Today many manufacturing, service and trading based multinational
companies flourishing in India including Google, Microsoft, Apple Inc., IBM,
P&G, Larsen & Toubro, Siemens, Oracle, HCL, DHL, CITI Group, Nestle,
Vodafone, Amazon, Intel, Cognizant. By staying here, these firms
are not only generating high turnover but are also maintaining a strong hold on
both local and global markets for years. In which today lakhs of
skilled-unskilled Indian professionals are also employed.
In such a situation, the question arises that why do these
multinational companies give preference to India for their production
development. Whereas compared to India, all the developed countries like China,
America, Japan and UAE can prove to be the best option to provide a global
market to these companies.
Why MNCs
prefer India as their destination
The corporation whose activities are
spread over more than one nation is known as a multinational corporation.
Transnational Corporation, International Corporation or Global Corporation are
some of the other names by which these corporations are known. In the modern world, globalisation is inevitable, most of
the multinational companies consider India as a best option for future growth
of their production and get a huge revenue. The
reason for which is that the capital market of India works with efficiency and
transparency as compared to other developed countries like China and America.
Even though the legal system of India is slow but they are very advanced in
solving complex cases in a sophisticated manner. Its banking system has
relatively few non-performing assets. Its democracy and media are alive and
vital which provides a safety valve for the incoherent changes that modern day
economic growth.
Moreover that, India's
economy has been growing quickly in recent years. By dismantling barriers to
foreign investment, the Indian government has made the country an increasingly
attractive market for MNCs. Marketing is also easy through thousands of
privately owned retailers, from department stores to corner shops. India is
also very helpful in providing a manufacturing based market to a multinational
company. Not only this, India's combination of duties on imports and complex
regulations on manufacturing start-ups has tended to benefit companies with
factories in the country. With few exceptions regarding investment limits and sectors other
investor friendly policies constantly offered by the Government of India, also encourage foreign investors and
companies to adopt the Indian market.
According to a survey conducted by leading real estate consulting firm CBRE (India and South East Asia) - More than 75% of the multinationals consider India as preferred market for outsourcing. India’s buoyant economy, steady progress in enacting regulatory reforms and booming outsourcing sector, coupled with a growing talent pool continues to make it an attractive outsourcing destination. With corporates increasingly adopting cost effective workplace strategies. Key cities like Bangluru, Delhi, Chennai and Hyderabad in the country still remain on the radar of domestic and multinational corporations to expand their ideas and operations.
On the basis of Economic Times report - Boston Consulting Group Janmejaya Sinha, after researching the performance of the MNCs in India discovered that:
The average return on capital employed for MNCs is 19 per cent, compared to 11 per cent for Indian companies. Secondly, the average return on sales for MNCs is seven per cent, compared to just four per cent for Indian companies. More than that about half the MNCs earn higher returns in India than their global average. Besides that In banking, the bigger foreign banks, Citibank, Standard Chartered, ABN Amro and Bank of America (except HSBC) are all more profitable in India than their global average.
Not only banking but automobiles, mobile handsets, colour televisions, air conditioners, footwear productions India is all capable to provide the fastest growing markets in the world. For MNCs operating here, this has turned India into a critical market for their global growth platforms.
Another factor is the growth rate (which has been 20 per cent-plus month-on-month right through fiscal 2003)which put India among the top growth markets for MNCs like Suzuki, Hyundai, Honda and Toyota. Not only that, India cellular growth is currently four times faster than China. In percentage terms, India is the fastest growing market in Asia, followed by Indonesia and the Philippines.
Research surveys have proved many times that India is the most preferred outsourcing location among global companies. In the United States alone, more than 90% have ranked India as their first choice for outsourcing IT and software services. Over the years, the United States, Canada, Europe and the United Kingdom have recognized the country of India as an outsourcing superpower.
It is also
an unavoidable truth that corporate sector of India spends only few resources
on Research and Development (R&D). In such circumstances, MNCs play an important role in the technological
up-gradation of the Indian economy. It
is the giant multinational corporate firms (MNCs) which spend a lot on the
development of new technologies which can greatly benefit the developing
countries by transferring the new
technology developed by them.
The social truth is India has highly skilled engineers of every field who can understand
all technical aspects needed for production. Research surveys have even proved
that Indian professionals are technically superior compared to IT professionals from other
countries. Global businesses love to prefer India as they can get access to a
highly educated workforce that is experienced, skilled, proficient in english,
computer-literate and technically talented.
Due to geographical reasons, India has always been the center of
attraction for global market setup, commerce and trade. Additionally, according
to the projections made by internationally renowned advisors and the
International Monetary Fund (IMF), India is likely to become one of the world's
largest economies by the year 2025.
Further, the MNCs
also enjoy cost advantages when it comes to having a work force in India. A
typical analyst with about 5 years of experience will get a salary of about USD
80K in the US, the same analyst in India will get a salary of about USD 20-25K.
When you add the significant overhead cost differential on top of the salary
differential, we are talking about big cost savings for any company.
Role of MNCs
in economic growth of the host country
If we talk about the role of MNCs in the economic growth of a
developing country, then such global firms not only help in improving the
globalization process but also act as an economy booster for the host country. These are enterprises or organizations
with services spread across more than one country on a global scale. Moreover
multinationals not
only provide financial resources but they also supply a “package” of needed
resources including management experience, entrepreneurial abilities, and
technological skills.
MNCs bring with them
the most sophisticated technological knowledge about production processes.
The importance of multinational corporations is not limited to
production they are also significant participants in international trade. It
has been estimated that trade within MNCs, called intra- firm trade, accounts
for about one - third of total world trade. If we add to this figure the trade
that takes place between MNCs and other unaffiliated firms, then MNCs are
involved in about two- thirds of world trade.
Why does a
multinational firm choose developing countries to start its production?
Although any multinational company operates from it’s home country. But it owns,
controls or manages production and distribution facilities in many countries.
Hence, these multinational corporations are also known as international
corporations. In such a situation, it is also important to know those factors
due to which a multinational company is motivated to start its business in a
developing country….
- MNCs always look for a location for their production setup that is
close to the market, where their products can get a wide range of customers in
large numbers. Where skilled and unskilled labor can be available at low cost
and all aspects and requirements related to production can be easily met.
-Apart from this, to increase its business
in any country, a multinational company also sees the government policies of
that country according to its business and interested in it.
-It is
also seen that an MNC not only starts joint production with the local companies
of the host country or expands its business by buying a local company and
captures the domestic market.-to take advantages of lower labour costs and to
avoid strict environmental standards multinational corporate firms set up
production units in developing countries.
-In
order to increase their profitability many giant firms find it necessary to go
in for horizontal and vertical integration. For this purpose, they find it
profitable to set up their production or distribution units outside their home
country.
-It is through
multinational corporations that modern high technology is transferred to the
developing countries which
are essential for raising productivity of working class and enable them to
start new productive ventures requiring high technology.
-You must know
that these companies transact business in a large number of developing
countries and often operate in diversified business activities. The movements
of private foreign capital take place through the medium of these multinational
corporations. Thus multinational corporations are important source of foreign
direct investment (FDI).
Multinational companies may hamper the growth of the local
companies of the host country
These multinational
corporations play an important role in
the economy development of a country. But not all MNCs are helpful for
the host country. Some companies establish their businesses in other countries
with the only motive of capturing the domestic market. Governments should be
cautious in allowing this type of companies. these global firm may lead
many drawbacks for the host country…
The operations of MNCs
have also had some detrimental effect on the functioning of the Indian economy
as they open up possibilities of interference in industrial activities.
The arguments of
nationalist thinkers regarding the hegemony of multinational companies are also
worth considering such as
Huge amounts of money
flow out of the country every year in the form of dividends, profits,
royalties, technical fees and interest payments to foreign investors.
Remittance increased from Rs. 72.26 crore in 1969-70. 813.5 crore in 1989. MNCs cause huge damage
to the economy of the host country:
The social truth is that suppression of
domestic entrepreneurship, Extension of oligopolistic practices such as heavy
advertising, excessive profit making, unnecessary product discrimination etc. Supply
of unsuitable technology and unsuitable products, Worsening of income
distribution in the economy and Opening the doors of neo-imperialism and
exploitation could be some negative points of a multinational firm setup for the
host country.
MNCs can increase the
tendency of direct and indirect interference in the internal political and
other matters of the country. They are in a position to influence the decision
making process in the country because of their technical and financial power.
Thus, they put the autonomy and sovereignty of the country at risk.
Another drawback of MNCs is faulty transfer of technology which leads to transfer of unsuitable technology, too much capital in nature in labor surplus economy. The continued thrust on imports of such technology could have dire consequences for the Indian economy as unemployment would rise.
MNCs can control local market and thereby control the government of a host country. They can make or break the governments.
Too much power will be vested in multinational companies as they can easily kill the small and medium industries.
They do business on only one motive earning money. They rarely care about the local development.
Technological prowess will create Monopoly, thereby they can regulate the market price.
Ofcourse they take revenue generated from Indian soil to their country weakning GDP in host country.
They make no effort to adopt an appropriate technology suitable to the needs. Moreover, transfer of technology proves very costly.
Once an MNC gains foothold in a venture, it tries to increase its holding in order to become a majority shareholder.
Once
financial liberalizations are in place and free movement is allowed, MNCs can
estabilize the economy.
They
prefer to participate in the production of mass consumption and non-essential
items.
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