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International Companies: Example: A Small Business in India Exporting Spices To Europe

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16 views7 pages

International Companies: Example: A Small Business in India Exporting Spices To Europe

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gaganatk1257
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MNCs are large companies with headquarters in one country (usually

developed) and business operations in multiple countries.

They manage production or services across borders and emerged


historically during the mercantilist period, with notable examples like
the East India Company.

● International Companies: They focus on importing and


exporting goods or services. They operate mainly in their home
country without significant investment in other countries.
Example: A small business in India exporting spices to Europe.
● Multinational Companies: They invest in several countries and
adapt their products or services to fit local markets. Each
country operates more independently.
Example: McDonald’s offers different menus in India and the
USA.
● Global Companies: They operate in many countries but use the
same products, branding, and strategies worldwide. Their focus
is on efficiency and consistency.
Example: Apple selling the same iPhone globally.
● Transnational Companies: They are highly integrated and
operate globally but allow individual markets to make decisions.
They balance global strategies with local flexibility.
Example: Unilever having global branding but adjusting
products like Dove or Lipton to local preferences.

Features of MNC

● Global Operations
Headquarters in the home country while operating in multiple
host countries.
● Large Scale Operations
Giant business enterprises with significant economic influence.
● Centralized Control
Ownership and decision-making remain concentrated at the
headquarters.
● Diverse Business Activities
Engage in production, marketing, and service operations across
countries.
● Direct Investment
Invest heavily in the infrastructure and operations of host
countries.
● Technological Superiority
Advanced technology and research and development
capabilities.
● Multinational Workforce
Employ professionals from various countries, including local
nationals in subsidiaries.
● Huge Financial Resources
Possess substantial capital and easy access to global financial
markets.
● Market Influence
Dominate international m arkets with strong branding and
goodwill.
● Merger and Acquisition Strategies
Grow by acquiring or merging with other companies to expand
their global reach.

Factors responsible for the growth of MNCs

● Innovations: Research a nd development enable superior


products.
● Market Facilities: Reliable market data, advertising, and
warehousing.
● Technological Advantages: Advanced technology and R&D
facilities.
● Financial Resources: Access to external capital markets.
● Market Expansion: Ability to gain international reputation and
reach wider audiences.

Entry Strategies for MNCs in India

MNCs can enter the Indian market through various strategies,


complying with the Indian Companies Act, 2013, and investment
policies:

1. Company Incorporation: Establishing a company in India


allows 100% foreign equity and long-term operations under
local laws.
2. Direct Investment:
○ Liaison Office: Acts as a communication channel without
commercial activities.
○ Project Office: Executes specific projects temporarily.
○ Branch Office: Engages in activities like consultancy,
trading, and IT support but cannot manufacture.
○ SEZ Branch Office: Operates only within Special
Economic Zones (SEZs).
3. Subsidiary Company: Establishing a fully-owned subsidiary
provides operational flexibility and legal independence.
Problems and consequences of MNC to a developing nation

1. Profit Focus: MNCs prioritize profit over the development of


host countries.
2. Loss of Sovereignty: Host countries lose economic control due
to MNC influence.
3. High Cost of Technology: Transfer of technology comes at high
fees and royalties.
4. Foreign Exchange Drain: MNCs transfer profits and royalties
back to their home countries.
5. Regional Disparities: MNCs create uneven development in
regions they operate.
6. Labor Exploitation: MNCs often exploit cheap labor in
underdeveloped countries.
7. Cultural Loss: Local traditions and values erode due to foreign
influence.
8. Market Monopolies: MNCs may dominate markets, harming
local businesses.
9. Corruption: Unethical practices can undermine local
economies and governance.
10. Resource Depletion: Non-renewable resources in host
countries are overused.
11. Low Foreign Investment: MNCs often rely on local funds
rather than bringing in significant foreign capital.
12. Law Violations: Instances of tax evasion and unethical
practices are common.
13. High Costs: MNC-led projects can be more expensive
without benefiting local consumers.
14. Wastage: Privatization efforts sometimes lead to inefficient
use of resources.

Role of MNCs in India

1. Profit-Oriented: Focus remains on profit rather than societal


benefits.
2. Fund Outflows: Large sums exit the country as profits,
royalties, and fees.
3. Limited Diversification: MNCs focus on profitable sectors,
neglecting essential industries.
4. Technology Gap: Advanced technologies are rarely shared with
local firms.
5. Social Inequality: MNCs often cater to affluent consumers,
ignoring poorer sections.
6. Environmental Impact: Minimal investment in pollution
control damages ecosystems.
7. Political Interference: Influence on government policies can
compromise sovereignty.
Growth of MNCs in India

● Post-1991 economic liberalization opened doors to foreign


trade.
● India became attractive for its skilled yet low-cost workforce.
● MNCs use local partnerships and capital for expansion,
sometimes at the expense of local industries.
● Tax breaks and concessions attract investments, though benefits
vary by sector.

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