MNC’s Role in International Trade

Prepared by:

Chandan Agarwal Bengal Institute of Business Studies

MNCs

Multinational companies(MNCs) are the organizations or enterprises that manage production or offer services in more than one country.

International Trade

International trade is exchange of capital, goods and services across international borders or territories.

EvolutionSince times immemorial.Unexpected expansion after world war II.The post 1990’s has given greater fillip to international trade.The MNC’s which were producing the products in their home countries and marketing them in various foreign countries before 1980’s, started locating their plants and other manufacturing facilities in foreign/host countries.

Advantage of MNCsPromotes economic growthProvides lower-priced, higher-quality goods to consumersBrings capitalTransfers technology: including organizational, management and marketing skillsPay higher wages (increase productivity)Introduces competition to domestic firms

Disadvantage of MNCsForeign business can destroy local businessesThe finance brought into a country by an MNC may be badly managed by that country’s government.Avoidance of taxes by manipulating prices.Market power

-After firms driven out, can exert market power and increase prices, create barriers to entry

Important Facts500 largest MNCS control over ½ of global trade flows and 1/5 of global gdp. 90% of world’s 500 largest MNCs are in North America, Japan and Europe More than 40% of the total exports of China is done by MNCs affiliates.BP (British petroleum) operates in more than 100 countries.Marks & Spencer sources its goods from more than 70 countries.

ONAL?

WHY GO INTERNATIONAL

?Expanding the production Capacities beyond the Demand of the Domestic Country.

Serve Competition in the Home Country.Limited Home Market.Nearness to Raw Materials.Availability of Quality Human Resources at Low

Cost.To Increase Market Share.

Fortune global 500(2010)How country stack up

Country Number of global 500 companies

United States 139

Japan 71

China 46

France 39

India 8

The largest component

of the annual $2.5 trillion

trade in international services is travel and

tourism

Importants of Multinational Companies in India

Huge market potential of the country

FDI attractiveness

Labor competitiveness

Macro-economic stability

WHAT INDIA OFFERS1.1 billion plus populationIndia ranked 10th largest economy, 4th largest in terms of Purchasing Power Parity250-300 million middle classGross Domestic Product (GDP) growing at over 8-9 %, makes it one of the fastest growing economies in the worldEasier access to capital

MNCs in IndiaSince the economic liberalization ushered in 1991, many multinationals in different lines of business have entered the Indian market.The scenario for 'MNC in India' has changed a lot in recent years, since more and more firms from European Union like Britain, Italy, France, Germany, Netherlands, Finland, Belgium etc have outsourced their work to India.Finnish mobile handset manufacturing giant Nokia has the second largest base in India. India is perceived to be at par with China in terms of FDI attractiveness by 'Multinational Companies in India'

“In this century India's economy will be larger than the United States.“

Bill Clinton, Former President of the United States

Thank You