Essay on Multinational Corporations: Saviors or Saboteurs
What are MNCs
Multinational Corporations or Transnational Corporations are very large firms with headquarters in one country but with several subsidiaries or centers distributed in flier countries of the world. Such companies were in existence for a long time.
The English East India Company and British South Africa Company were two such, associated with old fashioned colonialism. In the second half of the twenty century they exist in a different shape after having gone through transmigration.
Most of the former colonies of the erstwhile Imperial powers gave way to independent states. At the same time the United States of America rose as the foremost industrial power in the world. Naturally, the giant corporations of US grew, beyond its borders, much quicker than those of other countries.
It is recorded that in the 70s the gross product of the US multinationals was greater than that any of other country, except that of US or that of the Soviet Union of the time.
The U.K., France and Germany along with other European and Asian countries too have their multinationals. However the US based ones outnumber others. All of the MNCs have tremendous clout, and they can raise capital easily to invest in other countries.
Why do the MNCs Invest in Developing Countries
The MNCs invest in developing countries not motivated by humanitarian considerations but with the aim of maximizing their profit. They find lower
Labour cost and lower social and environmental costs in the poor countries attractive. Among such country. Wherever the government policy allows the repatriation of money easy, they are likely to invest liberally. Recently, after the liber alized the economy policy of India, there is a remarkable spurt in the investment of MNCs in India.
Liberalization means on these giant corporations, easier and quicker recovery of their invested money. They had the present economic policy of India congenial to their aims and naturally their investments have increased.
Advantages Brought in by Multinationals
The Indian industry has progressed a lot from the time of independence to the present day. Except one or two steel mills India didn’t have any large scale industry in the forties. Now we have gone very much ahead, in heavy and light engineering, petroleum, chemical and pharmaceutical industries.
Without the technical know how, managerial skill and capital flowing in from advanced countries, this development would not have taken place. Still we have to proceed much further if we have to gain our due share in the world industrial scene, a share in accordance with the size and population of the country.
One has to admit that for rapid progress in industrialization, we still need state-of-the art technology, modern managerial skill and massive induction of capital. However we do feel constrained in all the three. Multinationals can play a very useful role here, say the supporters of the MNCs.
Can Help Solve the Unemployment and poverty problems also one of the stumbling blocks in the path of India’s progress is the large scale unemployment and the resultant poverty that exists in the country. The enormous investment that is needed to create job opportunity to all, or nearly all, is beyond the resources of the country.
The MNCs with their clout in money market world over can raise the needy capital easily. Large scale investment in new ventures will create job opportunities, directly in those ventures they plunge in. Further it will also have its spin off in other allied fields.
There will be a general spurt in the economy leading to more demand for services, skilled and unskilled. When die economy leaps up, through the trickling down effect it causes in society, those at the lower levels too will be benefited. If the process works well, society will be freed from the throttling effect of unemployment and poverty.
Better educational facilities will arise wiping out ignorance amid superstition. Indian society will find a firmer base. There is a further advantage accruing in the form of modernized industry under skilled management springing up all over the country.
One should expect the MNCs to bring in the latest in technical knowledge. For there aim will be to get profited from best possible performance and managerial skill.
Can Help Improve Trade
The MNCs can help giving a boost to India’s international trade which has sagged after the independence. At independence India had a 5% share in the world trade, even ahead of that of Japan. Now at 0.5% it is much lower than even that of some tiny countries.
The MNCs with there links with subsidiaries in various countries naturally will develop profitable transactions and it can lead to a boost in India’s International trade.
Can Hasten up the Process of Globalization?
Whether we like it or not, India has to go global, if we have to be abreast of the modern trends. The insular, or near insular policy of the past many decades has made us helpless onlookers, when even small countries like Singapore steal a march ahead of us.
The coming of MNCs in a big way can help India to become more outward looking getting profited by the new interdependence. This will not be a mean advantage,
Opponents Have a Different View
India from independence onwards viewed the MNCs with suspicion. The association of colonialism with the MNCs. is a hangover from the British rule in India middle independence struggle we fought against the rule.
Further the incidents association with the Suez Canal company in Egypt, Western Oil companies in Iran and the U.S. based IT in Chile gave some credence to the belief that the MNCs can help sabotage the stability of nations by interfering in internal politics.
The opponents of MNCs bring toward many reasons to support their view. The following are some of those.
Often the MNCs will be bringing in only obsolete or second rate technology and discarded machinery to the developing countries. But this is not always the case. There are many cases in India where Philips Petroleum introduced the latest technology in Madras in their refineries and shell in the latest pipelines from Assam.
If the MNCs find the introduction of the latest technologies in a country profitable they will do so able Volkswagens have done it even in recent times. Many Japanese companies are still doing it.
Heavy Overseas Remittance
The MNCs are likely to repatriate the profit and that too with an intention of in recouping their investment in the shortest possible time. There is record of repatriating more money from India than their investment during the seventies.
The argument is partly fallacious. Once the investor finds the investment can euonymus have gone into. More equity invested in India will act as a buffer against, falling into the debt trap.
Spread or Latest Technology is a Myth
Many critics argue that it is a myth that the MNCs will help disseminate the latest technology in India. Many MNCs as they go into agreement with its subsidiaries specifically include a clause that the technology they provide is not to be copied.
This attitude resulted from the hard lesson they learned from the far-east. Those far eastern countries who acquired latest know how at favorable terms, later, turned out to be the competitors of the patrons. Here one should think that the developmental expense of know-how is great and if something is worth acquiring, it is worth paying for.
There is another side to this. The local scientists and technocrats working in the firms will have access to the know-how. As Sam Putrid brought in latest technology in electronics communications, into India from his experience with MNCs in the US other Indians in the MNCs too can help in the dissemination of latest technology.
MNCs Import Too Much and Export Too title
Often it is pointed out that the MNCs import too much and create a strain on foreign exchange. They exploit the local market, without aiming at earning from export. This argument is true when there is no profit accruing by exporting. If export is to be promoted, then conditions are to be created to make export profitable.
Not only MNCs, but also Indians owned companies will hesitate to export if there is a better profit the local market. To expect a firm to export a produce on patriotic motive rather than on business reason is not common-sense.
At the same time, there is statistical evidence to show that the ratio of foreign earnings to the total out go is consistently higher for MNCs than for Indian owned companies.
The Entry of MNCs will Smother Indian Firms
With better technology, managerial skill and capital in their hands, MNCs can smother Indian enterprises, some critics feel. True, some inefficient firms may die in competition with the multinationals. But they ought to die in any case if we are to make headway in world market.
The success of Rasna, Nirma, Videocon and Onida over the MNCs in the Indian market is enough to prove that Indian industry has come of age. With good business sense Indian firms can well compete with the multinationals, on a level play ground. And the government of the country is there to oversee that the game is played according to rules.
The MNCs Use Transfer Pricing to Divert Profits Out of India
There is some evidence to show that by over-invoicing imports and under invoicing exports MNCs divert their profit illegally to other countries. But, then, many Indian companies too are guilty of this practice.
It is natural for a firm to show low income in a high-tax-rate country like India and divert to a low-tax- rate country like-Thailand. This real-practice can be eradicated only by tax- reforms.
The Hoped for Investment is not coming
It is true the MNC investment in India so far, despite the liberalization, is of a lower order than that goes into China or some other small ASEAN countries. It is accused the MNCs are awaiting more concessions to have a kill in this country.
Well India had an insular industrial policy till the end of eighties and the foreigners are watching stilt it little suspiciously perhaps. Once they find that it is worth investing in India more and more investment will come in.
The MNCs can indulge in Political Sabotage
It is true, it has happened in past. MNCs have caused the fall of governments when their interests are challenged. Mosadique’s government fell after a coup when he nationalized Iranian oil companies. Allende of Chile was killed and the Chilean government was overthrown in the tussle with ITT, the American giant.
But those are incident of the past. Now business has become sophisticated enough to steer clear of politics. However the influence of local shareholders can still play politics in the interest of the MNCs. Then the big Indian companies too can do this and India with enough experience of its own is to be on its own guard.
MNCs coming to India in a large way are bringing in a mixed bag. It has its perils is well as blessings. If things work well, it can bring in massive foreign investment leading to an economic spurt. The consequence can be alleviation of poverty, full or near full employment, and social upliftment.
They can usher in an age, where modernized industry uses the state-of-the art of technology, the best managerial skill. And an affluent society can be created. At the same time the government should be aware of the pit falls.
Like any business concern that thinks of maximizing its profit the multinationals too will try to get the maximum from their investment.
The congenial atmosphere is to be created to welcome them by providing the right infrastructure and lessening the red-tapism in government departments. Further, they should not be given a chance to do harm to the country by indulging in transfer pricing, monopolistic competition and above all interfering in internal politics.
If the government is on its guard and makes use of the available opportunity sagaciously, possibly, the coming of Multinationals can be a blessing to India. They can help India raise itself into an industrial giant.