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    3.7 ETHICAL DILEMMA Managers in organisations face ethical issues everyday in their working envi deaision that does not have an ethical dimension or facet to it. Managers at all levels and in all functions fie situations wherein ethical considerations play a major role. However, solutions to these ethical issues sometimes.do not come easy. They involve dilemmas, conflict and deadlock in decision making. Ethical dilemma refers to a situation in the context of decision making where any of the options avilable requires manager to compromise or violate one or the other ethical ‘standards. These situations donothave an obvious solution. For instance, a manager who wants to blow a whistle against the illegal i ofa company where he has worked for years may be considered as treacherous by others. — os in situations of ethical dilemmas may have severe repercussions for business. Hence, a mee wae to be careful in such situations. Some of the situations of ethical conflicts that managers iscussed helow: @ Weak maximisation vs. profit maximisation: This ethical dil corporate set up where there is difference between owners an ‘ironment. There is seldom a Jemma arises for managers in 1d managers. Being in charge 34 || BUSINESS ORGANISATION anager is in a position to exploit the opportunities in his the cost of owners and other stakeholders. Wealth maximisation requires a manag fh Non sustainable long term business decisions. Managers might compromise the long run ms 7 ny of business for short term quick gains. It is because of this ethical dilemma, that i Mil ep, ‘t corporate governance have come relevantly to forefront. The corporate scam of Enron is a practical example of ; this ethical conflict, The f, Corporation was regarded as a corporate giant. The corporation had massive debts in its Fy Tts managers concealed these with the help of special economic entities and specia| f lhe vehicles. But after a good run, it failed miserably and ended up as a bankrupt business failure and bankruptcy of the Enron Corporation jolted Wall Street and put several eae the verge of a financial crisis. Enron traded at the highest market price of $90.75 on Decenbs 3, 2001. And when the accounting scandal emerged, stock prices went down to a record lov $0.26 per share. (b) Personal goals vs. organisational goals: This dilemma arises when there is lack of consensus secen oreanisational and individual goals, organisational and individual ideologies, ag oreanisational culture and individual culture, For instance, Virat Kobli broke his contract and ties with Pepsi brand in 2017. He stated that he would no longer endorse and promote a product that he does not consume himself. This is a typical case of conflict between individual belief system and organisational belief, Virat Kobli chose his belief system over ‘his financial interest ‘A manager in a business is supposed to make rational decisions. ight of costs and benefits and choosing 20 However, managers are also human fe. There are decisions and choices ionality. For instance, d to lay off some of ts I things to do but ood. During .d layofls © of decision making, a m (c) Rationality vs. humanity: Rationality means weighing every situation in the li alternative that maximizes benefits and minimizes costs. beings. Sympathy and empathy are basic virtues of human li in business where managers feel stuck between humanity and rati organisation struggling with debt mountains, sunk costs, etc., may nee’ employees and shut down some divisions for cost cutting. These-are rational at the same time will cause loss of jobs for employees dependent on it for livelin Covid times, managers across the globe took harsh decisions of salary cuts 2 prevent their businesses from sinking. (8) Equity vs. equality: Equality refers to treating everyone equally. It m is discrimination on the basis of caste, colour, region and religion. Equity on the ott Lae related with fair and just treatment that means treating different persons ‘with different abil" dteraly: The dilemma is when a manager fails to balance equity and equality oe For instance, manager paying equal salary to all individuals will disappoint a0 re preateahe les hardworking and efficient than other people. 18 this ease ene ae e ag equality but failing to be equitable. Alternatively, if sa een phe ee higher abilities, the wage disparities will rise 1" orga well with figure below: eans there should be" SOCIAL RESPONSIBILITY AND ETHIC S | 35 cond image, | In the third image, all given | three can see the game to | without any supports accommodations use the cause of the ity was addressed. to the game. inequi a| The systemic barrier has been removed. an it’s necessarily ethical. This ness ethics. Managers the question they can’t In the s individuals are different supports i ible for | or image, it is access They are being treate equitably. (© Legal vs- ethical: Just because an action is egal doesn’t me debate has been addressed time and again in the discipline of busi ical battles t ts. However, i instance, fast food companies such as that are completely legal but have invited question omote national obesity and ducing products that p! ethical issues arise. Virtually all ethical issues rest. The conflict arises between manager's OW? ‘ho have interest in the her stakeholder groups W ailments. Thus, managers face mam managers face may be characteris values and those of his employer, decision. y situations ii which ised as a conflict of inte! employees OF some otl Group Exercise Ina group, discuss the following |, @) An innovation is available for rich peo| to larger population in the world but is it fe weed rights in the name of reverse inn Shays i less interest rate from a rich person h fein? st rate from person facing the shortage of funds. Is it not defying s world: ovation makes @ 5 to imitate and violat ethical dilemmas of business ple but reverse inn t ethical for busine’ ovation? product accessible e intelle score and charges aving a good credit the purpose of loan 374 Dy EALING WITH ETHICAL DILEMMAS f finding solution to, ethi solving ethical i fan hice i n al issues does not require an expert opinion and no fe ete is on ASpect is © negative and one i, F that positive aspect 0: cal dilemmas. The positiv’ cy softwares. All it 36 || BUSINESS ORGANISATION i ing human first. The ne ‘fying your conscience and being ist. The negative. i, i ete >» they are cyclical in nature. A decision which may g solnion fea seem unethical at different point in time, However, a manager can tem me may 5 raat in situation of ethical dilemma: a. / Every organisation should design its own ethical rules toh i isation. It can create its own code of, . i ved by all employees in the organisat create i cong mandatory follow Tee clea polices shouldbe the guiding ights of all decison and oa For instance, The Body Shop is a cosmetic brand that Tespects animal righ, wel aovsetigs that are natural and animal friendly. This ethical practice is promoted byt, brand in its packaging, products and advertisements. rialism: When the two cultures come in conflict with each other, a busine, Ethical impe a + e ° should oe der to the ethical values of place of operations, i.e., when in Rome, do as the Romans do. (©) Middle of the road approach: In case of ethical dilemmas, a manager should try and adog middle of the road approach that is playing safe from both the sides. It should try to creates balance between the two conflicting sides and bring them to equilibrium. (d) Resorting to highest values: Empathy, patience, fairness, justice are some of the highest virtues that mark the existence of humanity. In situations of ethical dilemma, a manager cm always find his way out by resorting to these values. He should chose humanity over profits. requires is looking within, i is that there is NO ethical at one point of ti to following solutions i (a) A strong code of conduct: REVIEW QUESTIONS | What do you understand by social responsibility of business? What is the need for business '0 assume social responsibility? J ae Social responsibility and explain the responsibilities of business towards different interest! It is in the interest of business to full Ee 7 fill its social ibiliti rds di nt interested groups.” Explain this statement, responsibilities towards differe: State the ar; i i oben uments for and against social responsibilities of business. - “Business is essentially a social inst Explain the concept and nature of by + Define business ethies and explain . What are the variot them? 9. Explain the social reg ies of ess towards stakel Ponsibilities of busines: ‘ds stakeholders, employ Fulfillment of social “sponsibilities is in the in sy as a ns PPO Of Your answer, lerest of business”, Do you agree? Give 1295" tutions and not merely a profit making activity.” Explain. usiness ethics, eI aAwaA its significance, ‘ us ethical iss) . ical issues faced by the managers and how managers can find solution to zt srerw tae 4090 UALS IL STON, 4.2 ONE PERSON COMPANY One person company Js private li company which can be, formed by one Person. However 4 nominee shall be Tequired to be oe This Concept was introduced by the Companies Act, 2013 The entrepreneurs carrying on business as Proprietorshi firm will 1 i ; of limited liability. Corporate entities like limited labiiy te able to aval the bens limit 'y Tequire two or more People. A one Person individual to own and manage the Dusiness, Partnership, private limited Company anda Company The idea of one person Company was been set up for the sole C), however, allows for single 3 Propagated Purpose of inco, Orati Tealised the need for gi in 2 7 «UNE necessa, by the J Iran Wing a chance to indiy; Sec 2 (62) of the com J ls to ipanies Act, 2013 defines as one person as a member, ple for example, jewellery and artistic material, i Committee which had | theis = Ompanies Act, 1956. They Mpar, WE an Contribute efficiently. . u Company which has only Features of One Person Company The salient features of one Person company are ag follows. any can be j @) fone rea ‘company can be 'ncorporated as Private «co (b) Itmay have only one director, "Oy With 7 1 FI . Ne Member at any point (c) One person. company must be ‘Mentioned jn bra et IS (4) Memorandum of one person Company shal indicatg nS toy ofthe subscribers death or his incapaiy OU bocy tothe Maye a 7 7 ‘01 le (¢) The provisions regarding calling annual Bene me eng, Who gp O™Pany, rene og, don py ane onetig Ti ons ‘a in the event (£) No minor shall become the mmenbe OF none ory ong tig . beneficial interest. ton, ©0, Qorum any, ory, FORMS OF BUSINESS ORGANISATION 1.43 one person can not incorporate more than one OPC or become nominee in more than one OPC: ont ever, a person can be a member of one OPC and nominee of another OPC. one person ¢ hy half of a calen ion is not applicable. mpany can not carry out non-banking financial investment a ‘ecurities of any body corporate. @ ompany shall have to hold at least one meeting of the board of directors Ever Ee iar year, In case one person company has only one director, then this provisi () One person co investment in st Merits of One Person Company ‘The advantages of one person company are as follows: (a) The libilty ofthe entrepreneur is limited to the extent of his shareholding. (0) Banks and financial institutions prefer to lend money to the company rather than proprietary firms. (© Ithelps the business to enjoy corporate status in society which helps the entrepreneurs to attract quality workforce. (@ Prompt decisions can be taken due to complete control of the owner. (¢) The identity of one person company is distinct from that of its owner. Therefore, if the firm is involved in a legal controversy, the owner might not be personally liable. ( One person company provides greatest flexibility to an individual or professional to manage his business efficiently while enjoying the benefits of a company. (g) On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to the legal heirs of the demised member. Limitations of One Person Company The e os Person company suffers from the following drawbacks: ) Formation of one person company is not easy as its registration requires compliance with many o ‘gal formalities, making it a time consuming process. oO eae ; ore Person company is suitable for small business. It can have maximum paid up share capital . '0 lakhs or turnover of 22 crores. (©) The continuati a of the company after the death or retirement of a member is also questionable. Able to easiness not involved in thé day-to-day operation of the company, he would not be oe ‘ceed the business after the death of the member. me person c i and file sen comPany has recurring compliance costs as it needs to get its accounts audited Me cums every year with the Registrar of Companies, » a one person cor ir of propri eivate coeacompany brings 7 unor d sector of proprietorship into the organised jium ent Sir i S301 Compan fone OF medium enterprises doing business as sole proprietors might * into one per 4.4 HINDU UNDIVIDED FAMILY BUSINESS The Hindu Undivided Family or Joint Hindu Family is a form of business organisation in which 2 family possesses some inherited property and the ‘Karta’, the head of the family manages its ais It comes into existence by the operation of Hindu Law and not out of contract between the memes or co-parceners. The Hindu Undivided Family business is defined as “a form of business organi” in which all male members of a hindu undivided family carry on the business which is mange! controlled by the head of the family called ‘Karta’.” The main features of the hindu undivided family business are. given below: (a) Membership by birth: A person becomes a member of hindu undivided fami by virtue of birth in that family. No formal agreement is required between the me the outcome of the operation of the Hindu Law. puss () Minor members: A child becomes a member by birth in hindu undivided fay There is, thus, no restriction for a minor to become a member in the Family bust ly busines? nes? (c) Male and female members: Both Sons aj the family business. Female Telatives of q family property. (d) Registration: The law does not require any registrat; business are governed by the provisions of Hindu Lac n° Se business, The acti (e) Management: The business is managed by eldest member Karta. The Karta may associate other mer 7 who isk mbers to assist him in Own as th i the fe The members, however cannot question the decisions token by Kgnaeemen OF business (f) Right to accounts: All the members of the hindu undivided fami i ir books of accounts. The members can also claim their share in iene ea! i ao of pattition of the family. oie (g) Liability: The liability of the Karta is unlimited. Th is limited to the extent of their share in the Property, (h) Governed by Hindu law: The right, duties and liabilities o governed by the Hindu Succession Act, 1956. @ Continuity: The hindu undivided family business continues to exist despite the death of any member. In the event of the death of Karta, the next senior male member becomes the Karta, nd daughters have goy deceas | co. ‘Ased co-pa Patcenary ji PaTeener can also claim 1 tere in late in the Vities of Of the fami e liability of other members of the family f the Karta and other members are Merits of the Hindu Undivided Family Business The main advantages of a hindu undivided family business are as follows: (a) Ease of formation: A hindu undivided family business can be started easily. No legal formalities are required to be complied with. i : () Limited liability: The liability of all the members except Karta is limited to their share in the family property. The liability of Karta is unlimited. : (©) Personal contact: The Karta can maintain direct and personal contact with the customers employees. This leads to greater customer satisfaction and increases employee morale. wie (@) Secrecy: The secrets of the business are known to Karta only. There are no chances Secrets being disclosed to the outsiders. oo fected by the death (©) Continuity: The existence of the hindu undivided family business is a a a pie or incapacity of any member. It is stable and comes to an end after the bre family. : 7 f a siness. He need © Prompt decision making: The Karta takes all important decisions of the business Not consult the members. inthe busi © Protection of minors: Minor members of the family have an equal share in Interests are protected by Karta. : it Mutual cooperations: The members work together for their mutual bene! Self-disciplined, have sense of sacrifices and other finer values of life jiness. Their o They Team to be 50 || BUSINESS ORGANISATION Limitations of the Hindu Undivided Family Business Ahindu undivided family business suffers from the following limitations: (a) Limited capital: The capital of the hindu undivided famil members do not contribute any additional funds. Therefor expansion of business. (b) Unlimited liability: The liability of Karta is unlimited, H. lis personal Property can be sed settle the business debts. This danger of unlimited liability makes the Karta less Enterprising » © Limited managerial skills: The Karta has limited ability to manage. He cannot be an expen in all areas of business. As a result, there is lack of specialisation, (@) Scope of misuse: The Karta has comp! authority for personal gains, (©) Conflicts: The Karta has exclusive control of of other members. Conflicts may arise and | ly business is limited, e e, there is limite Scope tng ete control on the family business, He can misuse bis the business. This may create lack of ‘trust on, }ead to split in the hindu undivided family sysen and disintegration of family business, A Table 4.3: Distinction between Partnership and Hindu Undivided Family Basis Partnership Hindu Undivided Family 1, Formation Partnership is a result of an agreement | It arises by operation of law. The bass voluntarily entered into by per- sons, of creation being some property. 2. Number of members | The maximum number of partners ina | There j. ce Stn, anton en He 3. Liability The lability of partners is unlimited | The liability of members is limited. s i L the kara alone has unlimited liability: A joint cs eee i. cee business will continue inspite of ‘ OF ts memborr'® OF the death of any 4, Death of a member Death of a partner may bring about the dissolution of the partnership fitm, 5. Minor A minor cannot become a pariner in| a minor - 1. the firm, but he can be admitted to by mie bien comes its the benefits of partnership with the sont the fami consent of all other partners, member merely ily. 6. Authority to manage _| All the partners can take active part in Only kay the management of the business, ta man . {he fumity, “MAES the business or 7. Mode of dissolution | A partnership firm can be dissolved | A hinay s ‘ undtivi : Voluntarily or compulsorily by the | solved by, ing vod fay order of the court, FO! RMS OF BUSINESS ORGANISATION Iss Gane Private Company PARES apart A private company must have at least A public comp: ee ju i an a Mets two director. icel deci ee ‘A private company has to use the words | A’ publ 7 private compan th public company 4, Nam ‘priate Limited’ at the end of its name. | ‘Limited” at heed ria ime. Fisue of prospectus | Tt need not issue a prospectus. It is mandatory for a public company to issue a prospectus if it invites public to subscribe to its share capital G allotment of Tr can allot shares, immediately after| It can allot shares only after receiving ‘ares qpeorporation without having to wait for | minimum subscription and com plying minimum subscription. with other legal formalities. 7. Public Tr cannot invite the public to invest in| It invites public to invest in its shares Subscription its shares. and debentures. 8. Quorum for Tr requires at least two members to be| 5 upto 1000 shareholders Meeting present personally. 15 1000-5000 shareholders 30 greater than 5000 shareholders 4.6 LIMITED LIABILITY PARTNERSHIP ich has its genesis in the genet .d Liability Partnership Act, 2 f both the company and pai ral partnership has been introduced 008, came into effect by way of Limited liability partnership (LLP) whit rtnership form in India with the enactment of Limite notification dated 31.3.2009. LLP combines the advantages 01 or organisation into a single form of organisation. bility of partners is limited to the extent of theit agreed hip. No partner is liable on account of independent and rover, is not relieved of the liability for its other vc form of organisation that gives benefits of LLP is a separate legal entity. The lial ceutibion in the Talted liability partners! cared actions of other partners. The LLP, h ielztions as a separate entity It is an alternate corporat 7 ability of a company and the flexibility of a partnership. roving se form of business organisation enables entrepreneurs, professionals and enterprises vices of any kind to operate in an innovative and efficient manner. F p tun et Limited Liability Partnership () feeble of i liability partnership are as follows: ©) Number ic entity: An LLPis a body corporate and a legal e! on the number of panne LLLP must have at least two partners. There is no maximum 1s for the limited liability partnership. © Desi ign: aad - a partners: Every LLP must have at least two indi one of them shall be a resident in India. sntity separate from its members. limit uals as designated partners 4 N 56 || BUSINESS ORGANISATIO! ificati for designated Partners; Every LU ic identification number for de (@) Mandatory cia te Deed Partner Identification Number (DPIN) and othe with the Registrar es ili is limited to their agreed contriby liability: iability of the partners L © Ls au am ine on account of the independent or unauthorised act LLP. No partner w partners or their misconduct. Perpetual existence: LLP has a perpetual Succession, i.e, LLP will continue even if its partners ® Perpetu: : Cease to exist. Pmt fy * details or ution in 4 . ONS Of othe, (g) Rights and duties of Partners: The rights and duties of Partners in LLP is governed by an ; agreement entered into at the time of incorporation of LLP. HY: The liability of typ and it is limited to their apreeq Contribution in the Lon (© Separate legal entity, LLP i, legal Persons who own it are $8 Separate lepal enti; .. . SeParate entities ang both f ae om its partners, Both LLP and @) Perpetual succession: LLP has a pePetual successio, *eparately, same privileges imespectve of wat Shanes inthe pant mel Ain the same entity with (©) Flexibility: 11? can manage is own afin, artners out tHe LLP, its affairs. The limited lability Parmership Act giver treed the way they wan to manage their agreement, ™ 0 its partner "manage ei ( Taxation: LLPs are taxed like GisegeshP Fim, The fee companies, There is no dividend distriban’, Am paymeng aA IS owe t company. Mate tax ag in ihe + It is easy to enter ang leg - Fansfer of ownership: 1 is easy 1g 8 iy © aia can be easily transferred in accordane’ with we Partnership agreement, than that of Case of the lited Viabini, il Partner, shi ; Ship, erms of the limite, Wapiti a> «af —— (t) Separate property: LLP, as a legal entity, is capable of owning funds and other properties SrPttmited lability partnership is the artificial person in which all the property is vested and by which itis controlled, managed and disposed off. The property of LLP is not the property of its partners. ‘Therefore, partners cannot make any claim on the property in case of any dispute. (i) Raising finance: LLP being a regulated entity like a company can attract finance from private equity investors, financial institutions, etc. . ) No risk of implied agency: There is no such risk as partners are not agents of other partners and, therefore, they are not liable for the individual acts of other partners, Limitations of Limited Liability Partnership The drawbacks of limited liability partnership are as follows: (@) Difficulty in transfer of ownership: Ownership rights are not transferable easily without obtaining consent of all the partners of the LLP. (b) Limited funds: LLP is not allowed to raise funds from the public b; debentures. (© Lack of flexibility: There is less flexibility of operations due to legal (@ No separation of ownership and management: The management ownership. separation inherent in a company is not present in an LLP. © Limited to certain professions: This form of organisation cannot like banking, insurance, telecom, etc. () Lack of privacy: LLP has to file prescribed documents every yea accounts of LLP are also open for inspection. yy issuing shares or formalities and regulations. engage in certain businesses 1 with the registrar. The Suitability The limited liabili tn tei aber liability partnership is itself liable for the settlement of debts in rie, boperty ofthe members of limited liability partnership cannot be att inet limited liability partnership is suitable for only those organisations having p for instance, professionals like Chartered Accountants, Lawyers, Company Secretaries, ey ¢ Ste aes p ‘aN set up limited liability partnerships and have the benefits of limited liability anda flexible body can also use running the business. The ached for such purposes. rofit running etc. comorat te. Th , ; inj e manufacturing sector, small enterprises and other sectors of the economy IMited liabili liability partnership to their advantage. Types of Cooperative Societies e Societies are given below: The main types of cooperativ' rs’ cooperative societies: Such cooperatives are formed by the consumers -day requirements at reasonable prices. The society buys goods directly hi Om: (a) Consume! their day-to manufacturers or wholesalers to avoid the profits of the middlemen. The profits of Soci reserve funds, declaring moderate dividend and dion, utilised for making transfer to the of bonus to members in the ratio of purchases made by them. (b) Producers cooperative societies: These cooperatives are associations of small producers, join hands to face competition. The society provides raw material and equipment to «; member and takes their output for sale in the market and its profits are distributed among members. (©) Cooperative marketing societies: These are the voluntary association of small prods who want to sell their products at a profit. They are generally set up by farmers and sx producers who find it difficult to face competition in the market and individually peri various marketing functions. The output of different producers is pooled and sold throug centralised agency to eliminate middlemen. The sale proceeds are distributed in the rato their outputs. Marketing cooperatives also perform important marketing functions like gra processing, packaging, advertising, wharehousing, etc. Housing societies are formed by lower and middle inc ‘t houses at reasonable costs. The objecn'? o cooperative acquires land and consi heir own houses. The cooperst® (d) Housing cooperative societies: group people in urban areas to construct members is to have the house of their own. Housing flats or provides plots to members for constructing t arrange loans from financial institutions and government agencies. toi (e) Farming cooperative societies: These are voluntary associations of small farmets at together.and pool their resources to obtain the benefits of large scale farming es nt ra are economically weak and suffer from fragmented land holdings. They pool on cup able to use modern tools, seeds, fertilizers and technology to maximise a evel ain ott as i: operative societies: These societies are formed to provide finan f saving among the members. Th rs from eXP! ers al hey protect the membe! sits from mem harge exorbitant interest. The society accepts depo: ble rate of interest in times of need. i ; (f) Credit co the habit o} lenders who ¢ them loans at reasona! :re af Cooperative Society 62 || BUSINESS ORGANISATION 4.8 FACTORS INFLUENCING THE CHOICE OF FORM oF ow ; apa ran : NERSHp, The choice of a suitable form of ownership is an important decision because jt affects th and growth of a business organisation. Every form of business organisation has jie PS limitations. A particular form of organisation is successful in one situation while in other situation’ a ater form may be appropriate, While electing the form of business organisation et must be considered: fact, (a) Nature of business activity: This is a significant factor having a direct bearing on the choi of a form of ownership. The small retailers and professional services require Personal aten to customers and are, therefore, organised as sole-proprietorship concems, for instance, pre repair shops, consultation agencies, small retail stores, accounting concerns, etc, The, Partnersip form of ownership is suitable in all those cases where sole proprietorship isnot apwropas? Manufacturing comprises the highest percentage of companies among all industries. Similaly large chain stores, multiple shops, super-bazaars, engineering companies are in the form of companies. (b) Scale of operations: Another factor that affects decision of choice on the form of ownership organisation is the scale of operations. If the scale of operations of business activities is small, sole proprietorship is appropriate. If this scale of operations is moderate, i.e., neither too small nor too large, partnership is preferable, In case of large scale of operations, the company fom. is beneficial. The scale of business operations depends upon the size of the market area served,” which, in turn, depends upon the size of demand for goods and services. (©) Capital requirements: Capital is one of the most vital factors affecting the choice of « Particular form of ownership organisation, Necessity of capital is strongly related to the type of business and scale of operations. Business requiring heavy investment like iron and stel plants, medicinal plants, etc., should be organised as joint stock companies. Business requiring small investment (like retail business stores, personal service enterprises, ete.) can be be organised as sole proprietorship or partnership, : eee (A) Degree of control and management: The degree of control and management that at individual desires to have over business affects the choiee on ownershi ‘sation. Ta sO} proprietorship, ownership, management, and control are tship organ: . management and ane a business is jointly shared b agement of partnership. In a company fo / par i semen The managenient and contro] ae ae reas between. owners a representatives of shareholders, Therefore, an individney tion operates in many countries eration: A multinational corporat ion in the home country. Its business takes the form of branches ax t countries. For instance, ‘Apple is headquartered in California ie it purchases components from suppliers in 43 countries acrs ‘a are built in Japan, elements of the battery ze: ks the phone’s acceleration and enables georz (b) International op’ the parent corporati ventures in the host designs the iPhone bu ts, iPhone camera and glass scree! continent meter, which tracl in China, and the accelerot orientation, is built in Germany. (©) Centralized control: The branches of multinati countries and are controlled and managed from the headquarters situated in the home cox ‘All branches operate within the policy framework of the parent corporation. Thisis di fact that the parent company holds above 50 percent of the equity of the subsidiary com ‘The multinational corporation acquires huge economic powertbs' the process of merger and takeover. This coupled with its giant size makes it market For instance, Coca- Cola and Pepsi are market leaders in beverage industry; Airbus and BY are market leader in commercial jet aircraft industries and so on. (©) Collective transfer of resources: A multinational corporation facilitates mutifatera! = of resources between countries in the form of a ‘package’ which includes technical S20" materials, machinery, managerial services, etc. ( Sophisticated technology: Multinational corporations make use of latest and a] technology to supply world class products. They use capital intensive technology and iam" techniques of production. (g) International market: Multinational corporations have ae econ of their vast resources and marketing skills. As a result, the; y product they manufacture in different nations. r (h) Professi A " oa skills Profesional managements The multinational corporations employ profession gt age their worldwide operations. Trai to handle aceasta Trained managers are also employed 1° ,, huge financial resources and international business operations. ‘onal corporations are spread in df= (@) Oligopolistic structure: national a wide access to inte ae in a position” vy are in 5. 2 ROLE OF MULTINATIONAL CORPORATIONS Multinational i corporat i. . porations have existed since the beginning of the overseas trade it gat role in the commerci: : and playes iol ercial and industrial development of the less developed count" walt es. ns are huge industrial organi ns having a wide network of pont: i branch a er of countries, all of which work with the objective of maxinwnn od Ubsidiaries = ire 'aximizing global profits of orgver a nut eset compani ed cout nthe introduction ofthe new economic poticy in 1991, India has ex Sine ee ofthe multinational corporations and with ita tremendow in pL eorporations as well as foreign direct investment. The mult aula diversified portfolio of companies from different countries. The multinational comporati HSA, UK, France, Netherlands, Italy, Germany, Belgium, ete, have ether come iw ha have outsourced their work to our country. They have brought in ‘ew technology and products giving Frames the wide choice of products and awareness of international quay standard India oe a huge market for the brands offered by these companies. The multinational corporations because of the vast pool of resources are able to modify the consumption patterns in their favour through repeated aherising, Therole of multinational corporation can beter be understood by analyzing theitadvetanes and disadvantages for host country. 1s located in some advanced countries. ‘perienced a dramatic increase 'S expansion in the number of inational corporations in India 5.3 BENEFITS OF MULTINATIONAL CORPORATIONS : ‘The liberal economic and trade policy in developing countries facilitated multinational corporations to invest in these countries. The multinational corporations operate on a large scale with latest technology and have access to overseas markets. The benefits to the host country through the multinational corporations are as follows: (®) Transfer of latest technology: The enterprises in the less developed countries do not possess adequate resources to conduct research and development. The multinational corporations bring in superior technology and provide advanced technological know-how, improved skills and consultancy to the enterprises in host nations. It improves the quality of products in the host country. (©) Foreign capital: The multinational corporations help the developing countries to secure capital by increasing the level of investment and thus fasten the pace of development of the est Country. The multinational corporations facilitate the transfer of capital from the develops Countries where it is abundantly available to the countries which suffer from lack of capi. © Employment opportunities: The multinational corporations provide | employe) opportunities to the people of the host countries in both the administrative as well as coe = jobs. People get eriployment in the field of production, finance, marketing an human #00" ‘management. Thus, the setting up of branches and subsidiaries in the host coe a — the local Population and consequently improves the standards of living of people 10 ae ir exports and ) Export: The multinational corporations help the host countries to increase ee ce *educe dependence on imports thereby ensuring industrial growth and improv’ i siopal Payments position of the developing countries. They assist the local producers y arketing- ‘market through their well-established international network of production and markelS igh their well-established inté higher productivity € oe oan ) Human resource development: The multinational corporations have ai awareness for Standards and better work culture norms. This results in competition as 70 || BUSINESS ORGANISATION i Thus, multinational corporations help i i estic economy. ae 2 iy the enterprises in he ae to the development of human Fesources in the host cama? “knowledge base” an tion: Research and innovation is Saline lope Oty il vation: : (f) Research and en introduction of new products, services d ; Ige. The A Serre acuakoedl ebvseialil coutle itorbiNe'etieica Fesearch and dyn Itinationa Rice ee mate to the development of the host c ty, : systems and cont ‘ition: The entry of multinational corporations a ce ny (g) Promotes competition: T industry wakes up to improve the quality of their Bo0ds to mag ee ere ‘ks efficiently to compete with multinational Conporations. Ths ister ea eee sid provide competition to the local enterprises, sedi eamnOr aT ia inational corporations help in the Srowth of domestic fims Se eee ic firms become suppliers to the multination eee their own operations. The domestic firm: ee itor a inati i i l€ ETO" m e poreoos and thus the multinational corporations stimulate the g a comp t in the host countries, The benefits to a home country of the multinational corporation are as follows: benef (2) Market development: ‘OmMpetitioy (2) Foreign exchange reserves: Multinational ¢ ¢, home country through repatriation of form of licensing fee, royalty, dividend, ria U5) Coca-Cola, Starbucks are are ruling the production and consumptio: n over the globe. nen : ge res Orporations add to the foreign a es in tie Profits. The home country eams huge reve! ete, ated and criticized elopite on various grounds. Dev heir immense ht ith is Potential to empower ti aloe » Managerial skills, etc, However, guided by capitalis evens PaWSites for these ¢ ates ; : the de! ‘ountries. Following are some of * developing countries: MULTINATIONAL CORPORATIONS 17: 1 co Bargaining power: Due to their sheer size, multinational corporations. have bargaining power with host country government in developing countries. As a res i greater tye to include restrictive ‘clauses in the agreement with regard to technology, pri re they are etc., which benefits them at the expense of the host country. 1B. Export, oy Obsolete technology: It has been alleged that multinational corporations do not transfer thei Openced technorogy to the host country. The technology is not only obsolete but Sicnetine requirements of less developed countries. For example, the unsuited to the conditions and transfer of capital-intensive technology is unsuited to the developing countries which are Jabour abundant. Such practices adversely affect the productivity of the domestic industry and alco lead to wastage of FesoUurces. (@ Outfiow of foreign exchange: to outflow of (scarce) foreign xc! we pense effect on their balance of payments posit aavrecount of Taw materials or intermediate pro fom their home country for carrying out final produ parent company back in the home country. eignty: The annual revenue of some multinational companies is (@ Threat to national sover massive to an extent that it exceeds the GDP of certain countries. For instance, US based Starbucks annual revenue is estimated to be greater than that of Trinidad and Tobago, 2 country inthe Caribbean. Spain’s supermarket company «Mercadona” generates annual revenue greater ean he GDP of Nepal. These gigantic corporations often interfere in the national affairs of the host countries by influencing the policy makers to work in their own interests. The host country is under the threat of losing its sovereignty and independence. (© Depletion of natural resources: The multinational corporations art reckless in their use of aaa tow gurees in the developing (host) countries. Due to weak policies and environmental Jaws in developing countries, multinational corporations put excessive pressure on the resources leading to the rapid depletion Of non-renewable natural resources. For example, multinational companies such as Coca Cola and PepsiCo are accused of groundwater depletion in Kerala state of India. 9 piceeardite national goals: The multinational corporatio n that paidacgarattiy invest in activities and sectors, and gonduct their business in away pee aay bottom line, i.e., net profits. They generally have no interest in the socio- pesado safthe host countries, and thereby do not contribute towards the national nine, ig unemployment and poverty. lane none Mi skills: The multinational corpo stipe dite coun to exploit cheap labour. They are interested in ta Bet or semi-skilled joke we tiled country and host country. In this process, the low-paying unskill ll seicr poniizoneisreral ver by the residents of the host countries, but the top management ‘merican company Mewes to their home country nationals living in the host country, 1 an management poeta en American rather than Indian in its India’s subsidiary for the top of advanced pon clon: As aresull the ‘multinational corporations do not contribute to diffusion igerial know-how and development of local skills and talents. The operations of multinational corporations often lead hange of host developing countries, and thereby have an ition. The outflow of foreign exchange occurs ducts imported by multinational corporation ction and repatriation of profits to the ns are driven by their commercial rations establish their production base king advantage of | 72 || BUSINESS ORGANISATION (h) Detrimental to indigenous producers: Multinational companies are abl much lower cost due to economies of scale and sophisticated technolo, be 0 Deo a competitive edge vis-A-vis the domestic producers in developing cor2j "tvs enjoy comparable scale economies and rely ot outdated technology The ™ elimination of domestic firms from their own domestic market as they stn ly bo the competition from their foreign counterparts, '8Bl€ 10 keep th ( Influence on culture: The multinational corporations uproot the national in the changing patterns of clothing, food preferences, lifestyle, and work I culture as th : Kc he developing countries. ulture of pip, Dealing with MNCs Multinational Corporations are mixed bag as they have both pros and cons forthe host county. The three alternatives available for developing countries with respect to multinational corporations alternatives can be called as ideologies or views or approaches towards multinational corponton First is Liberal view: This view states that advantages brought by MNCs for developing cox outweighs its disadvantages. If a developing country wants to come out of vicious cycle of pov: unemployment and inflation then it must adopt liberal norms towards them. Second is Radical view: This view state that MNCs are evil monsters and they & developing countries for their benefits. They are messenger of powerful countries who exploit: resources of developing countries for their own selfish benefits. It suggests a closed door policy towards multinational corporations. Third is Pragmatic view: This view states that walking on extremes of liberalization, and restric is not going to work for developing countries. It suggests host countries to adopt a rational and P= approach. The host country should design its policies towards multinational corporations in 8° manner that their benefits outweigh their costs. It includes: + Case by case approval of MNCs, i.e., baigaining and negotiating with MNCs their entry into the market, + Keeping their entry restricted in industries of national and social welfare, such: electricity, education, etc. before pe as defenss ation eo intty introduced a legis! + Local content requirement, For example, European countri aio 4 : nated in the host cou that Japanese automakers use components that had partly origin than being made wholly in japan and assembled in the host country. + Defining the limit to which they can repatriate profits to the home county. scoot + Making a technology audit compulsory to keep a check as to what kind o : used by these corporations. exc markt pe + Compulsory permit requirements for their merger plans in the dom F monopolistic practices. : sca pationar and oo iro + Enacting strict corporate laws to hold them accountable for social, nal ® eo iii” responsibilities. ana il ' ne benelits Through a pragmatic approach, a host country can maximize th drawbacks of a multinational corporation. Suitability Kean be. concluded that . of the ee of Joint Stock Company far outweigh the drawbacks. On account (@) The volume of bi 3 jin stook company, iis ideally suitable where: ©) The business a is large and huge financial resources are required. ness involves h sks see ae ins mise capil ann hers since members have a limited liability, it is possible to

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