Эссе: Multinational corporations

Multinational Corporations (MNCs), also known as Transnational Corporations (TNCs), are enterprises operating in a number of countries and having production or service facilities outside the country of their origin.

A commonly accepted definition of an MNC is an enterprise producing at least 25 per cent of its world output outside its country of origin.

Enabled by Internet based communication tools, a new breed of multinational companies is growing in numbers. These multinationals start operating in different countries from the very early stages. These companies are being called micro- multinationals. What differentiates micro- multinationals from the large MNCs is the fact that they are small businesses.

Some of these micro-multinationals, particularly software development companies, have been hiring employees in multiple countries from the beginning of the Internet era. But more and more micro- multinationals are actively starting to market their products and services in various countries. Internet tools like Google, Yahoo, MSN, Ebay and Amazon make it easier for the micro- multinationals to reach potential customers in other countries.

Reasons for the diverse and manifold growth of the multinationals could be:

(1) Expansion of market skills,

(2) Superior marketing,

(3) Huge financial resources,

(4) Technological edge, and

(5) Innovation of products.

In India, since the announcement of the liberalised foreign investment policy in 1991, there has been a spurt in the number of MNCs as well as foreign collaborations.

The multinational companies in India represent a diversified portfolio of companies from different countries. Though the American companies—the majority of the MNC in India—account for about one-third of the turnover of the top 20 firms operating in India, the scenario has changed a lot of late. More enterprises from the European Union like Britain, France, the Netherlands, Italy, Germany, Belgium and Finland have come to India or have outsourced their work to this country. Finnish mobile giant Nokia has a large base in this country.

There are also MNCs like British Petroleum and Vodafone. India has a huge market for automobiles and hence a number of automobile giants have stepped into this country to reap the market. French Heavy Engineering major Alstom and Pharma major Sanofi Aventis have also started their operations in this country.

The latter is in fact one of the earliest entrants in the list of multinational companies in India. There are also a number of oil companies and infrastructure builders from the Middle East. Electronics giants like Samsung and LG Electronics from South Korea have made a substantial impact on the Indian electronics market.

As to why the multinational companies are coming down to India, the reasons are: India has got a huge market; it has one of the fastest growing economies in the world; the policy of the government towards foreign direct investment has also played a major role in attracting the multinational companies in India; there is labour competitiveness.

The impact of MNCs on the development of a country is highly uneven. In some ways the impact of MNCs in India has been positive. They have brought in new technology and products, so the consumers have wide choice and awareness of international standards. They have indirectly made

Indian companies more efficient as they brought in competition. But the negative aspects of their entry into our country are serious. In many situations these enterprises widen the already high income gap between the rich and the poor. They tend to promote the interests of the small number of well-paid modern sector workers, and this leads to the widening of wage differentials in the country.

As they are mostly located in urban areas, the MNCs worsen the already existing imbalance between the rural and urban areas as well as contribute to accelerated rural-urban migration. They divert resources away from much- needed food production to the manufacture of sophisticated products catering to the demands of the local elite.

These products stimulate inappropriate consumption patterns through advertisement and their monopolistic market power, using inappropriate (capital intensive) technology. Such capital intensive technology leads to negligible, or even reduces, job creation.

Although MNCs improve the foreign exchange position of a country, their long-term impact may be to reduce foreign exchange earnings of both current and capital accounts. The current account may deteriorate due to large-scale import of intermediate goods, and capital account may worsen because of repatriation of profits, interest, royalties, management fees, etc. Indeed, the RBI has said that the average rate of profit of MNCs is something between 20 per cent and 25 per cent—which is a substantial amount sent out of the country.

While the MNCs contribute to the public revenue in the form of corporate taxes, their contribution is less than it should be as a result of liberal tax concessions, excessive investment allowances, disguised subsidies and tariff protection by the local government which often offset the gains made from tax revenue.

MNCs may damage the economies of the underdeveloped economies because their superior knowledge, worldwide contacts and advertising skills inhibit the emergence of small-scale local enterprises. Because of their huge resources, MNCs are able to diversify into various economic activities, pushing out indigenous companies in those fields.

Though many MNC initially promise to transfer technology to the host country, they seldom do so. Even if they do, they transfer, not the latest sophisticated technology, but obsolete technology.

They do not often transfer much capital from the parent company but raise resources from within India.

In conclusion, we may say that foreign investment (if it is actually done) can be an important stimulus to economic and social development, only so long as the interests of both the MNCs and the host country coincide.

It has been pointed out that these companies export too little, that they tend to declare high dividends, that their investments are concentrated in certain sectors, that they transfer very little technology.