MULTINATIONAL ENTERPRISES BANE OR BOON

INTERNATIONAL BUSINESS
MULTINATIONAL ENTERPRISES BANE OR
BOON

SUBMITTED BY

GROUP NO 07

Name Roll No
Kalpita Choudhary 09
Aarti Deopure 13
Deepika Mahalley 32
Pratibha Shetty 52
Ruchi Singh 53
Sweta Sriwastava 55

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MULTINATIONAL ENTERPRISES
An enterprise which operates in more than one country is known as global enterprise. These
enterprises are also known as multinational enterprises. Multinational enterprises carry out their
business activities throughout the world and engage themselves in several products or services.
These enterprises are normally controlled through their centralized corporate office in on country
and business connections or branches in various countries. These enterprises possess huge capital
and command monopoly over their products.

The massive expansion of international business that has taken place over the past quarter
century has been carried out, to a large extent, by a relatively small number of very large
business firms. These multinationals corporations have been the subject of a tremendous amount
of attention. Multinational corporations are companies that manufacture and market products or
services in several countries. Typically a multinational corporation operates a number of plants
abroad and markets products through large networks of fully owned subsidiaries.

A multinational corporation has been defined as

“An enterprise which allocates company resources without regards to national frontiers, but is
nationally based in terms of ownership and top management.”

“An enterprise which own to control production or service facilities outside the country in which
they are based.”

FEATURES OF A MULTINATIONAL ENTERRPRISES

Multinational operations: these enterprises carry on business activities in more than one country.
E.g.Coca-Cola, IBM, Lipton.

Global business connections: These enterprises have their head office in one country but have
their business connection in several countries. Theseenterprises carry on inform of joint venture,
branches, franchises, subsidiary company.

Huge capital: these enterprises possess large capital and invest funds in the business activity
globally.

Monopoly: These enterprises command monopoly in market as to there product or services.

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EXAMPLES OF MNES
Electronic products: national, Philips, LG

Computers: IBM

Software: Microsoft

Cosmetics: ponds, Revlon, Procter &gambler

Paint: Jonson and Nicholson

Tea: Lipton, Tetley

Car: Honda, Suzuki

Drug: Ranbaxy, glaxo

TYPES OF MULTINATIONAL CORPORATIONS

Multinational corporations operate through any of the following business connections.

Branch: A multinational corporation operates by establishing branches in various countries to

expand its business.

Franchises: A multinational corporations also provide exclusive rights to manufacture or market

their products in specified or license country or region.

Joint venture: The multinational enter into partnership with local enterprises of the country to
carry on business. Such business association is called joint venture.

Subsidiary companies: Multinational corporations also form there subsidiary companies in

different countries to carry on their business.

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ADVANTAGES OF MNES
As the preface to the ILO report on Multinational enterprises and social policy observes, “for
some, themultinational companies are an individual dynamic force and instrument for wider
distribution of capital, technology employment for others. They are monsters which our present
institutions national or international cannot adequately control a law to themselves with no
reasonable concepts, the public interest or social policy can accept

Latest technology: These enterprises use the latest and advancedtechnology. This benefit
various countries

Large capital: Multinational Corporations bring in huge capital. This helps the poor and under
develops nations to progress.

Generates employment: These enterprises create employment opportunity

Large scale operations: These enterprises carry on production on large scale and thus cost of
production in cheaper.

Research and development: These enterprises invest large amount in research and
development. It leads to innovation and product and development.

Worldwideoperations: These enterprises have worldwideoperations. These have access to the

market of different nations.

Better quality products: These organizations follow strict quality and control standards;
therefore the quality of products is superior and dependable.

Cheap products: Due to large scale operations, optimum utilization of resources, productivity
increases, cost of production reduces. Consumer gain by cheap products.

Source of foreign exchange: These enterprises invest in foreign currency. The foreign currency
brought in serves as a source of foreign exchange to these countries.

DISADVANTAGES OF MULTINATIONAL CORPORATIONS

Excessive resource exploitation: these companies exploit the recourse to the maximum extent irr
respective of its impact on environment etc

Eliminates local industry: These enterprises operate on large scale and eliminate the local
industry.

Create monopoly: Multinational Company engage in large scale of production and occupy the
major share of market. These enjoy monopoly in the market.

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Bring in outdated technology: Multinational Companies generally originate and operate from
developed nations. The outdated technology is exported to developing nations.

Price control: These companies enjoy the monopoly status and therefore are in the position to
fix the prices as per there choice.

Unfair trade practices:Manipulation of prices, unhealthy sales promotion techniques, price war
are some the unfair trade practices adopted by multinationals.

Political dominance: Multinational Companies bring in the large capital resource and are in a
position to interfere in political setup of any country.

Exploitation of customers: Multinational Companies are in dominantposition; they fix the price
of the product as per there pricing policy. This results in exploitation of customers.

MULTINATIONALS IN INDIA
A very little foreign investment has taken place in India due to several reasons.

Some multinationals, Coca-Cola and IBM, even left India in the late 1970s as the government
conditions were unacceptable to them.

A common criticism against the mncs is that they tend to invest in low priority and high profit
sectors in developing countries, ignoring the national priorities. In India government policy
confined the foreign investment to the priority areas like huge technology and heavy investment
sectors of national importance and export sectors. Firms which had been established is non-
priority areas prior to implementation of this policy have, however, been allowed continue on
those sectors. The controversial foreign exchange regulation act (FERA) , 1973 , required foreign
companies in india to dilute the foreign equity holding to 40%.

Multination’s in several developing countries make substantial contribution ‘to export earnings.
The performance in the case of india has , however been very dismal.

Since economic liberalization ushered in 1991, many multinationals in different lines of business
have entered the Indian market. A number of multinationals which were in india prior to this
have expanded their business

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FACTORS CONTRIBUTED FOR THE GROWTH OF MNEs

MNEs exercise massive control over world economy several factors contributed for the growth
of MNEs.

The important among them are:

Expansion of market territory: the growth of the various economies along with the growth of
GDP, and per capita income resulted in the rise in the living standards. These factors contributed
for the expansion of market territory. Added to this is the large operations of the MNCs build the
image, which contributed for the expansion of market territory.

Market superiorities: MNEs enjoy the no. of market superiorities over the domestic companies.
They include

a) Availability of more reliable and up-to-date data andinformation’s

b) They enjoy market reputations.
c) They face less difficulties in marketing the products
d) They adopt more effective advertising and sales promotion techniques
e) They enjoy quick transportation facilities.

Financial superiorities: MNEs enjoy financial superiorities over national companies, in addition
to market superiorities

They are:

1) Huge financial resources at the disposal of MNEs. These resources can be used for
turning the environment and circumstances in theirfavor.
2) They can use the funds more effectively and economically has the excess fund from one
country can be used to meet the requirements in another country.
3) They have easy access to external capital market
4) They can mobilize different types of resources of high quality easily.
5) They can have the access to international banks and financial institution

Technological superiorities: MNEs are allowed, if not invited by the developing countries mostly
due to the technological backwardness of these countries. Infract , MNEs are rich in advanced
technology. They develop the technology through continuous research and development. The
rich financial and other resources of the MNEs enable them to invest on R&D and develop the
advance technology.

Product innovation: MNCs by their virtue of their wide spreads operations in many countries
collect informational regarding customers, taste and preferences. Further, the MNEs with their
strong R &D departments invent new product and develop the existing products. Developing
countries suffer from limitations in this regard. Therefore they invite MNEs to their countries.

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Role of MNEs in INDIA

Profit maximization: Most of the private companies including MNEs have profit maximization
as the most important objective. However, MNEs are expected to operate fairly and behave like a
corporate citizen. But the MRTP commission had shown that Philips has undervalued its exports
in order to reduce its tax ability to Indian government.

International network of marketing: India expects the MNEs to increase their exports and earn
foreign exchange for India. But most of the MNCs transfer the foreign exchange to its parent
country, just in the name of imports from their home country.

Diversification policy: India expects the MNCs to diversify their activities into the untapped
areas and the priority areas like core industry and infrastructure industry. But majority of the
MNCs diversify into the more profitable areas. For example, ITC ventured into hotel industry.

Concentration in consumer goods: Most of the MNCs entered Indian consumer market like
HLL due to the high profitability rather than capital goods markets which is less profitable.

Location of central control offices: IT provides them maximum global advantage .unilever
though born in Holland took up British for operations. In erstwhile British colonies.

Techniques to achieve public acceptability: Companies like Mulchandani electronics and ITC
are more acceptable to Indians.

Examples like Colgate-Palmolive used cow and calf in their toothpaste advertisement,
identifying with Indian culture and Indian economic policies.

Existence of modern and sophisticated technology: Maximizing profit is main aim of mncs.
mnc develop modern and sophisticated technology in order to produce high quality of products
and lower cost.

Cultural erosion: Indian culture with regard to dressing patterns, eating habits, building and
maintaining relations etc are quite distinct from the rest of the world but its is widely criticized
that the mncs activities with regard to type of the product mainly (cigars, liquors etc.) are
advertisement and the like , erode the Indian culture.

MNCs and process of planned economic development in India

Until the recent past India was a planned economy. There was a confusion with regard to the role
of mnc in Indian planned development most of them operating in India during that period had
different plans which are incompatible with the Indian five year plan.

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Business, but not social justice: MNCs are in business but not in social service. They believe in
the superiority of free market economies. MNCs allocate their investments according to market
demand in order to maximize their profits.

Wide gap between the rich and poor has been one of the characteristics of india since long back.
Therefore a section of the Indian economy enjoys higher standard of living. MNCs in india have
been concentrating only on this section in designing the product, pricing and services. MNCs
normally do not produce the products to cater to the needs of poor section. They leave the poor
section to the local business. Thus the more profitable business is grabbed by MNCs and the left
the less profitable business to the local markets.

Unconcern towards social responsibilities and business ethics:

MNCs try to maximize their profits and don’t think of discharging their responsibilities towards
Indian society. MNCs exploit the Indian natural resources indiscriminately, export the products
from india to other countries and transfer the proceeds of sales to their home countries.

In addition, it is criticized that MNCs price the products exclusively based on business principles
like supply of and demand for products rather than the social considerations. It is also criticized
MNCs resort to unethical means in the process of profit maximization by exploiting natural
resources and water resources meant for people at large.

Unconcern for environmental pollution and ecological balance:

IT is criticized that MNCs in india did not invest in environmental pollution controlling
equipment as they normally do in their home country. This in turn resulted in environmental
pollution in a number of instances in the country. Ex Bhopal gas tragedy and also failure of
union carbide in paying due compensation to the victims is an example.

They are unconcerned in maintaining ecological balance in the country.

However, MNCs contribute to some extent for the growth of Indian economy, industry and
business. These criticisms forced MNCs to Indianise their operations.

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IMPACT OF MNC’S ON INDIAN ECONOMY

India has been ranked 10th among 29 emerging markets in the latest country risk analysis by
Economic Intelligence Unit (EIU), an information service arm of the Economist group.
With a score of 39 out of 100 in the risk scale, India has got 'B' risk rating and has outranked
China (41), Saudi Arabia (41), South Africa (45), Mexico (45), Brazil (48) and Egypt (49), who
have got 'C' rating.
However, Singapore (11, A rating), Hong Kong (21) continue to be the safest place for foreign
investment, followed by Taiwan (25), Israel, Hungary and Poland (37), who have qualified for
'B' rating. Not surprisingly, Iraq is the most dangerous country to do business, with a score of 91
out of 100, followed by Argentina (76).

Till 1991, India was more or less a closed Economy. The rate of growth of the economy was
limited. The contribution of the local industries to the country’s GDP was limited that were the
main cause of shortage of funds for various development projects initiated by the government.
In an effort to revive the industries and to bring the country back on the right track, the
government began to open various sectors such as Infrastructure, Automobile, Tourism,
Information Technology, Food and Beverages, etc. to the Multinational Corporations. The
MNCs slowly but reluctantly began to pour capital investment, technology and other valuable
resources in the country causing a surge in GDP and upliftment of the economy as a whole. This
was the post 1991 era where the government began to invite and welcome giant MNCs into the
country.

OPPORTUNITIES FOR DEVELOPING ECONOMIES

The opportunities for developing economies are significant as well. Through the application of
capital, technology, and a range of skills, multinational companies' overseas investments have
created positive economic value in host countries, across different industries and within different
policy regimes.

The single biggest effect evidenced was the improvement in the standards of living of the
country's population, as consumers have directly benefited from lower prices, higher quality
goods, and broader selection. Improved productivity and output in the sector and its suppliers
indirectly contributed to increasing national income. And despite often-cited worries, the impact
on employment was either neutral or positive in two-thirds of the cases.

Impact on Developing Economies & Policy Implications Investments by multinational

companies (MNC) allow developing economies to share in the considerable benefits of the
global economy. Official incentives, trade barriers, and other regulatory policies, though, can
result in inefficiency and waste.

Case studies reveal that in virtually all cases, MNC investment had a positive to very positive
impact on the host country. Rather than leading to the exploitation of lower-wage workers, as
some critics have charged, the investments fostered innovation, productivity, and an improved
living standard. Therefore, government seeking those advantages would be advised to favor

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policies of openness, rather than regulation, when it comes to foreign direct investment.

Indian companies going global

India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowly and surely
embarked on the global path and lead to the emergence of the Indian multinational companies.
With each passing day, Indian businesses are acquiring companies’ abroad, becoming world-
popular suppliers and are recruiting staff cutting across nationalities. While an Asian Paints is
painting the world red, Tata is rolling out Indicas from Birmingham and Sundram Fasteners nails
home the fact that the Indian company is an entity to be reckoned with.
Some instances
 Tata Motors sells its passenger-car Indica in the UK through a marketing alliance with Rover
and has acquired a Daewoo Commercial Vehicles unit giving it access to markets in Korea and
China.
 Asian Paints is among the 10 largest decorative paints makers in the world and has
manufacturing facilities across 24 countries.
 About 80 percent of revenues for Tata Consultancy Services come from outside India. This
month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest tech IPO this year and
India's largest IPO ever.
 Infosys has 25,634 employees including 600 from 33 nationalities other than Indian. It has 30
marketing offices across the world and 26 global software development centers in the US,
Canada, Australia, the UK and Japan.
Impact 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.
Further more, 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. Automobiles
2.Aviation
3.Insurance
4.Food and Beverages Industry
5. Telecommunications

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, Mitsubishi etc. have already opened their account. In other vehicle segments
too, Volvo, Mercedes Benz, Audi etc. have carved out their niche.
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, and 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.

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Global automakers have been stepping up efforts to increase their presence in India, where the
economy is growing close to nine per cent annually and demand for cars is strong, thanks to
rising middle class incomes and easier access to loans.

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 judged 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.

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.
Vodafone Vodafone Essar in India is a subsidiary of Vodafone Group Plc and commenced
operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license for
Mumbai. Vodafone Essar now has operations in 16 circles covering 86% of India’s mobile
customer base, with over 34.1 million customers.

Over the years, Vodafone Essar, under the Hutch brand, has been named the 'Most Respected
Telecom Company', the 'Best Mobile Service in the country' and the 'Most Creative and Most
Effective Advertiser of the Year'. Vodafone is the world's leading international mobile
communications company. It now has operations in 25 countries across 5 continents and 40
partner networks with over 200 million customers worldwide. Vodafone has partnered with the
Essar Group as its principal joint venture partner for the Indian market. The Vodafone brand was
launched in India on 21st September, 2007.

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 economy of the country is widely
anticipated to double by 2010 to become the world's third largest by 2050.
In recent years, the Indian hospitality industry has benefitted from a steadily growing economy
and a booming tourism sector. Foreign tourist arrivals into the country in 2004 crossed 3.36
million, a growth of 24 per cent over the previous year.
.
Urban population is increasingly shifting to Western-style fast food items, the study observed.

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CONCLUSION

Multinationals are equally bane and boon, here are some points with which we can support our
point. MNCs has made entire world a global village they also increased inter connectivity among
nations they also produced quality products at nominal rates but you may get one doubt that we
have so many good things about MNCs but why we are calling them bane why not only boon but
these have their drawbacks too they are like native corporation crumbles under the competition
of MNCs they became national security threat and they produces no profit to the country in
which it is established except taxes remain in home country not only these there are many more
drawbacks like global warming, political influence , unethical practices.

SUGGESTIONS
Here are some suggestions that must be followed in every country

 Like strict laws which favors the home country economic conditions
 More concentration of govt. on indigenous industries and offering financial support and
taking less tax

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BIBLIOGRAPHY

International business-P.Subba Rao

Management of multinational corporation-ICFAI University

International Business- Oded Shenkar

International Business- Dr R. Chandran

Modern International Business- J.N.Jain

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