trading and investing in international market

8/6/2019 Trading and Investing in International Market

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Chapter 2

Trading and Investing in

International Market


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Outline of the chapter

Meaning and nature of foreign

investment Forms or types of foreign investment

Need of foreign investment

Advantages & disadvantage of FDI FDI and India

Multinational Corporations (MNCs)

Reasons for growth of MNCs Advantages & disadvantages of MNCs


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After the II World War, the developing countries aremaking concerted efforts to achieve rapid economicdevelopment removing unemployment and poverty.

The developing countries like India have been facingthe problem of shortage of capital, to meet thisshortage, capital flows are very essential to economicgrowth of our country.

Foreign governments, private foreign investors &

international institutions such as World Bank, IMF,ADB etc important sources of foreign investments.

Russia, China, America, France, Germany& others haddevelopment after foreign capital assistance.


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Industrialization &

Economic Development

Breaking ViciousCircle of Poverty

Technological Transformation

Development of Infrastructure

Development of Heavy

Industries

Employment Generation

Removing BOP deficit

Role oforeign Capital


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1. Vital role in the industrialization andeconomic development

Nearly every developed countries had takenassistance from foreign capital in its earlystage development.

England borrowed from Holland in the

17th

and 18th

century now it assistingalmost all countries of the world.

The USA, now the richest country in theworld borrowed heavily in the 19th

century. India and China are also developed

substantially with the help of foreigncapital.


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2. Break the vicious circle of poverty

The less developed countries are caught in

a vicious circle of poverty. There is low per capita income and,

therefore, low rate of saving and low rate ofinvestment which again results in low per

capita income etc. Thus, the foreign capital flows for a

developing country would help infilling he gap between the rate of

savings and the required rate ofinvestment for sustained andaccelerated growth of the economy.


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3. Technological transformation

Backward and developing countries of the world sufferfrom technological backwardness.

They are characterized by low productivity of labour andcapital due to abundance of unskilled labour andobsolete capital equipment.

The inflow of capital from advanced countries

apart from removing capital deficiencies, bringsin advanced technology and skills, organizationalexpertise and market management.

At present, India is fairly advanced intechnological development with the help of USA,UK, France, Germany and Japan etc.


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4. Development of adequate infrastructure

Development of adequate infrastructure is a

necessary condition for further economicdevelopment and growth.

The growth process in the LDCs remainhindered on account of the absence of

economic and social infrastructure transport and communication, irrigation, power, educational, training andresearch institutions etc.

These infrastructural facilities developedthrough foreign capital


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5. Development of heavy and basicindustries

Foreign capital immensely helps thedeveloping countries in thedevelopment of heavy and basicindustries.

LDCs will not be in a position to invest ontheir own and establish and develop basicand heavy industries.

All these industries have higher capitalintensity and a long gestation period.

It is only through a substantial inflow offoreign capital that the developingcountries can hope to develop heavyindustries


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6. Greater employment opportunities

Foreign capital provides greater employment

opportunities in the economy.

As foreign capital builds up the necessaryinfrastructure, assists in setting up of heavy andbasic industries employment generations.

Foreign capital can modernize agriculture throughnew farm machinery and also chemical fertilizers,besides new methods of cultivation.


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Foreign Investment

oreign Direct InvestmentPortfolio Investment

Investment by FIIsInvestment in GDRS,

FDRS, FCCBs etc

Wholly ownedsubsidiary

Joint VentureAcquisition


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Forms of Foreign

CapitalForeign Direct Investment (FDI)

Foreign Collaboration

Inter Government Loans

Loans from International Institution

External Commercial Borrowings

Portfolio Investment


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1. Foreign Direct Investment (FDI)

Foreign direct investment means investment in aforeign country where the investor retains control

over the investment.The Head Office is in the investing country and

Operations are in the developing countries

The FDI is the investment in the construction ofphysical capital such as building factories &

infrastructure power, telecom, port etc. The FDI not only have the ownership of assets, but

also control the activities that generate the incomeflows in the recipient country.


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The investor are not only concentratedon physical capitaland

infrastructure but also investing onbuying equities, bonds or othersecurities aboard.

FDI are governed by long termconsiderations because theseinvestments cannot be easily

liquidated. Foreign direct investors have direct

responsibility with the promotion andmanagement of the enterprise.


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2.Portfolio Investment Portfolio investments are generally much

sensitive than FDIs. When the investor makes only

investment and does not retain controlover the enterprise portfolioinvestment.

The investor is interested only in returnon his capital and does not want controlover the use of the invested capital.

Portfolio investment is for a short period &is influenced by short term gains.

Portfolio investors have no directresponsibility for promotion &management of the enterprises.


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The LDCs strongly preference for the portfolioinvestment rather than foreign directinvestment due no control over themanagement.

There are mainly two routes of portfolio investments inIndia Foreign institutional investors (FIIs), Mutualfunds and GDRs.

Global Depository Receipts (GDRs) American Depository Receipts (ADRs) &

Foreign Currency Convertible Bonds (FCCBs)


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Foreign Direct Investment

1.Long term gains

2.Direct control on

particularcompany/industry

3. Less liquidity

4. Long term finance

Portfolio Investment

1.Short termgains

2.No control oncompany/industry

3. More liquidation

4. Short term

finance

Difference between FDI & PI


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2. Foreign Collaboration

In recent years there has beenjoint participation

of foreign & domestic capital.

India has been encouraging this form of import offoreign capital.

There are three types of foreign collaboration

1. Joint participation between private parties

2. Foreign firms & Indian Government

3. Indian Government & foreign government


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3. Inter government loans

Since the second world war, there hasbeen a growing tendency towardsdirect inter government loans &grants.

Marshall Aid was a massivesystems of American Aid given to thewar devasted European countries tore-constructing their economies.

Other advance countries providegrants & loans to government ofless developed countries.


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4. Loans from international institutions

World Bank & its affiliates (IBRD)

International Monetary Fund (IMF)

Asian Development Bank (ADB)

International Development Association (IDA)

5. External Commercial Borrowing (ECB)

India has also been tapping export creditagencies like the

US Exim Bank

Japanese Exim Bank ECGC of the UK.


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FDI Flow by Region


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Need for foreign capital

1. Sustaining a high level of investment

Economic Development2. The technological gap transfer of

technology

3. Exploitation of natural resources

4. Undertaking the initial risk

5. Development of basic economicinfrastructure

6. Improvement in the balance of paymentsposition.


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1. Sustaining a high level of investment

Since the under developed countries want to

industrialize themselves within a short periodof time, it is necessary to raise foreigninvestmentsubstantially.

However, because of general poverty ofmasses & unemployment - low level ofsavings

Hence emerges a resource gap between

investment & savings this gap has tobe filled up through foreign capital.


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2. The technological gap (technological transfer)

The under developed countries have very low level oftechnology as compared to the advanced countries.

However, they possess a strong urge for industrialization todevelop machineries ,tools & equipments.

Such technology usually comes with foreign capital.

3. Exploitation of natural resources

A number of LDCs possess huge mineral resources which

await exploitation These countries themselves do not possess the required

technical skill & expertise to accomplish this task.

As a consequence, they have to depend upon foreigncapital to undertake the exploitation of their mineral

wealth.


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4. Undertaking the initial risk

Many LDCs suffer from acute scarcity of

private entrepreneurs. This creates obstacles in theprogramme of industrialization.

An argument advanced in favour of theforeign capital is that is understandsthe risk of investment in the hostcountries & that provides the much

needed impetus to the process ofindustrialization.


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5. Development of basic economicinfrastructure

The domestic capital of the LDCs countries is

often too inadequate to build up the economicinfrastructure on its own.

These LDCs require the assistance offoreigncapital to undertake this task.

In the mid of the 20th century especially during thelast 3 4 decades, international financialinstitutions & international government ofadvanced countries have made substantial capital

available to the LDCs.


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6. Improvement in the balance ofpayments position

In the initial phase of their economicdevelopment, the LDCs needs much largerimports (machines, capital goods,industrial raw-materials, spares &

component) than export. As a result, the BOP generally turn adverse.

This creates a gap between the earnings

and expenditure of foreign exchange.Balance BOP imports = exports

Surplus BOP exports > imports

Deficit BOP exports < imports


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FDI in India

FDI has been expanding rapidly in

India, especially since economicliberalisation in July 1991 LPG

Despite increase in the absolute amount of

FDI inflows, Indias share in the totalFDI inflow in less developed countrieshas been less than 1%.

Actual FDI inflow has been much less than

the FDI approved by the government actual flow of FDI less than approvals


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The share of Indias FDI in total privateinvestment has also been low despite a hugedomestic market and an open door policy

towards FDI. According to the World Investment Reportpublished by UNCTAD, India ranked 119th on thebasis of FDI performance index (0.2).

This shows India receives much less FDI thanwhat is expected from its relative size.

Most of the barriers to FDI are built into the countryseconomic, political and social system.

Strong institutional and administrative reforms arerequired to break the barriers.


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1 63 9

6 5

1 , 3

2 , 1

2 , 7

3 , 6

3 , 0

2 , 4

2 , 9

4 , 2

3 , 1

2 , 6 2 , 6

3 , 7

2

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

3 5 0 0

4 0 0 0

4 5 0 0

1 9 9 1 -

9 2

1 9 9 2 -

9 3

1 9 9 3 -

9 4

1 9 9 4 -

9 5

1 9 9 5 -

9 6

1 9 9 6 -

9 7

1 9 9 7 -

9 8

1 9 9 8 -

9 9

1 9 9 9 -

2 0 0 0

2 0 0 0 -

0 1

2 0 0 1 -

0 2

2 0 0 2 -

0 3

2 0 0 3 -

0 4

2 0 0 4 -

0 5

2 0 0 5 -

0 6

2

India: Year wise FDI inflow

US$

Millions

Years


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1 6 3 9 6 5 1 , 3 2 , 12 , 7 3 , 6 3 , 0 2 , 4 2 , 9 4 , 2 3 , 1 2 , 6 3 , 7 2 , 1

3 5 , 5

05 0 0 0

1 0 0 0 01 5 0 0 02 0 0 0 02 5 0 0 0

3 0 0 0 03 5 0 0 04 0 0 0 0

1991-92(AugMarch)1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-20002000-01

2001-02

2002-03

2003-04

2004-05

2005-06

GrandTotal

India: Year wise FDI inflow


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Nameof the regions 1980 1985 1990 1995 2000 2005 2008

World 55,262 57,959 201,594 342,592 1,411,366 945,795 1,697,353

Developed 47,575 43,748 165,627 222,000 1,146,238 590,311 962,599

Developing 7,664 14,197 35,892 115,963 256,088 314,316 620,733

Asia 663 5,421 22,642 80,008 148,333 208,744 387,828

South Asia 203 173 575 2,808 4,658 9,866 50,669

India 79 106 237 2,151 3,585 6,676 41,554

Global Trends of Foreign Direct Investmentinward during 1980 2008

(US $ in Mi

Share of top investing countries FDI inflow in India


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Sl No. Country August 1991 toMarch 2002

2002-03 (April-March)



2005-06 (April-Sept)

Cumulative inflows(from Aug 1991 to Sept2005)

% age withinflow

1. Mauritius 27,446(6,632)

3,766(788)

2,609(567)

5,141(1,127)

3,882(882)

42,844(10,096)

35.55

2. U.S.A. 12,248(3,188)

1,504(319)

1,658(360)

3,055(668)

1,409(320)

19,974(4,856)

16.49

3. Japan 5,099(1,299)

1,971(412)

360(78)

575(126)

342(78)

8,348(1993)

6.93

4. Netherlands 3,856(986)

836(176)

2,247(489)

1,217(267)

161(37)

8,317(1,954)

6.90

5. U.K. 4,263(1,106) 1,617(340) 769(167) 458(101) 843(192) 7,950(1,905)6.60

6. Germany 3,455(908)

684(144)

373(81)

663(145)

167(38)

5,343(1,317)

4.43

7. Singapore 1,997(515)

180(38)

172(37)

822(184)

521(118)

3,690(893)

3.06

8. France 1,947(492)

534(112)

176(38)

537(117)

35(8)

3,229(768)

2.68

9. South Korea 2,189(594)

188(39)

110(24)

157(35)

26(6)

2,669(698)

2.21

10. Switzerland 1,200(325)

437(93)

207(45)

353(77)

170(39)

2,366(579)

1.96

Total 92,611

(23,829)

14,932

(3,134)

12,117

(2,634)

17,138

(3,754)

9,553

(2,171)

1,46,351

(35,522)

-

Share of top investing countries FDI inflow in India


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Sl No. Sectors2006-07 (Apr

March)

2007-08 (Apr

March)2008-09 (Apr

March)2009-10 (Apr

Nov)Cumulative

inflow (April 00to Nov 10)

% age to totalinflow (in termsof US$)

1. Service Sector(financial & non financial)

21,047(4,664)

26,589(6,615)

28,411(6,616)

20,958(4,392)

105,411(23,640)

21%

2. Computer Software &Hardware

11,786(2,614)

5,623(1,410)

7,329(1,677)

4,350(919)

43,846(9,872)

9%

3. Telecommunication 2,155(478)

5,103(1,261)

11,727(2,558)

12,338(2,554)

40,706(8,931)

8%

4. Housing & Real Estate 2,121(467) 8,749(2,179) 12,621(2,801) 13,586(2,844) 37,369(8,357) 8%

5. Construction Activities 4,424(985)

6,989(1,743)

8,792(2,028)

13,544(2,868)

35,721(8,059)

7%

6. Power 713(157)

3,875(967)

4,382(985)

6,908(1,437)

20,919(4,627)

4%

7. Automobile Industry 1,254

(276)

2,697

(675)

5,212

(1,152)

5,609

(1,177)

20,677

(4,565)

4%

8. Metallurgical Industries 7,866(173)

4,686(1,177)

4,1,57(961)

1,935(407)

13,440(3,130)

3%

9. Petroleum & Natural Gas 401(89)

5,729(1,427)

1,931(412)

1,328(272)

11,504(2,666)

2%

10. Chemical (other than fertilizers) 930

(205)

920

(229)

3,427

(749)

1,707

(362)

11,274

(2,496)

2%

Sector wise FDI flow toIndia


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Advantages of Foreign Direct Investment

1. Enhance the level of economic development

Financing infrastructure, manufacturing and servicessector.

2. Transfer of technology

Transforming machinery, tools & equipmentto hostcountries.

It helps to reduce cost & improve quantity& qualityof products.

3. Managerial revolution of host countries improving entrepreneurship abilityBoostingemployment & income of host countries


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4. Boosting Employment & income of host country

Increasing number industries

Huge production increases income taxation.

5. Conservation of foreign exchange

It helps the host countries to increasing export &reducing imports

This results improve its BOP position.

Impact ofeconomic liberalization in - 1991 - dueto foreign exchange crisis.

6. FDI increase competition & break downmonopolies in the host countries.

7. Improving Standard of Living.


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Disadvantages of FDI1. FDI ignores the welfare of host

countries profit motives.2. Balance of Payment crisis of the host

countries withdrawing dividends,profits and interest.

3. Negative impacts on domestic firms due to large & massive industrial base -competition

4. Adverse impact on domestic savings& terms of trade of host countries.

5. FDI may involve costs & risks for thehome countries employmentopportunities may shrink & BOP maysuffer due to FDI.


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Costs and Benefits of FDI

FDI has its costs and benefits to the homecountry as well as host country.

Benefits to Home Country

1. Inflow of foreign currencies in the form ofdividend, interests etc Positive balance

of payments.2. FDI increases export of machinery,

equipment, technology etc from the homecountry to the host country. This is turn

enhances the industrial activity of thehome country.

3. The increased industrial activity in the homecountry enhances employment

opportunities.


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4. The firm and other home country firms can learnskills from its exposure to the host countryand transfer those skills to the industry in thehome country.

Costs to Home Country

1. There are costs to the home country, in addition

to benefits from the FDI. They include2. Home countrys industry and employmentposition are at stake when the firms enterforeign markets due to low cost labour.

3. Current account position of the homecountry suffers as FDI is a substitute fordirect exports.


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Benefits to Host Country

1. Resource transfer effects

the resources which are scarce in host country aretransferred from the foreign country foreigncapital, technology, machinery and equipment,management and organisation.

Transfer of these resources develop the host country

economically and socially.

Indian government has been encouraging theFDI after 1991 to develop the Indian industry,infrastructure and service sectors.


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2. Employment Effects

The FDI contributes for the establishment of newindustries and business directly and for the

employment of existing economic activity. Further, FDI helps for the developing of ancillary

industries. These developments invariablyincrease the employment opportunities for thepeople of the host country.

3. Balance of Payment Effects

BOP position and foreign exchange resources arevery crucial from the view point of externalsituation of a country.

India faced severe foreign exchange resourcecrunch and thereby unfavorable BOP before July1991.


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Cost to Host Country

Though the FDI benefits the host country and

also cost the host country. Its costs are in the form of intensifying

competition, negative effects on BOP andimpact on national sovereignty and

autonomy.1. Intensifying Competition ForeignMNCs have more competitive abilities inview of their large size, resource base and

widespread operation than that of thedomestic companies.

Hence, they pose severe competition andthreat to the domestic companies.


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2. Negative Effects on the BOP Foreign companies affect the BOP of the host

country in three ways.

1. Foreign companies repatriate the dividends totheir home countries that affects the currentaccount foreign firms may purchase and sellthe machinery and equipment that affect thecapital account transaction.

2. The MNC in the host country imports the goodsfrom its subsidiaries from other countries these imports result in a debit on thecurrent account of the BOP of the hostcountry.

3. National Sovereignty and Autonomy Some of the host governments fear FDI as itaffects the sovereignity and autonomy of thecountry.

l i i l C i ( CS)


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Multinational Corporations (MNCS)

In simple terms, a MNCs is an entrepreneursthat carries on business operations - more

than one country 6 nations The multinational corporations are also

called different names such as internationalcorporation, transnational corporations and

global corporations etc.

MNCs occupies an important place in theglobalization era.

According to the WIR, 2007 there are more than79,000 MNCs with about 7.9 lakh affiliates.

1/3 these affiliates were in developedcountries China was host about 2.8 lakh &

India has 1,800 affiliates.


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Now multinational corporation account for a significantshare of the worlds investment, production,employment & trade.

According to ILO report The essential nature of theMNCs lies in the fact that its marginal head quartersare located in one country while enterprisecarries out operations in a number of othercountries (Home country & host countries).

Instead of aiming for maximisation of their profitsfrom one or two products, the MNCs operate in anumber of fields and extended over a number ofcountries.

USA, Japan, Germany, France, Italy, UnitedKingdom, Brazil & Canada.

i i i i i h d i


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MNCs engages in various activities such as - production,marketing, exporting, importing of manufacturing etc.

Obviously, MNCs is a corporation that controls production facilities in more than one or more than

two countries, such facilities having been acquiredthrough the process of foreign direct investment.

Although the MNCs took birth in the early 1860s, itwas after the II World War that multinationals havegrown rapidly.

In the early days, the USA was the home of most ofthe MNCs. Now there are a large number of Japaneseand European multinational

South Korea Samsung, Hyundai, LG & Daewoo.

Japan Toyota Motor & Nippon Telegraph &

Telephone.


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Characteristics of MNCs

1. MNCs carries business activities/operation in more thanone country for example coca-cola, IBM, Lipton etc.

2. The Head Office in one country but have theirbusiness connection in several countries Globalbusiness connections

3.Huge Capital - These enterprises posses large capital& invest funds in their business activities globally.

4.Monopoly - These enterprises has monopoly power inmarkets & goods & services.

5. MNCs focus on many areas like production, Investment,Marketing etc.

6.Worldwide operation MNCs operating almost all the

countries of the world dominated by USA, Japan &European Union

7.Sophisticated technology large scale production atworldwide.


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Types of MultinationalCorporations

MNCs

Branches

Franchis

e

JointVenture

SubsidiaryCompanies


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Few examples of MNCs

1.Electronic Products: national,

Philips, LG etc.2.Computer: IBM.

3.Software: Microsoft.

4.Cosmetics: Ponds, Revlon, Procter &Gambler.

5.Paint:Johnson & Nicholson.

6.Tea: Lipton & Tetley.

7.Car: Honda, Suzuki etc.

8.Drugs: Ranbaxy, Glaxo.

Th W ld l t MNC t i i


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Rank Name of the countries No. of MNCs

1. European Union 1632. United States of America 162

3. Japan 67

4. France 385. Germany 37

6. United Kingdom 34

7. China 16

10 South Korea 14

11. Switzerland 13

16. India 7

The World largest MNCs country-wise in

2008

T 10 2008 F t 500 C i


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Rank Company

2007 (Revenuesin $ millions)

2007 Profits ($millions)

1. Wal-Mart Stores 378,799 12,731

2. Exxon Mobil 372,824 40,610

3. Royal Dutch Shell 355,782 31,331

4. BP 291,438 20,845

5. Toyota Motor 230,201 15,042

6. Chevron 210,783 18,688

7. ING Group 201,516 12,649

8. Total 187,280 18,042

9. General Motors 182,347 -38,732

10 Conoco Phillips 178,558 11,891

Top 10 2008 Fotune 500 Companies

2008 Fortune 500 Indian Company


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Country

Rank Company

GlobalRank

2007Revenues ($

millions)

1. Indian Oil 116 57.427

2. Reliance Industries 206 35.915

3. Bharat Petroleum 287 27.873

4. Hindustan Petroleum 290 27.718

5. Tata Steel 315 25.707

6. Oil and Natural Gas 335 24.032

7. State Bank of India 380 22.402

2008 Fortune 500 Indian Company


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Reasons forGrowth of MNCs

Marke

tExp

ansio

nMarket

Superiorities

Technological

SuperioritiesFin

ancia

l

Supe

riorities


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Reasons for the Growth of MNCs1. Market expansion

2. Financial Superiorities

3. Market Superiorities

4. Technological Superiorities


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1. Market Expansion

The growth of GDP & PCI in various countriesled to increasing demand for goods & services.

Companies in developed economies, expandedtheir operations overseas to exploit theexpanding markets abroad.


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2. Financial Superiorities

MNCs are financially superior to domestic

companies in the following respects.1. Huge financial resources

2. More effective economic utilization offunds through transfer of excess funds

from one country to another.3. Easy access to foreign capital

markets.

4. Easy mobilization of high quality of

resources of different types.5. Access to international banks &

financial institutions.


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3. Marketing Superiorities

1.Availability of more reliable & up-

to-date information about marketconditions.

2.Reputation in the market due to

proper brands & image.3.More effective advertising & salespromotion techniques.

4.Wide distribution network.5.Quick transportation &

warehousing facilities.

4 T h l i l S i iti


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4. Technological Superiorities

Developing countries do not have the resources todevelop advanced technology & the level of

industrialization is low. They are unable to exploit their rich mineral

& other natural resources due to shortage offunds & low level technology.

They do not have adequate foreign exchangeresources to import raw-materials, capital,equipment & technology on their own.

They face difficulty in marketing theirproducts in highly competitive world markets.


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Advantages of MNCs

1. Benefits to the Host country

2. Benefits to the Home country

Disadvantage of MNCs

1. Cost and Risks to the hostcountry

2. Dangers to home country


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Benefits to the Host country

1.The levels of investment,employment & income increase dueto the operation of MNCs.

2.MNs help in the growth of ancillary &

service industry thereby increasingindustrialisation & economicdevelopment.

3.MNs bring advanced technology tothe host country.


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4. Business firms in the host country getsophisticated management techniques &practices.

5. MNs enable the host country to increase itsexports & reduce the imports.

6. Domestic industry gets the benefit of R & Dsystems of MCs. Their capability of invention

& innovation increases.7. MCs increase competition & breakdomestic monopolies.

8. MNs help to integrate national economiesboth economically & culturally.


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Benefit to the Home country

1.The products manufactured in the

home country can be easily marketedthroughout the world.

2.Employment opportunities for homecountry people are increased both athome & abroad.

3.The level of industrial activity in thehome country increases.

4.In the long run, the balance of paymentposition of the home country improvesthrough inflows in the form of dividend,interest & profit etc.

Di d t f MNC C t & i k t


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Disadvantages of MNCs - Costs & risks tothe Host country

1.MNs employ capital intensive technologywhich is not appropriate to the needs ofdeveloping countries.

2.Due to their immense power, multinationals

can undermine economic & politicalsovereigntyof developing countries.

3.MNs may kill the domestic industry & acquiremonopoly over the host countrys market.


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4. Employment growth in the host country may beretarded because MNs may employ foreign staff.

5. Multinationals may cause fast depletion of hostcountrys natural resources through theirindiscriminate use.

6. The host countrys balance of payments may beunder pressure when MNs repatriate huge amount

in the form of profits, dividends & royalty.

7. MNs may undermine local culture, distortconsumption patterns & promote conspicuousconsumption in the host country.


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Danger to Home Country

1.Pressure on balance of payments due to

transfer of capital to host countries.2.Loss of employment for home country

people due to location of manufacturing &marketing facilities abroad.

3.Investment in more profitable countries mayretard industrial and economicdevelopment in the home country.

4.Cultures of foreign countries may distort

home countrys culture.

l i i l C i i di


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Multinational Companies in India

Most of the MNCs in India had originally

entered the Indian market during thecolonial era East Indian Company.

But substantial growth of MNCs tookplace soon after emergence of New

economic policy in 1991. Most of MNCs enter India initially by

Foreign Collaboration with Indiancompanies.

More than 500 MNCs are operating inIndia, out of which about 157 are fromUSA & 120 from Japan.

Some of the Multinational Corporations in India


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Multinational Indian Affiliate

ABB ABB India

Bata Corporation Bata India

Cadbury Cadbury India

Ciba Geigy Hindustan Ciba Geigy

Coco-cola Corporation Coco-cola India

Danone Britannia Industries

GEC GE

Pepsi Corporation Pepsi India

Proctor and Gamble Proctor Gamble India

Philips Phillips India

Sony Corporation Sony India

Suzuki Maruti Suzuki

Unilever Hindustan Lever

Some of the Multinational Corporations in India

Th t MNC hi h l


69/69

The recent MNCs, which are welcomein both high technical capital goods

industries & low technical consumergoods industries.

Several economists criticize Indias

open door policy towards MNCs. Alarge gambler of MNCs in India areoperating in consumer products likesoft drinks, biscuits etc.

trading and investing in international market

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