2013-14

IMPACT OF MULTINATIONAL CORPORATION IN INDIA BUSINESS SCENARIO

RAHUL VERMA BHIM RAO AMBEDKAR COLLEGE B.COM(HONS) 3RD YR 6TH SEMESTER R.NO -1155

PROJECT REPORT ON MULTINATIONAL CORPORATIONS

MADE BYRAHUL VERMA B.COM(HONS.) FINAL YEAR 6th SEMESTER 1155 SEC - A

UNDER SUPERVISION OF

Teacher Incharge Mrs. SEEMA SODHI B.R. AMBEDKAR COLLEGE, UNIVERSITY OF DELHI

Mentor Mrs. SAKSHI Mr. Rohit B.R AMBEDKAR COLLEGE, UNIVERSITY OF DELHI

DECLARATION This is to certify that the project titled Multinational Corporations is the outcome of my own research work and it has not been submitted in part of full to any university for award of any degree or diploma. The contribution of the author or publications has been duly acknowledged are the relevant places.

Rahul Verma B.Com(hons.) final year 6TH SEM Roll No- 1155 Bhim Rao Ambedkar College

Mrs. Shakshi Mr. Rohit Mentor

ACKNOWLEDGEMENT I would like to express my sincere gratitude to my project mentor Mr.Rohit and Mrs.Shakshi for her guidance throughout the making of this project. Without her constant support, it would have been almost impossible to finish the project timely. I would also like to thank the entire faculty of the commerce department of our college who gave me the opportunity to widen my knowledge by means of this term paper. I think them from the core of my heart for their encouraging words that inspired me to come up with this project successfully.

MULTINATIONAL CORPORATION Introduction

A multinational corporation is an organization doing business in more than one country. The transnational company produces markets, invests and operates across the world. It can also be referred to as an international corporation. The international Labor Organization (ILO) has defined as MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries known as host countries. A corporation (MNC) engages in various activities like exporting, importing, manufacturing in different countries. MNCs have worldwide involvement and global perspective in its management and decision making. 1. MNCs consider opportunities throughout the globe through they do the business in few countries. 2. MNCs invest considerable portion of their assets internationally. 3. MNCs engage in international production and operate plants in the number of countries. 4. MNCs take managerial decision based on a global perspective. The international operations are integrated into the corporations overall business. MNCs are huge industrial business organizations. They extend their industrial marketing operations through a network of branches or their majority owned foreign affiliates. MNCs produce the products in one or few countries and sell them in most of the countries.

MNCs are huge industrial organizations which extend their industrial and marketing operations through a network of their branches or their majority owned foreign affiliates. MNCs are also known as Transnational Corporation (TNCs). Till 1991, india was more or less a closed Economy. The rate of growth of the economy was limited. The contrubution of the local industries to the countrys 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 reluctanly 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 hole. This was the post 1991 era where the government began to invite and welcome gaint MNCs into the country .

Definitions and Concepts

Global Corporation: it produces in home country or in a single country and focuses on marketing these products globally or produces the products globally and focuses on marketing these products domestically. International Corporation: these corporations conduct the operations in more than one foreign country, but with the domestic orientation. This country believes that the practices adopted in the domestic business, the people and the products of the domestic business are superior to those of the other countries. This company extends the domestic product, domestic price, promotions and other business practice. Multinational Corporation: This corporation responds to the specific needs of the different country markets regarding products, promotion and price. Thus MNC operates in the more than one country but operates like a domestic company of the country concerned. Transnational Corporations: Transnational Corporations produces, markets, invests, and operates across the world. A firm which has the power to coordinate and control operations in more than one country, even if it doesnt own them. Multinational Corporation (MNC) or Transnational Corporation (TNC) is a corporation or enterprise that manages production or delivers service in more than one country. A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. Sometimes referred to as a "transnational corporation". A multinational corporation (MNC) or enterprise (MNE) is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation .The international Labour Organization (ILO) has define an MNCs a corporation that has its management headquarters in one country, known as the home country, and

operates in several other countries, known as Host countries. The Dutch East India Company was the second multinational corporation in the world (the first, the company founded two years earlier) and the first company to issue stock, and it was the largest of the early multinational companies. It was also arguably the world's first mega corporation, possessing quasi-governmental powers, including the ability towage war, negotiate treaties, coin money, and establish colonies. Some multinational corporations are very big, with budgets that exceed some nations' GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization.

WHY COMPANIES BECOME MULTINATIONAL COMPANIES?

FEATURES OF MULTINATIONAL CORPORATION

1) Market Imperfections: It may seem strange that a corporation can decide
to do business in a different country, where it does not know the laws, local customs or business practices. Why is it not more efficient to combine assets of value overseas with local factors of production at lower costs by renting or selling them to local investors? One reason is that the use of the market for coordinating the behaviour of agents located in different countries is less efficient than coordinating them by a multinational enterprise as an institution. The additional costs caused by the entrance in foreign markets are of less interest for the local enterprise. According to Hymer, Kindleberger and Caves, the existence of MNCs is reasoned by structural market imperfections for final products. In Hymers example, there are considered two firms as monopolists in their own market and isolated from competition by transportation costs and other tariff and non-tariff barriers.

2) International Power: a) Tax competition: Multinational corporations are important factors in

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 international 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. On the other hand, economist Jagdish Bhagwati has argued that in countries with comparatively low labor 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 labor 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 labor standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency, which includes a high degree of standardization. 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 the USA, Japan, or the EU). As for labor costs, while MNCs clearly pay workers in developing countries far below levels in countries where labor productivity is high (and accordingly, will adopt more labor intensive production process) they also tend to pay a premium over local labor rates of 10 to 100 percent. b) Market withdrawal: Because of their size, multinationals can have a significant impact on government policy, primarily through the threat of market withdrawal. For example, in an effort to reduce health care costs, some countries have tried to force pharmaceutical companies to license their patented drugs to local competitors for a very low fee, thereby artificially lowering the price. When faced with that threat, multinational pharmaceutical firms have simply withdrawn from the market, which often leads to limited availability of advanced drugs. In these cases, governments have been forced to back down from their efforts. Similar corporate and government confrontations have occurred when governments tried to force MNCs to make their intellectual property public in an effort to gain technology for local entrepreneurs. When companies are faced with the option of losing a core competitive technological advantage or withdrawing from a national market, they may choose the latter. This withdrawal causes governments to change policy. Countries that have been the most successful in this type of confrontation with multinational corporations are large countries such as United States and Brazil, which have viable indigenous market competitors.

3) LOBBYING: Multinational corporate lobbying is directed at a range of issues

of interest to businesses, from tariff structures to environmental regulations. There is no unified MNC perspective on any of these issues. Companies that have invested heavily in pollution control mechanisms may lobby for very tough environmental standards in an effort to force non-compliant

competitors into a weaker position. Corporations lobby tariffs to restrict competition of foreign industries. For every tariff category that one multinational wants to have reduced, there is another multinational that wants the tariff raised. Even within the U.S. auto industry, the fraction of a companys imported components will vary, so some firms favor tighter import restrictions, while others favor looser ones. Multinational corporations such as Wal-mart and McDonalds benefit from government zoning laws, to create barriers to entry many industries such as General Electric and Boeing lobby the government to receive subsidies to preserve their monopoly.

4) PATENTS: Many multinational corporations hold patents to prevent

competitors from arising. For example, Adidas holds patents on shoe designs, Siemens AG. Holds many patents on equipment and infrastructure and Microsoft benefits from software patents. The pharmaceutical companies lobby international agreements to enforce patent laws on others.

Culture-An Important Element for Multinational corporations

Culture is the set of values and beliefs shared by a group. This concludes groups as small as social groups, and as large as a whole country. Since multinational companies operate in more than one country, they are exposed to many different cultures. Each culture has its own beliefs and values. To be successful in these foreign countries, multinational companies must have a global mindset, and be able to recognize and adapt to the differences.

Different methods of communication across different cultures

Communication is the process of conveying messages. Successful communication in the international business environment requires not only an understanding of language, but also the nonverbal aspects of communication that are part of any community. Different countries are going to have different ways of communicating. If certain executives of a company want to do business with people from different countries, they need to understand how to communicate clearly with them, without mistakenly doing something wrong. The most obvious way of communicating with different people is with words, and therefore, some executives learn how to speak the language spoken in the foreign country. This act can show that the executive is truly dedicated to the work, and that he is willing to do anything to complete the deal. Greeting rituals are sometimes overlooked, but they shouldnt be because they are more important in some parts of the world than others. In Japan, failure to show respect by exchanging business cards can get negotiations off to a very bad start While in France, greetings are highly personal and individual.., as workers expect to be greeted individually(Schneider and Barsoux) Another form of communicating is through hand gestures. Often goes unnoticed, hand gestures are as important as words themselves because they too have meaning behind them. Cultures located in southern Europe and the Middle East employs a wide variety of gestures frequently with purposefulness. Some hand gestures have different meanings in different countries.

SEVEN METHODS OF MANAGING ACROSS CULTURES

(1) Hierarchy: This refers to the way people view how much they defer to people in authority, whether they feel entitled to express themselves and how empowered they feel to take the initiative on matters before them. For example, Canada believes in egalitarianism, while nations like India, Japan, China, Germany, and Mexico are highly hierarchical. (2) Group focus: This refers to whether people consider that accomplishment and responsibility are achieved through individual or group effort, and whether they tend to identify themselves as individuals or members of a group. Canadians are individualists while Brazilians, Chinese, Mexicans and Japanese are group-focused. (3) Relationships: This is about whether trust and relationships are viewed as a prerequisite for working with someone. Canadians focus primarily on the transaction, rushing to deal, while the Chinese, Italians, and Spaniards, for example, focus on nurturing relationships first. (4) Communication styles: This covers matters like verbal and nonverbal expression, how directly or indirectly people speak, and whether brevity or detail is valued in communication. Israel, Denmark, Germany and Sweden use a direct style, while indirect communication styles are the norm in China, United Arab Emirates, and Japan. 5) Time orientation: This refers to the degree to which people believe adhere to schedules. United States, Germany, Denmark and Switzerland follow schedules while countries like Saudi Arabia, Spain, Thailand, and the United Arab Emirates are unconcerned about schedules and deadlines. (6) Change tolerance: How people are comfortable with change, risk-taking and innovation. Along with Australians, Canadians are the most tolerant of change, while Saudi Arabia, Indonesia, Mexico and Russia are change-averse. (7) Motivation: This characteristic examines whether people work to live or live to work. Canadians are driven by work and the status it provides although not as much as people in China, Japan, and the U.S. while in Norway, Saudi Arabia, United Arab Emirates, India and Mexico, family-work balance is treasured.

Control over MNC

The new Industrial and Foreign Investment Policy announced on May 31, 1990 proclaims to release the Indian industry from "unnecessary bureaucratic shackles by reducing the number of clearances required from the Government". As a part of this objective it is proposed to allow foreign investment up to 40 per cent on an automatic basis subject to a 30 per cent restriction on import of capital goods. Similarly, larger freedom to Indian entrepreneurs in the matter of technology imports is in the offing. The policy explains that these and other proposals would be applicable to all manufacturing units in a specified list' to be announced later. Predictably the announcement did not generate a great deal of discussion at various for .However, the policy statement nor the subsequent official clarifications throw light on the empirical basis for the decisions with regard to foreign investment and technology. Nor do they reveal any understanding of the nature of foreign private capital already existing in India. Significantly, the likely impact on the balance of payments, self-reliance, indigenous R&D, employment, India's stand on MNCs in the Third World for a and India's social and political spheres have not been spelt out clearly. Is it because the policy makers are not aware of the basic characteristics of the institution of MNC and the long term implications of the open door policy for foreign private capital and technology? The answer might be in the affirmative for the political leaderships but could not be so for the high profile economic advisers. When it is decided to invite, permit or encourage large private corporations from outside the country to find a solution to Indian societal problems on the belief that MNCs would help solve India's major problems -- may it be foreign exchange, inflation, unemployment, interpersonal inequities or regional imbalances it is of importance to discuss direct and indirect implications of the new policy initiatives. First of all, one must recognize that MNCs are private corporations primarily guided by the philosophy of profit maximisation.MNCs are not in social service. There is a need to understand that societal problems cannot be the concern of private business. If one places faith on a wrong institution or instrument one has only to wait for the day of disillusionment.

Should MNCs be favored or not?

MNCs should definitely be favored, as they HELP HOST COUNTRIES. They help in training of local labor 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. They 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 wellas services, which assist forward thinking institutions, enterprises and people, who build a smartplanet. The net income of this company post completion of the financial year end of 2013 was $16.48 billion 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. (UnitedStates) based Microsoft Corporation, one of the software giants has got their headquarter in New Delhi. Starting its operation in the country from 1990, this company has got the following business units: 1. 2. 3. 4. 5. 6. 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 $ 16.98 billion in 2012 to $ 21.86 billion in 2013. 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 year 1865. 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 decreased by 24 % in the last financial year with sales of EUR 12.71billion as compared to 2012's EUR 30.8 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 Centers in the country for supporting reemployment. Their first onsite for the installation of renewable power generation are already in place. 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 year 2020, 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. 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 1973 though.

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 product as well. Reebok International Limited: This global brand is a famous name in the field of sports as wellas 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, Reeboks announcement of its partnership with artist, designer and producer Swizz Beatz reflects its longterm future growth. 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 November 1994, 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 by 1, 000. 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 10 big deals that they have received besides the Credit Union Australia's contracts well as Government of Karnataka's INR. 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.

ROLE OF MNCs IN INDIA

Profit maximization. International network of marketing. Diversification policy. Concentration on consumer goods. Location of central control offices. Techniques to achieve public acceptability. Existence of modern and sophisticated technology. Existence of modern and sophisticated technology. Business, but not social justice. No concern towards social responsibilities and business ethics. MNCs and process of planned economic development in INDIA. Cultural erosion. Unconcern for environmental pollution and ecological balance

Multinational corporations (MNCs) are huge industrial organizations having a wide network of branches and subsidiaries spread over a number of countries. The two main characteristics of MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies. Such a company may enter into joint venture with a company in another country. There may be agreement among companies of different countries in respect of division of production, market, etc. These companies are to be found in almost all the advanced countries, with the USA perhaps the biggest amongst them. Their operations extend beyond their own countries, and cover not only the advanced countries but also the LDCs. Many MNCs have annual sales volume in excess of the entire GNPs of the developing countries in which they operate. MNCs have great impact on the development process of the Underdeveloped countries. Let us discuss the arguments for and against the operation of MNCs in underdeveloped countries.

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 mobilized 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, LDC governments are able to mobilize public financial resources for development projects. 4. Filling 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 counterparts 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. 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.

ARGUMENTS AGAINST MNCs(THE NEGATIVE ROLE)

Multinational Companies In India

There are a number of 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 a major 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 financial liberalization of the country, Especially after 1991. Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of Multinational companies have shown interest in Indian market.

Profit of MNC in India

It is too specify that the companies come and settle in India to earn profit. A company enlarges its jurisdiction of work beyond its native place when they get a wide scope to earn a profit and such is the case of the MNCs that have flourished here. More over India has wide market for different and new goods and services due to the ever increasing population and the varying consumer taste. The government FDI policies have some how benefited them and drawn their attention too. The restrictive policies that stopped the companys inflow are however withdrawn and the country has shown much interest to bring in foreign investment here. Besides the foreign directive policies the labour competitive market, market competition and the macro-economic stability are some of the key factors that magnetize the foreign MNCs here. Following are the reasons why multinational companies consider India as a preferred destination for business: Huge market potential of the country FDI attractiveness Labor competitiveness

Macro-economic stability Advantages of the growing MNCs in India + There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. They are as under + Initiating a higher level of investment. + Reducing the technological gap + The natural resources are utilized in true sense. + The foreign exchange gap is reduced