.

ECONOMICS
PROJECT PRESENTATION

BARAN.A

SECOND SEMESTER

1
 ECONOMICS

PROJECT ON

MULTINATIONAL COMPANY (MNC)

NAME : BARAN.A

ROLL NO : BC0140017

SUBMITTED ON : 28 APRIL 2015

2nd SEMESTER B.COM L.L.B. (HONS.)

2
 INDEX
 1 Overview

 2 Theoretical Background

 3 Transnational corporations

 4 Multinational corporations and colonialism

 5 Criticism of multinationals

 6 References

 7 External links

3
INTRODUCTION

The term “multinational” consists of two different words, multi’

and national.’ The prefix multi means many, while the word national refers to
nations or countries. Therefore a multinational company may be defined as a
company that operates in several countries. Such a company has factories,
branches and in more than one country. According to the united national
commission on multinational corporation, a multinational corporation is a
corporation which operates, in addition to the country in which it is incorporated,
in one or more other countries.
A multinational corporation is also known as a transnational
corporation ,namely, ‘global giant’, or ‘world enterprise’ or’ international
enterprise’. all forms of business organization that transcend political frontiers may
be called as multinational firms

In simple words a multinational company is a company carrying on

business in two or more countries . according to neil h.jocoby “a multinational
corporation owns and manages business in to or more countries`

FEATURES

1.A multinational company is operated in more than one country simultaneously.

2. it is generally very large in size.

3.Its purpose is to reduce transport costs and to make use of raw materials, labour,
capital and market of foreign countries.

There are 500 to 700 MNC operating in the world today, half of them
are U.S multinational and the rest are based outside united states. The
multinational based in the USA have the largest share of foreign direct investment,
followed by the U.K, Germany, japan, Switzerland, france and Canada. In
underdeveloped countries the investment and employment created by the MNCs
have been chiefly concentrated in about a dozen nations, namely, brazil, mexico,
hong kong, philippiness, Singapore and south korea. According to the study of

4
international labour organization (ILO) latin America accounts for about 60% of
the MNC employment in developing countries, followed by Asia 30% and Africa
10%. Foreign investment has moved to a limited number of developing countries
which offer political stability and a convenient economic environment, including
tax incentives, large market, cheap labour and easy access to oil and other natural
resource.

EXAMPLES
A few examples of multinational companies are given below:
1.unilever limited
It is a british company that has subsidiaries and branches in several
countries. It established a subsidiary company called Hindustan lever limited
in india.

2.union carbide
It is an American company, which has plants and subsidiaries in several
countries including india.

3.international business machine(IBM)

It is an American company having branches in several
countries.

4.philips

It is a dutch company having a subsidiary company called Philips india

5.coca cola corporation

It is a American company manufactueing and selling soft drinks for

several countries

According to peter drucker, there is a good future for MNCs in the

coming years

. Government policy is also favourable towards multinationals. On account of the

economic reforms made by the government MNCs are going to be benefited

5
inviting foreign capital, automatic clearance will help the MNCs to grow and
develop in india.

An enterprise operating in several countries but managed from one (home)

country. Generally, any company or group that derives a quarter of
its revenue from operations outside of its home country is considered a
multinational corporation.
There are four categories of multinational corporations: (1) a multinational,
decentralized corporation with strong home country presence, (2)
a global, centralized corporation that acquires cost advantage through
centralized production wherever cheaper resources are available, (3) an
international company that builds on the parent corporation's technology or R&D,
or (4) a transnational enterprise that combines the previous three approaches.
According to UNdata, some 35,000 companies have direct investment in foreign
countries, and the largest 100 of them control about 40 percent of world trade.

Multinational corporation

A multinational corporation or multinational enterprise] is an

organization that owns or controls productions of goods or services in one
or more countries other than the home country. It can also be referred as
an international corporation, a "transnational corporation", or as
a stateless corporation.

6
Overview
A multinational corporation is usually a large corporation which
produces or sells goods or services in various countries. It may be
attributed as multinational corporation when acorporation is
registered in more than one country or has operations in more
than one country.
Multinational corporations take many different forms and engage
in many different activities

 Importing and exporting goods and services

 Making significant investments in a foreign country
 Buying and selling licenses in foreign markets
 Engaging in contract manufacturing—permitting a local
manufacture in a foreign country to produce their products
 Opening manufacturing facilities or assembly operations in
foreign countries
The problem of moral and legal guiding behaviors of multinational
corporations, given that they are effectively "stateless" actors, is
one of the urgent global socioeconomic problems that emerged
during the late twentieth century.
One of the first multinational business organizations, East India
Company, arose in 1600. After East India Company, came Dutch
East India Company, founded March 20, 1602, which would
become the largest company in the world for nearly 200 years .

7
Theoretical Background
The actions of multinational corporations are strongly supported
by economic liberalism and free market system in a globalized
international society. According to economic realist view,
individuals act in rational ways to maximize their self-interest and
therefore, when individuals act rationally, markets are created and
they function best in free market system where there is little
government interference. As a result, international wealth is
maximized with free exchange of goods and services.
To many economic liberals, multinational corporations are the
vanguard of the liberal order. They are the embodiment par
excellence of the liberal ideal of an interdependent world
economy. They have taken the integration of national economies
beyond trade and money to the internationalization of production.
For the first time in history, production, marketing, and investment
are being organized on a global scale rather than in terms of
isolated national economies.
To liberals, multinational corporations are a positive development.
MNCs invest in capital stock worldwide, which eventually leads to
economic growth. MNCs prefer to act independently of states and
if there is any problem, the market will regulate their behavior
instead of government regulation policy.

Transnational corporations
A transnational corporation differs from a traditional multinational
corporation in that it does not identify itself with one national
home. While traditional multinational corporations are national
companies with foreign subsidiaries, Transnational corporations
spread out their operations in many countries sustaining high
levels of local responsiveness.

8
An example of a transnational corporation is Nestlé who employ
senior executives from many countries and try to make decisions
from a global perspective rather than from one centralized
headquarters.
Another example of a Transnational Corporation is the Royal
Dutch Shell corporation whose headquarters may be in The
Hague, Netherlands but its registered office and main executive
body where the decisions are made is headquartered
in London, United Kingdom.

Multinational corporations
The history of multinational corporations is closely intertwined with
the history of colonialism, with the first multinational corporations
founded to undertake colonial expeditions at the behest of their
European monarchical patrons. Prior to the era of New
Imperialism, a majority European colonies not held by the
Spanish and Portuguese crowns were administered by chartered
multinational corporations. Examples of such corporations include
the British East India Company, the Swedish Africa Company,
and theHudson’s Bay Company. These early corporations
facilitated colonialism by engaging in international
trade and exploration, and creating colonial trading posts. Many of
these corporations, such as the South Australia Company and
the Virginia Company, played a direct role in
formal colonization by creating and maintaining
settler colonies]Without exception these early corporations
created differential economic outcomes between their home
country and their colonies via a process of exploiting colonial
resources and labour, and investing the resultant profits and net
gain in the home country.[18] The end result of this process was
the enrichment of the colonizer and the impoverishment of the
colonized.[19] Some multinational corporations, such as the Royal

9
African Company, were also responsible for the logistical
component of the Atlantic Slave Trade,[20]maintaining the ships
and ports required for this vast enterprise. During the 19th century
formal corporate rule over colonial holdings largely gave way to
state-controlled colonies,[21][22] however corporate control over
colonial economic affairs persisted in a majority of colonies.[17][21]
During the process of decolonization the European
colonial charter companies were disbanded,[17] with the final
colonial corporation, the Mozambique Company, dissolving in
1972. However the economic impact of corporate colonial
exploitation has proved to be lasting and far reaching,[23] with
some commentators asserting that this impact is among the chief
causes of contemporary global income inequality.[24]
Contemporary critics of multinational corporations have charged
that some present day multinational corporations follow the
pattern of exploitation and differential wealth distribution
established by the now defunct colonial charter corporations,
particularly with regards to corporations based in the developed
world that operate resource extraction enterprises in the
developing world,[25] such as Royal Dutch Shell, and Barrick Gold.
Some of these critics argue that the operations of multinational
corporations in the developing world take place within the broader
context of neocolonialism.[26]
Criticism of multinationals[edit]
Main articles: Anti-globalization and Anti-corporate activism

Anti-corporate advocates[who?] criticize multinational corporations

for entering countries that have low human rights or
environmental standards.[27] In the world economy facilitated by
multinational corporations, capital will increasingly be able to play
workers, communities, and nations off against one another as
they demand tax, regulation and wage concessions while

10
threatening to move. In other words, increased mobility of
multinational corporations benefit capital while workers and
communities lose. Some negative outcomes generated by
multinational corporations include increased inequality,
unemployment, and wage stagnation.[28]
The aggressive use of tax avoidance schemes allows
multinational corporations to gain competitive advantages
over small and medium-sized enterprises.[29] Organizations such
as the Tax Justice Network criticize governments for allowing
multinational organizations to escape tax since less money can
be spent for public services.[30]
See also[edit]
Essay on
the Meaning and Definition of Multinational Company

A multinational corporation/company is an organisation doing

business in more than one country. 'In other words it is an
organisation or enterprise carrying on business in not only the
country where it is registered but also in several other countries. It
may also be termed as international corporation, global giant and
transnational corporation.
According to the United Nations a multinational corporation is
"an enterprise which owns or controls production or service
facilities outside the country in which it is based". In the words of
W H Moreland, "Multinational Corporations or Companies are
those enterprises whose management, ownership and controls are
spread in more than one foreign country".

11
Thus a multinational company carries on business operations in
two or more countries. Its headquarters are located in one country
(home country) but its activities are spread over in other countries
(host countries). MNC's may engage in various activities like
exporting, importing, manufacturing in different countries. It may
also lend its patents, licences and managerial services to firms in
host countries.
Characteristics of Multinational Companies (MNCs)
The distinctive features of multinational companies are as follows.
1. Large Size:
A multinational company is generally big in size. Some of the
multinational companies own and control assets worth billions of
dollars. Their annual sales turnover is more than the gross
national product of many small countries.
2. Worldwide operations:
A multinational corporation carries on business in more than one
country. Multinational corporations such as Coco cola has
branches in as many as seventy countries around the world.
3. International management:
The management of multinational companies are international in
character. It operates on the basis of best possible alternative
available any where in the world. Its local subsidiaries are
managed generally by the nationals of the host country. For
example the management of Hindustan Lever lies with Indians.
The parent company Unilever is in The United States of America.
4. Mobility of resources:

12
 The operation of multinational company involves the mobility of
capital, technology, entrepreneurship and other factors of
production across the territories.
5. Integrated activities:
A multinational company is usually a complete organisation
comprising manufacturing, marketing, research and development
and other facilities.
6. Several forms:
A multinational company may operate in host countries in several
ways i.e., branches, subsidiaries, franchise, joint ventures. Turn
key projects.
Aims
Multinational companies make investments in different countries
with the following aims.
(a) To take tax benefits in host countries;
(b) To exploit the natural resources of the host country;
(c) To take advantage of Government concessions in host country;
(d) To mitigate the impact of regulations in the home country;
(e) To reduce cost of production by making use of cheap labour
and low transportation expenses in the host country.
(f) To gain dominance in foreign markets;
(g) To expand activities vertically.
Related Articles:
 Essay on the Beginning of Modern Journalism of Indian
 Essay on a Visit to a Historical Place – Taj Mahal

13
 transnational corporation

 Multinational corporation (MNC), also

called transnational corporation, anycorporation that is
registered and operates in more than one country at a time.
Generally the corporation has its headquarters in one
country and operates wholly or partially owned subsidiaries
in other countries. Its subsidiaries report to the corporation’s
central headquarters.
 In economic terms, a firm’s advantages in establishing a
multinational corporation include both vertical and
horizontal economies of scale (i.e., reductions in cost that
result from an expanded level of output and a consolidation
of management) and an increased market share. Although
cultural barriers can create unpredictable obstacles as
companies establish offices and production plants around
the world, a firm’s technical expertise, experienced
personnel, and proven strategies usually can be transferred
from country to country. Critics of the multinational
corporation usually view it as an economic and, often,
political means of foreign domination. Developing countries,
with a narrow range of exports (often of primary goods) as
their economic base, are particularly vulnerable to economic
exploitation. Monopolistic practices, human-rights abuses,
and disruption of more-traditional means of economic growth
are among the risks that face host countries.
Many companies throughout history were created as small or
even temporary businesses designed to raise capital, operate for
a period of time, and distribute profits to shareholders. Small
businesses still account for the vast majority of businesses today,
with 89.8% of U.S. companies having less than 20 workers and

14
 operating almost exclusively within the U.S. rather than
internationally.
In this article, we’ll take a look at the evolution of multinational
corporations, how they differ from domestic corporations, and
what they mean for international investors looking for exposure
beyond just the U.S.

5 Best Stocks to Buy 2015

25% Target Returns in 3 - 6 Months. Make Profit with a Free Trial
Now!
Best SIP Investment Plans

 Investment Strategy
 Investing
 Investment Opportunities
 Stock Funds
 Investment Companies
History of Multinational Corporations
The idea of a multinational corporation came about in 1602 when
the Dutch East India Company was granted a 21-year monopoly
by the Netherlands to carry out colonial activities in Asia. With the
power to wage war, imprison convicts, and coin money, the
company quickly became a leader in Asian-European trade with
4,785 ships before collapsing under its own weight and going
bankrupt in 1799.
Since then, multinational corporations have become increasingly
common, particularly after globalization began taking place in the

15
1980s and 1990s. Multinational corporations owning or controlling
production or services facilities in more than one country could
leverage economies of scale and fully integrated supply chains to
become low-cost producers around the world.
Examples of Multinational Corporations
Many publicly traded companies, particularly those in the S&P
500, are classified as multinational corporations. For example,
McDonald’s Corporation (NYSE: MCD) generated just 42.4% of
its Q1 2014 revenue from U.S.

Investing In India
Ready Possession Homes in Pune. Offer Valid only for 4 hours.
Hurry!
Jobs in TCS
Immediate Requirement. Submit CV to Apply & Find Jobs!
operations with Europe, Asia, and other regions accounting for
the remaining growth. The growth in these other areas helps
diversify revenue to smooth declines in individual regions.
According to a report by the IMCA®, almost 40% of market-
weighted sales of the S&P 500 were international in 2010. The
S&P 500 constituents also generated about 40% of their earnings
growth from international sales over the past decade running up
to 2010, while some years saw nearly 60% of growth from global
sources. These dynamics highlight the increasing role of
multinational corporations.

16
 Investing in Multinational Corporations
Investors can use multinational corporations to build international
exposure into their portfolios without seeking out American
Depository Receipts (“ADRs”), foreign exchange-traded
funds (“ETFs”), or foreign stock. Since they sell into foreign
markets, investors receive the same benefits of diversification
with fewer risks and costs associated with liquidity, transparency,
or expense ratios.
Most investors can gain an appropriate level of exposure by
simple investing in the S&P 500’s ETFs or mutual funds, but
others looking for exposure to specific industries should look at
10-K filings to identify what percent of revenue is being derived
from foreign sources and what countries or regions are involved.
In general, it’s a good idea to seek diversification across both
Europe and Asia.
Risks of Multinational Corporations
There are many risks associated with multinational corporations
that investors should carefully consider, including:
 Correlation. Some investors seek out international investors in
order to reduce their portfolio’s correlation with the U.S. indexes.
By purchasing multinational corporation stock, these
correlations may be greater than investors would ideally want to
see.
 Non-Specific. Many multinational corporations operate in
several countries around the world, including major markets in
Europe and Asia. In these cases, the companies may not offer
specific exposure to any individual market that an international
investor may be seeking.
 Emerging Markets. Multinational corporations have a limited
presence in emerging markets and frontier markets, including

17
 those in Africa or the Middle East. As a result, the multinational
corporations might not offer the level of international exposure
investors are seeking.
Key Takeaway Points to Remember
 Multinational corporations have operations in more than one
country, as opposed to the majority of businesses that operate
only domestically.
 Investors might want to consider multinational corporations in
order to build international exposure into their portfolios.
 There are several risks that investors should consider, including
correlation risks with U.S. indexes and exposure risks with
developed markets.
Multinational corporations : Characteristics and
significance of MNCs

Advertisements:

Multinational corporations (MNCs in short) are also known as

Transnational Corporations (TNCs), Super National Enterprises,
Global companies, cosmocorps and so on.
According to Prof. John H. Dunning, "A multinational enterprise
is one which undertakes foreign direct investment, i.e., which
owns or controls income gathering assets in more than one
country; and in so doing produces goods or services outside its
country of origin, i.e., engages in international production."
A multinational corporation has also been defined as "an
enterprise: which owns and/or controls producing facilities in
more than one country such as factories, mines, oil refineries,
distribution channels, offices, etc."'

18
According to another definition, "Any business corporation in
which ownership, management, production and marketing extend
over several national jurisdictions is called a multinational
corporation." Today, in international economic affairs they
constitute the most important institutions. There are four
participants in the drama of multinationals. First, the MNCs
themselves; secondly, the host countries ; thirdly, the home
countries ; and fourthly, the international community.
Characteristics of multinational corporations (MNCs):
The multinational corporations have certain characteristics which
may be discussed below :
(1) Giant Size :
The most important feature of these MNCs is their gigantic size.
Their assets and sales run into billions of dollars and they also
make supernormal profits. According to one definition an MNC is
one with a sales turnover of f 100 million. The MNCs are also
super powerful organisations. In 1971 out of the top ninety
producers of wealth, as many as 29 were MNCs, and the rest,
nations. Besides the operations, most of these multinationals are
spread in a vast number of countries. For instance, in 1973 out of
a total of (,000 firms identified nearly 45 per cent had affiliates in
more than 20 countries.
(2) International Operation :
A Fundamental feature of a multinational corporation is that in
such a corporation, control resides in the hands of a single
institution. But its interests and operations sprawl across national
boundaries. The Pepsi Cola company of the U.S operates in 114
countries. An MNC operates through a parent corporation in the
home country. It may assume the form or a subsidiary in the host
country. If it is a branch, it acts for the parent corporation without

19
any local capital or management assistance. If it is a subsidiary,
the majority control is still exercised by the foreign parent
company, although it is " incorporated in the host country. The
foreign control may range anywhere between the minimum of 51
per cent to the full, 100 per cent. An MNC thus combines
ownership with control. The branches and subsidiaries of MNCs
operate under the unified control of the parent company.
(3) Oligopolistic Structure :
Through the process of merger and takeover, etc., in course of
time an MNC comes to assume awesome power. This coupled
with its giant size makes it oligopolistic in character. So it enjoys a
huge amount of profit. This oligopolistic structure has been the
cause of a number of evils of the multinational corporations.
(4) Spontaneous Evolution :
One thing to be observed in the case of the MNCs is that they have
usually grown in a spontaneous and unconscious manner. Very
often they developed through "Creeping incrementalism." Many
firms become multinationals by accident. Sometimes a firm
established a subsidiary abroad due to wage differentials and
better opportunity prevailing in the host country.
(5) Collective Transfer of Resources :
An MNC facilitates multilateral transfer of resources Usually this
transfer takes place in the form of a "package" which includes
technical know-how, equipment's and machinery, materials,
finished products, managerial services, and soon, "MNCs are
composed of a complex of widely varied modern technology
ranging from production and marketing to management and
financing. B.N. Ganguly has remarked in the case of an MNG
"resources are transferred, but not traded in, according to the
traditional norms and practices of international trade."

20
(6) American dominance :
Another important feature of the world of multinationals is the
American dominance. In 1971, out of the top 25 MNCs, as many as
18 were of U.S. origin. In that year the U.S. held 52 per cent of the
total stock of direct foreign private investment. The U.E. has
assumed more of the role of a foreign investor than the traditional
exporter of home products.
Significance of multinational corporations (MNCs):
The multinational corporations today have a revolutionary effect
on the international economic system. It is so because the growth
of international transactions of the multinationals has affected the
more traditional forms of capital flows and international trade for
many economies. Today they constitute a powerful force in the
world economy.
The value of the products sold by the MNCs in 1971 was more than
$ 500 billion which was about one-fifth of the GNP of the entire
world, excepting that of socialist economies. In the host countries,
the volume of their production was about $ 330 billion. The
present growth rate of their output in the host countries is a
spectacular 10 per cent per annum which is almost double the
growth rate of the world GNP.
In the field of international trade and international finance, the
multinational firms have come to exercise enormous power. In
early seventies the MNCs accounted for about one-eighth of all
international trade- From the nature of their growth it may be
presumed that in the early eighties their share will rise to one-
fourth.
Among the developing countries only India had an annual income
twice that of General Motors, which is the biggest multinational
corporation. Otherwise the annual income of the other less

21
developed countries is much less than that of the giant MNCs. By
their sheer size the MNGs can disrupt the economies of the less
developed countries, and may even threaten their political
sovereignty.
We may comprehend the relative economic power of the MNCs
vis-a-vis the nation-states by ranking them together according to
gross annual sales and gross national product respectively. As
Lester R. Brown has shown, out of 100 entries in the merged list
56 were nation-states and as many as 44 were MNCs.
According to one estimate by early eighties some 300 large MNCs
will come to control 75 per cent of the world's manufacturing
assets.

DECLARATION

I, BARAN.A Student of Tamil Nadu National Law

School, MURUGASAN hereby declare that the work
entitled MULTINATIONAL COMPANY is my original
work. I have not copied from any other student’s work or
from any other sources except where due reference or
acknowledgment is made explicitly in the text, nor has any
part been written for me by another person.

22
 DECLARATION

I, BARAN.A Student of Tamil Nadu National Law

School, MURUGASAN hereby declare that the work
entitled MULTINATIONAL COMPANY is my original
work. I have not copied from any other student’s work or
from any other sources except where due reference or
acknowledgment is made explicitly in the text, nor has any
part been written for me by another person.

23