MCOM PART-1

SEMESTER-2 ROLL NO-4

EXECUTIVE SUMMARY

This project give us the brief information about how MNC has given the advantage
and disadvantages to the Indian economy . how India has get affected by the
multinational corporation .with the Indian economy recovery under way the
government and business leaders are seeking the identity and nurture future sources of
economic growth .These will include the contributions of large and small
companies .

Both types of companies are necessary and both contribute differently the
performance of the economy. In this report we focus on the contribution of US
multinational corporation and examine the shifting global lanscape in which these
companies compete and make choices about where to participate and invest .

In summary we find that the relative to their size US multinational companies have
contribute in India disproportionately to private sector real GDP growth for value
added labor productivity these metrics matter because productivity increases have
delivered nearly three quarter of India GDP growth from 2000 2007 with the rest
coming from employment gains .

Multinational companies record on employment growth is mixed across sectors and

business cycles they are more concentrated than other companies in globally
competitive sectors such as manufacturing that were hard hit in 2001 recession yet
they have played a critical role in the expansions that followed a past recession .
Therefore these companies could potentially play a similar role .contributing the
growth in the current recovery and beyond to their continued strong participation
in Indian economy.

Multinational companies in India has a boon to Indian economy as well as it is bane also
for Indian economy .MNC gives India employment growth development but they also
create monopoly in market. There are several companies in India who have the
maximum advantages such as Infosys, Tata etc.

JAI HIND Page 1

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER -1 INTRODUCTION

A multinational corporation (or transnational corporation) (MNC/TNC) is a corporation

or enterprise that manages production establishments or delivers services in at least two
countries. Very large multinationals have budgets that exceed those of many countries.
Multinational corporations can have a powerful influence in international relations and
local economies. Multinational corporations play an important role in globalization; some
argue that a new form of MNC is evolving in response to globalization: the 'globally
integrated enterprise'.

What is the difference between Multi National Corporation and Trans National
Corporation? The difference is more semantics than anything else. Multinationals
operate in several different companies will trans national implies "just across the
border" as in the US and Canada. Obviously, both operate internationally

Multinational Corporations (MNCs) are giant industrial organizations with their

Headquarters Located in one country, extending heir industrial and marketing operations
in several countries through a network of their branches or their Majority Owned
Foreign Affiliates (MOFAs).MNCs are also known by other names, like/, transnational
corporations, global corporations and international corporations, etc. A multinational
corporation (MNC) or transnational corporation(TNC), also called multinational
enterprise (MNE), is a corporation or enterprise that manages production or delivers
services in more than one country. It can also be referred to as an international
corporation. The first modern MNC is generally thought to be the Dutch East India
Company, established in1602. The key element of transnational corporations was
present even back then: the Dutch East India Company was operating in a different
country than the one where it had its headquarters. Nowadays many corporations have
offices, branches or manufacturing plants in different countries than where their original
and main headquarter is located. This is the very definition of a transnational
corporation. Having multiple operation points that all respond to one headquarter. This
often results in very powerful corporations that have budgets that exceed some national
GDPs Multinational corporations can have a powerful influence in local economies as
well as the world economy play an important role in international relationship
globalization presence of such powerful players in the world economy is reason for
much controversy.

JAI HIND Page 2

MCOM PART-1
SEMESTER-2 ROLL NO-4

HISTORY

There is a dispute as to which was the first MNC. Some have argued that the Knights
Templar, founded in 1117, became a multinational when it stumbled into banking in 1135.
However, others claim that the Dutch East India Company was the first proper
multinational.

PROFIT OF MNC IN INDIA

It i s too specify that the companies come and settle in India to earn profit. A company enlarges its
jurisdiction of work beyond its native place when they get a wide scope to earn a profit and such is the
case of the MNCs that have flourished here. M ore over India has wide market for different and new
goods and services due to the ever increasing population and the varying consumer taste. The government
FDI policies have somehow benefited them and drawn their attention too. The restrictive
policies that stopped the company's inflow are however withdrawn and the country has shown
much interest to bring in foreign investment here. Besides the foreign directive policies the
labor competitive market, market competition and the macro-economic stability are some of the
key factors that magnetize the foreign
MNC share. Following are the reasons why multinational companies consider India as a
preferred destination for business

Huge market potential of the country

FDI attractiveness

Labour competitiveness

Macro-economic stability

JAI HIND Page 3

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-2 MULTINATIONAL CORPORATE STRUCTURE

Multinational corporations can be divided into three broad groups according to the
configuration of their production facilities:
Horizontally integrated multinational corporations manage production
establishments located in different countries to produce the same or similar
products. (example: McDonalds)
Vertically integrated multinational corporations manage production
establishment in certain country/countries to produce products that serve as input
to its production establishments in other country/countries. (example: Adidas)
Diversified multinational corporations manage production establishments
located in different countries that are neither horizontally nor vertically nor
straight, nor non-straight integrated. (example: Microsoft)

Others argue that a key feature of the multinational is the inclusion of back office
functions in each of the countries in which they operate. The globally integrated
enterprise, which some see as the next development in the evolution of the multinational,
does away with this requirement.

International power :

Large multinational corporations can have a powerful influence in international relations,

given their large economic influence in politicians' representative districts, as well as
their extensive financial resources available for public relations and political lobbying.

Tax Competition :

Multinationals have played an important role in globalization. Countries and sometimes

subnational regions must compete against one another for the establishment of MNC
facilities, and the subsequent tax revenue, employment, and economic activity. To
compete, countries and regional political districts offer incentives to MNCs such as tax
breaks, pledges of governmental assistance or improved infrastructure, or lax
environmental and labour standards. This process of becoming more attractive to foreign
investment can be characterized as a race to the bottom, a push towards greater freedom
for corporate bodies, or both.
JAI HIND Page 4
MCOM PART-1
SEMESTER-2 ROLL NO-4
Largest Economies :

An inaccurate claim is that out of the 100 largest economies in the world, 51 are
multinational corporations.[2] This claim is based on a miscalculation, where two numbers
describing totally different things are compared: the GDP of nations to gross sales of
corporations. The problem with the comparison is that GDP takes into account only the
final value, whereas gross sales don't measure how much was produced outside the
company. According to Swedish economist Johan Norberg, if one were to compare
nations and corporations, then one should be comparing GDP to goods only produced
within the particular company (gross sales do not take into account goods purchased from
3rd party vendors and resold, just as GDP does not take into account imported goods).
That correction would make only 37 of 100 largest economies corporations and all of
them would be in bottom box: only 5 corporations would be in top 50.

Market Withdrawal

Because of their size, multinationals can have a significant impact on government policy,
primarily through the threat of market withdrawal. For example, in an effort to reduce
health care costs, some countries have tried to force pharmaceutical companies to license
their patented drugs to local competitors for a very low fee, thereby artificially lowering
the price. When faced with that threat, multinational pharmaceutical firms have simply
withdrawn from the market, which often leads to limited availability of advanced drugs.
In these cases, governments have been forced to back down from their efforts. Similar
corporate and government confrontations have occurred when governments tried to force
companies to make their intellectual property public in an effort to gain technology for
local entrepreneurs. When companies are faced with the option of losing a core
competitive technological advantage and withdrawing from a national market, they may
choose the latter. This withdrawal often causes governments to change policy. Countries
that have been most successful in this type of confrontation with multinational
corporations are large countries such as India and Brazil, which have viable indigenous
market competitors.

Lobbying :

Multinational corporate lobbying is directed at a range of business concerns, from tariff

structures to environmental regulations. There is no unified multinational perspective on
any of these issues. Companies that have invested heavily in pollution control
mechanisms may lobby for very tough environmental standards in an effort to force non-
compliant competitors into a weaker position. For every tariff category that one
multinational wants to have reduced, there is another multinational that wants the tariff
raised. Even within the U.S. auto industry, the fraction of a company's imported
components will vary, so some firms favor tighter import restrictions, while others favor
looser ones.

JAI HIND Page 5

MCOM PART-1
SEMESTER-2 ROLL NO-4

Government Power :

In addition to efforts by multinational corporations to affect governments, there is much

government action intended to affect corporate behavior. The threat of nationalization
(forcing a company to sell its local assets to the government or to other local nationals) or
changes in local business laws and regulations can limit a multinational's power.

CHAPTER-3 MICRO-MULTINATIONALS

Enabled by Internet based communication tools, a new breed of multinational companies

is growing in numbers. These multinationals start operating in different countries from
the very early stages. These companies are being called micro-multinationals.What
differentiates micro-multinationals from the large MNCs is the fact that they are small
businesses. Some of these micro-multinationals, particularly software development
companies, have been hiring employees in multiple countries from the beginning of the
Internet era. But more and more micro-multinationals are actively starting to market their
products and services in various countries. Internet tools like Google, Yahoo, MSN, Ebay
and Amazon make it easier for the micro-multinationals to reach potential customers in
other countries.Contrary to the traditional powerful image of the large MNCs, the micro-
multinationals face the limitations and the typical challenges of a small business. In most
cases, the micro-multinational companies are being run by technically savvy people who
can use various Internet tools to overcome the challenges of remote collaboration,
customer service and sales infrastructures.

Multinationals from Emerging Markets :

Large number of multinationals are operating into emerging markets and at the same time
a number of multinationals are coming from emerging markets. Professor Rajesh K
Pillania is bringing out a special issue on Multinationals from Emerging Markets in
2008.

JAI HIND Page 6

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-4 MULTINATIONAL COMPANIES IN INDIA

The post financial liberation era in India has experienced huge influx of 'Multinational
Companies in India' and propelled India's economy to greater heights.
Although, majority of these companies are of American origin but it did not take too long
for other nations to realize the huge potential that India Inc offers. 'Multinational
Companies in India' represent a diversified portfolio of companies representing different
nations. It is well documented that American companies accounts for around 37% of the
turnover of the top 20 firms operating in India. But, the scenario for 'MNC in India' has
changed a lot in recent years, since more and more firms from European Union like
Britain, Italy, France, Germany, Netherlands, Finland, Belgium etc have outsourced their
work to India. Finnish mobile handset manufacturing giant Nokia has the second largest
base in India. British Petroleum and Vodafone (to start operation soon) represents the
British. A host of automobile companies like Fiat, Ford Motors, Piaggio etc from Italy
have opened shop in India with R&D wing attached. French Heavy Engineering major
Alstom and Pharma major Sanofi Aventis is one of the earliest entrant in the scene and is
expanding very fast. Oil companies, Infrastructure builders from Middle East are also
flocking in India to catch the boom. South Korean electronics giants Samsung and LG
Electronics and small and mid-segment car major Hyundai Motors are doing excellent
business and using India as a hub
for global delivery. Japan is also not far behind with host of
electronics and automobiles shops. Companies like Singtel of Singapore and Malaysian
giant Salem Group are showing huge interest for investment.
In spite of the huge growth India Inc have some bottlenecks, like -
Irrational policies (tax structure and trade barriers).
Low invest in infrastructure - physical and information technology.
Slow reforms (political reforms to improve stability, privatization and
deregulation, labor reforms).

Reports says, performance of 3 out of every 4 'Multinational Companies' has met or

exceeded internal targets and expectations. India is perceived to be at par with China in
terms of FDI attractiveness by 'Multinational Companies in India'. In view of
'Multinational Companies' community, it ranks higher than China, Malaysia, Thailand,
and Philippines in terms of MNC performance. Multinational Companies Operating in
India cite India's highly educated workforce, management talent, rule of law,
transparency, cultural affinity, and regulatory environment as more favorable than others.
Moreover, they acknowledged, India's leadership in IT, business processing, and R&D
investments.
'Multinational Companies in India' are bullish on -
India's market potential.
Labor competitiveness.
Macro-economic stability.
FDI attractiveness.

JAI HIND Page 7

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-5 ADVANTAGES AND DISADVANTAGES OF MNC

For a person individual

Advantage: MNCs are globally recognized businesses so you have great potential for
your Career growth in a Global level
Disadvantage: Career path in MNC will take time to establish.

For Society
Advantage: MNCs remove established legacy businesses and promote local employment
opportunities. They also provide various charitable services to the society.
Disadvantage: MNCs induces competition, and their profit minded operations may
impact local market/produce.

For Government
Advantage: Tax Source Economic Benefit
Disadvantage: MNCs Strategy will influence various government policies making which
may not always be good for the economy

MNCs???? Even Indian companies should not allow. Have you ever given a second
thought to what will happen to small retail shop owners & farmers? These big retailers
would control the prices of commodities, farm produce etc. once they establish their
presence.

A majority of foreign companies operating in India are making profits but the
multinationals felt the need to build brand India so as to attract more investors, a study by
FICCI has said.

According to FICCI's annual FDI survey, 70 per cent of the foreign companies here are
earning profits from their Indian operations.

The survey said 84 per cent of the respondents gave a positive assessment of India,
although they highlighted the need for building brand India and showcase India's
potential as an investment destination.

Despite an overwhelming majority, 91 per cent, were upbeat about the market conditions
and the potential for further FDI inflows, they expressed concerns about the quality of
infrastructure in India, it said.

JAI HIND Page 8

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-6 ECONOMY OF INDIA

The economy of India, when measured in USD exchange-rate terms, is the twelfth
largest in the world, with a GDP of US $1.25 trillion (2008). It is the third largest in terms
of purchasing power parity. India is the second fastest growing major economy in the
world, with a GDP growth rate of 9.4% for the fiscal year 20062007. However, India's
huge population results in a per capita income of $4,542 at PPP and $1,089 at nominal
(revised 2007 estimate). The World Bank classifies India as a low-income economy.
India's economy is diverse, encompassing agriculture, handicrafts, textile, manufacturing,
and a multitude of services. Although two-thirds of the Indian workforce still earn their
livelihood directly or indirectly through agriculture, services are a growing sector and
play an increasingly important role of India's economy. The advent of the digital age, and
the large number of young and educated populace fluent in English, is gradually
transforming India as an important 'back office' destination for global outsourcing of
customer services and technical support. India is a major exporter of highly-skilled
workers in software and financial services, and software engineering. Other Sectors
likemanufacturingpharmaceuticals,biotechnology,nanotechnology,telecommunication,shi
pbuilding, aviation and tourism are showing strong potentials with higher growth rates.
India followed a socialist-inspired approach for most of its independent history, with
strict government control over private sector participation, foreign trade, and foreign
direct investment.

However, since the early 1990s, India has gradually opened up its markets through
economic reforms by reducing government controls on foreign trade and investment. The
privatisation of publicly owned industries and the opening up of certain sectors to private
and foreign interests has proceeded slowly amid political debate. India faces a fastly
growing population and the challenge of reducing economic and social inequality.
Poverty remains a serious problem, although it has declined significantly since
independence. Official surveys estimated that in the year 2004-2005, 27% of Indians
were poor.

Pre-colonial

The citizens of the Indus Valley civilisation, a permanent and predominantly urban
settlement that flourished between 2800 BC and 1800 BC, practised agriculture,
domesticated animals, used uniform weights and measures, made tools and weapons, and
traded with other cities. Evidence of well planned streets, a drainage system and water
supply reveals their knowledge of urban planning, which included the world's first urban
sanitation systems and the existence of a form of municipal government. Religion,
especially Hinduism, and the caste and the joint family systems, played an influential role
in shaping economic activities. The caste system functioned much like medieval
European guilds, ensuring the division of labour, providing for the training of apprentices
and, in some cases, allowing manufacturers to achieve narrow specialization.

JAI HIND Page 9

MCOM PART-1
SEMESTER-2 ROLL NO-4
For instance, in certain regions, producing each variety of cloth was the speciality of a
particular sub-caste.

Estimates of the per capita income of India (18571900) as per 194849 prices. Textiles
such as muslin, Calicos, shawls, and agricultural products such as pepper, cinnamon,
opium and indigo were exported to Europe, the Middle East and South East Asia in return
for gold and silver. Assessment of India's pre-colonial economy is mostly qualitative,
owing to the lack of quantitative information. One estimate puts the revenue of Akbar's
Mughal Empire in 1600 at 17.5 million, in contrast with the total revenue of Great
Britain in 1800, which totalled 16 million. India, by the time of the arrival of the British,
was a largely traditional agrarian economy with a dominant subsistence sector dependent
on primitive technology. It existed alongside a competitively developed network of
commerce, manufacturing and credit. After the fall of the Mughals,
India was administered by Maratha Empire. The maratha empire's budget in 1740s, at its
peak, was Rs. 100 million.

Colonial

Colonial rule brought a major change in the taxation environment from revenue taxes to
property taxes resulting in mass impoverishment and destitution of the great majority of
farmers. It also created an institutional environment that, on paper, guaranteed property
rights among the colonizers, encouraged free trade, and created a single currency with
fixed exchange rates, standardized weights and measures, capital markets, a well
developed system of railways and telegraphs, a civil service that aimed to be free from
political interference, and a common-law, adversarial legal system. India's colonisation
by the British coincided with major changes in the world economyindustrialisation,
and significant growth in production and trade. However, at the end of colonial rule, India
inherited an economy that was one of the poorest in the developing world, with industrial
development stalled, agriculture unable to feed a rapidly growing population, one of the
world's lowest life expectancies, and low rates of literacy. An estimate by Cambridge
University historian Angus Maddison reveals that India's share of the world income fell
from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952.
While Indian leaders during the Independence struggle, and left-nationalist economic
historians have
blamed colonial rule for the dismal state of India's economy in its aftermath, a broader
macroeconomic view of India during this period reveals that there were sectors of growth
and decline, resulting from changes brought about by colonialism and a world that was
moving towards industrialisation and economic integration.

JAI HIND Page 10

MCOM PART-1
SEMESTER-2 ROLL NO-4

Independence to 1991 :

Growth rate of India's real GDP per capita (Constant Prices: Chain series) (1950
2006). Data Source: Penn World tables.
Indian economic policy after independence was influenced by the colonial
experience (which was seen by Indian leaders as exploitative in nature) and by those
leaders' exposure to Fabian socialism. Policy tended towards protectionism, with a strong
emphasis on import substitution, industrialisation, state intervention in labour and
financial markets, a large public sector, business regulation, and central planning.
Jawaharlal Nehru, the first prime minister, along with the statistician Prasanta Chandra
Mahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy.
They expected favourable outcomes from this strategy, because it involved both public
and private sectors and was based on direct and indirect state intervention, rather than the
more extreme Soviet-style central command system. The policy of concentrating
simultaneously on capital- and technology-intensive heavy industry and subsidising
manual, low-skill cottage industries was criticized by economist Milton Friedman, who
thought it would waste capital and labour, and retard the development of small
manufacturers. India's low average growth rate from 194780 was derisively referred to
as the Hindu rate of growth, because of the unfavourable comparison with growth rates in
other Asian countries, especially the "East Asian Tigers".

After 1991 :

JAI HIND Page 11

MCOM PART-1
SEMESTER-2 ROLL NO-4
Goldman Sachs has predicted that India will become 3rd largest economy of the world by
2035 based on predicted growth rate of 5.3 to 6.1%. Currently It is cruising at 9.4%
growth rate.
In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity
expansion for incumbents, removed price controls and reduced corporate taxes. While
this increased the rate of growth, it also led to high fiscal deficits and a worsening current
account.

CHAPTER-7GOVERNMENT INTERVENTION

State planning and the mixed economy

After independence, India opted for a centrally planned economy to try to achieve an
effective and equitable allocation of national resources and balanced economic
development. The process of formulation and direction of the Five-Year Plans is carried
out by the Planning Commission, headed by the Prime Minister of India as its
chairperson.

The number of people employed in non-agricultural occupations in the public

and private sectors. Totals are rounded. Private sector data relates to non-agriculture
establishments with 10 or more employees.
India's mixed economy combines features of both capitalist market economy and
the socialist command economy, but has shifted more towards the former over the past
decade. The public sector generally covers areas which are deemed too important or not
profitable enough to leave to the market, including such services as the railways and
postal system. Since independence, there have been phases of nationalizing such areas as
banking and, more recently, of privatization.

JAI HIND Page 12

MCOM PART-1
SEMESTER-2 ROLL NO-4

Public expenditure :

India's public expenditure is classified as development expenditure, comprising

central plan expenditure and central assistance and non-development expenditures; these
categories can each be divided into capital expenditure and revenue expenditure. Central
plan expenditure is allocated to development schemes outlined in the plans of the central
government and public sector undertakings; central assistance refers to financial
assistance and developmental loans given for plans of the state governments and union
territories. Non-development capital expenditure comprises capital defense expenditure,
loans to public enterprises, states and union territories and foreign governments, while
non-development revenue expenditure comprises revenue defence expenditure,
administrative expenditure, subsidies, debt relief to farmers, postal deficit, pensions,
social and economic services (education, health, agriculture, science and
technology),grants to states and union territories and foreign governments.India's non-
development revenue expenditure has increased nearly fivefold in 200304 since 1990
91 and more than tenfold since 19851986. Interest payments are the single largest item
of expenditure and accounted for more than 40% of the total non development
expenditure in the 200304 budget.Defence expenditure increased fourfold during the
same period and has been increasing due to growing tensions in the region, the expensive
dispute with Pakistan over Jammu and Kashmir and an effort to modernise the military.
Administrative expenses are compounded by a
large salary and pension bill, which rises periodically due to revisions in wages, dearness
allowance etc. subsidies on food, fertilizers, education and petroleum and other merit and
non-merit subsidies account are not only continuously rising, especially because of rising
crude oil and food prices, but are also harder to rein in, because of political compulsions.

Public receipts

India has a three-tier tax structure, wherein the constitution empowers the union
government to levy Income tax, tax on capital transactions (wealth tax, inheritance tax),
sales tax, service tax, customs and excise duties and the state governments to levy sales
tax on intra-state sale of goods, tax on entertainment and professions, excise duties on
manufacture of alcohol, stamp duties on transfer of property and collect land revenue
(levy on land owned). The local governments are empowered by the state government to
levy property tax, Octroi and charge users for public utilities like water supply, sewage
etc.More than half of the revenues of the union and state governments come from taxes,
of which half come from Indirect taxes. More than a quarter of the union government's
tax revenues is shared with the state governments.The tax reforms, initiated in 1991, have
sought to rationalise the tax structure and increase compliance by taking steps in the
following directions:

JAI HIND Page 13

MCOM PART-1
SEMESTER-2 ROLL NO-4
Reducing the rates of individual and corporate income taxes, excises, customs and
making it more progressive
Reducing exemptions and concessions
Simplification of laws and procedures
Introduction of Permanent account number to track monetary transactions
21 of the 29 states introduced Value added tax (VAT) on April 1, 2005 to replace
the complex and multiple sales tax system

The non-tax revenues of the central government come from fiscal services, interest
receipts, public sector dividends, etc., while the non-tax revenues of the States are grants
from the central government, interest receipts, dividends and income from general,
economic and social services.Inter-State share in the federal tax pool is decided by the
recommendations of the Finance Commission to the President.

General budget

The Finance minister of India presents the annual union budget in the Parliament on the
last working day of February. The budget has to be passed by the Lok Sabha before it can
come into effect on April 1, the start of India's fiscal year. The Union budget is preceded
by an economic survey which outlines the broad direction of the budget and the economic
performance of the country for the outgoing financial year. This economic survey
involves all the various NGOs, women organizations, business people, old people
associations etc.
India's union budget for 200506, had an estimated outlay of Rs.5,14,344 crores ($118
billion). Earnings from taxes amount to Rs. 2,73,466 crore ($63b). India's fiscal deficit
amounts to 4.5% or 1,39,231 crore ($32b).The fiscal deficit is expected to be 3.8% of
GDP, by March 2007.

JAI HIND Page 14

MCOM PART-1
SEMESTER-2 ROLL NO-4

Sectors

Agriculture :

Composition of India's total production (million tonnes) of foodgrains and commercial

crops, in 200304.
India ranks second worldwide in farm output. Agriculture and allied
sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005,
employed 60% of the total workforce and despite a steady decline of its share in the GDP,
is still the largest economic sector and plays a significant role in the overall socio-
economic development of India. Yields per unit area of all crops have grown since 1950,
due to the special emphasis placed on agriculture in the five-year plans and steady
improvements in irrigation, technology, application of modern agricultural practices and
provision of agricultural credit and subsidies since Green revolution in India. However,
international comparisons reveal that the average yield in India is generally 30% to 50%
of the highest average yield in the world.

The low productivity in India is a result of the following factors:

Illiteracy, general socio-economic backwardness, slow progress in implementing

land reforms and inadequate or inefficient finance and marketing services for farm
produce.
The average size of land holdings is very small (less than 20,000 m) and is
subject to fragmentation, due to land ceiling acts and in some cases, family

JAI HIND Page 15

MCOM PART-1
SEMESTER-2 ROLL NO-4
disputes. Such small holdings are often over-manned, resulting in disguised
unemployment and low productivity of labour.
Adoption of modern agricultural practices and use of technology is inadequate,
hampered by ignorance of such practices, high costs and impracticality in the case
of small land holdings.
Irrigation facilities are inadequate, as revealed by the fact that only 53.6% of the
land was irrigated in 200001, which result in farmers still being dependent on
rainfall, specifically the Monsoon season. A good monsoon results in a robust
growth for the economy as a whole, while a poor monsoon leads to a sluggish
growth. Farm credit is regulated by NABARD, which is the statutory apex agent
for rural development in the subcontinent.

Industry :

Per capita GDP (at PPP) of South Asian economies versus those of South Korea, as a
percentage of the US[20][54]
India is fourteenth in the world in factory output. They together account for 27.6%
of the GDP and employ 17% of the total workforce.However, about one-third of the
industrial labour force is engaged in simple household manufacturing only. Economic
reforms brought foreign competition, led to privatisation of certain public sector
industries, opened up sectors hitherto reserved for the public sector and led to an
expansion in the production of fast-moving consumer goods. Post-liberalisation, the
Indian private sector, which was usually run by oligopolies of old family firms and
required political connections to prosper was faced with foreign competition, including
the threat of cheaper Chinese imports. It has since handled the change by squeezing costs,
revamping management, focusing on designing new products and relying on low labour
costs and technology.

JAI HIND Page 16

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-8 COMPANIES LISTED FOR FORBES GLOBAL

34 Indian companies have been listed in the Forbes Global 2000 ranking for 2007.[57]
The 10 leading companies are:
Market
Revenue Profits Assets
World Value
Company Logo Industry (billion (billion (billion
Rank (billion
$) $) $)
$)
Oil and
Oil & Gas
239 Natural Gas 15.64 3.46 26.98 38.19
Operations
Corporation
Reliance Oil & Gas
258 18.05 2.11 21.75 42.62
Industries Operations
State Bank of
326 Banking 13.66 1.24 156.37 12.35
India
Indian Oil Oil & Gas
399 34.22 1.11 22.68 10.92
Corporation Operations
494 NTPC Utilities 6.06 1.31 17.25 26.06
536 ICICI Bank Banking 5.79 0.54 62.13 16.72
Steel
800 Authority of Materials 6.30 0.91 7.06 10.16
India Limited
Tata
Software &
1047 Consultancy 2.98 0.67 1.93 26.27
Services
Svcs

1128 Tata Steel Materials 4.54 0.84 4.61 5.80

JAI HIND Page 17

MCOM PART-1
SEMESTER-2 ROLL NO-4

Infosys Software &

1130 2.14 0.55 2.09 26.19
Technologies Services

Services

India is fifteenth in services output. It provides employment to 23% of work

force, and it is growing fast, growth rate 7.5% in 19912000 up from 4.5% in 195180. It
has the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950.
Business services (information technology, information technology enabled services,
business process outsourcing) are among the fastest growing sectors contributing to one
third of the total output of services in 2000. The growth in the IT sector is attributed to
increased specialisation, availability of a large pool of low cost, but highly skilled,
educated and fluent English-speaking workers (a legacy of British Colonialism) on the
supply side and on the demand side, increased demand from foreign consumers interested
in India's service exports or those looking to outsource their operations. India's IT
industry, despite contributing significantly to its balance of payments, accounted for only
about 1% of the total GDP or 1/50th of the total services. Since liberalisation, the
government has approved significant banking reforms. While some of these relate to
nationalised banks (like encouraging mergers, reducing government interference and
increasing profitability and competitiveness), other reforms have opened up the banking
and insurance sectors to private and foreign players.

JAI HIND Page 18

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-9 SOCIO ECONOMIC CHARACTERSTICS

Poverty :

Percent of population living under the poverty line

Large numbers of India's people live in abject poverty. Wealth distribution in India is
improving since the liberalization and with the end of the socialist rule termed as the
license raj.While poverty in India has reduced significantly, official figures estimate that
27.5% of Indians still lived below the national poverty line in 2004-2005.A 2007 report
by the state-run National Commission for Enterprises in the Unorganised Sector
(NCEUS) found that 70% of Indians, or 800 million people, lived on less than 20 rupees
per day with most working in "informal labour sector with no job or social security, living
in abject poverty."Since the early 1950s, successive governments have implemented
various schemes, under planning, to alleviate poverty, that have met with partial success.
All these programmes have relied upon the strategies of the Food for work programme
and National Rural Employment Programme of the 1980s, which attempted to use the
unemployed to generate .

Productive assets and build rural infrastructure. In August 2005, the Indian parliament
passed the Rural Employment Guarantee Bill, the largest programme of this type in terms

JAI HIND Page 19

MCOM PART-1
SEMESTER-2 ROLL NO-4
of cost and coverage, which promises 100 days of minimum wage employment to every
rural household in 200 of India's 600 districts. The question of whether economic reforms
have reduced poverty or not has fuelled debates without generating any clear cut answers
and has also put political pressure on further economic reforms, especially those
involving the downsizing of labour and cutting agricultural subsidies.

External trade and investment

Global trade relations

Until the liberalization of 1991, India was largely and intentionally isolated from the
world markets, to protect its fledging economy and to achieve self-reliance. Foreign trade
was subject to import tariffs, export taxes and quantitative restrictions, while foreign
direct investment was restricted by upper-limit equity participation, restrictions on
technology transfer, export obligations and government approvals; these approvals were
needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that
FDI averaged only around $200M annually between 1985 and 1991; a large percentage of
the capital flows consisted of foreign aid, commercial borrowing and deposits
of non-resident Indians.

JAI HIND Page 20

MCOM PART-1
SEMESTER-2 ROLL NO-4
..Share of top five investing countries
in FDI inflows. (19912004)[81]

Inflows
Inflows
Rank Country (Million
(%)
USD)

Mauriti
1 8,898 34.49%[82]
us

United
2 4,389 17.08%
States

3 Japan 1,891 7.33%

Netherla
4 1,847 7.16%
nds

United
5 1,692 6.56%
Kingdom

India's exports were stagnant

for the first 15 years after independence, due to the predominance of tea, jute and cotton
manufactures, demand for which was generally inelastic. Imports in the same period
consisted predominantly of machinery, equipment and raw materials, due to nascent
industrialisation. Since liberalisation, the value of India's international trade has become
more broad-based and has risen to Rs. 63,080,109 crores in 200304 from Rs.1,250
crores in 195051. India's major trading partners are China, the US, the UAE, the UK,
Japan and the EU.The exports during August 2006 were $10.3 billion up by 41.14% and
import were $13.87 billion with an increase of 32.16% over the previous y ear.India is
a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and
its successor, the World Trade Organization. While participating actively in its general
council meetings, India has been crucial in voicing the concerns of the developing world.
For instance, India has continued its opposition to the inclusion of such matters as labour
and environment issues and other non-tariff barriers into the WTO policies.
requirements, removed restrictions on expansion and facilitated easy access to foreign
technology and foreign direct investment FDI. The upward moving growth curve of the
real-estate sector owes some credit to a booming economy and liberalized FDI regime. In
March 2005, the government amended the rules to allow 100 per cent FDI in the

JAI HIND Page 21

MCOM PART-1
SEMESTER-2 ROLL NO-4
construction business.This automatic route has been permitted in townships, housing,
built-up infrastructure and construction development projects including housing,
commercial premises, hotels, resorts, hospitals, educational institutions, recreational
facilities, and city- and regional-level infrastructure.A number of changes were approved
on the FDI policy to remove the caps in most sectors. Restrictions will be relaxed in
sectors as diverse as civil aviation, construction development, industrial parks, petroleum
and natural gas, commodity exchanges, credit-information services and mining. But this
still leaves an unfinished agenda of permitting greater foreign investment in politically
sensitive areas such as insurance and retailing.

The Rise of India & the IIM Story

The Rise of India

In last couple of years, The Rise of India & China is a story being watched with much
awe, fascination & even fear in the global media. Most of these stories are inspired by the
huge strides made by Indian & Chinese companies in Service & Manufacturing sectors.
Many of the key drivers of their success has been their prowess at creating high quality
but low cost Software & Outsourcing services in case of India and manufacturing in case
of China. Some analysts have also highlighted the Research & Development investments
being made in India by corporations as diverse as GE to Google leading to possible
emergence of Asia as the R&D hub for world. However what seems to have missed the
attention of media is emergence of Indian Managers in the top ladders of US Corporate
arena. There have been isolated stories like rise of Rajat Gupta (ex-Chief Mckinsey),
Victor Menzes of Citibank, but one big emerging trend has been the rise of Indian
Managers or MBA. This is a story, which is still to unfold in a big way but already has
started making waves in recent years. It will be interesting to trace the rise of IIMs along
with India's rise in the world economy.

JAI HIND Page 22

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER -10 The Turnaround

In late 90s when the current Indian PM, Manmohan Singh, began the liberalization of
Indian economy, as the Finance Minister, it opened up a wealth of opportunities for
private sector enterprises and also drew a horde of MNCs to India. The size of Indian
middle class by then estimates of 200-300MM was one of the fastest growing markets in
the world. To cater to this market corporate needed a horde of management professionals
to run & grow the new markets. This brought in a tonne of opportunities to Indias
thousands of MBA grads and more so for the students of IIMs who were the crme-la-
crme of India. Slolwy but surely, the middle class dream career was not to get into the
Civil Service but rather to earn an MBA degree as a route of entry to the corporate world.
Also many of Indias top brains like IIT engineers, Chartered Accountants were allured
into seeking an MBA degree to their portfolio especially so from an IIM. The competition
for gaining a seat into these b-schools was hyper competitive even after discounting the
huge population of India. Imagine an admission rate of .6% vs. 10% for the top ivy-
league schools of US. Only recently, The Economist in its recent ratings of B-Schools
rated IIM-A (Ahmedabad) as the toughest B-school in world to get into. Also being
able to attract many Indian profs who had acquired their doctorates at top US Universities
added to their reputation as hubs for excellence. Thus best of breed students combined
with best of breed professors and availability of rewarding placement opportunities, all at
a fraction of Ivy-league rates created a unique selling proposition .

JAI HIND Page 23

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER -11 Arrival of Mckinsey, Lehman & Co.

In corporate world especially US, Consulting & Investment Banks are among the most
demanding careers and also most competitive in the war for talent globally. The likes of
Mckinsey & BCG in consulting & Lehman Brothers, JP Morgan in I-Banks thus were
quick to use the IIMs as a recruiting ground mainly for their Indian Operations to start
with. However impressed by the performance of the initial recruits they started recruiting
for their global practices. In fact the war for heads has become so hot these days that
many of these try to pick the cream via the summer trainee route and offer Pre-Placement
Offers. Year 2000 was a ground breaking year in the sense, more than 10% of IIM-A
grads was recruited purely for placements in Manhattan, NYC and it also was the
inaugural year for Goldman Sachs. Also given the profile of IIM students, 70% of who
boast of an engineering degree from Indias top Colleges and mostly IITs, it became even
more tempting for the leading recruiters to shun many 2nd rung b-schools.

JAI HIND Page 24

MCOM PART-1
SEMESTER-2 ROLL NO-4

The Path Ahead

More recently, the success of many Indian corporate in IT & BPO arena people, made
people note of the management behind these companies. One key competitive advantage
Indian companies had vis--vis Chinese ones was the breadth & depth of management
talent. While China had a huge success in managing and running cheap assembly line
production of goods at lowest price, Indias success were more in the higher end of value
chain. This is where Indian Managers were miles ahead and much of this success is
credited to the IIMs & the second line of b-schools, which are no less competitive.One of
the key facets of market economy is changing skill sets requirements and being able to
deal with complexity and uncertainty. This is one area where Indian students come with a
unique advantage. Life in India or any developing world can be full of chaos,
uncertainity, scarcity and greys. This meant that most of these young MBA aspirants get
the experience of many life times even in families and a 2 year structured thinking
process and arming with tools & techniques of a typical b-school curricula would prepare
them to take on the corporate world by thorns.A random invenory of India's non-family,
non-govt sector WHO IS WHO would read like the alumni list of IIMs.Below are some
examples from tradition sectorsVindi Banga (IIM-A) - HLL's top gun ( HLL is India's
largest consumer goods company, part of Unilevers) K V Kamath (IIM-A), ICICI's top
gun ( ICICI is India's largest private sector bank), Even in the new brave world of dot
com, software & BPO we have many IIM alum leading the charge, Rediff.com (Ajit
Balakrishnan) , Genpact ( Tiger Tyagrajan), mphasis (Jerry Rao) .However what is new
or changing is that unlike in past, we have relatively younger alums are taking the risk to
start their own firms. This is what was needed. No more you needed to have spent a
stable/secure career at Citi or GE or P&G but rather you can start with your own thing. If
things don't work well then you can always go back to the big corporate world.As Indian
economy becomes a bigger % of global economy not in terms of GDP alone but also as a
bigger % of global innovation then many of these IIM grads to have step up and be
counted. Just like technology innovation was the source of competitive advantage in past
and IITians were a key enabler to that, now Business Process & Management related
innovations will be key to success in this hyper-competitive economy. Hopefully IIMs
will live up to the great expactations .

JAI HIND Page 25

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-12 Pepsi Co. Case Study

Pepsico has been an early starter in engaging farmers in India. With an elaborate contract-
farming programme underway for the last 15 years, there have been learnings along the
way for the cola and foods major. Pepsicos Worldwide President and CFO, Indra Nooyi
shares some of them with Chaitali Chakravarty & Bhanu Pande. An excerpt.

Has Pepsis contract farming model changed in India?

It hasnt changed but evolved over time. In 1989, when Pepsi came into India, we set up a
potato processing plant for our snacks business and a tomato processing plant in Punjab
for exports. The latter was primarily set up to meet our export obligations. Pepsis entry
into contract farming was triggered by the need to make available sufficient quantities of
tomatoes & potatoes of the right quality for our domestic plant. To start with, there was
no blueprint available either in India or internationally of an appropriate model which
could be emulated to structure our contract farming initiative. In that scenario, starting
from the basics of application research, we created a model which has evolved to its
current form. However, when you take up contract farming for different crops in different
areas, suitable modifications and adjustments have to be made to ensure its relevant to
local conditions.

Have the objectives changed?

The objective of contract farming is to backward integrate the supply chain to ensure
timely availability of right quality and quantity of materials. This basic objective has not
undergone any change.

Contract farming models rarely generate profits. Why then should an MNC expend
so much time and energy on them? What are the collateral benefits of entering the
rural economy?

Contract farming in itself is not a business. It is an integral part of a business model

which ensures that raw material is available at the right time conforming to the quality
standards in required quantity at competitive prices. All this to ensure the profitability of
the business. Our snacks business requires low sugar potatoes to produce the right quality
of potato chips as such varieties werent grown in India. So we had to introduce the
suitable varieties via contract farming. Our efforts were also made to increase
productivity to ensure higher income for the farmer and to reduce our procurement costs.
In order to succeed we had to undertake extensive trials of various varieties and evolve
agronomic practices suited to local areas. We then put in place an extension team to
transfer these learnings to the farmers. Efforts to increase agricultural productivity also
go a long way in improving farm incomes, thereby bringing our efforts in sync with the
national priorities.

Why has Pepsi not been able to scale up contract farming of various crops? The
latest seaweed project started out with a different objective. But it suffered delays

JAI HIND Page 26

MCOM PART-1
SEMESTER-2 ROLL NO-4
and is now being touted as a liquid fertiliser project. Doesnt this show the lack of
clarity with which MNCs enter contract farming in India?

The contract farming programme gets scaled up in line with business needs. Our potato
programme starting from Punjab has a footprint across the country to support
manufacturing capacities established in Maharashtra and West Bengal. Today, the number
of farmers who participate in our contract farming programme is higher than what we
started with, and many of the pioneers are still with us. Close to 50% of the potatoes
processed by us come from our contract farming programmes.

Do MNCs face any special hurdle entering the rural areas in contract farming?

The seaweed contract farming project is a path breaking initiative as cultivation of

seaweed in the open sea had never been undertaken before in India. Initially,
effectiveness of the technology to deliver a viable and sustainable income model for the
growers had to be established. Its efficacy had to be demonstrated to the funding and
partnering institutions, who would manage the Self Help Groups undertaking this
activity. Last, being a new activity, regulatory clearances were required, which could be
granted only after due evaluation and observation of the trials. Only last month, due to
the efforts of the CM of Tamil Nadu and her team, Self Help Groups have been given the
go ahead to take up this activity. Very soon it will work on a commercial scale. CSMCRI,
which provided the technology for this while working on the process optimisation
discovered an additional application of the weed. They discovered that it could also
deliver a by product a liquid plant growth nutrient. It made sense for us to acquire this
technology for which CSMCRI had taken a global patent. We hope to now make
available this organic and cost effective growth nutrient to the Indian farmers and we
believe this will have a significant impact on the yields and their incomes.

What kind of challenges, if at all, do you see in partnering with farm workers?

Any successful initiative requires clear understanding of the ground realities of the terrain
and the needs of its people; their resource base and their constraints.

Any corporate, Indian or multinational entering this field has to make the effort and spend
time and money to learn in order to build a successful partnership with the farmers.
Indian farmers have no bias against the multinationals and our 10 years of successful
partnership with the Punjab farmers is a testimony of the same.

JAI HIND Page 27

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-13 Shining Indian Multinationals

India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowl
and surely embarked on the global path and lead to the emergence of the Indian
multinational companies.

With each passing day, Indian businesses are acquiring companies abroad, becoming
world-popular suppliers and are recruiting staff cutting across nationalities. While an
Asian Paints is painting the world red, Tata is rolling out Indicas from Birmingham and
Sundram Fasteners nails home the fact that the Indian company is an entity to be
reckoned with.

Some instances:

Tata Motors sells its passenger-car Indica in the UK through a marketing alliance
with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access
to markets in Korea and China.
Ranbaxy is the ninth largest generics company in the world. An impressive 76
percent of its revenues come from overseas.
Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company
outside Japan to list on the New York Stock Exchange in 2001.
Asian Paints is among the 10 largest decorative paints makers in the world and
has manufacturing facilities across 24 countries.
Small auto components company Bharat Forge is now the world's second largest
forgings maker. It became the world's second largest forgings manufacturer after
acquiring Carl Dan Peddinghaus a German forgings company last year. Its
workforce includes Japanese, German, American and Chinese people. It has 31
customers across the world and only 31 percent of its turnover comes from India.
Essel Propack is the world's largest manufacturers of lamitubes - tubes used to
package toothpaste. It has 17 plants spread across 11 countries and a turnover of
Rs 609.2 crore for the year ended December 2003. The company commands a
staggering 30 percent of the 12.8 billion-units global tubes market.
About 80 percent of revenues for Tata Consultancy Services comes from outside
India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest
tech IPO this year and India's largest IPO ever.
Infosys has 25,634 employees including 600 from 33 nationalities other than
Indian. It has 30 marketing offices across the world and 26 global software
development centres in the US, Canada, Australia, the UK and Japan.
Sundram Fasteners is not merely a nuts and bolts company. It believes in
thinking out of the box. Probably that is why it decided to acquire a plant in
China. The plant in Jiaxin city in the Haiyan economic zone has ensured one fact:
that its customers who were earlier buying Sundram products in Europe and the
US, did not have to go far from home to access the product.

JAI HIND Page 28

MCOM PART-1
SEMESTER-2 ROLL NO-4

CHAPTER-14 CONCLUSION

Multinational companies are like double-edged sword. The sword can harm if not
handled properly. Similarly the Multinational companies have their own pros and
cons.
The extent of technology and management of know-how transfer by the MNCs
depend to a large extent on their corporate strategy; for example, firms desiring to
have a longer-term relationship with the suppliers (rather than those simply using
the host country as a marketing/export base) will be more inclined to effect
transfer technologys pointed out in the World Investment Report, 2000, MNCs
may restrict the access of particular affiliates to technology in order to minimize
inter-affiliate competition. It is noted that MNCs are more likely to license older
technologies from which they have already derived significant rents than newer
technologies on which there are still relying for market leadership. Further, they
may hold back the upgrading of the affiliate technology or invest insufficiently in
host-country training and R&D in accordance with their global corporate
strategies. Therefore, arguing that FDI inflows and economic liberalization
automatically facilitates technology transfer is being extremely nave.
Majority of foreign subsidiaries operating in India either belong to the UK or the
USA.
Most of the foreign companies in India are acquiring the character of multiproduct
and multi-industry enterprises.
The assumption that the entry of MNC would ensure transfer of sophisticated
technology to developing country has not been found valid in practice.
Due these MNC competition increase and more employment opportunities are
available there will be reduction in reasonable disparities.
MNC is beneficial for India and it also gives disadvantages to India
They give us employment growth development etc but they also creates
monopoly in market thus small sectors which exist in market get closed.
MNCs are beneficial to less developed countries. They improve the foundations
of a "backwards" economic environment through the diffusion of capital,
technology, skills, and exports. MNCs have a direct effect on the development of
a more citizen welfare conscious government. Accordingly, the number of jobs
increases, consumer spending increases, the tax base grows and health care is
more widely accessible. They also have an apparent lasting effect on the values
and institutions of the host country. The values of the country change to reflect a
country committed to staying in pace with a rapidly changing global environment;
extending to political norms and nationalistic tendencies. Once there is openness
to capitalism, or a more developed capitalist society emerges then there will be a
more stable global society. However, in the end there really is no other more
reliable way to improve the social, economic, and political environment of a state
than by allowing a MNC to invest. The MNCs is fascinating and important for
understanding economic globalization. There has been substantial progress in the
literature in the past couple of decades.

JAI HIND Page 29

MCOM PART-1
SEMESTER-2 ROLL NO-4

In conclusion, MNCs are beneficial to less developed countries. They improve the
foundations of a "backwards" economic environment through the diffusion of capital,
technology, skills, and exports. MNCs have a direct effect on the development of a more
citizen welfare conscious government. Accordingly, the number of jobs increases,
consumer spending increases, the tax base grows and health care is more widely
accessible. They also have an apparent lasting effect on the values and institutions of the
host country. The values of the country change to reflect a country committed to staying
in pace with a rapidly changing global environment; extending to political norms and
nationalistic tendencies. Once there is openness to capitalism, or a more developed
capitalist society emerges then there will be a more stable global society. However, in the
end there really is no other more reliable way to improve the social ,economic, and
political environment of a state than by allowing a MNC to invest. The MNCs is
fascinating and important for understanding economic globalization. There has been
substantial progress in the literature in the past couple of decades. Multinational
companies are not disadvantage to our country. India needs MNCs to become developed
country. But employees of these companies should not take responsibility for overloaded
work just for high salary. So that, there can have fulfillment of passion and also
fulfillment of personal life.

JAI HIND Page 30

MCOM PART-1
SEMESTER-2 ROLL NO-4
BIBLOGRAPHY

www.ibef.org
www.google.com
www.cii.com
www.ficci.com
www.indoinfoline.com
wwwekipedia.com
wwwtimes.in

Books
Multinational Corporations
Organisational Structure of MNC

JAI HIND Page 31