Description
A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries.
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
An Insight into the Role of Multinational corporations (MNC’s) in Automobile Industry and Cell Phone Sector in India : The Case of Suzuki and Nokia Dr. V. Balaji* A. Balachandran** Dr. P.Mala***
* Assistant Professor in Commerce, Salem Sowdeswari College, Salem. ** Ph.D. Scholar in Economics, Karpagam University, Coimbatore. *** Assistant Professor in Economics, Govt. Arts College, Kumbakonam.
ABSTRACT This Article entitled, “An Insight into the Role of MNCs in Automobile Industry and Cell phone sector in India: The case of Suzuki and Nokia” depicts with general introduction of Multinational Corporations, and details the origin and growth of MNCs, its types, the modus operandi, and the pros and cons of MNCs etc., Of late, they have grown faster at a rapid rate of 8 to 10 percent per annum, whereas the world trade has grown only at the slow rate of 2 to 3 percent per annum. They act as the vehicles to transfer the Superior Technology from the advanced countries to the developing countries of the world. Also, they have been the source of Foreign Direct Investments (FDI) in India.It is heartening to note that the Multinational Company like Japanese Suzuki Motor Corporation and Finnish Nokia Corporation has revolutionized the Automobile Industry and Cell phone sectors in India respectively. They have done Yeoman Service for the rapid economic progress in India in their respective fields. This Article finally emphasizes that if the GOI (Government of India) chooses the MNC partner carefully in other areas also like Power and other Infrastructures; certainly it will pave way for the Country’s economic progress. Key words: MNCs, FDI, GOI and LDC.
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
INTRODUCTION First of all, let us explore what is the definition of Multinational Corporations or Transactional Corporations. According to International Labor Organization (ILO) report, Multinational Corporations are the world’s gigantic corporations which have their managerial head quarters from one country called home country, but carries out their operations in a number of other countries called host countries. They operate under the Laws and customs of the latter. In short, they are the World’s Business Enterprises operating in more than one country, A few examples of MNCs in India are like Philips, Coca-cola, Pepsi, Colgate, Palmolive, ITC, Caltex, IBM, etc., which conduct business in India, in various fields. Most of these MNCs are based in Japan, Europe and North America. According to Peter Drucker, the “Father of Management”, the MNCs and the world trade are both sides of the same coin. The latest figure says that the world trade has grown at the rate of 2 to 3 Percent per annum but these MNCs have grown astonishingly at the rate of 8 to 10 percent per annum. They contribute significantly for the Expansion of world trade, in addition to its transfer of technology and FDI to the developing countries of the world like India. India, especially after its LPG policy (Liberalization Privatization Globalization) in 1991, had opened its doors to them in order to encourage foreign collaborations and Foreign Investments in Indian soil, with view to achieve rapid economic progress. It may be noted that, currently there are about 40,000 MNCs in the world, out of which 200 control more than 1/3rd of the world’s economy. There are more than 2, 50,000 overseas Affiliates. VARIOUS TYPES: There are broadly 3 kinds of MNC are as below:i) Service MNCs ii) Manufacturing MNCs iii) And Trading MNCs Service MNCs are the MNCs which derive their Income mainly by rendering services like Banking, Insurance, Tourism, Transport etc., some of the examples of service MNCs are ICICI, SOTC etc., Manufacturing MNCs are the MNCs which derive their incomes mainly thro production or manufacturing activities. Some of the Examples are like Dunlop, Colgate, Palmolive, Ceat tyres, Good year, etc. In India, most of the MNCs are of this type. Out of 200 MNCs in India, 118 are manufacturing MNCs. The 3rd category is trading MNCs, which derive their income thro’ trading or marketing their products without production activity. Examples are like Brooke Bond, Lipton Tea, etc., which thrive by Marketing their Products around the world. MODUS OPERANDI: The MNCs operate throughout the world in any of the following modes:i) Branches ii) Subsidiaries iii) JVC (Joint Venture Company) iv) Franchisees v) Turn - Key projects
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
The simplest form of operation is to set up branches in less developed countries (LCD) which bring technology to them. They also operate by setting up subsidiaries in the host countries under its laws. Such subsidiaries enjoy the reputation of the holding company as well as its financial managerial and technical skills.Under the JVC mode, they enter into a Joint venture with the firms of the host countries. And they supply machinery, capital goods, technology etc., to the host countries. Under the franchisee mode, the Affiliate firm markets the product of the MNC after getting its license. An agreement is entered between the affiliate and the MNC specifying how much royalty is to be paid by the former to the latter. The word royalty denotes the amount payable for the use of a property covered by a copyright or patent right. Lastly, under the turn-key mode, they undertake to complete the project from the beginning to the end, till the operation stage. Upon completion of the project, the key is handed over to the firm in the host country. Hence the word, turn-key i.e., just turn the key and operate the project. Normally, the developing countries opt for such turn-key contracts which demand highly skilful Technical expertise from abroad, managerial skills, financial assistance & sophisticated technology. FERA 1973 and FEMA 1999: The functioning of MNCs in India was first regulated by the Act FERA 1973 i.e., Foreign Exchange Regulation Act 1973 which was repeated later in 1999 and replaced by FEMA 1999 i.e., Foreign Exchange Management Act 1999, which is in force now. According to the earlier FERA 1973, all MNCs were required to dilute their ownership only to 74per cent and offer 26per cent of shares to the Indian residents. The Indian branches were to be converted to Indian Companies with NRI Stake in equity capital of not more than 40per cent. This process is called Indianisation. Some MNCs like Coca-Cola & IBM (International Business Machine, the Computer giant of U.S.A. which is known for its famous saying, if IBM sneezes, the entire Computer Industry catches cold) have opted for winding up their business in India, instead of diluting their capital base. However, after the announcement of LPG ( Liberalisation, Privatisation and Globalisation) policy in 1991 by the present Prime Minister of India, Dr. Manmohan Singh, who was the then Finance Minister of India, the MNCs were encouraged to enter and invest in India and play a vital role for the development of Indian economy. FERA 1973 also never restricted the expansion of the MNCs. However, as advocated by the Union budget in 1998-99, FERA 1973 was repeated and replaced with FEMA 1999 (Foreign Exchange Management Act 1999) Some of the main provisions of FEMA 1999 are given as under: i) No person shall in any manner deal in or transfer any foreign exchange or foreign security to any person not being an authorized person (Section 3) ii) No person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or Any immovable property situated outside India ( Section 4 ) iii) Any person may sell or draw foreign exchange to or from an authorized person such sale or drawal is a Current Account http://www.exclusivemba.com/ijemr
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
transaction. However, in Public interest, the Government of India, in consultation with RBI may impose such reasonable restrictions for such Current Account transactions as may be prescribed. (Section 5) iv) If any person contravenes any provision of the Act, he shall, upon adjudication, be imposed a penalty up to thrice the sum involved in such a contravention where such amount is quantifiable or up to Rs.2 Lakhs where the amount is not quantifiable. (Section 13).Thus, the emphasis under FEMA 1999 is on management of foreign exchange whereas under FERA 1973, the emphasis was a regulation. FERA 1973 violations will attract Criminal Proceedings against the violators, whereas FEMA 1999 violations will not attract Criminal Proceedings but are only a civil offence.Under FEMA 1999, only the provision under section 3 requires RBI permission, whereas under FERA 1973, RBI’s Permission is required for almost all of its provisions. Thus, FEMA 1999 is an improvement upon FERA 1973, and it removes the threat of imprisonment of businessmen. Now the businessmen will compound their offence by merely paying the fines under the Act. GENERAL ATTACKS ON MNCS: Even though MNCs assist the host countries thro’ its transfer of technology, capital flows, FDIs, training and managerial skills, finance, up gradation of Technology, etc., generally, they are attacked on the following grounds :i) The first attack is that they transfer capital–intensive and highly sophisticated technologies to the developing countries, which replace labor and do not generate employment opportunities in developing countries like India where there is vast unemployment and huge population. ii) The second attack is on dumping and the intense competition and its consequent closure of indigenous firms in the host countries. They dump their products at dead cheap and throw-away prices, due to their superior technology and lesser costs of production. As a result, the local industries could not withstand the intense competition from abroad and hence perish. However this second attack can not be sustained because of the fact that the MNCs bring in superior products and superior technology to the host countries which will not be available to them otherwise. iii) To illustrate how the local industries perish unable to withstand the intense competition from abroad, the following cases will explain elaborately. The first case in point is that The Jawa / Yezdi Motorcycle factory at Mysore, was closed down due to the intense competition from Hero-Honda & Suzuki Motorcycles of Japan which are more fuel-efficient, high-tech, less costly, and with lesser breakdown. Even though Jawa/ Yezdi / Road king was a world’s No.1 champion, it could not withstand the competition from the Japanese Vehicles like Hero Honda and Suzuki because the former is not fuel-efficient, Jawa / Yezdi / Roadking gave maximum 30 km per litre, whereas Hero Honda vehicles gave more than 50 to 60 km per litre, the prices of Hero Honda at the introduction stage was around Rs.30,000 to 35,000 /only, more or less the same price of Yezdi, etc., As a result, the Mysore http://www.exclusivemba.com/ijemr
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
Maharaja Yezdi Factory at Mysore was closed down, unable to bear the intense competition from the Japanese vehicles. The second case in point is that Fiat cars which were once the market leader in the car market in India have become virtually extinct on the Indian Roads after the arrival of the Hi-tech Maruti Suzuki Cars in India since the later is of sophisticated technology and also fuel efficient. Today Maruti car is the market leader in Indian car industry. The magic of MNC is that it brings into the host countries superior products superior technologies at cheaper costs event though it causes the destruction of the indigenous firms due to intense competition. Today’s world is full of intense competition, competition anywhere and everywhere, where the theory of the survival of the fittest applies even in Industrial world. Even Japan, the Imperial Power next to USA, which retained its tag as World’s No.2 Economy continuously for the last 42 years, had been overtaken and replaced by China as No.2 in the world due to intense competition by the latter. iv) Other minor attacks on MNCs are like, they meddle with the internal political and economic affairs” of the host countries, they violate human rights etc., To avoid all these things, UNESCO had evolved the following code of conduct for the MNCs as detailed below:A) Respect the National sovereignty and Integrity of the host countries and observe their domestic laws. B) Not to interfere with the internal political and economic affairs of the host countries. C) Not to engage in corrupt practices D) Respect Human Rights. E) Adopt honest practices in relation to the payment of taxes in the Host countries. F) Abstain from Anti-competitive prices, consumer and environmental protection and treatment of employees. G) Adhere to Host countries’ economic goals, development objectives and sociocultural values, etc., THE WORKING OF MNCS IN THE INDIAN AUTOMOBILE INDUSTRY AND CELLPHONE SECTORS: A) AUTOMOBILE INDUSTRY Despite all the general attacks on MNCs the Japanese MNC viz., Suzuki Motor Corporation, which holds a 54.2per cent share in Maruti Suzuki India Ltd., (MSIL) had created a revolution in the Automobile industry in India. ? It is the largest automobile manufacturer in south Asia. ? It is the first company to mass-produce and sell more than a million cars which best suit the Indian roads and the cars are proved as highly fuel efficient. ? It is the market leader in India, with its headquarters in Delhi ? Suzuki Motor Corporation the parent company is a global leader in mini and compact cars for 3 decades.
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
? it employs 75000 people and has been rated “first in customer satisfaction” among all the car manufacturers in India from 1999 to 2009 by j.d.power Asia Pacific
B)
CELL PHONE SECTOR Similarly, in Cell phone sector, Nokia Corporation, a Finnish multinational communications corporation had created a revolution in the mobile / cell phone sector in India, and its achievements are laudable. Nokia had started its operations in 1995 in India and had played a pioneering and crucial role in the growth of the cellular technology in India. It operates out of offices in Chennai, Delhi, Mumbai, Calcutta, Pune, Bangalore, Ahmadabad, etc. ? India holds the distinction of being the second largest market for the company around the world ? Nokia employs 15000 people and has established itself as the market leader and also the brand leader in the mobile devices market in India. ? business world, India’s leading business weekly 2006, had ranked Nokia as the no.1 multinational company in India TURN – OVER TABLE OF THE MNCS IN INDIA The following table highlights the turn-over of Suzuki and Nokia vis-à-vis other multinational corporations in India, in the order of the highest to the lowest turnover. Name of the Multi-national corporation 1. Maruti Suzuki India Ltd., (MSIL) 2. Nokia India 3. Vodafone Essar 4. Hyundai India 5. Hewlett Packard 6. Hindustan Unilever 7. Samsung 8. L.G. India 9. Ambuja Cements 10. International Business Its turn-over in crores of Rupees ( 2009-10 Calender year ) 30,000 23,000 22,000 20,000 18,500 18,000 16,000 16,000 16,000 14,000 Parent holding in Percentage Suzuki of Japan = 54per cent Nokia of Finland = 100per cent Vodafone = 67per cent Hyundai Motor of Japan = 100per cent Hewelett Packard of USA = 100per cent Unilever = 52per cent Samsung Electronics of South Korea = 100per cent L.G.Electronics of South Korea = 100per cent Holcim International I.B.M. of USA = 100per
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
Machine (IBM)
SOURCE: THE HINDU NEWS PAPER
cent
THE CRUCIAL ROLE PLAYED BY MNCS AROUND THE WORLD ESPECIALLY IN DEVELOPING ECONOMY LIKE INDIA:MNCs have played a crucial role in the economic development of advanced countries like USA, Japan & Germany. Today, they are eyeing on the developing countries like China & India. India a developing economy is also interested in the entry of MNCs into their country, thro’ its economic policy of LPG (Liberalisation, Privatisation, Globalisation) from 1991 onwards. G.O.I. had introduced the following measures to attract foreign direct investments (FDIs) and entry of MNCs likes:i) Abolition of Industrial Licensing. ii) Removal of restrictions on investments under the Monopolies and Restrictive Trade Practices (MRTP) Act. iii) Existing companies are allowed to raise foreign equity up to 51per cent. iv) Liberalized policy for the import of Capital goods, transfer of technology etc., v) Foreign companies are allowed to use their trade marks in domestic / Indian markets. vi) Companies with more than 40per cent of foreign equity allowed operating like any other Indian company. Today, U.S.A. is the single largest Investor in India, followed by Switzerland, Japan and Britain. The foreign investments are largely concentrated in various fields like oil, fuel, power, chemicals, electronics components, etc., CONCLUSION Of late, MNCs are viewed more as engines of economic development rather than agents of imperialism. They are the vehicles for the transfer of foreign capital, technology and other resources necessary for the economic development of the developing economies like India. They provide valuable Revenues that would not exist otherwise, and thus improve the balance of payments position of the developing economies. They create industries which would not exist otherwise. Developing economies like South Korea, China & Taiwan, etc., have achieved rapid economic development through FDI (Foreign Direct Investment) route of MNCs. China’s stupendous / double digit economic growth rate of more than 10per cent per annum and its remarkable progress in various fields like power is due to the FDI route of MNCs. China has remarkably achieved a glut (Surplus / Surfeit) in the power sector and today china has no power cuts through out the nation, and through out the year. India has to learn a lesson from China in this aspect, especially in the power sector, since India suffers a chronic overall power shortage of 40per cent of its demand / requirement throughout the nation. Likewise, Indian aviation sector is also ailing for more than the last ten years. Its only PSU namely Air India is chronically in COMA stage and is in death bed currently. Its debt burden as on date has shot up to Rs.43, 777 crores. Every year its losses are mounting up. In the last financial year 2009-2010 its loss was Rs.5552 crores but in the current financial year 2010-11 its loss has shot up to Rs.6994 crores, http://www.exclusivemba.com/ijemr
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
It is unable to generate its own internal resources and unable to pay even the salary to its own employees. How long the GOI will go on injecting the public money to this ailing Air India to keep it afloat and survive? It is high time the GOI should do something in this ailing Aviation sector and the power sector also as achieved in the automobile sector and cell phone sector in India. India will gain technical progress and managerial skills and expertise if the MNC partners are carefully chosen by GOI, as in the case of NOKIA of Finland in cell phone sector or SUZUKI of Japan in the Automobile Industry as illustrated in the preceding paragraphs. As on March 2011, the number of cell phone users in India is 800 million. With the continuous Research and Development efforts of Nokia, the costs of cell phones in India have come down substantially with improved technical features like MP3 Players, Digital Cameras, Dual SIM, etc., Similarly, Suzuki had introduced highly sophisticated and Hi-tech and Fuel efficient vehicles in the Indian Automobile Industry. Thus the above two MNCs have done remarkably well for the rapid economic progress of India in their respective fields. The GOI(Government Of India) should make a similar choice of MNC partners in other sectors also as explained above, in the near future in order to achieve rapid overall industrial progress in India. References: 1) Felix Raj, Sampath Mukherjee, Mallinath Mukherjee, Amitava Gose and Rjaendra Nag, “Contemporary Development Economics from Adam Smith to Amartyasen”, II Edition, Sep. 2007 New Central Book Agency Pvt. Ltd., Calcutta. 2) Ishwar Dhingra, “Indian Economy”, 23rd Revised Edition 2009, Sultan Chand & Sons, New Delhi. 3) Jhingan M.L., “International Economics” 6th Revised and Enlarged Edition, Vrinda Publications (P) Ltd., and Delhi. 4) Mishra and Puri, “Indian Economy”, 28th Revised and updated Edition 2010, Himalaya Publishing House, Mumbai. 5) Ray S.K., “Indian Economy”, Prentice Hall of India Pvt. Ltd., New Delhi. 6) Ruddar Dutt and Sundaram K.P.M., “Indian Economy”, 61st Edition, S.Chand & Co., New Delhi. 7) www.sciencedirect.com 8) www.nokia.com 9) www.marutisuzuki.com 10) The Hindu, Daily newspaper, 22.02.2011. Coimbatore edition, Tamilnadu, India.
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doc_951513487.pdf
A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries.
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
An Insight into the Role of Multinational corporations (MNC’s) in Automobile Industry and Cell Phone Sector in India : The Case of Suzuki and Nokia Dr. V. Balaji* A. Balachandran** Dr. P.Mala***
* Assistant Professor in Commerce, Salem Sowdeswari College, Salem. ** Ph.D. Scholar in Economics, Karpagam University, Coimbatore. *** Assistant Professor in Economics, Govt. Arts College, Kumbakonam.
ABSTRACT This Article entitled, “An Insight into the Role of MNCs in Automobile Industry and Cell phone sector in India: The case of Suzuki and Nokia” depicts with general introduction of Multinational Corporations, and details the origin and growth of MNCs, its types, the modus operandi, and the pros and cons of MNCs etc., Of late, they have grown faster at a rapid rate of 8 to 10 percent per annum, whereas the world trade has grown only at the slow rate of 2 to 3 percent per annum. They act as the vehicles to transfer the Superior Technology from the advanced countries to the developing countries of the world. Also, they have been the source of Foreign Direct Investments (FDI) in India.It is heartening to note that the Multinational Company like Japanese Suzuki Motor Corporation and Finnish Nokia Corporation has revolutionized the Automobile Industry and Cell phone sectors in India respectively. They have done Yeoman Service for the rapid economic progress in India in their respective fields. This Article finally emphasizes that if the GOI (Government of India) chooses the MNC partner carefully in other areas also like Power and other Infrastructures; certainly it will pave way for the Country’s economic progress. Key words: MNCs, FDI, GOI and LDC.
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
INTRODUCTION First of all, let us explore what is the definition of Multinational Corporations or Transactional Corporations. According to International Labor Organization (ILO) report, Multinational Corporations are the world’s gigantic corporations which have their managerial head quarters from one country called home country, but carries out their operations in a number of other countries called host countries. They operate under the Laws and customs of the latter. In short, they are the World’s Business Enterprises operating in more than one country, A few examples of MNCs in India are like Philips, Coca-cola, Pepsi, Colgate, Palmolive, ITC, Caltex, IBM, etc., which conduct business in India, in various fields. Most of these MNCs are based in Japan, Europe and North America. According to Peter Drucker, the “Father of Management”, the MNCs and the world trade are both sides of the same coin. The latest figure says that the world trade has grown at the rate of 2 to 3 Percent per annum but these MNCs have grown astonishingly at the rate of 8 to 10 percent per annum. They contribute significantly for the Expansion of world trade, in addition to its transfer of technology and FDI to the developing countries of the world like India. India, especially after its LPG policy (Liberalization Privatization Globalization) in 1991, had opened its doors to them in order to encourage foreign collaborations and Foreign Investments in Indian soil, with view to achieve rapid economic progress. It may be noted that, currently there are about 40,000 MNCs in the world, out of which 200 control more than 1/3rd of the world’s economy. There are more than 2, 50,000 overseas Affiliates. VARIOUS TYPES: There are broadly 3 kinds of MNC are as below:i) Service MNCs ii) Manufacturing MNCs iii) And Trading MNCs Service MNCs are the MNCs which derive their Income mainly by rendering services like Banking, Insurance, Tourism, Transport etc., some of the examples of service MNCs are ICICI, SOTC etc., Manufacturing MNCs are the MNCs which derive their incomes mainly thro production or manufacturing activities. Some of the Examples are like Dunlop, Colgate, Palmolive, Ceat tyres, Good year, etc. In India, most of the MNCs are of this type. Out of 200 MNCs in India, 118 are manufacturing MNCs. The 3rd category is trading MNCs, which derive their income thro’ trading or marketing their products without production activity. Examples are like Brooke Bond, Lipton Tea, etc., which thrive by Marketing their Products around the world. MODUS OPERANDI: The MNCs operate throughout the world in any of the following modes:i) Branches ii) Subsidiaries iii) JVC (Joint Venture Company) iv) Franchisees v) Turn - Key projects
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
The simplest form of operation is to set up branches in less developed countries (LCD) which bring technology to them. They also operate by setting up subsidiaries in the host countries under its laws. Such subsidiaries enjoy the reputation of the holding company as well as its financial managerial and technical skills.Under the JVC mode, they enter into a Joint venture with the firms of the host countries. And they supply machinery, capital goods, technology etc., to the host countries. Under the franchisee mode, the Affiliate firm markets the product of the MNC after getting its license. An agreement is entered between the affiliate and the MNC specifying how much royalty is to be paid by the former to the latter. The word royalty denotes the amount payable for the use of a property covered by a copyright or patent right. Lastly, under the turn-key mode, they undertake to complete the project from the beginning to the end, till the operation stage. Upon completion of the project, the key is handed over to the firm in the host country. Hence the word, turn-key i.e., just turn the key and operate the project. Normally, the developing countries opt for such turn-key contracts which demand highly skilful Technical expertise from abroad, managerial skills, financial assistance & sophisticated technology. FERA 1973 and FEMA 1999: The functioning of MNCs in India was first regulated by the Act FERA 1973 i.e., Foreign Exchange Regulation Act 1973 which was repeated later in 1999 and replaced by FEMA 1999 i.e., Foreign Exchange Management Act 1999, which is in force now. According to the earlier FERA 1973, all MNCs were required to dilute their ownership only to 74per cent and offer 26per cent of shares to the Indian residents. The Indian branches were to be converted to Indian Companies with NRI Stake in equity capital of not more than 40per cent. This process is called Indianisation. Some MNCs like Coca-Cola & IBM (International Business Machine, the Computer giant of U.S.A. which is known for its famous saying, if IBM sneezes, the entire Computer Industry catches cold) have opted for winding up their business in India, instead of diluting their capital base. However, after the announcement of LPG ( Liberalisation, Privatisation and Globalisation) policy in 1991 by the present Prime Minister of India, Dr. Manmohan Singh, who was the then Finance Minister of India, the MNCs were encouraged to enter and invest in India and play a vital role for the development of Indian economy. FERA 1973 also never restricted the expansion of the MNCs. However, as advocated by the Union budget in 1998-99, FERA 1973 was repeated and replaced with FEMA 1999 (Foreign Exchange Management Act 1999) Some of the main provisions of FEMA 1999 are given as under: i) No person shall in any manner deal in or transfer any foreign exchange or foreign security to any person not being an authorized person (Section 3) ii) No person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or Any immovable property situated outside India ( Section 4 ) iii) Any person may sell or draw foreign exchange to or from an authorized person such sale or drawal is a Current Account http://www.exclusivemba.com/ijemr
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
transaction. However, in Public interest, the Government of India, in consultation with RBI may impose such reasonable restrictions for such Current Account transactions as may be prescribed. (Section 5) iv) If any person contravenes any provision of the Act, he shall, upon adjudication, be imposed a penalty up to thrice the sum involved in such a contravention where such amount is quantifiable or up to Rs.2 Lakhs where the amount is not quantifiable. (Section 13).Thus, the emphasis under FEMA 1999 is on management of foreign exchange whereas under FERA 1973, the emphasis was a regulation. FERA 1973 violations will attract Criminal Proceedings against the violators, whereas FEMA 1999 violations will not attract Criminal Proceedings but are only a civil offence.Under FEMA 1999, only the provision under section 3 requires RBI permission, whereas under FERA 1973, RBI’s Permission is required for almost all of its provisions. Thus, FEMA 1999 is an improvement upon FERA 1973, and it removes the threat of imprisonment of businessmen. Now the businessmen will compound their offence by merely paying the fines under the Act. GENERAL ATTACKS ON MNCS: Even though MNCs assist the host countries thro’ its transfer of technology, capital flows, FDIs, training and managerial skills, finance, up gradation of Technology, etc., generally, they are attacked on the following grounds :i) The first attack is that they transfer capital–intensive and highly sophisticated technologies to the developing countries, which replace labor and do not generate employment opportunities in developing countries like India where there is vast unemployment and huge population. ii) The second attack is on dumping and the intense competition and its consequent closure of indigenous firms in the host countries. They dump their products at dead cheap and throw-away prices, due to their superior technology and lesser costs of production. As a result, the local industries could not withstand the intense competition from abroad and hence perish. However this second attack can not be sustained because of the fact that the MNCs bring in superior products and superior technology to the host countries which will not be available to them otherwise. iii) To illustrate how the local industries perish unable to withstand the intense competition from abroad, the following cases will explain elaborately. The first case in point is that The Jawa / Yezdi Motorcycle factory at Mysore, was closed down due to the intense competition from Hero-Honda & Suzuki Motorcycles of Japan which are more fuel-efficient, high-tech, less costly, and with lesser breakdown. Even though Jawa/ Yezdi / Road king was a world’s No.1 champion, it could not withstand the competition from the Japanese Vehicles like Hero Honda and Suzuki because the former is not fuel-efficient, Jawa / Yezdi / Roadking gave maximum 30 km per litre, whereas Hero Honda vehicles gave more than 50 to 60 km per litre, the prices of Hero Honda at the introduction stage was around Rs.30,000 to 35,000 /only, more or less the same price of Yezdi, etc., As a result, the Mysore http://www.exclusivemba.com/ijemr
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
Maharaja Yezdi Factory at Mysore was closed down, unable to bear the intense competition from the Japanese vehicles. The second case in point is that Fiat cars which were once the market leader in the car market in India have become virtually extinct on the Indian Roads after the arrival of the Hi-tech Maruti Suzuki Cars in India since the later is of sophisticated technology and also fuel efficient. Today Maruti car is the market leader in Indian car industry. The magic of MNC is that it brings into the host countries superior products superior technologies at cheaper costs event though it causes the destruction of the indigenous firms due to intense competition. Today’s world is full of intense competition, competition anywhere and everywhere, where the theory of the survival of the fittest applies even in Industrial world. Even Japan, the Imperial Power next to USA, which retained its tag as World’s No.2 Economy continuously for the last 42 years, had been overtaken and replaced by China as No.2 in the world due to intense competition by the latter. iv) Other minor attacks on MNCs are like, they meddle with the internal political and economic affairs” of the host countries, they violate human rights etc., To avoid all these things, UNESCO had evolved the following code of conduct for the MNCs as detailed below:A) Respect the National sovereignty and Integrity of the host countries and observe their domestic laws. B) Not to interfere with the internal political and economic affairs of the host countries. C) Not to engage in corrupt practices D) Respect Human Rights. E) Adopt honest practices in relation to the payment of taxes in the Host countries. F) Abstain from Anti-competitive prices, consumer and environmental protection and treatment of employees. G) Adhere to Host countries’ economic goals, development objectives and sociocultural values, etc., THE WORKING OF MNCS IN THE INDIAN AUTOMOBILE INDUSTRY AND CELLPHONE SECTORS: A) AUTOMOBILE INDUSTRY Despite all the general attacks on MNCs the Japanese MNC viz., Suzuki Motor Corporation, which holds a 54.2per cent share in Maruti Suzuki India Ltd., (MSIL) had created a revolution in the Automobile industry in India. ? It is the largest automobile manufacturer in south Asia. ? It is the first company to mass-produce and sell more than a million cars which best suit the Indian roads and the cars are proved as highly fuel efficient. ? It is the market leader in India, with its headquarters in Delhi ? Suzuki Motor Corporation the parent company is a global leader in mini and compact cars for 3 decades.
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
? it employs 75000 people and has been rated “first in customer satisfaction” among all the car manufacturers in India from 1999 to 2009 by j.d.power Asia Pacific
B)
CELL PHONE SECTOR Similarly, in Cell phone sector, Nokia Corporation, a Finnish multinational communications corporation had created a revolution in the mobile / cell phone sector in India, and its achievements are laudable. Nokia had started its operations in 1995 in India and had played a pioneering and crucial role in the growth of the cellular technology in India. It operates out of offices in Chennai, Delhi, Mumbai, Calcutta, Pune, Bangalore, Ahmadabad, etc. ? India holds the distinction of being the second largest market for the company around the world ? Nokia employs 15000 people and has established itself as the market leader and also the brand leader in the mobile devices market in India. ? business world, India’s leading business weekly 2006, had ranked Nokia as the no.1 multinational company in India TURN – OVER TABLE OF THE MNCS IN INDIA The following table highlights the turn-over of Suzuki and Nokia vis-à-vis other multinational corporations in India, in the order of the highest to the lowest turnover. Name of the Multi-national corporation 1. Maruti Suzuki India Ltd., (MSIL) 2. Nokia India 3. Vodafone Essar 4. Hyundai India 5. Hewlett Packard 6. Hindustan Unilever 7. Samsung 8. L.G. India 9. Ambuja Cements 10. International Business Its turn-over in crores of Rupees ( 2009-10 Calender year ) 30,000 23,000 22,000 20,000 18,500 18,000 16,000 16,000 16,000 14,000 Parent holding in Percentage Suzuki of Japan = 54per cent Nokia of Finland = 100per cent Vodafone = 67per cent Hyundai Motor of Japan = 100per cent Hewelett Packard of USA = 100per cent Unilever = 52per cent Samsung Electronics of South Korea = 100per cent L.G.Electronics of South Korea = 100per cent Holcim International I.B.M. of USA = 100per
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IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
Machine (IBM)
SOURCE: THE HINDU NEWS PAPER
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THE CRUCIAL ROLE PLAYED BY MNCS AROUND THE WORLD ESPECIALLY IN DEVELOPING ECONOMY LIKE INDIA:MNCs have played a crucial role in the economic development of advanced countries like USA, Japan & Germany. Today, they are eyeing on the developing countries like China & India. India a developing economy is also interested in the entry of MNCs into their country, thro’ its economic policy of LPG (Liberalisation, Privatisation, Globalisation) from 1991 onwards. G.O.I. had introduced the following measures to attract foreign direct investments (FDIs) and entry of MNCs likes:i) Abolition of Industrial Licensing. ii) Removal of restrictions on investments under the Monopolies and Restrictive Trade Practices (MRTP) Act. iii) Existing companies are allowed to raise foreign equity up to 51per cent. iv) Liberalized policy for the import of Capital goods, transfer of technology etc., v) Foreign companies are allowed to use their trade marks in domestic / Indian markets. vi) Companies with more than 40per cent of foreign equity allowed operating like any other Indian company. Today, U.S.A. is the single largest Investor in India, followed by Switzerland, Japan and Britain. The foreign investments are largely concentrated in various fields like oil, fuel, power, chemicals, electronics components, etc., CONCLUSION Of late, MNCs are viewed more as engines of economic development rather than agents of imperialism. They are the vehicles for the transfer of foreign capital, technology and other resources necessary for the economic development of the developing economies like India. They provide valuable Revenues that would not exist otherwise, and thus improve the balance of payments position of the developing economies. They create industries which would not exist otherwise. Developing economies like South Korea, China & Taiwan, etc., have achieved rapid economic development through FDI (Foreign Direct Investment) route of MNCs. China’s stupendous / double digit economic growth rate of more than 10per cent per annum and its remarkable progress in various fields like power is due to the FDI route of MNCs. China has remarkably achieved a glut (Surplus / Surfeit) in the power sector and today china has no power cuts through out the nation, and through out the year. India has to learn a lesson from China in this aspect, especially in the power sector, since India suffers a chronic overall power shortage of 40per cent of its demand / requirement throughout the nation. Likewise, Indian aviation sector is also ailing for more than the last ten years. Its only PSU namely Air India is chronically in COMA stage and is in death bed currently. Its debt burden as on date has shot up to Rs.43, 777 crores. Every year its losses are mounting up. In the last financial year 2009-2010 its loss was Rs.5552 crores but in the current financial year 2010-11 its loss has shot up to Rs.6994 crores, http://www.exclusivemba.com/ijemr
IJEMR – January 2012-Vol 2 Issue 1 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 - 8672
It is unable to generate its own internal resources and unable to pay even the salary to its own employees. How long the GOI will go on injecting the public money to this ailing Air India to keep it afloat and survive? It is high time the GOI should do something in this ailing Aviation sector and the power sector also as achieved in the automobile sector and cell phone sector in India. India will gain technical progress and managerial skills and expertise if the MNC partners are carefully chosen by GOI, as in the case of NOKIA of Finland in cell phone sector or SUZUKI of Japan in the Automobile Industry as illustrated in the preceding paragraphs. As on March 2011, the number of cell phone users in India is 800 million. With the continuous Research and Development efforts of Nokia, the costs of cell phones in India have come down substantially with improved technical features like MP3 Players, Digital Cameras, Dual SIM, etc., Similarly, Suzuki had introduced highly sophisticated and Hi-tech and Fuel efficient vehicles in the Indian Automobile Industry. Thus the above two MNCs have done remarkably well for the rapid economic progress of India in their respective fields. The GOI(Government Of India) should make a similar choice of MNC partners in other sectors also as explained above, in the near future in order to achieve rapid overall industrial progress in India. References: 1) Felix Raj, Sampath Mukherjee, Mallinath Mukherjee, Amitava Gose and Rjaendra Nag, “Contemporary Development Economics from Adam Smith to Amartyasen”, II Edition, Sep. 2007 New Central Book Agency Pvt. Ltd., Calcutta. 2) Ishwar Dhingra, “Indian Economy”, 23rd Revised Edition 2009, Sultan Chand & Sons, New Delhi. 3) Jhingan M.L., “International Economics” 6th Revised and Enlarged Edition, Vrinda Publications (P) Ltd., and Delhi. 4) Mishra and Puri, “Indian Economy”, 28th Revised and updated Edition 2010, Himalaya Publishing House, Mumbai. 5) Ray S.K., “Indian Economy”, Prentice Hall of India Pvt. Ltd., New Delhi. 6) Ruddar Dutt and Sundaram K.P.M., “Indian Economy”, 61st Edition, S.Chand & Co., New Delhi. 7) www.sciencedirect.com 8) www.nokia.com 9) www.marutisuzuki.com 10) The Hindu, Daily newspaper, 22.02.2011. Coimbatore edition, Tamilnadu, India.
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