyond the geographical boundaries

of their countries. Multinational corporations can enhance their international image by
expanding their operations activities.

(9) Creating employment opportunities:

Increase in the scale of operations results in more job opportunities. The entry of
multinational corporations helps in creating employment opportunities in production and
marketing
activities.

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(10) Lower cost of production:

Multinational corporations carry on operations on a large-scale, which ensure economics in

material, labour and overhead costs.

Advantages of MNC's for the home country

MNC's home country has the following advantages.

1. MNC's create opportunities for marketing the products produced in the home country
throughout the world.

2. They create employment opportunities to the people of home country both at home and
abroad.

3. It gives a boost to the industrial activities of home country.

4. MNC's help to maintain favourable balance of payment of the home country in the long
run.

5. Home country can also get the benefit of foreign culture brought by MNC's.

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Disadvantages of MNC's :

To the Host country:

1. MNC's may transfer technology which has become outdated in the home country. Obsolete
Technology may be used in the host country.

2. As MNC's do not operate within the national autonomy, they may pose a threat to the
Economic and political sovereignty of host countries.

3. MNC's may kill the domestic industry by monopolizing the host country's market.

4. In order to make profit. MNC's indiscriminately may use natural resources of the home
country indiscriminately and cause depletion of the resources.

5. A large sums of money flows to foreign countries in terms payments towards profits,
Dividends and royalty.

6. Remittance of dividends and profits that can result in a net outflow of capital.

7. MNCs engage in anticompetitive activities such as formation of cartels and dumping.

8. MNCs offer higher wages to its employees in the host countries, which is much more than
any other domestic firm.

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Disadvantages of MNC's for the home country

1. MNC's transfer the capital from the home country to various host countries causing
unfavourable balance of payment.

2. MNC's may not create employment opportunities to the people of home country if it adopts
geocentric approach.
3. as investments in foreign countries is more profitable, MNC's may neglect the home
countries industrial and economic development

APPLICABILITY TO PARTICULAR BUSINESS

MNC's is suitable in the following cases.

1. Where the Government wants to avail of foreign technology and foreign capital e.g. Maruti
Udyog Limited, Hind lever, Philips, HP, Honeywell etc.

2. Where it is desirable in the national interest to increase employment opportunities in the

country e.g., Hindustan Lever.

3. Where foreign management expertise is needed e.g. Honeywell, Samsung, LG Electronics

etc.

4. Where it is desirable to diversify activities into untapped and priority areas like core and
infrastructure industries, e.g. ITC is more acceptable to Indians L&T etc.
5. Pharmaceutical industries e.g. Glaxo, Bayer etc.

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CONCLUSION
The dependence of countries on each other for both capital and consumer goods has created
an international market. The multinational corporations of developed countries are entering
under-developed and developing countries to participate in their business activities.
MNC plays an significant role in the growth and development of the host country. It supplies
capital to the host country. It also transfer technology which helps in production of goods and
services at lower cost.MNC creates employment opportunities for the people of host country.
Inspire of so many benefits MNC have some drawbacks also like it follows bad business
ethics to earn money.MNC are harmful for local producer because they have money power
and they dominate local producer and overtake them. they tries to create monopoly of their
product in the market. They also exploit consumer by producing low quality product at higher
prices.
After examining all the merits and demerits of MNC, it can be concluded that MMNC plays
an significant role in the growth and development of the host as well as home country. Some
regulations must be imposed by the government on the MNC so that they are not able to
exploit the consumer and are not harmful for local producers.

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WEBLIOGRAPHY

http://www.managementparadise.com/dhananjaysharma/documents/14154/blackbookproject-on-impact-of-mnc-on-indian-economy/

http://theglobaljournals.com/ijsr/file.php?val=MTk0OA%3D%3D

http://theglobaljournals.com/ijsr/file.php?val=MTk0OA%3D%3D

http://www.scribd.com/document_downloads/direct/136401931?extension=pdf&ft=1394030
018&lt=1394033628&user_id=68923652&uahk=chR3B7D7WWTcKtNwEuSZSenmXso

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