Multinational Corporation

 

Question: Explain the meaning of MNC and explain the reasons for allowing MNCs in India.

Ans: - Multinational Corporation or Transnational Corporation (TNC) or Multinational Enterprise (MNE) is a business unit which operates simultaneously in many countries of the world. In some cases, the manufacturing unit may be in one country, but marketing and investment may be in another. They are different processes and different commodity activities. Japan's Sony, USA's IBM, Germany's Siemens, India's Videocon and ITC These are just some of the popular MNC's. Today, 25% of the world's economy is controlled by the 25 largest multinational corporations (MNC's). In the past, American-based multinational corporations dominated the world. But today many Japanese, Korean, European, Indian multinational corporations have spread their wings in many countries of the world. Before MNCs enter any nation, MNC's head office, who specializes in various fields such as political science, economics, commerce, international trade, international relations, studies and analyzes the country's environment and advises high-level management. Prior to, MNCs did not play a significant role in the Indian economy. During this period, the Indian economy was suppressed by public corporations. Based on the Industrial Policy of 1956 to prevent the centralization of the economy, the private sector could not develop and expand beyond a certain point. According to the definition of a multinational corporation / company, multinational corporations are very large in size and they operate their contracts from many countries. The Indian economy did not play much of a role in this regard as India adopted the Impart Substitution Development strategy before 1991. However, with the adoption of liberalization and privatization by the Government of India in 1991, foreign investment in the Indian industrial sector accelerated and the multinational corporations began to accelerate the growth of the Indian economy. The period after 1991 was called post-reform period. The huge foreign capital held by the MNCs / Corporations will be brought to India, with the intention of imposing certain restrictions on the foreign company to trade in India.

General Defination : -

                    

                     MNC's strategic head office is in one of the countries of the world, but it conducts business operations in different countries of the world, which expands its business with its home country in other countries through network of enterprises and marketing activities.

Reasons towards Multinational Company in India -

(1) To encourage foreign investment

(2) Creation of debt free capital

(3) Exchange of technology

(4) Encouragement of exports

(5) Investment in infrastructure industries

(1) Encouraging foreign investment -

In modern times, aid from external sources has dwindled in developing countries. The important reason is that developed nations are reluctant to provide financial assistance to other nations as they want to allow a multinational company in India to invest the largest share of its GDP (Gross Domestic Product) in its own industrial sector. Multinational companies can bridge the foreign exchange gap in India by investing in foreign currency. Due to the liberalization policy of the 1991 Industrial Policy, MNCs can now invest in foreign currency in India, subject to certain conditions. In some industrial areas, 100 per cent exportable units are allowed to be set up.

(2) Creation of debt free capital -

When direct foreign investment was denied, India had to generate foreign capital by taking commercial loans from abroad. As a result, the amount of debt, interest and related services on India has been increasing year by year. About 35 per cent of India's total income was spent on foreign loans and interest. Due to this situation, India's image in the developed countries of the world was somewhat tarnished. If we encourage foreign companies to do business in India, these companies will bring foreign capital to India and from this amount India will be able to repay its foreign loans. It was also thought that when these companies made a profit from their exports, some of it would go to India in the form of foreign currency. This means that with the increase in India's total foreign exchange, India will be able to easily repay its foreign debt and adapt its foreign exchange reserves.

(3) Exchange of technology -

One of the major benefits of MNCs to India is that they will bring modern technology and technological features from their developed countries to India, which are essential to increase the productivity of workers in a developing country like India. Therefore, based on this technology, Indian companies can also produce in their ventures. This will increase industrial production. By the time MNCs launch a joint venture in India, they will not only bring foreign capital and machinery with them; So they will also bring in skilled and skilled employees whose knowledge will benefit Indian companies as well. As a result, Indian engineers became aware of this new technology and began to use it.

(4) Encouragement of exports -

Due to the multinational corporations' affiliations with various countries in the world, these companies will be able to supply goods to all countries. Therefore, these companies will get the benefit of mass production. These companies will supply goods to different countries of the world at lower cost by reducing production cost. This will increase India's exports. Multinational companies have invested heavily in India. Usually these investments were made in industries which were exporting their products.

Such as: Suzuki, a Japanese company with the Government of India 'Maruti Udyog Ltd.' Invested heavily in this joint venture. Maruti cars are not only sold in India, they are also exported abroad as they are in high demand abroad.

(5) Investment in infrastructure industries -

Due to the multinationals' grasp of financial resources and their full utilization, these multinationals will invest in infrastructure projects such as power projects, modernization of airports, post and railways in India, and telecommunications. Investment in infrastructure will boost industrial growth and create income and employment in India. The result will be the economic progress of the country. Under the current government's Common Minimum Program, it is expected that foreign direct investment (FDI) is primarily (i) infrastructure (ii) high technology (iii) exports (iv) domestic wealth and (v) employment Will definitely revolutionize the field.