MULTINATIONAL CORPORATIONS

Ø  MULTINATIONAL CORPORATIONS
INTERNATIONAL FINANCE
INDIAN ECONOMY
BUSINESS ENVIRONMENT

INTERNATIONAL FINANCE
INDIAN ECONOMY
BUSINESS ENVIRONMENT

Ø  WATCH VIDEO LECTURE AT SHASHI AGGARWAL ECONOMICS AND LAW CLASSES

Ø  INTRODUCTION

1. MULTINATIONAL CORPORATION TOOK BIRTH IN THE EARLY 1860
2. AFTER WORLD WAR SECOND MULTINATIONAL HAVE GROWN RAPIDLY
3. UNITED STATES WAS THE HOME OF MOST OF THE MNC
4. LARGE NUMBER OF CHINESE,JAPANESE AND EUROPEAN MULTINATIONALS
5. ONE OF THE FIRST MULTINATIONAL BUSINESS ORGANIZATION,THE EAST INDIA COMPANY WAS ESTABLISHED IN 1600
6. AFTER THE EAST INDIA COMPANY,THE DUTCH EAST INDIA COMPANY FOUNDED MARCH 20,1602 WHICH WOULD BECOME THE LARGEST COMPANY IN THE WORLD FOR NEARLY 200 YEARS

•  ACCORDING TO FORTUNE GLOBAL WALMART 500 AMERICAN RETAIL CORPORATION WALMART HAS BEEN THE WORLD’S LARGEST COMPANY SINCE 2014
• TOP TEN MULTINATIONAL COMPANY IN INDIA IN 2018

1. SONY CORPORATION:-JAPANESE MNC. ELECTRONICS,MUSIC AND ENTERTAINMENT UNITS
2. PEPSICO: AMERICAN COMPANY MANUFACTURES BEVERAGES,SNACKS AND FOOD
3. HEWLETT PACKARD HP:-AMERICAN GLOBAL INFORMATION TECHNOLOGY
4. IBM:AMERICAN MULTINATIONAL COMPANY. PROVIDE IT SERVICES,APPLICATION MGMT,SERVERS,BUSINESS CONSULTING AND STORAGE SOLUTIONS
5. NESTLE:-SWISS TRANSNATIONAL FOOD AND BEVERAGE COMPANY
6. COCA COLA:-IS ANAMERICAN BEVERAGE COMPANY
7. CITI GROUP: AMERICAN MULTINATIONAL INVESTMENT BANKING AND FINANCIAL SERVICES COMPANY.
8. TATA GROUP:-INDIAN MULTINATIONAL CORPORATION. 100 INDEPENDENT COMPANIES.
9. MICRO SOFT: WAS ESTABLISHED IN 1975. AMERICAN MULTINATIONAL CORPORATION.
10. APPLE INC:AMERICAN MULTINATIONAL COMPANY STARTED BY STEVE JOBS IN 1976. KNOWN FOR COMPUTERS,MOBILE AND LAPTOPS

• MULTINATIONAL CORPORATIONS

1. MULTINATIONAL CORPORATIONS ARE GIANT FIRMS WITH THEIR HEAD QUARTERS LOCATED IN ONE COUNTRY AND WITH VARIETY OF BUSINESS OPERATIONS IN SEVERAL OTHER COUNTRIES.
2. ALSO KNOWN AS TRANSNATIONAL CORPORATIONS WHICH IMPLIES THAT THEIR OPERATIONS EXTEND BEYOND THE BOUNDARIES OF THE NATION IN WHICH THEY WERE ORIGINALLY STARTED.

• DAVID E LILIENTAL,” MNC ARE CORPORATIONS WHICH HAVE THEIR HOME IN ONE COUNTRY BUT OPERATE AND LIVE UNDER THE LAWS AND CUSTOMS OF OTHER COUNTRIES.
• ACCORDING TO ILO:-THE ESSENTIALS OF THE MNC LIES IN THE FACT THAT MANAGERIAL HEADQUARTERS LOCATED IN ONE COUNTRY( HOME COUNTRY) WHILE THE ENTERPRISE CARRIES OPERATIONS IN NUMBER OF OTHER COUNTRIES(HOST COUNTRIES)
• MULTINATIONAL DEFINITION ARE THAT THE COMPANY IN QUESTION MUST

1. PRODUCE ( RATHER THAN JUST DISTRIBUTE ) ABROAD AS WELL AS IN THE HEAD QUARTER COUNTRY
2. OPERATE IN A CERTAIN MINIMUM NUMBER OF NATIONS( FOR EXAMPLE 6)
3. DERIVE SOME MINIMUM PERCENTAGE OF ITS INCOME FROM FOREIGN OPERATIONS FOR EXAMPLE 25%
4. HAVE A CERTAIN MINIMUM RATION OF FOREIGN TO TOTAL NUMBER OF EMPLOYEE
5. POSSESS A MANAGEMENT TEAM WITH GEOCENTRIC ORIENTATIONS
6. DIRECTLY CONTROL FOREIGN INVESTMENT AS OPPOSED TO HOLDING SHARES IN FOREIGN COMPANIES

• FEATURES OF MNCS

1. HAVE MANAGERIAL HEADQUARTERS IN HOME COUNTRIES WHILE THEY CARRY OUT OPERATIONS IN NUMBER OF OTHER COUNTRIES
2. A LARGE PART OF THE CAPITAL ASSETS OF THE PARENT COMPANY IS OWNED BY THE CITIZENS OF THE COMPANY’S HOME COUNTRY
3. THE ABSOLUTE MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS ARE CITIZENS OF THE HOME COUNTRY
4. DECISIONS ON NEW INVESTMENT AND THE LOCAL OBJECTIVES ARE TAKEN BY THE PARENT COMPANY
5. MNCS ARE PREDOMINANTLY LARGE SIZED AND EXERCISE A GREAT DEGREE OF ECONOMIC DOMINANCE
6. MNS CONTROL PRODUCTION ACTIVITY WITH LARGE FOREIGN DIRECT INVESTMENT IN MORE THAN ONE DEVELOPED AND DEVELOPING COUNTRIES
7. MNCS ARE DIGOPOLISTIC IN NATURE IT IS SUSTAINED BY MODERN TECHNOLOGIES.MGMT SKILLS,PRODUCT DIFFERENTIATION AND ENORMOUS ADVERTISING.

• FORMS OF MULTINATIONAL CORPORATIONS
• TRANSATIONAL CORPORATIONS:-

1. COMPRISE PARENT ENTERRPRISE AND THEIR AFFILIATES
2. A PARENT ENTERPRISE IS DEEMED AS AN ENTERPRISE THAT CONTROLS ASSETS OF THE OTHER ENTITIES IN COUNTRIES OTHER THAN HOME COUNTRY
3. USUALLY BY OWNING A CERTAIN EQUITY CAPITAL BASE( GERMANY AND UNITED KINGDOM, STAKE IS 20% OR MORE)

• FOREIGN AFFILIATE:-IS AN ENTERPRISE IN WHICH AN INVESTOR WHO IS RESIDENT IN ANOTHER ECONOMY OWNS A STAKE THAT A LASTING INTEREST IN THE MANAGEMENT OF THAT ENTERPRISE. IN THW WORLD INVESTMENT REPORT, A SUBSIDIARY ENTERPRISE,ASSOCIATE ENTERPRISE AND BRANCHES ALL ARE REFEREED TO AS FOREIGN AFFILIATES
• SUBSIDIARY:-A SUBSIDIARY IS AN ENTERPRISE IN THE HOST COUNTRY IN WHICH ANOTHER ENTITY DIRECTLY OWNS MORE THAN A HALF OF THE SHAREHOLDERS VOTING POWERS AND HAS THE RIGHT TO APPOINT OR REMOVE A MAJORITY OF THE MEMBERS OF THE ADMINISTRATIVE MANAGEMENT OR SUPERVISORY BODY.
• ASSOCIATE: IS AN ENTERPRISE IN THE HOST COUNTRY IN WHICH AN INVESTOR OWNS A TOTAL OF AT LEAST 10% BUT NOT MORE THAN  A HALF OF THE SHAREHOLDERS VOTING POWERS.

• BRANCH:- IS A WHOLLY OR JOINTLY OWNED UNINCORPORATED ENTERPRISE IN THE HOST COUNTRY WHICH IS ONE OF THE FOLLOWING:-

1. A PERMANENT ESTABLISHMENT OR OFFICE OF THE FOREIGN INVESTOR
2. AN UNINCORPORATED PARTNERSHIP OF JOINT VENTURE BETWEEN THE FOREIGN DIRECT INVESTOR AND ONE OR MORE THIRD PARTIES
3. LAND,STRUCTURES AND IMMOVABLE EQUIPMENT AND OBJECTS DIRECTLY OWNED BY A FOREIGN RESIDENT
4. MOBILE EQUIPMENT SUCH AS SHIPS,AIRCRAFT,GAS OR OIL DRILLING,RIGS OPERATING WITH IN A COUNTRY OTHER THAN THAT OF THE FOREIGN INVESTOR FOR AT LEAST ONE YEAR

• CLASSIFICATION OF MNC

1. SERVICE MNC:- A SERVICE MNC IS DEFINED AS TRANSNATIONAL COMPANY WHICH DERIVES MORE THAN 50% OF ITS REVENUES FROM SERVICE/ SERVICE MNCS ARE FOUND IN AREAS SUCH AS BANKING,INSURANCE,TRANSPORT AND TOURISM ETC
2. MANUFACTURING MNC:- WHICH DERIVES AT LEAST 50% OF ITS REVENUE FROM MANUFACTURING ACTIVITY.
3. TRADING MNC:-A TRADING MNC IS ONE WHICH DERIVES AT LEAST 50% OF ITS REVENUE FROM THE TRADING ACTIVITY. OLDEST FORM OF MULTINATIONAL.

• ROLE OF MNC
•  BENEFITS TO THE HOST COUNTRY:-

1. THE MULTINATIONAL COMPANIES TRANSFER INVESTMENT,ADVANCE TECHNOLOGY TO DEVELOPING COUNTRIES THROUGH ESTABLISHING BRANCHES AND SUBSIDIARIES
2. WITH HELP OF ADVANCED TECHNOLOGY,THEY CAN PRODUCE QUALITY GOODS  AND PRODUCTS AT CHEAPER RATE
3. A MULTINATIONAL COMPANY REQUIRES A LARGE NUMBER OF SKILLED AS WELL AS UNSKILLED EMPLOYEE TO OPERATE ITS ACTIVITIES. SO THEY PROVIDE EMPLOYMENT OPPORTUNITIES
4. IMPROVEMENT IN THE COUNTRY;S BALANCE OF PAYMENTS
5. INCREASE IN GOVERNMENT REVENUE AS THEY RUN THE BUSINESS ON LARGE SCALE THAT PAY LARGE AMOUNT OF TAX TO THE GOVERNMENT.
6. O MEET INTERNATIONAL STANDARD OF PRODUCTS AND SERVICES,IT CONDUCTS SEVERAL RESEARCH AND DEVELOPMENT ACTIVITIES.
7. IT BOOSTS INTERNATIONAL RELATIONS

• BENEFITS TO THE HOME COUNTRY:-

1. ACQUISITION OF RAW MATERIALS FROM ABROAD AT LOW PRICES
2. ACQUISITIONS OF TECHNOLOGY AND MANAGEMENT EXPERTS FROM COMPETING IN GLOBAL MARKETS
3. EXPORT OF COMPONENTS AND FINISHED GOODS FOR ASSEMBLY OR DISTRIBUTION IN FOREIGN MARKETS
4. INFLOW OF INCOME FROM OVERSEAS PROFIST,LICENSING FEES AND MANAGEMENT CONTRACTS
5. JOB CAREER OPPORTUNITIES AT HOME IN CONNECTION WITH OVERSEAS OPERATIONS

• LIMITATION OF THE MNC

1.     INTERFERENCE IN THE ECONOMIC SOVEREIGNTY OF THE HOST COUNTRY: MNCS ARE ACTIONS ARE GUIDED PARTLY BY WORLD WIDE NEEDS THAN INTERNAL NEEDS OF THE HOST NATIONS

2.     THE BASIC OBJECTIVE OF MNC IS PROFIT MAXIMIZATION THROUGH EXPLOITATION OF COUNTRY’S BEST RESOURCES

3.     AS MNC IMPORT MATERIALS OR TRANSFER FUNDS BY WAY OF ROYALTY,FEES,DIVIDEND ETC TO THEIR HOME COUNTRY. PUT STRAIN ON THE FOREIGN EXCHANGE RESERVES

4.     MINIMUM TRANSFER OF TECHNOLOGY

5.     EXPLOITATION OF LABOUR

6.     CULTURAL LOSS

7.      

8.     CREATION OF MONOPOLIES

9.     EVASION OF TAXES

10.  DEPLETION OF NATURAL RESOURCES

• CONCLUSION:

1. MNCS ARE THE CHANGE AGENTS AND ARE WELCOME TO DEVELOPING COUNTRIES
2. IMPROVE THE STANDARD OF LIVING
3. BENEFITS OUTWEIGH THE PROBLEMS
4. THEY SHOULD NOT ERODE THE ECONOMIC SOVEREIGNTY OF THE HOST COUNTRIES
5. MUST PLAN ACCORDING TO DEVELOPMENT PLANS OF THE HOST COUNTRIES