Here is a compilation of essays on ‘Multinational Corporations (MNCs)’ for class 11 and 12. Find paragraphs, long and short essays on ‘Multinational Corporations (MNCs)’ especially written for school and college students.
Essay on MNCs
Essay Contents:
- Essay on the Meaning of Multinational Corporations
- Essay on the Classification of Multinational Corporations
- Essay on the Features of MNCs
- Essay on the History of MNCs
- Essay on the Recent Trends of MNCs
- Essay on the Role of MNCs in India
- Essay on the Innovations of Indian MNCs in Global Markets
- Essay on the Challenges of Going Global from India
- Essay on the Benefits and Drawbacks of MNCs
- Essay on the Harmful Effects of MNCs on Indian Economy
- Essay on the Measures to Control Harmful Effects of MNCs in India
Essay # 1. Meaning of Multinational Corporations:
Drastic political changes taking place at the international level and the economic liberalisation across the globe has given rise to the wave of multinational corporations. History of multinational corporations is very old. The East India Company, The Royal Africa Company and Hindson Bay Company are some of the examples of MNCs in the mercantilist Age.
Multinational corporations are giant firms with their headquarters located in one country and with a variety of business operations in several other countries. They are also sometimes referred to as Transnational Corporations which implies that their operations extend beyond the boundaries of the nation in which they were originally started. The term Multinational Corporation’ is variedly defined.
Some of the important definitions are as follows:
According to David E. Liliental – “MNCs are corporations which have their home in one country but operate and live under the laws and customs of other countries as well.”
According to the International Labour Organisation – “The essential of the MMC lies in the fact that its managerial headquarters are located in one country (home country) while the enterprise carries out operations in a number of other countries (host countries).”
According to Foreign Exchange Regulation Act, 1973 (FERA) – “A corporation incorporated in a foreign country or territory shall be deemed to be a multinational corporation if such a corporation (a) is a subsidiary or branch or has place of business in two or more countries or territories; (b) carries on business on otherwise operations in two or more countries or territories.”
According to ILO Report – “The essential nature of the multinational enterprise lies in the fact that its managerial headquarters are located in one country (referred to for convenience as home country) while the enterprise carries out operations in a number of other countries as well (host countries).”
According to the President, IBM Corporation – “Multinational corporation is one that (i) operates in many countries (ii) carries out research, development and manufacturing in those countries (iii) has a multinational management (iv) has a multinational stock ownership.”
Essay # 2. Classification of Multinational Corporations:
Multinationals operate in different countries in different forms.
Their main forms are:
1. Transnational Corporations:
Transnational corporations comprise parent enterprises and their foreign affiliates. A parent enterprise is an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain percentage of equity capital.
2. Foreign Affiliate:
A foreign affiliate is an enterprise in which an investor, who is the resident of another country, owns a stake that permits a lasting interest in the management of that enterprise.
3. Subsidiary:
A subsidiary is an enterprise in the host country in which another entity directly owns more than a half of the shareholders voting power and has the right to appoint or remove a majority of the members of the administrative, management or supervisory body.
4. Associate:
An 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 power.
5. Branch:
A branch is a wholly or jointly owned unincorporated enterprise in the host country which is one of the following:
(a) A permanent establishment or office of the foreign investor.
(b) An unincorporated partnership or Joint Venture between the foreign direct investor and one or more third parties.
(c) Land, structures and/or immovable equipment and objects directly owned by a foreign resident.
(d) Mobile equipment such as ships, aircraft, gas or oil drilling rigs operating within a country other than that of the foreign investor for at least one year.
On the basis of the functional criterion, the MNCs are broadly grouped into:
1. Service MNCs:
A service MNC is defined as a transnational company which derives more than 50% of its revenues from services. Service MNCs are found in areas such as banking, insurance, finance, transport, tourism etc.
2. Manufacturing MNCs:
A manufacturing MNC is one which derives at least 50% of its revenue from manufacturing activity. Large numbers of MNCs have entered into the manufacturing sector. They produce a variety of goods. For example, Colgate and Palmolive produce soaps and detergents, Ponds produce cosmetic goods etc.
3. Trading MNCs:
A trading MNC is one which derives at least 50% of its revenue from the trading activity. These are the oldest form of multinationals. Trading MNCs control about 60% of the world’s export trade. Tatas, Uptons, Hindiya etc. are the trading MNCs.
Essay # 3. Features of MNCs:
The following are the main features of MNCs:
1. MNCs have managerial headquarters in home countries, while they carry out operations in a number of other (host) 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. MNCs control production activity with large foreign direct investment in more than one developed and developing countries.
7. MNCs are duopolistic in nature: it is sustained by modern technologies, management skill, product differentiation and enormous advertising.
8. MNCs are not just participants in export trade without foreign investments.
Essay # 4. History of MNCs:
The history of MNCs lies in transnational trading in early days conducted by the Greek, Phoemcian and Mesopotamian merchants. After the fall of the Roman Empire, trade between the nations became difficult. When Europe and Middle East steeped in feudalism resulting in wars between feudal lords and church prohibited trade with Muslim states. Later on merchants/traders of Italy established trade who were considered the fore runners of the MNCs. The cities of Geneva, Venice, Florence and Pica became the supply depot of traders. Active transnational operations flourished with the development of banks and money lending agencies.
Multinationals in the form of trading companies started in the seventeenth and eighteenth centuries. The Hudson Bay Company, the East India Company and the French Levant Company were the major transnational companies established in those days. During the nineteenth century, huge foreign investment flowed from the Western Europe to the underdeveloped countries of Asia, Africa and America. England was the leading exporter of capital followed by France, the Netherlands and Germany. In the early twentieth century, British Petroleum, Standard Oil, Ana Conda Copper and International Nickel were the major MNCs investing mainly in mining and petroleum industries.
The MNCs have attained their present dominating position in the world economy through a long process of growth. There are three phases in the growth of MNCs. The first phase lasted upto the First World War. The field was captured mostly by the European companies such as Imperial Tobacco, Dunlop, Siemens, and Philips etc. The growth of MNCs halted during the post war period between 1930 and 50 on account of recessionary situation prevailing in the world over those days.
During the second phase, covering the decades of fifties and sixties, American MNCs such as General Motors, Ford Motors and IBM emerged on the world scene. The third phase of the growth of MNCs began since 1970s. This new era belonged to the European, German and Japanese MNCs. In recent years, MNCs have also emerged from developing countries such as India, Malaysia, Hong Kong, Singapore, South Korea, Indonesia etc. e.g. MNCs like Samsung, Hyundai, LG and Daewoo.
The MNCs have been growing very rapidly. According to World Investment Report, 1997, there were about 45,000 MNCs with some 2, 80, 000 affiliates. According to the World Investment Report, 2001, there were over 63,000 of them with about 8, 22, 000 affiliates. Only less than 12% of these affiliates were in the developed countries. China was host to about 3, 64, 000 of the affiliates compared to more than 1400 in India.
Essay # 5. Recent Trends of MNCs:
Recently there has been a change in the attitude towards the multinationals. These are not subject to severe criticism as they were in the past. Even communist countries have developed some favourable attitude to them.
Paul Streeten points out that there are five recent trends that point out the changes:
1. Shift in Bargaining Power:
There has been a shift in bargaining power between multinational and the host countries. There is some evidence that it has become the policy of multinational companies to shift from equity investment ownership of capital and managerial control of overseas facilities to the sale of technology, management services and marketing as a means of earning returns on corporate assets, at least in those countries that have policies against inflows of packaged technology.
2. Dealings with a Greater Number of Foreign Companies:
Not only do the host countries deal with a greater variety of foreign companies, comparing them and weighing them against one another, but the large MNCs are being replaced by smaller and more flexible firms.
3. Competition among the MNCs:
Many more nations are now competing with US multinationals in setting up foreign activities. Japanese and European firms figure prominently among the new MNCs.
4. Establishment of MNCs by the Developing Countries:
In addition to the companies from the organisation of Petroleum Exporting Countries (OPEC) and firms established in tax haven countries, the leading countries where MNCs are being established are Argentina, Brazil, Colombia, Hong-Kong, India, Korea, Paris, Philippines, Singapore and Taiwan.
5. Fifthly, some multinationals from the developed countries have accommodated themselves to the needs of the developing countries.
Essay # 6. Role of MNCs in India:
MNCs have a strong hold over the Indian economy. In fact, even two decades ago, these corporations controlled 53.7% of the assets of the giant sector in India. As per the estimates of the Industrial Policy Inquiry Committee, in 1966, there were 112 companies in India with assets worth Rs. 10 crore or more. Of these 48 were either foreign branches or Indian Subsidiaries of foreign companies. In addition, 14 Indian Companies had extremely heavy loans and equity capital and were, therefore, virtually foreign controlled. These 62 companies had Rs. 1370 crore worth of assets which constituted 54% of the total assets of India’s giant sector.
According to Dalip S. Swamy, “A number of either companies were also under foreign domination in one way or the other. In return for technical assistance, they had promised an assured market of machines and spares to their foreign associates. Some companies were heavily dependent upon the financial institutions for economic assistance. Thus, Western foreign capital dominated the country’s big business and controlled the apex of India’s industrial pyramid in the mid-sixties.”
Another important feature of MNCs in India is that they have raised a major part of investment resources from within the Indian economy.
Sudip Chowdhary conducted a study on the source of finances of the MNCs during the year 1956 to 1975 by taking sample of 50 largest foreign subsidiaries. The study revealed that out of the total financial resources of these companies only 5.4% were contributed by foreign sources (equity capital and loans) and remaining 94.6% were contributed by domestic sources.
Another study made by John Martinussen revealed that amount of capital issues contributed by foreign participation declined from 61.5% of all consent to public limited companies in 1976 to only 29.5% in 1980. Moreover about 20 TNS affiliated companies also reduced their foreign funding. During the period 1972 to 1983, some of these companies did not obtain any foreign funds. Thus, it is just a myth that MNCs bring large amounts of foreign capital with them. In reality, MNCs collect most of the capital from within the company itself and repatriate a chunk of their profits to their parent countries.
Destination India MNCs-Current Scenario:
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 37% of the turnover of the top 20 firms operating in India, but the scenario has changed a lot of late. More enterprises from European Union like Britain, France, Netherlands, Italy, Germany, Belgium and Finland have come to India or have outsourced their works to this country. Finnish mobile giant Nokia has their second largest base in this country. There are also MNCs like British Petroleum and Vodafone that represent Britain. India has a huge market for automobiles and hence a number of automobile giants have stepped in to this country to reap the market. One can easily find the showrooms of the multinational automobile companies like Fiat, Piaggio and Ford Motors in India.
French Heavy Engineering Major Alstom and Pharma Major Sanofi Aventis have also started their operations in this country. The later one is in fact one of the earliest entrants in the list of multinational companies in India, which is currently growing at a very enviable rate. There are also a number of oil companies and infrastructure builders from Middle East. Electronics giants like Samsung and LG Electronics from South Korea have already made a substantial impact on the Indian electronics market. Hyundai Motors has also done well in mid-segment car market in India.
Why are 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, 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 India market. However, the scenario has changed during the financial liberalisation 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.
Following are the reasons why multinational companies consider India as a preferred destination for business:
(i) Huge market potential of the country
(ii) FDI attractiveness
(iii) Labour competiveness
(iv) Macro-economic stability
List of Multinational Companies in India:
The list of multinational companies in India is ever-growing as a number of MNCs are coming down to this country now and then.
Following are some of the major multinational companies operating their businesses in India:
(i) British Petroleum
(ii) Vodafone
(iii) Ford Motors
(iv) LG
(v) Samsung
(vi) Hyundai
(vii) Accenture
(viii) Reebok
(ix) Skoda Motors
(x) ABM Amro Bank
Essay # 7.
Innovations of Indian MNCs in Global Markets:
Products suited for the Indian market are now being marketed abroad as well, and by no other than multinational companies who developed these FMCG goods to suit Indian tastes in the first place. Termed reverse innovation (products originally conceived for developing economies but now being marketed in other geographies in their original or modified form), the concept is clearly gaining momentum in the Indian FMCG space.
(i) Hindustan Unilever (HUL) is taking its water purifier brand Pureit to new global markets. After launching its home grown brand Pureit in Indonesia and Bangladesh in 2010, HUL has recently taken it to key markets in South Asia, Latin America and Africa. Pureit is currently sold in Sri Lanka, Brazil, Mexico and Nigeria. HUL is selling Annapurna (salt) in Ghana and Wheel (detergent powder) in Bangladesh as well. HUL is currently selling its home-grown brand Fair &r Lovely, a skin whitening cream first launched in 1976 in India, in 30 countries across the globe.
(ii) PepsiCo, the second largest food and Beverage Company in the world, is adapting its Indian innovation Kurkure for western markets. PepsiCo India’s baked crackers brand Aliva and lemon-flavoured drink Nimbooz are some of the company’s other innovations out of India that have attracted attention globally and are currently being adapted to suit local tastes in overseas markets. Due to high bulk and low shelf life, packaged foods and beverages are not ideal for exporting to global markets, which is why companies like PepsiCo are exporting the concept of making Kurkure for selling in other markets.
(iii) Likewise, French cosmetics major L’Oreal has taken a slew of its innovations developed in India, such as Gamier Men Power-Light range of skincare products and Garnier Fructis Shampoo (with oil), to global markets.
(iv) Yet another multinational, Nestle SA, the Swiss Food and nutrition giant, has taken its Indian brand, Maggi Masala Noodles, to many markets across the globe. In addition, the company is planning to take its spice brands specifically developed for Indians, such as Maggi Pulao Masala (in sachets) and Maggi Masala Magic, to other markets. The company is also planning to take its Indian brands Maggi Noodle Atta and Maggi pasta soup outside India.
(v) Recognising the growing significance of Indian innovations, multinationals are increasingly leveraging India as an ‘innovation hub. In November 2012, Nestle opened its first research & development centre in Manesar, close to Nestle India’s headquarters in Gurgaon.
(vi) Like Nestle, L’Oreal inaugurated its new research & innovation (R&I) centre to study Indian hair and skin specifications and expectations of Indian consumers two weeks back. L’Oreal plans to invest a total of Rs. 970 crore in India from 2011 to 2016.
(vii) However, not all Indian innovations have been marketed successfully in the global market. For instance, Coca-Cola India found it difficult to introduce its acquired Indian brands Limca, Maaza and Thumps-Up in other markets, as consumers found Maaza and the other brands too sweet.
Essay # 8.
Challenges of Going Global from India:
1. To develop a global corporate mind set.
2. To make our people understand and respect local habit, culture etc.
3. To Establish brand equity overseas.
4. To develop a global pool of managerial talent.
5. To make one’s globalised character successful and sustainable.
Current Scenario:
1. M&A by Indian MNCs at foreign turf valued at US$ 11.37 billion in 2008-09.
2. Tata, Essar, Reliance and Infosys were among the biggest acquirers in the U.S.
3. Tata Group remained at the forefront with their total deal values worth $2.13 billion in steel, hospitability and automotive sector.
4. Aditya Birla took over Utkal Alumina International.
5. Among the Asian countries, Vietnam was the largest receiver of the deal money as Tata Steel entered into a Joint Venture with Vietnam Steel with 65 shares for $3.5 billion.
6. South American and African region remained low on the acquisition radar.
7. North America and Asia are the favourite hunting grounds of Indian Inc. on global acquisition as the take-over deals touched $7 billion and $4.2 billion.
8. The Indian companies have made their presence felt in Italy and Spain, also with their takeover deals of $97 billion and $19 million.
Essay # 9. Benefits and Drawbacks of MNCs:
Benefits of MNCs can be studied under two heads:
1. Benefits to the host countries and
2. Benefits to the home countries.
1. Benefits to the Host Countries:
To the host countries MNCs are likely to bring the following benefits:
(i) Transfer of technology, capital and entrepreneurship
(ii) Improvement of the host country’s balance of payments
(iii) Creation of local job and career opportunities
(iv) Improved competition and better utilisation of available resources in the local economy
(v) Greater availability of products for local consumers
(vi) Greater access to high quality managerial talent
(vii) Encouragement to World Economic Unity
(viii) Increase in investment level and thereby the income and employment in the host country
2. Benefits to the Home Countries:
The following benefits are likely to accrue to home countries:
(i) Acquisition of raw materials from abroad, often from a steadier source of supply and at lower prices
(ii) Acquisition of technology and management expertise from competing in global markets
(iii) Export of components and finished goods for assembly or distribution in foreign markets
(iv) Inflow of income from overseas profits, royalties, licensing fees and management contracts
(v) Job and career opportunities at home and abroad in connection with overseas operations
Drawbacks of MNCs:
As is the case with many other activities, there are several drawbacks of MNCs that may accompany the benefits brought to home and host countries.
Some of the drawbacks are as follow:
1. Interference in the Economic Sovereignty of the Host Country:
One drawback of the MNCs is that the host country is likely to lose its economic sovereignty since it is not able to control all that an MNC does. MNCs actions are guided partly by worldwide needs than internal needs of the host nation. Thus, some actions may not be consistent with what is desired by the host nation.
2. Drainage of Resources:
The basic objective of MNC is profit maximisation through exploitation of best country’s resources. It is least concerned with the development areas, growth and equity of the poor host country.
3. Strain on Foreign Exchange Reserves:
Dislocations may occur in the host country’s balance of payments, particularly when MNCs import materials or transfers funds by way of royalties, fees, dividends etc., to their home countries. All these activities draw upon the scarce foreign exchange reserves of the host country.
4. Minimum Transfer of Technology:
The MNCs generally carry out their Research and Development in their home country. The technology supplied by them to the host country is capital intensive and import oriented which may not suit the real needs. Moreover, this technology which is supplied is not advanced but generally obsolete.
5. Exploitation of Labour:
MNCs are not very enthusiastic in employing local nationals on high cadre of technical and managerial posts. Owing to their labour saving technology approach, employment generation is also not very significant.
6. Cultural Loss:
The most serious threat faced by the host country is the loss of their cultural moorings. In the name of globalisation the MNCs usher in their own dress and food habits which are simply grabbed by the youth of the host countries.
7. Creation of Monopolies:
The MNCs may create their monopolies in the markets and eliminate local competitors.
8. Evasion of Taxes:
The MNCs may manipulate their accounts to evade the taxes in the host country.
9. Economic Power:
The MNCs realising the host country’s dependence on their investments may exert their power to make the country to accept their terms and conditions.
10. Depletion of Natural Resources:
The MNCs cause fast depletion of some of the non-renewable natural resources in the host country.
11. High Profit Orientation:
The basic objective of MNC is profit maximisation through exploitation of host country’s resources. It is least concerned with the development areas, growth and equity of the poor host country.
Conclusion:
From the above, it is clear that the benefits of MNCs far outweigh the problems they create. The MNCs are change agents and are welcome to developing countries where improving standard of living is a top priority. However, MNCs should also take a few precautions. They should not erode the economic sovereignty of the host countries. Moreover, these must fit into the development plans of the host countries even if it means sacrificing some of the immediate profits.
Essay # 10. Harmful Effects of MNCs on Indian Economy:
The operations of MNCs have some harmful effects on the operations of Indian economy as they open up the possibilities of interference in the industrial activities.
The arguments of the nationalist thinkers against MNCs are discussed as follows:
1. Outflow of Large Sums of Money:
Every year a large sum of money flows out of the country in terms of payment of dividends, profits, royalties, technical fees and interest to the foreign investors. The remittances increased from Rs. 72.26 crore in 1969-70 to Rs. 813.5 crore in 1989.
2. Heavy Damage to the Economy:
MNCs inflict heavy damage to the economy of the host country through:
(i) Suppression of domestic entrepreneurship.
(ii) Extension of oligopolistic practices (like heavy advertising, excessive profit making, unnecessary product differentiation etc.)
(iii) Supply of unsuitable technology and unsuitable products.
(iv) Worsening the income distribution in the economy.
(v) Opening the doors for neo-imperialism and exploitation.
3. Political Interference:
There is a growing tendency of direct and indirect interference of the MNCs in the internal political and other affairs of the country. Due to their technical and Financial power, they are in a position to affect the decision making process in the country. Thus, they put the autonomy and sovereignty of the country in danger.
4. Faulty Technology Transfer:
Another drawback of MNCs is the faulty transfer of technology which leads to transfer of inappropriate technology, too much capital extensive in nature in a labour surplus economy. Continued insistence on the import of such technology can lead to serious consequences for the Indian economy since unemployment will increase. Moreover, the behaviour pattern of MNCs reveal that they do not engage in R and D activities within the host country, rather they concentrate their efforts in the home country though the financial burden of the research has to be borne by the host country. Moreover, they do not always supply the first line or the most advanced technology until foreign firms compel them to do so.
Essay # 11. Measures to Control Harmful Effects of MNCs in India:
Considering, the harmful effects of MNCs on a developing country like India, various government agencies have been entrusted with the responsibility of controlling the activities of MNCs in India. These agencies include (a) The Reserve Bank of India (b) The Ministry of Company affairs (c) The Ministry of Industrial development and (d) The Ministry of Finance.
As a result of the study by Michael Kidron entitled “Foreign Investment in India” published in 1965 and the Industrial Licensing Policy Enquiry Committee Report, 1968, the belief got strengthened that imports of foreign technology were overpriced and were designed to perpetrate dependence.
As a result the government’s policy was progressively tightened in the following directions:
1. Some industries were not allowed to import technology at all.
2. Among industries where import of technology was allowed, the maximum rate of royalty was laid down.
3. In some designated industries, foreign investment was allowed in principle, but sanction in individual cases was a matter of administrative decision.
4. The normal permissible period of agreements was reduced from ten years to five and renewals were generally frowned upon.
5. Exports and other marketing restrictions were generally not allowed and often an obligation to export a certain proportion of the output was insisted upon.
6. A clause was often inserted in the agreement granting permission to the importer to sub-licence the technology.
7. The CSIR was allowed to look at applications for approval of technology imports and if it expressed willingness to supply the technology, approval was withheld or at least delayed.
The most effective curb on the activities of foreign companies especially MNCs were supposed to come with the passing to Foreign Exchange Regulation Act in 1973. Now even FERA has become out of tune with the changing times and the government has replaced it with FEMA (Foreign Exchange Management Act) in 1999.