A Bain analysis revealed two salient facts: Between 1991 and 2012, the number of MNCs in India more than quadrupled. And over 20 years, total MNC revenue grew at a compound annual rate of 18%—faster than the overall economy. In the early 1990s, multinationals catered to the basic demands of the Indian consumer goods and automobiles, and Hindustan Unilever Ltd (HUL) and Maruti Suzuki India Ltd together held around 40% of the MNC share. As India’s economic liberalisation played out, the demographics of successful MNCs shifted: new and diverse sectors such as technology and consumer durables became prominent. By 2014, the top two MNCs were Maruti Suzuki and Samsung Electronics Co. Ltd, each accounting for just around 5% of total MNC revenue while HUL’s share dropped to roughly 4%. Moreover, firms from many more countries came to the fore, with South Korea establishing a significant presence - as one can ascertain from Samsung’s success – along with the US and Japan. The essay looks into whether the growth of MNCs in India can be considered a boon or a bane.
What is a MNC?
Multinational Corporations (MNCs) or Transnational Corporation (TNC), or Multinational Enterprise (MNE) is a business unit which operates simultaneously in different countries of the world. In some cases the manufacturing unit may be in one country, while the marketing and investment may be in other country. MNCs are huge business organisations which extend their business operations beyond the country of origin through a network of industries and marketing operations.
Few examples of MNCs are:
The top 300 MNCs control more than 25% of the world economy.
Some basic characteristics of these MNCs are:
·They carry out risk analysis, and send their personnel to learn and understand the business climate.
·They develop expertise understanding the culture, politics, economy and legal aspects of the country that they are planning to enter.
·The essential element that distinguishes the true multinational is its commitment to manufacturing, marketing, developing R&D, and financing opportunities throughout the world, rather than just thinking of the domestic situation.
Growth of MNCs in India
The English East India Company and British South Africa Company were two such, associated with old fashioned colonialism. In the second half of the 20th century they exist in a different shape after having gone through trans-migration. Most of the former colonies of the erstwhile Imperial powers gave way to independent states. At the same time the United States of America rose as the foremost industrial power in the world. Naturally, the giant corporations of the US grew, beyond its borders, much quicker than those of other countries.
In today’s globalised world such companies are only ever increasing. Exchange of goods, services, ideas, labour etc. are being encouraged worldwide; specialisation is the need of the hour and increasingly more and more companies are spreading their influence outside their country of origin. While one country may be specialised in manufacturing of certain types of goods, others may have abundant supply of qualified human resources or cheap labour along with market for selling the finished goods. Therefore such differences in availability of resources, skills, markets etc., caused not only by geo-political reasons but by historical reasons like imperialism and colonialism, has meant that companies today are increasingly looking to have a global footprint. Most of the major MNCs today are headquartered in the industrial or developed countries.
Over the years, the business reasons drawing multinationals to India have evolved, and based on their market focus, MNCs can be grouped into three distinct categories:
·those that look on India as an end market
·treat it as a centre for back-office functions
·or as a global business hub
As early as the 20th century, global brands were in India, focusing on local consumers as the end market. The first of these companies included Goodyear Tire and Rubber Co., Citibank and Siemens AG. Siemens, for example, counts India as the fourth largest contributor to its global revenue. The years after liberalisation saw MNCs such as Lafarge SA, Macquarie Group Ltd and Marks and Spencer Plc. enter India with the same focus. Then multinationals developed a new business focus: outsourcing.
More recently, a number of MNCs have positioned India both as a business hub serving global clients and as a base for exports. Most such companies are automobile or consumer durables manufacturers.
But the debate is whether these MNC’s have proved to be saviours or saboteurs for India. Every coin has two sides and the same is the case with MNC’s. With the increase in liberalisation and hence more foreign trade and investment, MNC’s have occupied and are ruling the markets of India. Remember that ‘Made in China’ tag on almost everything we purchase?
With a rise in the number of MNC’s in India, the number of jobs has been increased resulting in a reduction in non-employed youth in the country. Since the products are produced globally, they are cheaper. Indian companies face competition with these MNC’s and hence to survive they have to maintain the quality and standard of their products. People in urban areas and well off households have improved their standards of living
·MNCs are a way to carry out cross border trade
·Attract foreign investment and currency
·Create jobs and employment
·Create infrastructure in developing countries
·High quality products
·Enhances economic globalisation
MNC’s set up their factories in locations where they can easily get cheap skilled labour, resources, favourable government policies, and a stable political and economic environment. They either set up production jointly with local companies or buy the local companies and then expand production.
·Small/Local companies: increased competition
·Labour: most of the time these MNC’s do not follow the labour rules and hire the small producers seasonally. Many households are deprived of a basic standard of living. With a large proportion of the working population in the primary and low-wage secondary sector, many people find it difficult to make both ends meet.
·Eliminate competition: reduce the entry of foreign companies violating the rules of the World Trade Organisation whereas developing countries like India are bound by laws of WTO
·Cheap technology: danger persists of some companies bringing in obsolete technology and flooding the market with low quality and potentially harmful goods. If proper care is not taken to enforce modern regulatory standards, poor technology can even lead to industrial accidents, environmental degradation etc. causing severe loss of lives while impacting future generations. India has been on the receiving end of such a disaster in the form of the Bhopal gas tragedy of 1984 where leakage of methyl isocyanate from a pesticide plant of Union Carbide, an MNC, caused tremendous loss of lives, and scarring even the future unborn generations of Bhopal.
·Exploitation: weak intellectual property laws in developing countries leading to the patenting of freely available technology or methods, which may cause an increase in price of related goods and services.
Generalisations should be avoided for no development is fully advantageous or disadvantageous. It is evident that multinational corporations are saviours for one group of people but saboteurs for another group of people. In a country like India, the government has to wisely use the trade barriers, controlling what products should enter the country and also define quotas of the products to regulate their amount. Governments should take special care to ensure international and national laws related to environment, fair trade and economy are kept in place by these MNCs.