Multinational Corporation - Economics, UPSC, IAS UPSC Notes | EduRev

Economy and Indian Economy (Prelims) by Shahid Ali

UPSC : Multinational Corporation - Economics, UPSC, IAS UPSC Notes | EduRev

The document Multinational Corporation - Economics, UPSC, IAS UPSC Notes | EduRev is a part of the UPSC Course Economy and Indian Economy (Prelims) by Shahid Ali.
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Multinational Corporation

Multinational corporation
A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is registered in more than one country or that has operations in more than one country.
It is a large corporation which both produces and sells goods or services in various countries.
It can also be referred to as an international corporation. They play an important role in globalization.
The first multinational company was the British East India Company, founded in 1600.
The second multinational corporation was the Dutch East India Company, founded March 20, 1602

Multinational corporate structure
Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products.(example: Coke, Pepsi)
Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas )
Diversified multinational corporations manage production establishments located in different countries that are neither horizontally nor vertically nor straight, nor non-straight integrated. (example: Hilton Hotels )

Micro-multinationals
A new breed enabled by Internet based communication tools.
Employees, clients and resources located in various countries.
Use of internet, cheaper telephony and lower travelling costs.

Internet tools like Google, Yahoo, MSN, EBay, Skype and Amazon make it easier for the micro-multinationals to reach potential customers in other countries.

Transnational Corporations

A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with one national home.

Whilst traditional MNCs are national companies with foreign subsidiaries, TNCs spread out their operations in many countries sustaining high levels of local responsiveness.
An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralized headquarters.
However, the terms TNC and MNC are often used interchangeably.

Analysis of MNC
Strengths
Low Cost

Well Developed Infrastructure Weakness
Location is often very distant
Lack of Transportation facilities

Relative Inflexibility Opportunities
Leverage Government
Create the necessary infrastructure
Attract new industries
Threats
Emergence of Private companies
Establishment of monopoly

Criticism of multinationals

Anti-corporate advocates criticize multinational corporations for entering countries that have low human rights or environmental standards.

They claim that multinationals give rise to huge merged conglomerations that reduce competition and free enterprise, raise capital in host countries but export the profits, exploit countries for their natural resources, limit workers' wages, erode traditional cultures, and challenge national sovereignty.

Conflict of laws

Conflict of laws is a set of procedural rules that determines which legal system and which jurisdiction's applies to a given dispute.

The three branches of conflict of laws are

Jurisdiction – whether the forum court has the power to resolve the dispute at hand

Choice of law – the law which is being applied to resolve the dispute
Foreign judgments – the ability to recognize and enforce a judgment from an external forum within the jurisdiction of the adjudicating forum.

MNC In India

MNC in India are attracted towards :

India’s large market potential
India presents a remarkable business opportunity by virtue of its sheer size and growth
Labour competiveness
FDI attractiveness
India’s vast population is increasing its purchasing power
India is also emerging as the manufacturing and sourcing location of choice for various industries

Trends Of MNC’s In INDIA
First MNC in INDIA is EAST INDIA Co. in 1600.
American companies accounts for around 37% of the turnover of the top 20 firms operating in India.
The scenario for 'MNC in India' has changed a lot in recent years, since more and more firms from European Union like Britain, Italy, France, Germany, Netherlands, Finland, Belgium etc have outsourced their work to India.
Finnish mobile handset manufacturing giant Nokia is the largest Multinational Corporation In India.
A host of automobile companies like Fiat, Ford Motors, Piaggio etc from Italy have opened shop in India with R&D wing attached.
Oil companies, Infrastructure builders from Middle East are also flocking in India to catch the boom.
South Korean electronics giants Samsung and LG Electronics and small and mid-segment car major Hyundai Motors are doing excellent business and using India as a hub for global delivery.

Companies like SingTel of Singapore and Malaysian giant Salem Group are showing huge interest for investment.
Also insurance companies like AIG and Max New York Life Insurance doing business in India.

Success factors for MNCs operating in India
Commitment at global level
Raise the profile of India
Formulation of bold long term targets
Empowered local Management
More cost effective, enhances continuity, leverages understanding of local environment
Localized product / market business models : create customized products and services in response to unique environment in India
Deliver the right product at the right price with right positioning for India

MNC In India
MNC in India represent a diversified portfolio of companies representing different nations.
Nokia
Samsung
LG
Microsoft
Hyundai
Sony

Indian MNCs
Paints – Asian Paints
Auto & Components – Tata Motors, Bharat Forge
Chemicals – Tata Chemicals, United Phosphorus
Metals – Sterlite Industries, TISCO
Packaging – Essel
Pharmaceuticals – Ranbaxy, Wockhardt, Sun, DRL
Oil & Gas – ONGC

Pros & Cons of MNC
Pros
Increase investment level Transferring the technology It increase host country exports & reduce its imports Integrating national economy Implement new innovations Increase competition
Cons
May acquire monopoly power Underestimate local culture Think only about profit rather than host country interest Inflexibility in terms & conditions Heavy use of non-renewable natural resources

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