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Multinational Corporations (MNCS)


Till the middle of the twentieth century, the production of goods and services was regulated by the laws of the country and was largely organised within the country using the local resources. Trade was the means to connect different nations, and every country had its foreign trade in which exchange of items of export and import took place.

The advent of multinational corporations in India changed this scenario. Companies that own or control production in multiple nations are called the multi-national corporations. By establishing offices and controlling the production units in different nations, these huge corporations get the benefits of cheap labour and abundant resources of that country. This reduces the cost of production of the MNCs, which can thereby earn a greater profit. The designing, manufacturing and assembling units of a single product may all be in different countries depending on some advantages in each nation. The business process outsourcing or the BPOs for several MNCs are located in India. For the MNCs, not only are finished products sold globally, but they are also manufactured in complex ways. Cheap labour in China is utilised by many MNCs to manufacture the goods. Countries such as Mexico and eastern Europe have the locational advantages of being located close to Europe and the USA, hence the assembling plants are located there. India, with her large working population of skilled engineers, takes care of the technical aspects of production. They provide the technical support to customers. Since labour costs are cheaper in India than in the western countries, the MNCs pay much lesser wages to the Indian workers than their US or European counterparts, thereby, saving immensely on the final production cost.

The characteristic features of operations by MNCs are as follows:

  1. MNCs set up factories close to the market, in countries whose government policies are advantageous to them. In such countries, they directly invest in acquiring assets such as land, machineries and equipment, with profit motive as the reason. This is called foreign investment.
  2. In many instances, the MNCs take over local companies. They invest on the company’s existing capital and machineries to increase production manifold. This gives the MNCs a ready access to all the products of the local company, as well as a ready market.
  3. Another means by which the MNCs function is by placing orders for finished products from local small producers. Items such as footwear and garments are produced by the local small-scale manufacturing units and supplied to the MNCs, who sell them in the market under their own brand names. However, the MNCs control the price, quality and the working conditions of the local producers. In this way, the MNCs exert a strong influence on the production processes in different countries, which are linked with such a demand-supply chain.

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