Presentation1 MNCs College

MULTINATIONAL CORPORATIONS (MNCs): 

MULTINATIONAL CORPORATIONS (MNCs) A multi-national corporation (MNC) is a business organisation which has its headquarters in one country but has operations in a range of different countries From: Devidas.S.Prabhu Assistant Professor in Economics

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Multinational corporation or transnational corporation are large companies that operates in a number of countries. Its head office is usually in one of these countries, the sister branches would be in these other countries. E.g. Coca Cola, is an American country, it has sister branches in almost all countries in the world

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There are numerous examples of such organisations , car manufacturers like Ford, Toyota, Honda and Volkswagen, oil companies like Shell, BP and Exxon Mobil, technology companies like Dell, Microsoft, Hewlett Packard and Canon and food and drink companies such as Coca Cola , McDonalds, Pepsi. Ford has manufacturing operations in six continents - in Europe alone there are around thirty-five sites in nine separate countries. These include assembly plants, stamping plants, engine plants, and casting, forging and aluminium plants.

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Dell and Microsoft - two businesses operating in the high tech industry and who are both good examples of multi-national companies. These firms, (MNC) by their very nature, are large organisations . Their size means they often have considerable power and influence.

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It is also assumed that MNCs tend to locate operations in poor countries only. This, of course, is not the case. E.g. Honda and Nissan have both invested heavily in production facilities in the UK but are Japanese companies. Many European countries provide a home for MNC operations of different sorts. It must also be remembered that many MNCs have interests in a country but not necessarily production facilities.

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For many companies, the following might be some or all of the reasons to expand into different countries: 1 Reduce transport and distribution costs. 2 Avoid trade barriers. 3 Meet different rules and regulations (avoid non-tariff barriers). 4 Secure supplies of raw materials or markets. 5 Cost advantages - for example low labour costs.

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Rank Company name Primary industry Revenue (USD billion) Fiscal Year Market capitalization (Dec 2010, USD million) [1] Employees Headquarters CEO 1 Walmart Retail $421.849 [2] January 31, 2011 $192,098 2,150,000 Bentonville, Arkansas , United States Michael Duke 2 ExxonMobil Oil and gas $370.125 [3] 2010 $368,711 83,600 [3] Irving, Texas , United States Rex W. Tillerson 3 Royal Dutch Shell Oil and gas $368.056 [4] 2010 $208,594 112,000 The Hague , Netherlands and London, United Kingdom Peter Voser 4 BP Oil and gas $297.107 [5] 2010 $137,042 97,600 London, England, United Kingdom Robert Dudley 5 Sinopec Oil and gas $289.774 [6] 2010 $101,583 400,513 Beijing , China Jiming Wang List of companies by revenue

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5 Sinopec Oil and gas $289.774 [6] 2010 $101,583 400,513 Beijing , China Jiming Wang 6 State Grid Corporation of China Electricity $231.556 [7] 2010 - 1,564,001 Beijing , China Liu Zhenya 7 Toyota Motors Automotive $228.247 [8] March 31, 2011 $136,891 316,121 Toyota, Aichi , Japan Fujio Cho 8 PetroChina Oil and gas $221.955 [9] 2010 $303,274 464,000 Beijing , China Zhou Jiping 9 Total S.A. Oil and gas $212.815 [10] 2010 $124,916 111,401 Courbevoie , France Christophe de Margerie 10 Japan Post Holdings Conglomerate $211.080 [11] March 31, 2011 - 229,134 Tokyo, Japan Jiro Saito

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11 Chevron Oil and gas $204.928 [12] 2010 $183,634 61,533 San Ramon, California , United States David J. O'Reilly 12 ConocoPhillips Oil and gas $198.655 [13] 2010 $100,054 29,700 Houston, Texas , United States James Mulva 13 Vitol Raw material $195.0 [14] January 10, 2011 - - Rotterdam , Netherlands and Geneva , Switzerland Ian Taylor 14 Saudi Aramco Oil and gas $182.369 [15] 2009 - 54,441 Dhahran , Saudi Arabia Waleed Al-Bedaiwi 15 Volkswagen Group Automotive $169.53 [16] 2010 $69,620 329,305 Wolfsburg , Lower Saxony, Germany Martin Winterkorn 16 Fannie Mae Financial services $154.270 [17] 2010 - 7,300 Washington, D.C., United States Mike Williams 17 General Electric Conglomerate $150.211 [18] 2010 $194,875 287,000 Fairfield, Connecticut , United States Jeffrey Immelt 18 Glencore Raw materials $144.978 [19] 2010 - 52,000 Baar, Switzerland Ivan Glasenberg 19 Allianz Financial services $142.24 [20] 2010 $54,223 151,388 Munich , Bavaria , Germany Michael Diekmann 20 ING Group Financial services $140.729 [21] 2010 $37,407 107,106 Amsterdam , Netherlands Jan Hommen

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21 Berkshire Hathaway Conglomerate $136.185 [22] 2010 $198,307 217,000 Omaha, Nebraska , United States Warren Buffett 22 Samsung Electronics Conglomerate $135.772 [23] 2010 $136,229 275,000 Samsung Town , Seoul , South Korea Lee Kun-hee 23 General Motors Automotive $135.592 [24] 2010 $57,933 284,000 Detroit, Michigan , United States Daniel Akerson 25 Eni Oil and gas $131.292 [25] 2010 $87,800 78,417 Rome, Lazio , Italy Paolo Scaroni 26 Daimler AG Automotive $130.628 [26] 2010 $72,220 260,100 [26] Stuttgart , Baden-Württemberg , Germany Dieter Zetsche 28 Ford Motor Company Automotive $128.954 [27] 2010 $72,220 327,531 Dearborn, Michigan , United States Alan Mulally 29 Hewlett-Packard Information technology $127.245 [28] October 31, 2011 $92,217 266,590 Palo Alto, California , United States Meg Whitman 30 Nippon Telegraph and Telephone Telecommunications $124.517 [29] March 31, 2011 $65,641 205,288 Tokyo, Japan Norio Wada

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31 AT&T Telecommunications $124.28 [30] 2010 $173,636 321,000 Dallas, Texas , United States Randall L. Stephenson 32 E.ON Electricity ; gas $124.084 [31] 2010 $61,567 85,105 Düsseldorf , North Rhine-Westphalia , Germany Johannes Teyssen 33 Carrefour Retailing $122.280 [32] 2010 $29,173 475,976 Levallois-Perret , France Lars Olofsson 34 AXA Financial services $121.577 [33] 2010 $38,750 189,927 Paris, Île-de-France , France Henri de Castries 35 Assicurazioni Generali Insurance $121.299 [34] 2010 $29,679 85,368 Trieste , Friuli-Venezia Giulia , Italy Sergio Balbinot , Giovanni Perissinotto 36 Petrobras Oil and gas $120.052 [35] 2010 $229,067 80,492 Rio de Janeiro , State of Rio de Janeiro , Brazil José Sérgio Gabrielli de Azevedo 37 Cargill Agriculture $119.469 [36] May 31, 2011 - 158,000 Wayzata, Minnesota , United States Greg Page 38 JX Holdings Energy $116.414 [37] March 31, 2011 $17,900 [38] - Japan - 39 GDF Suez Public utilities $112.88 [39] 2010 $81,043 160,700 Paris, France Gérard Mestrallet 40 Hitachi, Ltd. Conglomerate $112.239 [40] March 31, 2011 $24,121 361,745 Tokyo, Japan Etsuhiko Shoyama

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India Rank World Rank Company Industry Revenue (billion $) Profits (billion $) Assets (billion $) Market Value (billion $) 1 98 Indian Oil India Oil & Gas Operations 68.83 0.51 28.45 16.74 2 134 Reliance Industries India Oil & Gas Operations 58.90 2.91 48.50 69.36 3 272 Bharat Petroleum India Oil & Gas Operations 34.10 0.12 10.66 4.41 4 292 State Bank of India India Banking 32.40 2.13 256.79 27.21 5 336 Hindustan Petroleum India Oil & Gas Operations 28.50 0.15 9.73 2.55 6 359 Tata Motors India Consumer Durables 27.50 -0.49 14.29 7.93 7 361 Oil and Natural Gas Corporation India Oil & Gas Operations 26.90 3.86 35.66 51.82 8 370 Tata Steel India Materials 26.05 0.96 23.95 11.04 9 1005 Hindalco Industries India Materials 12.73 0.07 12.71 6.69 10 345 Coal India Limited India Oil & Gas Operations 13.43 2.42 9.73 75.0 List of companies of India This is a list of major companies based in India 56 Indian companies have been listed in the Fortune Global 500 ranking for 2011.The leading companies are in the second edition of Fortune India 500 ranking for 2011:

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11 541 National Thermal Power Corporation India Utilities 8.62 1.58 22.59 36.320 12 506 ICICI Bank India Banking 12.58 0.70 94.64 21.07 13 571 Bharti Airtel India Telecommunications Services 7.27 1.53 12.88 23.00 14 648 Larsen & Toubro Construction 7.87 0.74 11.12 19.90 15 601 Essar Oil India Oil and gas 7.6 1.22 10.98 19.57 16 602 Steel Authority of India India Materials 8.39 1.22 10.98 19.57 17 699 Bharat Heavy Electricals India Capital Goods 5.16 0.61 8.96 25.24 18 700 Mangalore Refinery and Petrochemicals Limited India Refinery 6.19 0.61 8.96 25.24 19 705 Maruti Suzuki India Limited India Automotive 7.13 0.61 8.96 25.24 20 741 Tata Consultancy Services India Software & Services 8.41 1.02 4.45 32.321

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21 1308 Mahindra & Mahindra India Consumer Durables 5.13 0.27 6.13 5.96 22 985 GAIL India Utilities 4.80 0.55 5.79 10.98 23 985 CPCL India Oil & Gas 4.80 0.55 5.79 10.98 24 985 Sterlite Industries India Optical 4.80 0.55 5.79 10.98 25 826 Wipro India Software & Services 5.00 0.76 5.49 21.53 26 695 Punjab National Bank India Banking 4.42 0.62 49.93 6.16 27 807 Infosys Technologies India Software & Services 4.22 1.17 4.34 32.20 28 892 Bank of Baroda India Banking 3.58 0.46 45.78 4.61 29 672 HDFC Bank India Banking 3.85 0.44 35.98 16.83 30 1008 Canara Bank India Banking 3.82 0.40 43.39 3.49 35 742 Reliance Communications India Telecommunications Services 4.04 1.18 20.15 7.04 783 Housing Development Finance Corporation India Diversified Financials 2.28 0.45 22.84 15.50 858 Axis Bank India Banking 2.68 0.35 29.02 9.85 902 Bank of India India Banking 3.79 0.60 44.62 3.80 923 DLF Limited Diversified Financials 1.95 0.87 9.64 10.94 946 National Mineral Development Corporation India Materials 1.47 0.85 3.32 37.12 1023 ITC India Food, Drink & Tobacco 3.18 0.65 3.97 19.00 1093 Power Grid Corporation of India India Utilities 1.28 0.33 10.71 9.78

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IBM India: IBM India is a subsidiary of the world-known IBM and this company has attained greater heights in India after its re-entry to the Indian market in the year 1992 after exiting in the year 1970. This company has the largest employee-strength in India as compared to any other MNCs. Their employee-strength in India has been rising right from the year 2006 and the best thing about this data is that most of its employees are Indians. The company is also planning to hire huge workforce from India due to the highly talented manpower in India. According to their 2010 report, they had an employee-strength of 1,31,000 staff.

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Nokia Communications: When we go out of our home, we are sure to see a large number of people with Nokia handsets. Nokia has made its progress in India at a faster, but steady pace. They entered the Indian market in the year 1995 and they are operating in the major metropolitan cities in India and in other cities as well. The company had 450 employees in the year 2004 in India and now the number of employees in Nokia India is higher when compared to the organization of Nokia in other countries.

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Ranbaxy Laboratories: Ranbaxy Laboratories came into existence in the year 1961 and they are top players in the pharmaceutical sector in India. They have operations in 45 different countries and their operations in India actually took place way back in the year 1937. They entered the US market in the year 1998 and they hold great share in the Pharmaceutical sector in the US as well. Since the company has many offices in different cities in India, most of their employees are Indians.

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Vodafone Essar The Indian subsidiary of Vodafone Group is at No. 3 on the list. Turnover: 22,000 cr Parent holding: 67% Global performance: Vodafone Group reported 3% growth in sales to 11.9 billion pounds ($19.29 billion) for the October-December period on the back of strong performances in businesses in India, Turkey and the UK. The British mobile operator said its group service revenue grew by 2.5% to 11 billion pounds. Vodafone said service revenues from Indian operations grew by 16.7% during the third quarter ended December 31, 2010. Apart from India business, the UK unit recorded underlying sales growth of 7% in the third quarter.

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Hewlett Packard HP (Hewlett Packard) At No. 5 is the world's largest computer maker. Turnover : 18,500 cr Parent holding : 100% Employees : 3,04000 Global performance: For the fourth fiscal quarter, the company globally reported a 5% increase in profits. The company benefited from increased spending by enterprises on storage and servers. Revenue from that segment jumped 25% year over year, to $5.3 billion.

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Samsung Samsung, the world's largest manufacturer of flat screen televisions is at No. 7. Turnover : 16,000 cr Parent holding : 100% Global performance : In January, the company's global net profit rose 13% in the fourth quarter amid higher sales of semiconductors and smartphones .

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LG At No. 8 on the list is consumer electronics major LG India. Turnover : 16,000 cr Parent holding : 100% Employees : 3000+ (India) Global performance: LG Electronics Inc posted a record quarterly loss in its fourth quarter ended December 2010. The absence of premium models continued to hit LG's phone business, while the TV division also lost money on intensified price competition. The world's No. 2 TV maker and No. 3 handset vendor reported an October-December operating loss of $219.8 million, its second consecutive record quarterly loss

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The Advantages of MNCs The essence of a MNC is that they bring inward investment to countries that are not their home base. If they choose to expand by building production facilities they will be bringing in inward investment into the country. This investment is likely to provide a boost, not only to the local economy but also the national economy.

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Building a new plant requires resources - land, labour and capital. Labour has to be found to help construct the plant and all the equipment that goes into it and some firm somewhere will be hired to build the machinery and equipment, provide the bricks, steel, cement, glass etc. that go into the building. If it is announced that Company X from Germany are to build a new distribution centre in the UK at a cost of £10 million, this effectively means that a whole host of firms will be getting additional work to the value of £10 million.

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Inward investment therefore can act as a trigger to generating wealth in the local economy. If a MNC is attracted to an area then this might also lead to other smaller firms in the supply chain deciding to locate in those areas. Other firms providing services to these firms are then attracted to the area and so on. E.g. Honda located a factory in Swindon , Wiltshire, a town known for its railway industry. Now the town is synonymous with car manufacturing. The Honda plant was an investment of over £1.3 billion. It is one of 120 Honda manufacturing facilities in 29 different countries.

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This type of wealth generation has been witnessed in many UK regions. The setting of the car manufacturing plants in Sunderland, Swindon and Derby has done much to help those regions, they experience a boost to the local economy.

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In the case of Sunderland and Derby, the investment has partly helped to offset the decline in other industries that caused unemployment. For less developed countries, inward investment can again act as a catalyst for other forms of investment. The effects of the investment might be less dramatic but nevertheless, it can be something that is seen as essential for helping a country escape from poverty.

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2. Skills, production techniques and improvements in the quality of human capital. It can be argued that MNCs bring with them new ideas and new techniques that can help to improve the quality of production and help boost the quality of human capital in the host country.

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Many will not only look to employ local labour but also provide them with training and new skills to help them improve productivity and efficiency. As in the case of Sunderland, the workers have had to get used to different ways of working and different expectations than many might have been used to, if working for other British firms

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In some cases this can prove a challenge but in others it can lead to improvements in motivation and productivity. This makes the area even more attractive to new industry as it helps to reduce the costs of training and skilling of workers. 3. Availability of quality goods and services in the host country: In some cases, production in a host country may be primarily aimed at the export market. However, in other cases, the inward investment might have been made to gain access to the host country market to circumvent (escape) trade barriers

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In the case of many Japanese car manufacturers the investment made into UK production has enabled them to get a foothold in the EU and to avoid tariff barriers.

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The UK has had access to high quality vehicles at cheaper prices and the competition this has created has also led to improvements in working practices, prices and quality in other related industries

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4. Tax Revenues For the host country, there is a likelihood that the MNC will have to be subject to the tax regime in that country. As a result, many MNCs pay large sums in taxes to the host government. In less developed countries the problem might be that there is a large amount of corruption and bad governance and as a result MNCs might not contribute the tax revenue they could and even if they do it might not find its way through to the government itself

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5. Improvements in Infrastructure In addition to the investment in a country in production or distribution facilities, a company might also invest in additional infrastructure facilities like road, rail, port and communications facilities. This can provide benefits for the whole country.

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Disadvantages of MNC The costs can be summarised in the points below - for the most part, the costs are closely linked to the benefits but it will depend on the extent of the benefits that might arise as a result of the activity of the MNC. Employment might not be as extensive as hoped - many jobs might go to skilled workers from other countries rather than to domestic workers. There might be a limit in the effect on the local economy - it will depend on how big the investment into the local economy actually is.

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Some MNCs may be 'footloose'; this means that they might locate in a country to gain the tax or grant advantages but then move away when these run out. As a result there might not be a long term benefit to the country. How many new jobs are created depends on the type of investment. Investment into capital intensive production facilities might not bring as many jobs to an area as hoped

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The size and power of multinationals can be used, it is argued, to exploit weak or corrupt governments to get better deals for the MNC. Mittal , for example, a major steel producer, negotiated a $900 million deal to secure rights to mine iron ore in Liberia. The government that negotiated the deal was not elected. When a new, elected government came to power, they re-negotiated the deal and took the investment to well over $1 billion.

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Production can cause problems - in any country - but in some countries the rules may be less rigorously enforced

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De-merit goods. Some companies might be producing goods that are not beneficial. Examples might include tobacco products and baby milk - mentioned earlier. Repatriation of profits. Profits might go back to the headquarters of the MNC rather than staying in the host country - the benefits, therefore, might not be as great.

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Thank You