ADVANTAGE OF MNCs TO THE HOST COUNTRY:

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MNCs help the host country in t

he following ways:
The investment level employment level and income level of the host country increases due to the
operations of MNC in the country.
The ancillary and service industry of the host country increases and thus the level of industrial and
economic development increase.
Modern technology and managerial services are made available to enterprises established by MNCs. It
is through the medium of MNCs that technology has been transferred to other countries.
Latest and sophisticated management techniques can also be obtained by the host country form the
management practice of MNCs.
MNCs make available marketing services especially export related marketing research advertisement
spread of marketing information storage facilities transport packing design etc.
Countries where in MNCs establish their subsidiaries have more employment opportunities.
Domestic industry can make use of the R& D outcome of MNCs.
The host country can reduce its imports due to production of those goods by MNCs which otherwise
were not available in the country.

ADVANTAGES OF MNCs TO THE HOME COUNTRY:

Home country also gets some advantages from the operations of MNCs. They are:
The marketing of goods produced in the home country becomes possible throughout the world through
MNCs.
Employment opportunities both at home and abroad to the home country people also increase due to
large scale operations of the MNCs.
MNCs contribute to the favorable balance of payments for the home country in the long-run.
MNCs also help in activating the industrial activity of the home country.

DISADVANTAGES OF MNCs TO THE HOST COUNTRY:

1. The main objective of the MNCs is to earn maximum profit. To achieve this objective they invest their
capital in underdeveloped countries. The reason being that labor is very cheap in these countries.
Moreover these countries provide cheap raw materials and also profitable markets for finished goods
to be sold by developed countries. Big chucks of profits earned in underdeveloped countries go to
headquarters of MNCs. According to one estimate, 300 MNCs of America received about $ 40 billion
as profit from underdeveloped countries.
2. MNCs kill the domestic industry by monopolizing the host countrys market.
3. Development of scare resources are adversely affected by managerial abilities technology and foreign
contacts made available by MNCs. Local industry cannot face their competition as such the same
remain underdeveloped.
4. MNCs by making capital investment in the host country discourage the domestic rate of saving in
investment. Domestic investment is discouraged because it cannot complete with MNCs.
5. Although MNCs prove helpful in improving foreign exchange situation of the underdeveloped
countries for the short-period but the y prove harmful in the long-run.
6. Adoption of ethnocentric approach in staffing by the MNCs causes unemployment in the host country.
7. Indiscriminate use of natural resources by MNCs may cause fast depletion of the resources of the host
county.
8. MNCs have not adhered to the goal of economic equality in the following way: (i) Regional inequality
has aggravated as MNCs set up industries in advanced regions and not in backward regions. (ii)
Income gap among people also get widened as MNCs pay more salaries and perks to their employees.
(iii) These corporations further accentuate rural and goods disparity. (iv) These corporations give more
importance to the production of luxury goods than the production of mass consumption goods.

9. MNCs also influence the decision-making process of the governments of developing countries through
their financial and other resources.
10. MNCs evade their tax liability by adopting transfer pricing methods. According to this method MNCs
buy intermediate goods from their subsidiaries abroad at high price and thus reduce their local profits.
11. MNCs also indulge in unethical and corrupt practices for their self-interest. They do not hesitate to
offer bride to highly placed officials and politicians of other countries and oblige them to enter into
such transactions which serve their interest but are harmful to the interest of the country concerned.
12. The MNCs do not engage in R&D activities relevant to the development countries. Their R&B efforts
are relevant to advantages countries. The MNCs transfer the technology development in advanced
countries to the developing countries through it is not conducive to their development.

DISADVANTAGE OF MNCs TO THE HOME COUNTRY

These include:
(1) The transfer of capital from the home county to various host countries by MNCs causes unfavorable
balance of payment position.
(2) Industrial and economic development of the home country in neglected as MNCs invest the capital in
more profitable countries.
(3) Foreign culture brought by MNCs may prove detrimental to the interest of the home country.

CODE OF CONDUCT FOR MNCs

The code of conduct for MNCs drawn up by the Commission on Transnational Corporations set up by
USA Economics and social Council required MNCs to:
(1) Respect the national sovereignty of host countries and observe their domestic laws regulations and
administrative practices.
(2) Adhere host nations economic goals development objectives and socio-cultural values
(3) Respect human rights:
(4) Not engage in corrupt practices.
(5) Apply good practices in relation to payment of taxes abstention from involvement in anti
competitive practice consumer and environment protection and the treatment of employees.
(6) Disclose relevant information to host country government. According to the 1976declaratin of the
OECD Code of Practice of MNC operations MNCs should contribute positively to economic a social
progress within host nations. Its main provisions were that MNCs should:
a. Contribute to host countries science and technology objectives by permitting the
rapid diffusion of technology
b. Not behave in manners likely to restrict competition by abusing dominant
positions or market power;
c. Provide full information for tax purposes:
d. Consider the host nations balance of payments objectives when taking
decisions;
e. Consult with employee representatives regarding major changes in operations
avoid unfair discrimination in employment and provide reasonable working
conditions:
f. Regularly make public significant information on financial and operational
matters. Host countries themselves should possess the absolute right to
nationalise foreign-owned assets within their frontiers but must pay proper
compensation..
The UN general assembly has rejected the plea of developing countries to make these code legally
binding on the behest of developed countries.

MNCs IN INDIA

Most of the MNCs in India had originally entered the Indian market during the colonial era. The
actual umber of MNCs entered in post independence ea was small. The entry was generally made
through collaboration with big Indian business houses. For example Bajaj tempo and Telco joined
hands with Daimler Benz of West Germany: LML joined hands with Piaggio of Italy: Maruti
established joint venture with Suzuki of Japan: Cyanamid CIBA and Ciba-Geigy jointly established
new undertakings with alpha house Birlas became the spokesmen of Kaisers and ford
At the end of 1990, there were 469 foreign companies in India. There are many Indian companies with
foreign equity participation too. For example Indian outfits of MNCs; like ponds Johnson and Johnson
Colgate Palmolive. Hindustan lever etc. there are several MNCs in the pharmaceutical industry like
Glaxo, Bayer, Sandoz and Hoechst.
1. Regulation of MNCs in India
Different government agencies in India control MNCs. These agencies include: (i) the
department of company affair (ii) The Reserve Bank of India (iii) The Ministry of Industrial
Development and (iv) The ministry of finance. Control over MNCs in India is not efficient as these
agencies have no coordination among themselves. The government of India imposed certain regulation
to control MNCs. These are:
(i)
Permissible period of agreement was reduced from 10 to 5 years.
(ii)
The maximum rate of royalty was imposed in technology imports for those
industries which were allowed to import technology.
(iii)
Those industries were moot allowed to import technology where domestic
companies ate competent.
(iv)
Exports and other marketing restrictions were imposed.
Some regulations as stated above were imposed. However these regulations are moot adequate and therefore
MNCs be properly regulated to safeguard the interest of the country. Following suggestions ate given to
regulate them.
a) Government interference: Host country government should have its representatives on the
management of thee corporations. Interferences of the representatives of the government is
must on such matters as influence or are likely to influence the economic development of the
country. It should be made clear to the MNCs that if they do not function in the Interest of the
country they are likely to be nationalized.
b) Local ownership: Majority or 51 per cent shares of the subsidiaries of MNCs should be held
special industries of the host country.
c) Beneficial collaborations: Government should allow collaboration of MNCs for those
special industries where such collaboration is essential.
d) Research of an appropriate technology: MNCs many be compelled to spend a part of their
profit in the development of appropriate R $ D for the benefit of host country.
e) Substitution of technology: Only in the initial stages of development the imported
technology should be used. Thereafter that technology should be developed indigenously so
that the dependence on MNCs could be reduced.
f) Collaboration in heavy and basic industries: Collaboration with MNCs should be allowed
only in heavy and basic industries. Collaboration in consumer goods industry should not be
allowed as it many hamper the domestic industry.
g) Check on monopolistic tendencies: Oligopolistic or monopolistic tendencies of MNCs
should be closely watched to safeguard the interest of consumers as well as of local
producers.
2.

Salient feature of MNCs in India:

The salient features of MNCs in India are as follows:

a. Bi-Country: Most of the MNCs functioning in India have the rheas offices in two countries
i.e. and U.S.A...
Out of 171 subsidiary companies 116 had their head offices in U.K. and
25 in U.S.A.
b. Trends of MNCs: Numbers of MNCs in India have gone down but the volume of their assets
increased considerably. In 1974, the number of MNCs in India was 575 which came down to
350 in 1980. But their assets increased from Rs. 1741 crore to Rs. 2401 crore. During the same
period the number of subsidiaries also came down to 125 from 188.
c. Sources of capital: Large numbers of subsidiaries operating in India have mobilized their
financial resources from within India.
d. Industry wise distribution: Of all the MNCs operating in India 30 per cent are engaged in
plantation (tea) and mining. Large of their branches are also found in the field of trade banking
and services their number is relatively less in case of industries. Share of commerce trade and
finance in the total assets of these corporations is 76 per cent. Share of processing industry and
transport is 6 per cent each respectively.
e. High rate of profitability: The rate of profitability of MNCs in comparison to domestic
industry is very high. Profitability of MNCs (private) on an average was 34% whereas that of
Indian private companies was 11.5 per cent. Similarly the profitability of foreign public limited
companies was 24 per cent as again only 11 per cent in case of domestic public limited
companies.
Subsidiaries: a company is called a subsidiary company if atleast 50per cent of its paid up
capital is held by another company. Presently there are 88 subsidiaries of MNCs. Out of these
83 companies the share of MNC varies 70 to 100 per cent of their share capital.
f. Heavy remittances abroad: according to [Link], rate of profitability on MNCs is very
high. In a short period they repatriate the amount of initial investment to their head office.
Besides they also remit to their parent company; large amounts by way of royalty and technical
services. For example Essoan American Petroleum Company had remitted to its head office Rs.
83 crore as a part of profit on investment of Rs. 30 crore in India.
g. Limited transfer of improves technology: The MNCs in India have kept their technology a
closely guarded secret. Transfer of improved technology by MNCs to India has taken place on
a very limited scale. It is the old technologies which mostly continue to prevail in India.
h. Indianisation: MNCs have accepted the proposal of Indianisation. According to the provision
of foreign exchange management act (FEMA), all foreign companies had to reduce their
ownership to 74 per cent or they had to reduce their share in the share capital of Indian
branches to 40 per cent. Most of the MNCs have accepted these conditions. Many of them have
already taken steps to reduce the amount of foreign capital.
Harmful effects
(i) Completion with small scale industries: MNCs have entered in the production of several such
items which were exclusively reserved for small scale industries like potato chips biscuits etc.
(ii) Providing prohibited goods: profit earning is main objective of MNCs. To achieve this objective
they do not hesitate to indulge in the production and selling of harm full goods. Many of medicines
and consumer durables the production of which has been prohibited in the foreign countries are
being manufactured and sold in India by MNCs.
(iii)
Unfair trade practices: the MNCs also used unfair trade practices .for instance to save the
corporate tax they over in voice the imports and under invoice the exports
(iv)Fluctuation In investment: in the initial stages of their establishment the MNCs have invested
their profit in India. But after some time they started to remit their profits to parent company by
way of royalty and dividends.