Multinational Corporations (MNC) are those corporations that have its assets and business in more than one country including its home country. These corporations have offices or manufacturing units in different countries and usually have a corporate head office in the country of origin which is responsible for coordinating global management.
Most of the multinational companies earlier were either American or European or Japanese. But, of late Indian companies have also started to put their footprint at the international level. Multinational companies are like a double edged sword. On one hand it creates jobs, brings technology, provides best practices to the industry; on the other hand MNCs work as lobby in influencing government policies in their favour and lead to shutting down of local industries and products due to its economic and technological prowess.
MNCs made its foray in India after the 1991 economic reform. The LPG (Liberalisation, Privatisation, Globalisation) reforms opened the Indian economy to companies across the world. MNCs are also known as ‘Transnational Companies’. India hosts the largest number of MNCs from USA and Europe. These have large industrial footprint and have spread their tentacles through a network of branches in the fields of operation, marketing and human resources. MNCs come to India through FDI route.
The most important role that MNCs play in India and across the globe is the transfer of technology. Transfer of state of the art technology to developing countries increases the quality and productivity of the output produced. India has not just received the technology from the MNCs, but has also been the beneficiary of technical know-how which has in turn resulted in the skill enhancement of the workforce.
When MNCs come to India, they are responsible for non-debt creating capital inflows. In the pre-1991 period, the MNCs did not play much role in the Indian economy. The country relied on external commercial borrowing for development of sectors of economy. A whopping balance payment crisis was created through this unsustainable model. Post -1991 economic reforms, MNCs contributed towards creating a positive balance of payment. Therefore, when MNCs invest in India it goes into non-debt creating capital receipts. Moreover, they contribute towards increasing the GDP of India.
MNCs contribute towards increasing income and increasing employment opportunities. The higher wages that MNCs like Hindustan Unilever, Goldman Sachs, Toyota, Google etc. pay to management and engineering graduates have contributed in increasing the per capita income of India. The Maruti-Suzuki and Hero-Honda collaborations have also contributed towards increasing employment. They have greatly contributed toward increasing our exports. As India offers cheap labour and land, it is both economic and profitable for MNCs to open industries in India for the purpose of producing goods for exports. They have also brought best managerial practices to India. The human resource management, financial controls, operation and advertising strategies have been emulated by Indian companies to their advantage.
Entry of MNCs promotes competition in the economy of the host country. This increase in competition results in lowering of prices, which is beneficial to the end user e.g., entry of electronic giants like LG, Sony, Samsung in the Indian market has promoted competition in the electronic segment and led to a decrease in prices of electronic items. MNCs have also invested in the field of infrastructure. This investment has contributed towards our economic growth and development. Power projects (General Electric), Telecommunication (Vodafone, Telinor), Delhi-Mumbai Industrial Corridor (Japan), have been of immense benefit to India for expanding our horizons.
The impact of MNCs on the development of a country is highly uneven. In some ways the impact of MNCs in India has been positive. They have brought in new technology and products, so the consumers have wide choice and awareness of international standards. They have indirectly made Indian companies more efficient as they brought in competition. But the negative aspects of their entry into our country are serious. In many situations these enterprises widen the already high income gap between the rich and the poor. They tend to promote the interests of the small number of well-paid modern sector workers and this leads to the widening of wage differentials in the country. As they are mostly located in urban areas, the MNCs worsen the already existing imbalance between the rural and urban areas as well as contribute to accelerated rural-urban migration. They divert resources away from much-needed food production to the manufacture of sophisticated products catering to the demands of the local elite. These products stimulate inappropriate consumption patterns through advertisement and their monopolistic market power, using inappropriate (capital intensive) technology. Such capital intensive technology leads to negligible or even reduction in job creation.
Although MNCs improve the foreign exchange position of a country, their long-term impact may be to reduce foreign exchange earnings of both current and capital accounts. The current account may deteriorate due to large-scale import of intermediate goods and capital account may worsen because of repatriation of profits, interest, royalties, management fees, etc. Indeed, the RBI has said that the average rate of profit of MNCs is something between 20 per cent and 25 per cent, which is a substantial amount sent out of the country.
While the MNCs contribute to the public revenue in the form of corporate taxes, their contribution is less than it should be as a result of liberal tax concessions, excessive investment allowances, disguised subsidies and tariff protection by the local government which is less than the tax revenue earned. MNCs may damage the economies of the underdeveloped countries because their superior knowledge, worldwide contacts and advertising skill inhibit the emergence of small-scale local enterprises.
Though many MNC initially promise to transfer technology to the host country, they seldom do so. Even if they do, they transfer, not the latest sophisticated technology, but obsolete technology. The growth of MNCs in India has major factors associated to it. The 1991 LPG reforms was the most important reason. Some other facilitating reasons are: market availability, cheap land and labour.
Therefore, multinational corporations have been a harbinger of growth and development of the economy of India. ‘Make in India’ programme will further give a fillip to MNCs. Opening sectors of defence, insurance of higher investment will diversify our economy and choice of products. However, government should be vigilant against MNCs predatory attitudes. It can be therefore rightly said that, “You can’t live with them or without them.”