Essay on MNCs and Developing Countries

Today, invitation to MNCs is an unavoidable need of every developing country. The MNCs have played a significant role in the development of countries such as Germany, Japan and the USA. The MNCs are now interested in capturing the markets of populous countries like India, China, etc. The developing countries are also interested in the entry of MNCs with their open door policies.

According to the World Investment Report 1992, during 1985-90, MNCs’ average growth of expansion was 34 per cent. In 1990, foreign direct investment flows to the developing countries increased by US dollars 32 billion.

Over sixty per cent of this was attracted by the Asian region. The Report shows that, the foreign direct investment through MNCs has become the principal source of foreign capital for most of the developing countries in recent years.

The recent growth pattern of MNCs also show an increasing concentration of their investment activities in developing countries. However, the MNCs are not interested in all the developing countries. The inflow of foreign funds through MNCs in India is showing an upward trend in recent years.

1991 onwards, the Government of India has taken several steps to attract foreign investments and entry of the MNCs, such as:

1. Abolition of industrial licensing.

2. Removal of restriction on investment under the MRTP Act.

3. Liberalisation of policy and procedure for transfer of technology, import of capital goods, etc.

4. Existing companies are allowed to raise foreign equity up to 51 per cent.

5. Provisions of the FERA have been relaxed. As a result, companies with more than 40 per cent foreign equity can operate like any other Indian company.

6. Foreign companies are permitted to use their trade marks in domestic markets.

During the nineties, there has been increasing trends of foreign investments in India. The Government approved 666 foreign collaborations in 1990.

This number has become more than double to 1520 by 1992. Presently, the USA is the largest investor in India, followed by Switzerland, Japan and the UK. Foreign investment has largely been concentrated in sectors such as fuel and oil refineries, power, chemicals and electrical equipments and electronics.