ROLE OF MNCS IN INDIAN ECONOMY

INTRODUCTION Economists are not in agreement as to how multinational or transnational corporations should be defined. Multinational corporations have many dimensions and can be viewed from several perspectives (ownership, management, strategy and structural, etc.) The following is an excerpt from Franklin Root (International Trade and Investment, 1994) Ownership criterion: some argue that ownership is a key criterion. A firm becomes multinational only when the headquarter or parent company is effectively owned by nationals of two or more countries. For example, Shell and Unilever, controlled by British and Dutch interests, are good examples. However, by ownership test, very few multinationals are multinational. The ownership of most MNCs is uninational. (See videotape concerning the SmithCorona versus Brothers case) Depending on the case, each is considered an American multinational company in one case, and each is considered a foreign multinational in another case. Thus, ownership does not really matter. Nationality mix of headquarter managers: An international company is multinational if the managers of the parent company are nationals of several countries. Usually, managers of the headquarters are nationals of the home country. This may be a transitional phenomenon. Very few companies pass this test currently. Business Strategy: global profit maximization According to Howard Perlmutter (1969): Multinational companies may pursue policies that are home country-oriented. or host country-oriented or world-oriented. Perlmutter uses such terms as ethnocentric, polycentric and geocentric. However, "ethnocentric" is misleading because it focuses on race or ethnicity, especially when the home country itself is populated by many different races, whereas "polycentric" loses its meaning when the MNCs operate only in one or two foreign countries. According to Franklin Root (1994), an MNC is a parent company that engages in foreign production through its affiliates located in several countries, exercises direct control over the policies of its affiliates, implements business strategies in production, marketing, finance and staffing that transcend national boundaries.

ROLE OF MNCS IN INDIAN ECONOMY

Foreign Direct Investment

FDI or Foreign Direct Investment refers to the investment of foreign currency and other valuable resources by Multinationals into the host country. FDI allows the host country to earn valuable foreign exchange that can be used for future imports or to pay off existing loans of the country. The Government of the host country controls the FDI levels in various segments of the economy such as Telecom, Retail, Tourism, Infrastructure, Research and Development, Automobile and so on. Perhaps the biggest advantage of MNCs is the influx of valuable Foreign Exchange. FDI is required by a developing economy such as ours to tap unexplored resources and put them to more productive use. A series of ambitious economic reforms aimed at stimulating foreign investment has moved India into the front ranks of the rapidly growing Asia Pacific region.

The Finance Minister cleared 46 proposals of foreign direct investment (FDI) amounting to Rs 408.22 crore (US$ 93.4 million) in July 2004. With a half-billion strong middle class, consumer demand in India will grow sky high. According to some estimates, 487 million middle-class Indians will spend an additional $420 billion during the next four years.

It is evident. The investment scenario in India has changed. And the figures say that it is for the better.

There has been a sharp rise in the number of FDIs approved in 2004. During the first seven months of 2004, between January and July, Rs 5,220 crore worth of FDI was approved. This figure, which accounts for only seven months of 2004, amounts to 96 per cent of the total FDI approved during the full year of 2003. The actual FDI inflow too is expected to surpass last year's figure -- during the first seven months of 2004 actual FDI inflow at Rs 9.503 crore was more than 80 per cent of what the country received in 2003.

ROLE OF MNCS IN INDIAN ECONOMY

In a bid to stimulate the sector further, the government is working on a series of ambitious economic reforms.

The Centre has divested some of its own powers of approving foreign investments that it exercised through the Foreign Investment Promotion Board (FIPB) and has handed them over to the general permission route under the RBI. The FDI cap for aviation has been hiked from 40 to 49 per cent through the automatic route. The government has scrapped Press Note 18, which was acting as a deterrent to foreign investors. It has set up an Investment Commission that will garner investments in the infrastructure sector among others, and plans to increase the limit for investment in the infrastructure sector.

India's foreign exchange reserves raised $700 million to a record high of $120.78 billion in July 2004.

ROLE OF MNCS IN INDIAN ECONOMY

ROLE OF MNC IN INDIAN ECONOMY A MNC (Multi- National Corporation) is an organization whose scope of operation is not limited to a single country. India today is improving industrially every day. Emerging talents and entrepreneurship has begun to create prosperity to Indian business sector. Start-ups and new ventures are increasing day by day in India. Multinational companies are the organizations or enterprises that manage production or offer services in more than one country. And India has been the home to a number of multinational companies. In fact, since the financial liberalization in the country in 1991, the number of multinational companies in India has increased noticeably. . The multinational companies in India represent a diversified portfolio of companies from different countries. Though the American companies - the majority of the MNC in India, account for about 37% of the turnover of the top 20 firms operating in India, but the scenario has changed a lot off late. More enterprises from European Union like Britain, France, Netherlands, Italy, Germany, Belgium and Finland have come to India or have outsourced their works to this country. Finnish mobile giant Nokia has their second largest base in this country. There are also MNCs like British Petroleum and Vodafone that represent Britain. India has a huge market for automobiles and hence a number of automobile giants have stepped in to this country to reap the market. One can easily find the showrooms of the multinational automobile companies like Fiat, Piaggio, and Ford Motors in India. French Heavy Engineering major Alstom and Pharma major Sanofi Aventis have also started their operations in this country. The later one is in fact one of the earliest entrants in the list of multinational companies in India, which is currently growing at a very enviable rate. There are also a number of oil companies and infrastructure builders from Middle East. Electronics giants like Samsung and LG Electronics from South Korea have already made a substantial impact on the Indian electronics market. Hyundai Motors has also done well in mid-segment car market in India. Globalization of Indian multinational enterprises which were undertaken historically through Greenfield investments is now taking place through mergers and acquisitions across nations. Outbound acquisitions and mergers from India, according to Grant Thornton, stood as 198 in number in the year 2010, with a value of 22.5 billion dollars, when compared with the previous year 2009, which was 82 in number, whose value were worth 1.38 billion dollars, which is remarkably high.

ROLE OF MNCS IN INDIAN ECONOMY

This makes it clear that the internationalization process is taking place at a rapid pace in India. Similarly, according to a weekly supplement of Reserve Bank of India, Indias foreign exchange reserves as on June 4 of 2010 was around 271 billion dollars, which was an increase of 9.87 billion dollars over the same period in the year 2009. Outbound mergers and acquisitions are keeping on increasing every day. Internationalization of Indian organizations is taking place in almost all sector right from automobile sector to pharmaceutical sector. Moreover it has been identified that almost 83% of the value of outbound acquisitions in India between the years 2000 and 2009, was made in developed countries. 100's of MNCs coming into Indian Market in the name of liberalization every year. What are the primary responsibilities, accountability and moral resp to be set and imposed on Multi-national companies spreading their wings in India? Globalization is the driver to multi-nationalism. Large MNCs (Fortune 500 companies) have looked at India as potential growth market, as Indian Economy would be the 4th Largest Economy in terms of Purchasing Power parity and by 2025 it is projected to be about 60% of US Economy. Large corporations whose entry into Indian Economy has resulted in mergers and acquisitions in a big way through FDI, etc., Yes, those who have/having potential to do multi-million $ business are being acquired and/or merged with the world's large organizations. This has created and/or increased the wealth of the stake holders of Indian companies including employees. However, with this, the balancing act between the RICH and the POOR is not maintained. On the other hand, there has been huge loss to small and medium enterprises when a foreign company enters Indian market to offer their products and services. Not all such companies see growth & profits unless the local needs are met in terms of requirements, logevity, emotional fitment and the cost. In this process, such companies end up selling with desperation and close down their business in a short span. SMEs in specific, who have invested in products and solutions, stand nowhere, but to lose the money where they have paid it through nose. Another instance where entrepreneurs are running ancillary and distribution business for large retail and industrial manufacturers like 3M India, GE, etc., for example under huge trust and confidence. These MNCs load these small and medium entrepreneurs with such terms and conditions that protect the principal companies than the entrepreneurs.

ROLE OF MNCS IN INDIAN ECONOMY

Recent experience in the Indian market, where one of the large MNCs established the business through distribution network (where direct selling was self-prohibited) has started direct selling, pouching of resources from those distributors, creating havoc in the latter's organizations, etc., Such brutal act on MNC's part is killing the entrepreneurship in India. For such MNCs, global strategies matters more, than the economic condition of our country and its people. It is just a minute's job for them to close down the business leaving all its employees and distributors in lurch. The question is, how do we protect the interest of our own people's interest and how our Governments act in favor of our own countrymen in the days to come. In this corrupt economy, the imbalance between rich and poor is well maintained and no such efforts are being put in to bring the living of millions of our country.

ROLE OF MNCS IN INDIAN ECONOMY

Top multinational corporation in India

India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowly 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. The country has got many M. N. C.s operating here. Following are names of some of the most famous multinational companies, who have their headquarters of operational branches based in the nation IBM IBM India Private Limited, a part of IBM has been operating from this country since the year 1992. This global company is known for invention and integration of software, hardware as well as services, which assist forward thinking institutions, enterprises and people, who build a smart planet. The net income of this company post completion of the financial year end of 2010 was $14.8 billion with a net profit margin of 14.9 %. With innovative technology and solutions, this company is making a constant progress in India. Present in more than 200 cities, this company is making constant progress in global markets to maintain its leading position. Microsoft: A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S. (United States) based Microsoft Corporation, one of the software giants has got their headquarter in New Delhi. Starting its operation in the country from 1990, this company has got the following business units:

Microsoft Corporation India (Pvt.) Limited (Marketing Division) Microsoft Global Services India Microsoft Global Technical Support Centre Microsoft India Development Center Microsoft IT

ROLE OF MNCS IN INDIAN ECONOMY

Microsoft Research India

The net income of Microsoft Corporation grew from $ 14, 569 million in 2009 to $ 18, 760 million in 2010. Working in close association with all the stakeholders including the Government of India, the company is committed towards the development of the Indian software as well as I. T. (Information Technology) industry. Nokia Corporation: Nokia Corporation was started in the year 1865. Being one of the leading mobile companies in India, their stylish product range includes the following:

Normal mobile handsets Smartphones Touch screen phones Dual sim phones Business phone

The net sales of the company increased by 4 % in the last financial year with sales of EUR 42.4 billion as compared to 2009's EUR 41 billion. Over the past few years, this company in India has been acquiring companies, which have got new and interesting competencies and technologies so as to enhance their ability of creating the mobile world. Besides new developments to fight against mineral conflicts, they are even to set up Bridge Centers in the country for supporting reemployment. Their first onsite for the installation of renewable power generation are already in place.
.

PepsiCo: PepsiCo. Inc. entered the Indian market with the name of PepsiCo India from the year 1989. Within a short time span of 20 years, this company has emerged as one of the fast growing as well as largest beverage and food manufacturer. As per the annual report of the company in the last business year, the net revenue of PepsiCo grew by 33 %. By the year 2020, this food manufacturing company intends to triple their portfolio of enjoyable and wholesome offerings. The expansion of their Good-For-You portfolio is believed to be assisting the company in attaining the competitive advantage of the growing packaged nutrition market in the world, which is presently valued at $ 500 billion.
.

ROLE OF MNCS IN INDIAN ECONOMY

Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest pharmaceutical companies in India, started their business in the country from the year 1961. The company made its public appearance in 1973 though. Headquartered in this nation, this international, research based, integrated pharmaceutical company is the producer of a huge range of affordable cum quality medicines that are trusted by both patients and healthcare professionals all over the world. In the business year 2010, the registered global sales of the company was US $ 1, 868 Mn. Successful development of business forms the key component of their trading strategy. Apart from overseas acquisitions, this company is making a continuous endeavor to enter the new global markets, which have got high potential. For this, they are offering value adding products as well. Reebok International Limited: This global brand is a famous name in the field of sports as well as lifestyle products. Reebok International Limited, a subsidiary of Adidas AG, is based in U. S. A. (United States of America) started its operation in 1890s. During the last financial year, Adidas's currency neutralized group sales increased by 9 %. Apart from their alliance with Cross Fit that is among the largest contemporary fitness movements, in the current year, Reebok's announcement of its partnership with artist, designer and producer Swizz Beatz reflects its long term future growth. Sony: Sony India is a part of the renowned brand name Sony Corporation, which started their business operation in the year 1946 in Japan. Established in India in November 1994, this company has captured one of the leading positions in the field of consumer electronics goods. By the end of the business year 2010 on 31st March, 2011, the company showed a remarkable increase in the share related to numerous categories. Sony India is planning to invest around INR 150 crore for the marketing of the activities related to ATL and BTL. As far as Bravia TVs are concerned, they are looking forward to hold their market share of 30 %. In between the last and the current financial year, the number of their outlets in the country increased by 1,000.
.

Tata Consultancy Services: Commonly known as T. C. S., this multinational company is a famous name in the field of I. T. (Information Technology) services, Business Process Outsourcing (B. P. O.) as well as business solutions. This company is a subsidiary of the Tata Group. The first center for software researching was established in the country in 1981 in the city of Pune. Tata Consultancy earned a growth of 8.9 % during the latest quarter of this financial year, which ended on 30th September, 2011. This renowned company is presently looking forward to the 10 big deals that they have received besides the Credit.

ROLE OF MNCS IN INDIAN ECONOMY

Vodafone: Vodafone Group Plc is an international telecommunication company, which has got it's headquarter based in London in the United Kingdom (U. K.). Earlier known as Vodafone Essar and Hutchison Essar, Vodafone India is among the largest operators of mobile networking in the country. The parent company Hutchison started its business in the year 1992 along with the Max Group, which was its business partner in India. Much later in 2011, Vodafone Group Plc decided to buy out mobile operating business of Essar Group, its partner. The turnover of the Vodafone Group Plc after the completion of the last financial year grew to 44, 472 m from 41, 017 m that was the turnover of the business year 2009. Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is among the leading commercial vehicles manufacturer in the country. They are one of the top 3 passenger vehicle manufacturers. Established in the year 1945, this company, a part of the famous Tata Group, has got its manufacturing units located in different parts of the nation. Some of their well known products of the company are categorized in the following heads:

Commercial Vehicles Defense Security Vehicles Homeland Security Vehicles Passenger Vehicles

Post completion of the financial year 2010 to 2011, the global sales of the company grew by 24.2 % with sales crossing INR 1million.

10

ROLE OF MNCS IN INDIAN ECONOMY

Rise of MNC & its Advantages & Disadvantages

India has been the home to a number of multinational companies. In fact, since the financial liberalization in the country in 1991, the number of multinational companies in India has increased noticeably. Though majority of the multinational companies in India are from the U.S., however one can also find companies from other countries as well. Today, virtually all the big MNCs in the world have operations in India. These include Unilever, BAT, Colgate Palmolive, Procter & Gamble, General Electric, General Motors, Ford, Pepsi, IBM, Intel, Texas Instruments, Microsoft, Oracle and Coca-Cola. India is now considered by many MNCs to be a strategically important market. There are a number of reasons why the multinational companies are coming down to India. India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India. The list of multinational companies in India is ever-growing. According to the World Investment Report 2010, issued by the UNCTAD (United Nations Conference on Trade and Development), the FDI inflow into India has been US$ 34,613 million in the year 2009. China is the only other country from the Asian region that tops the list of countries with largest FDI inflows for the year 2009. Hence, it is clear that India provides a green ground to the MNCs. The rise of MNCs in India is going to be a hot topic at the Group Discussion rounds at B-schools this year. To help you prepare well and increase your knowledge bank today we discuss the pros and cons about the rise of MNCs in India.

Pros:
India offers a grand opportunity to the MNCs with its large pool of talent and a market that is fast growing. MNCs are now developing more strategic partnerships with the Indian industry. The MNCs and the Indian industry are gaining a lot from each other. The MNCs are bringing in and adapting global best practices to help solve local problems and help India get interlinked better with the global economy. MNCs have become growth partners and have a major role to play in Indias development. MNCs are investing with long term horizon to help India realize its potential in new areas.

11

ROLE OF MNCS IN INDIAN ECONOMY

MNCs are focusing on catering to the larger population, not just the affluent class. Example, Hindustan Unilever Limited MNCs are helping diffuse technology and innovation in key sectors, such as Pharma, solar energy, agriculture, biotech, nuclear, defense. MNC's have influenced the whole business infrastructure in India, and it is not only job opportunities, but we are able to really understand where we stand in the international scenario. And this has helped us to develop our businesses to compete with any country. We have understood what global market demands are. This understanding of international markets has contributed to Indian companies going multinational, such as Tata, Bharti Group and many others. Filling the gaps left by government, MNCs have built roads in rural India that help them deliver their goods, provided education and health care for communities whose workforces they rely upon, and implemented environmental programs to protect precious natural resources needed to keep supply chains running smoothly. Other key positive points: Brain gain instead of brain drain, cheaper goods; increased foreign exchange; MNC's have made entire world a Global Village; Monopoly reduction; new work culture; diversified portfolios. Cons: Though it has given boost to our economy, foreign reserves and more physical means to enjoy, but has created vast difference between those who have and those who have not. Rich have become richer while the poor have become poorer. Multinationals create false needs in consumers and have had a long history of interference in the policies of sovereign nation states. Other Negative points: Indigenous products may suffer Security threat might be there Often, no profit except taxes remain in home country Employment imbalance Give rise to materialistic societies.

12

ROLE OF MNCS IN INDIAN ECONOMY

IMPACT OF MNC ON DIFFERENT SECTORS

So far, we have analyzed the Indian Economy and the way in which multinational have added more value and increased the exports, GDP and productivity, resulting in all round development. Furthermore, we have the actual analysis of the effect of MNCs on various Indian Industrial Sectors. Certain important sectors are considered and the actual effects of MNCs i.e. the practical way in which they are affected are studied viz.

Impact of MNCs on Automobile industry

The present scenario is a highly transformed one. Multinational giants are vying with one other to launch their models. Big names of the vehicle industry like the Korean giant, Hyundai, General Motors, and Mitsubishi etc. have already opened their account. In other vehicle segments too, Volvo, Mercedes Benz, Audi etc. have carved out their niche. In the two-wheeler segment besides the other major MNC brands made available to the Indian consumers. As a result conducting business in the Automotive Industry has become more competitive and sophisticated, which increases the demand for multi skilled personnel. Employment opportunities are emerging with Manufacturers, Dealership Operations including Parts, Sales, Service, Leasing & Financing, as well as in the fast developing Automotive Aftermarket sector. On the other hand, Manufacturing in India has also come of age. The post liberation economical scenario has resulted in all the big names such as General Motors, Ford, Toyota, Honda, Suzuki, Mitsubishi, Mercedes-Benz, and Fiat to come up with plants in India. The Indian automotive giants like Telco, Mahindra, Ashok Leyland, and Bajaj are revamping their production strategies and launching new models designed and developed indigenously. This has opened up numerous opportunities or employment in this sector for trained and skilled professionals who are well versed in the latest manufacturing process. The growth curve of India Auto Inc. has been on an upswing for the past few years. The high growth observed since 2001-02 in automobile production continued in the first three quarters of the 2004-05. Annual growth was 16.0 per cent in April-December, 2004; the growth rate in 2003-04 was 15.1 percent.

13

ROLE OF MNCS IN INDIAN ECONOMY

Consequent to liberalization, the arrival of new and contemporary models, easy availability of finance at relatively low rate of interest and price discounts offered by the dealers and manufacturers appear to have stimulated the demand for vehicles and a strong growth of the industry. The automotive industry is the barometer of any major economy and the same holds true for India as well. There has been a phenomenal growth in the automotive manufacturing sector in our economy. India has become a launch pad Rising sales and strong growth prospects heightened the popularity of auto stocks in July 2004 as foreign institutional investors (FIIs) increased their stakes in key automobile companies like Mahindra & Mahindra, Ashok Leyland, Maruti Udyog, TVS Motors and Hero Honda. Global names such as Daimler Chrysler and Porsche have begun introducing their new offerings in India. DaimlerChrysler plans to launch the new Mercedes SLK roadster, which has just hit European roads, in India by October-November 2004. Porsche is bringing in the Cayenne and Toyota is planning a simultaneous release of its IMV. Note, these models are the latest cars zipping on international roads and not the dated versions that were passed on earlier.

Impact on the Indian Manufacturing sector

The resurgence of India's manufacturing sector has been quite magical. Not only are profits soaring, the sector is fast spreading its tentacles abroad as many Indian manufacturing firms inch close to becoming true blue multinationals. The Indian economy grew by 7.4 percent in the April-to-June quarter, FY2005, buoyed by growth in manufacturing and services. Manufacturing grew 8 percent in the quarter, compared with 7.6 percent in the previous quarter. The picture is about to brighten further.

According to a CII-McKinsey report, manufacturing exports from India are likely to grow to $300 billion in 2015 from $48 billion in 2003. The country would then have a 3.5 per cent share of the world manufacturing trade.

14

ROLE OF MNCS IN INDIAN ECONOMY

To reach the $300 billion target, the industry has to clock a growth of 17 per cent every year as against the 11 per cent rate at which it is growing at present. Manufacturing exports from India grew 20 per cent in 2003 over the previous year. Of the total $300 billion, $70- $90 billion is expected to come from just four sectors - apparel, auto components, specialty chemicals and electrical and electronic products. India's exports in these sectors were $10 billion in 2002.

Manufacturing firms on expansion binge Manufacturing companies are planning to invest as much as Rs 200,000 crore over the next two years.

Of Rs 200,000 cr, Rs 100,000 cr will come from internal generation Half of this debt may come through the ECB route Most corporate are going for Brownfield expansion Rising interest rates won't impact India Inc's investments

With annual outflows averaging at $1 billion, the country's ranking in UNCTAD's outward FDI performance index has already shot up from the 107th position in 1999 to the 61st spot in 2003. The two most important destinations for Indian FDI last year were the US and the Russian Federation, accounting for around 37 per cent of the total Indian overseas investments during last year, while Europe accounted for 40 per cent of the total outflow. Some large Indian investments

ONGC's 25 per cent stake buy-out in a Sudan oil firm from Talisman Energy of Canada for $720 million (around Rs 3,312 crore) The Hinduja's purchase of controlling interest in C3, a call centre in the Philippines Msource's Spanish language centre in Tijuanna, Mexico

15

ROLE OF MNCS IN INDIAN ECONOMY

Manufacturing Outsourcing India is fast developing into a manufacturing hub for world corporations wanting to leverage the sector's proven skills in product design, reconfiguration and customization with creativity, assured quality and value addition. About 20 percent of Indian automotive production in 2004 is exported to developed countries. While some MNCs enter into OEM deals to source components, others have Indian arms to supply to global markets.

GE has entered into an OEM deal with Thermax India to supply chillers for the latter's power systems. South Korean two-wheeler major Hyosung is making India the manufacturing hub for its 250cc cruiser bike, Aquila through a technical tieup with Pune-based Kinetic Engineering. Ford Motor Company is aiming to source US$ 120-160 million worth of auto components from Indian manufacturers over the next two years under its India Sourcing Program. Global consumer electronics giant Matsushita of Japan has decided to source Panasonic color television sets from India for its international market. Colgate is setting up a brand new toothpaste facility in western India which will be one of 15 such facilities across the world.

16

ROLE OF MNCS IN INDIAN ECONOMY

Impact on IT (Information Technology) sector

Information Technology enabled Services (ITES) by MNCs has probably generated the maximum number of sunshine stories in the Indian industry in the last few years. According to Nasscom, the software industry has overtaken the gems and jewellery as well as textiles industries, to become the number one exporter in the country. Currently India is the Power House, The world software Arena. IT is now an industry, which is growing by leaps and bounds both through participation by captive units of multinationals and third party providers of Indian origin. Some of them are the big home-grown IT Services companies like Infosys, Wipro and Tata Consultancy Services (TCS). The Top Five The top five Indian IT companies based on FY04 revenues-TCS, Wipro, Infosys, Satyam and HCL Technologies-are the prime contenders in the race to the Fortune 500. While the first three have made it to the billion-dollar club, the remaining two are already half way through to that mark. According to Karnik, the way things are shaping up the companies that are most likely to make it are going to be the ones from the current top 10 because the dip-offs in size are sharp beyond the top 10. Experts feel that even within the top 10 the dip-offs start getting sharper after the top three to five companies. As a result, the likelihood is restricted to only the top five and, more specifically, to the top three. The top companies are indeed rapidly expanding their global outlook and reach, setting up centers across the world and competing with the top tier global IT companies. TCS is located across over 30 countries and serves clients in around 60. The global locations for Infosys, Wipro and HCL Technologies range between 10-20 countries. These companies serve some of the top clients globally including the likes of GE, American Express, Ericsson, Ford, Transco, Prudential, Deutsche Bank, and the Standard Chartered Bank. In the last two to three years, these companies have also been open to foreign acquisitions and JVs, to expand their global footprint. And the acquisition list is very long: TCS acquired Phoenix Global Services (technology solution provider); Wipro acquired Nervewire, a USbased financial services consultant and utilities' practice of consultancy AMS; Infosys acquired Expert Information Services of Australia and US-based Trade IQ product division of IQ Financial Systems, a Deutsche Bank-owned outfit; HCL

17

ROLE OF MNCS IN INDIAN ECONOMY

Tech has acquired majority stake in Aalayance, a business integration firm with offices in San Jose, US.

Some IT MNCs in 2004 Global Fortune 500 Name Revenues ($ bn) Market Cap ($ bn) IBM HP EDS Accenture CSC 96.23 79.9 20.6 15.1 14.7 149 63 10.7 23 8.6

HP marks Indian employment milestone

Hewlett-Packard has become the largest multinational IT employer in India

Beating more well-known contenders such as IBM, Intel and Microsoft, HewlettPackard has recently become India's largest multinational IT employer, with more than 10,000 employees. HP is in the process of acquiring the public stake of Indian software services exporter, Digital Global Soft (DGS), turning its current 51 percent stake into an acquisition. Including the DGS employees, IBM's headcount goes over 10,000 staff. DGS had a headcount of 4,400 by the end of September this year, with another 2,600 employees in software operations and 3,000 in HP's Global e-Business, the back office division. With another 800 from sales and support teams, HP's total rises to around 10,800 staff, reported the daily.

18

ROLE OF MNCS IN INDIAN ECONOMY

This puts HP far ahead of its main rival, IBM, which has an Indian headcount of 6,000. However, IBM is growing quickly in India, and a rise to 8,000-plus is expected. Big Blue also has a relatively weaker presence in India compared to HP. Of the estimated 320,000 global employees, 6,000 is just under 2 percent, while HP has a smaller overall headcount of around 140,000, which makes its India operations account for well over 7 percent of headcount. Other large foreign companies in India are also expanding. Accenture, the IT consulting and services corporation, wants to rise from its current 3,000 to rival HP with more than 10,000 employees within the next two years. While Microsoft officially says it only has 700 staff in India now, human resource recruiters in Bangalore told the Economic Times that Microsoft was aggressively recruiting for back-office operations, and that they expected it to hire 3,000 people by the end of 2004. Cisco has 3,000 now and Oracle will expand to 4,000 by the end of this year, and Intel plans to hit 3,000 in India in 2005. However, beating HP and the rest of the MNCs in India for IT employment by a broad margin is USbased General Electric (GE). The conglomerate has 22,000 employees in India, most of them working for GE's business-process outsourcing and call-centre operations. With Indian outsourcing a hot topic in the US and other source markets, the Economic Times said none of the IT MNC executives it contacted were willing to comment on their hiring plans. Outsourcing is seen as a threat to US IT jobs.

19

ROLE OF MNCS IN INDIAN ECONOMY

Impact on Food and Beverages Sector

India's booming tourism sector and its rapidly growing Western-style fast food joints offer unlimited opportunities for foreign food and beverage exporters, as Indian food imports are likely to grow 6-7 per cent over the next few years, says a study. Eyeing the over 250 million-strong middle class, a US department study says the prospects for investment in Indian markets could be gauged from the fact that total Hotel, Restaurant and Institutional (HRI) service sector sales of F and B amounted to $ 8 billion during 2003-04. An upswing in the Indian hotel industry since 2003 following turnaround of the global tourism industry, positive impact of 'Incredible India' tourism promotion campaign and the world's increasing interest in India's rapidly growing economy are some of the main reasons cited for growth. Though Indian consumers, on an average, spend only 2.5 per cent of their food expenditure in hotels and restaurants, the HRI service sector is expected to grow by 6-7 per cent over the next few years. According to the study, hotels managed to get a miniscule five per cent of total sales of Indian food service sector while restaurants and institutional caterers together cornered 52 and 43 per cent respectively. In recent years, the Indian hospitality industry has benefitted from a steadily growing economy and a booming tourism sector. Foreign tourist arrivals into the country in 2004 crossed 3.36 million, a growth of 24 per cent over the previous year. This growth is expected to remain strong over the next few years, the study said, adding that the Indian hotel industry was gearing up to cater to the food needs of the international visitors. A rapidly growing Indian economy (6 per cent annually over the last decade) has increased incomes of the consuming class. By 2007, approximately 22 per cent of households (44 million) are expected to have an average annual income of $3,150 (USD 17,300 on purchasing power parity basis) compared to less than seven per cent in 1995, the study pointed out. An expanding young population, more women in the workforce and increasing urbanization support HRI food sales, the study said, noting that close to 30 per cent of the population live in urban areas. This share was likely to grow to 40 per cent by 2025. Sixty-five million people are expected to enter the 20-34 year age group from 2001 to 2010 in India and the number of dual income households has been expanding rapidly in urban areas, the study observed.

20

ROLE OF MNCS IN INDIAN ECONOMY

The eating-out culture is evolving fast in India, as more consumers seek variety in their food choices. Urban Indians are aware of international cuisines and an increasing number are willing to try new foods. About 4.5 per cent of urban consumers eat outside their home at least once a week, and about 12 per cent eat out once a month, it said quoting a survey. There has been double-digit growth in the Western-style fast-food outlets and coffee shops, both multinational chains (McDonald, Pizza Hut, and Dominos etc) and Indian chains (Nirula's, Pizza Corner, Barista, Cafe Coffee Day). It is believed that the multinational and domestic multi-unit restaurant segment will drive the future expansion of the Indian restaurant industry. Most Indians still prefer Indian food, as regional cuisines offer many choices, it said, adding "vegetarianism" was still a widely popular culinary tradition in India. However, the younger urban population is increasingly shifting to Western-style fast food items, the study observed.

21

ROLE OF MNCS IN INDIAN ECONOMY

RECOMMENDATION
There are a number of reasons why the multinational companies are coming down to India. India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India. For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result, there was lesser number of companies that showed interest in investing in Indian market. However, the scenario changed during the financial liberalization of the country, especially after 1991. Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indian market. It is 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. More 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 labour competitive market, market competition and the macro-economic stability are some of the key factors that magnetize the foreign MNCs here.

Following are the reasons why multinational companies consider India as a preferred destination for business:

Huge market potential of the country FDI attractiveness Labor competitiveness Macro-economic stability

22

ROLE OF MNCS IN INDIAN ECONOMY

There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. They are as under: Initiating a higher level of investment. Reducing the technological gap The natural resources are utilized in true sense. The foreign exchange gap is reduced Boosts up the basic economic structure.

So it is recommended that multinational companies not only harms Indian economy but also by providing employment & competitive market helps Indian economy.

23

ROLE OF MNCS IN INDIAN ECONOMY

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 technology. As 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. In Against:

The main advantage of MNCs is reducing of unemployment. India is a developing country. MNCs helping India to become developed country. They are helping us to connect with whole world, which is highly necessary for developing countries in present generation. Some MNCs are including in social activities. They are introducing new products of cost effective. The employees of these companies are having high salary. Economy of India increases.

In Favor:

India has many intelligent people. But the intelligence is not used by India, and using for the development of the other countries. Many talented people are settling in foreign countries to work for MNCs. The stress of MNC employees is more compared to others. There are many cases of mental health problems in these employees.

24

ROLE OF MNCS IN INDIAN ECONOMY

The pay scale of Indian employees of these companies is less compared to foreign employees of the same companies. Employees of these companies are working like robots, and not spending their valuable time with their family. Some young people are attracted by the high salary and moulding their career wrongly for luxury life. In these companies there is least scope of using creativity. Mostly, employees are just following instructions of their superiors. By MNCs, local companies are having losses.

Multinational companies are not disadvantage to our country. India need 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.

25

ROLE OF MNCS IN INDIAN ECONOMY

Bibliography
http://groupdiscussionideas.blogspot.in/2011/03/multinationalcompanies-are-they-devils_21.html http://www.articlesbase.com/economics-articles/impact-of-mncs-ondeveloping-countries-685604.html http://wiki.answers.com/Q/What_is_the_role_of_MNC_in_India http://www.americanessays.com/study-aids/free-essays/business/indiaattractive-destination-to-the-world.php http://en.wikipedia.org/wiki/Multinational_corporation http://business.mapsofindia.com/india-company/multinational.html http://articles.economictimes.indiatimes.com/2012-0822/news/33322303_1_average-return-indian-companies-brand-equity

26