growth of mnc's in india

GROWTH OF MNC’S IN INDIA FROM 2000 TO 2010

INTRODUCTION

Generally, any company or group that derives a quarter of its revenue from operations outside

of its home country is considered a multinational corporation.

MNC must have substantial direct investment in foreign countries

MNC must be engaged in the active management of these overseas assets

MNC is also involved in the management integration of operations located in different countries

It is a corporation/business or entity/enterprise that manages production establishments or

delivers services in at least two countries.MNC’S is an enterprise that manage production or

delivers services more than one country can also be referred to as international corporation.

The term ‘Multinational’ is widely used all over the world to denote large companies having

vast financial, managerial and marketing resources. MNCs are like holding companies having

its head office in one country and business activities spread within the country of origin and

other countries.Multinational corporations play an important role in globalization some

argue that a new form of MNC is evolving in response to globalization the 'globally

integrated enterprise.

First MNC was Dutch East India Co (1602), granted monopoly in colonial trade. Today, UN

estimates about 62,000 MNCs with 900,000 affiliates.MNC’s have existed since 1602, in

which year the first MNC, the Dutch East India Company, was established.

Germany, Belgium and Finland that have made a strong footing in India too. They are well

flourishing and earning their share of maximum profit too.

According to ILO report (i.e. International Labour Organisation) “The essential nature of

the multinational enterprises lies in the fact that its managerial headquarters are located in one

country, while the enterprise carries out operations in number of other countries’.

MNCS will have a demand for many services such as meals, transport, raw materials,

maintenance services that will be provided by domestic businesses, indirectly increasing

employment. Wages should increase as MNC’S will want the best people that the country has

to offer.

1


Wages may be lower on international standards but should be higher than the local standard,

as logically the business will pay its workers more in order to motivate them. • Often MNC’S

are criticised for their wage policies but recent research and statistics prove this wrong.

There are four categories of multinational corporations:

(1) A multinational, decentralized corporation with strong home country presence,

(2) A global, centralized corporation that acquires cost advantage through centralized

production wherever cheaper resources are available,

(3) AN international company that builds on the parent corporation's technology or R&D,

(4) A transnational enterprise that combines the previous three approaches. According to UN

data, some 35,000 companies have direct investment in foreign countries, and the largest 100

of them control about 40 per cent of world trade.

The MNC: The Internalization Process

Foreign involvement

export via agent or distributor

export through sales rep or subsidiary

Local packaging or assembly

FDI

License

Time

2


WHAT ISMULTINATIONAL ORGANISATION

An MNC (Multinational Corporation) is a corporation that has its management headquarters

in one country, known as the home country, and operates in several other countries, known

as host countries.

As the name implies, a multinational corporation is a business concern with operations in

more than one country. These operations outside the company's home country may be linked

to the parent by merger, operated as subsidiaries, or have considerable autonomy.

Multinational corporations are sometimes perceived as large, utilitarian enterprises with little

or no regard for the social and economic well-being of the countries in which they operate,

but the reality of their situation is more complicated.

When a company operates in a home nation established its subsidiary inother nation it

becomes an MNC and there starts the process of globalization where in a local company

serves the entire worlds with itsproducts and services.India has experienced a dramatic

increase in the presence of Multinational Corporation having a tremendous expansion in the

amount of foreign direct investment inflows to the Indian economy. Internet tools like

Google, Yahoo, MSN, E-Bay, Skype, and Amazon makeit easier for the MNCs to reach their

potential customers in the country

There are over 40,000 multinational corporations currently operating in the global economy,

in addition to approximately 250,000 overseas affiliates running cross-continental businesses.

In 1995, the top 200 multinational corporations had combined sales of $7.1 trillion, which is

equivalent to 28.3 per cent of the world's gross domestic product. The top multinational

corporations are headquartered in the United States, Western Europe, and Japan; they have

the capacity to shape global trade, production, and financial transactions. Multinational

corporations are viewed by many as favouring their home operations when making difficult

economic decisions, but this tendency is declining as companies are forced to respond to

increasing global competition.

The modern multinational corporation is not necessarily headquartered in a wealthy nation.

Many countries that were recently classified as part of the developing world, including

Brazil, Taiwan, Kuwait, and Venezuela, are now home to large multinational concerns. The

days of corporate colonization seem to be nearing an end.

3


IBM computer and Pepsi-Cola from U.S.A., Siemens from Germany, Sony and Honda from

Japan Philips from Holland etc., are some of the MNCs operating at international levels.

Introduction Since 1991, India has experienced a dramatic increase in the presence of

Multinational Corporation (MNCs), and with it, a tremendous expansion in the amount of

FOREIGN DIRECT INVESTMENT inflows to the Indian economy.

This paper will analyse the effect with this change has had on Indian entrepreneur. The

overall conclusion reached is that the increased presence of MNCs has had a positive impact

on India entrepreneur. However, India entrepreneur has not even come close to reaching its

potential, and thus, much more change needs to occur.

Country of Origin:

Coca Cola – USA

Dell – USA

Hitachi – Japan

HSBC – UK

LG – South Korea

Nestle – Switzerland

Samsung – South Korea

Sony – Japan

Virgin – UK

Vodafone – UK

Nokia - Finland

4


CHARACTERISTICS OF MNC’S

Following are the some of the important features/characteristics of MNCs:

1. AREA OF OPERATION: - The MNCs operate in many countries with multiple

products on large scale. A MNC may operate both manufacturing and marketing activities in

a number of countries. Some MNCs operate in several countries, whereas, others may operate

in a few countries. Mostly MNCs from developed countries dominate in the world markets.

2. ORIGIN:-The development of MNCs dates back to several centuries, but their real

growth started after the Second World War Majority of the MNCs are from developed

countries like U.S.A, Japan, UK, Germany and European countries. In recent years MNCs

from countries like Korea, Taiwan, India, China, etc. are operating in the world markets.

3. COMPREHENSIVE TERM : - In general, the term ‘MNC’ is a Comprehensive

term and includes international and transnational corporations. The term global corporation is

also included in the list of ‘MNC’.

4. PROFIT MOTIVE: - MNCs are profit oriented rather than social oriented. Such

corporations do not take much interest in the social welfare activities of the host country.

5. MANAGEMENT: - The Parent company works like a holding company. The

subsidiary companies are to operate under control and guidance of parent company. The

subsidiaries functions as per the policies and directions of parent organisation.

6. MANUFACTURE AND MARKETING ACTIVITIES: - MNCs undertake

both Manufacturing and Marketing Activities and they are predominantly engaged in hi-tech

and consumer goods industries. Majority of the MNCs are engaged in pharmaceutical,

petrochemicals, engineering, consumer goods, etc.

5


7. QUALITY CONSCIOUSNESS: - MNCs are quality and cost conscious and

managed by professionals and experts. They have their own organisation culture and systems.

MNCs believe in the concept of total quality management.

8.BRANDING STRATEGIES OF MNCS IN INTERNATIONAL MARKETS:In today’s

global marketplace, MNCs need to set up effective brandingstrategies in order to be

competitive. Depending on the structure of thecompany and the products offered, MNCs

can use different strategies.

9. Their main aim is to obtain the HIGHEST POSSIBLE PROFIT

10. They invest LARGE SUMS OF MONEY

11. THEY AID LOCAL COMPANIES &attain their benefits

12. They operate in more than one country at the same time

Other characteristics are:

13. Big size

14. Huge intellectual capital

15. Operates in many countries

16. Large number of customer

17.Large number of competitors

18. Structured way of decision making

19. Single managerial authority control

20. Worldwide integration, better profitability

21. Global perspective

22.Close coordination in parents & affiliates

23. Worldwide market

OBJECTIVE

6


To expand the business beyond the boundaries of the home country.

Minimize cost of production, especially labour cost.

Capture lucrative foreign market against international competitors.

Avail of competitive advantage internationally.

Achieve greater efficiency by producing in local market and then exporting the

products.

Make best use of technological advantages by setting up production facilities abroad.

Establish an international corporate image

MNC’S STRUCTURE

1. Horizontally integrated multinational corporations : Horizontally integrated

multinational corporations manage production establishments located in different

countries to produce the same or similar products. (example: McDonald's )

2. Vertically integrated multinational corporations :Vertically integrated

multinational corporations manage production establishment in certain country/countries

to produce products that serve as input to its production establishments in other

country/countries. (example: Adidas )

3. Diversified multinational corporations :

diversified multinational Corporations do not manage production establishments located

in different countries that are horizontally nor vertically nor straight, nor non-straight

integrated. (example: Hilton Hotels )

ADVANTAGES OF MNCS TO THE HOST COUNTRY:

7


1. Transfer of technology, capital and entrepreneurship.

2. Increase in the investment level and thus, the income and employment in the host

Country.

4. Greater availability of products for local consumers.

5. Increase in exports and decrease in imports.

ADVANTAGES OF MNCS TO THE HOME COUNTRY.

1. Acquisition of raw materials from abroad.

2. Technology and management expertise acquired from competing in global markets.

3. Export of components and finished goods for assembly or distribution in foreign markets.

4. Inflow of income from overseas profits, royalties and management contracts.

TYPES OF MULTINATIONAL CORPORATIONS:

8


1. ETHNOCENTRIC: These are the type of MNCs which have strong orientation

towards home country. This means that home country people are considered as superior and

allocated all key posts.

2. POLYCENTRIC: Just opposite to Ethnocentric polycentric type of MNCs has

strong orientation towards host country where few key people are nationals and remaining are

from the host country.

3. REGIOCENTRIC AND GEOCENTRIC: These MNCs have their

concentration in whole world and they make selection for best employees whether they are

from host country or home country it does not matter.

HOW IS A COMPANY CLASSIFIED AS AN A MNC’S?

1. Subsidiary in foreign countries

2. Stakeholders are from different countries.

3. Operations in a number of countries

4. High proportion of assets in or/ and revenues from global operations;

The list of top ten MNCs working in Asia follows:

1. Microsoft

2. Nokia

3. McDonald's

4. IBM

5. Coca-Cola

6. Intel

7. Walt Disney

8. Nestle

MNCS: BENEFITS & COSTS

MNCs benefit less-developed countries, but also impose costs on them

9


MNC investments fuel the local growth-engines:

Higher wage-incomes, stimulating local businesses

Training, human capital build higher-skilled labour force

Contribute to government taxes & fees, or revenues by purchasing and privatizing

existing national assets

COST OF CAPITAL

A firm’s capital consists of equity (retained earnings and funds obtained by issuing stock) and

debt (borrowed funds). The cost of equity reflects an opportunity cost, while the cost of debt

is reflected in interest expenses. Firms want a capital structure that will minimize their cost of

capital and hence the required rate of return on projects.

The cost of capital for MNCs may differ from that for domestic firms because of the

following differences.

1. Size of Firm : Because of their size, MNCs are often given preferential treatment by

creditors. They can usually achieve smaller per unit flotation costs too.

2. Access to International Capital Markets : MNCs are normally able to obtain

funds through international capital markets, where the cost of funds may be lower.

3. International Diversification : MNCs may have more stable cash inflows due to

international diversification, such that their probability of bankruptcy may be lower.

4. Exposure to Exchange Rate Risk : MNCs may be more exposed to exchange

rate fluctuations, such that their cash flows may be more uncertain and their

probability of bankruptcy higher.

10


5. Exposure to Country Risk .: MNCs that have a higher percentage of assets

invested in foreign countries are more exposed to country risk.

Example: The coca cola recent annual report stated “Our global presence and strong capital

position afford us easy access to key financial markets around the world, enabling us to raise

funds with a low effective cost. This posture, coupled with the aggressive management of our

mix of short-term and long-term debt, results in a lower overall cost of borrowing.”

PROFIT OF MNCS IN INDIA

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

11


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:

1. Huge market potential of the country

2. FDI attractiveness

3. Labour competitiveness

4. Macro-economic stability

HISTORY AND EVALUTION OF MNCS

12


FIRST MNC’S IN WORLD: DUTCH EAST INDIA COMPANY

East India Company, Dutch, 1602–1798, chartered by the States-General of the Netherlands

to expand trade and assure close relations between the government and its colonial

enterprises in Asia. The company was granted a monopoly on Dutch trade E of the Cape of

Good Hope and W of the Strait of Magellan. From its headquarters at Batavia (founded 1619)

the company subdued local rulers, drove the British and Portuguese from Indonesia, Malaya,

and Ceylon (Sri Lanka), and arrogated to itself the fabulous trade of the Spice Islands. A

colony, established (1652) in South Africa at the Cape of Good Hope, remained Dutch until

conquered by Great Britain in 1814. The company was dissolved when it became

scandalously corrupt and nearly insolvent in the late 18th cent., and its possessions became

part of the Dutch colonial empire in East Asia.

The history of the Dutch East India Company, founded in 1602 and declared bankrupt in

1799, spans almost the whole of the seventeenth and eighteenth centuries. For much of this

time it was the world’s largest trading company, owning, at the height of its wealth and

power, more than half the world’s sea-going shipping – with its characteristic ship, the

‘fluyt’, also being produced for the merchant marines of other countries, including England.

It was known internationally by its distinctive VOC monogram, the initials standing for

‘Verenigde OstindischeCompagnie’ – or simply the United East India Company.

FIRST MNC’S IN INDIA: IBM (headquartered in Armonk, New

York, United States)

13


International Business Machines Corporation abbreviated IBM and nicknamed "Big Blue” .It

is a Multinational computer technology and IT consulting corporation.

It’s headquartered inArmonk, New York, United States

The company is one of the few information technologyinformation technology and

companies with acontinuous history dating back to the 19th century.

IBM manufactures and sells computer hardware andsoftware (with a focus on the latter), and

offersinfrastructure services, hosting service, and consultingservices in areas ranging from

mainframe computers toand technology.

IBM was rated the No. 1 company amongst all IT companies in India on 'Employee

Satisfaction with Training' in Dataquest Top Employer Survey 2003 - An indication of how

Training is an integral part of life at IBM. Besides equipping our employees with newer sets

of skills every day, IBM's Training & Learning programs reflect our core belief that our

workforce is primed continually to face challenges every day. Join us and find out how far

you can go with IBM………

At IBM it is important to strike an optimum balance between work and play. So, while you

work among other extremely bright and talented individuals like yourself who share the same

desire and passion for what they do, you will also have a life along the way! IBM is

committed to creating a supportive work environment that allows the employee control over

how, where and when his/her work gets done. IBMers benefit from policies and programs

supporting work/life balance, including flexi-timing, working from home and mobility

options.

FIRST INDIAN MNCS : INFOSYS

14


These corporations originated early in the 20th century and expanded after World War II.A

Multinational Corporation developed new products in its native country and manufactured

them abroad.Almost all the earliest and largest multinational firms were either American,

Japanese, or West European

During the last three decades, many smaller corporations have also become

multinational.Such enterprises maintain that they create employment, create wealth, and

improve technology in countries.

Multinational business operation is not a new concept. The British east India company,

Hudson’s bay corporation and Royal Africa companies are example of MNCs. The post

second world war period has however, witnessed a changing hand in colonialism and there

emerged a new thrusts for industrial and technological development as well as rise of the

USA as the largest industrial power.

. The Dutch East India Company was the first multinational corporation in the world and the

first company to issue stock It was also arguably the world’s first mega corporation

possessing quasi-governmental powers, including the ability to wage war, negotiate treaties,

coin money, and establish colonies. The first modern multinational corporation is generally

thought to be the East India Company. Many corporations have offices, branches or

manufacturing plants in different countries from where their original and main headquarters

is located.

HISTORY AND EVOLUTION OF ITC LTD

15


ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of

India Limited. As the Company's ownership progressively Indianised, the name of the

Company was changed from Imperial Tobacco Company of India Limited to India Tobacco

Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the

Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes &

Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-

business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the full

stops in the Company's name were removed effective September 18, 2001. The Company

now stands rechristened 'ITC Limited'.ITC's Packaging & Printing Business was set up in

1925 as a strategic backward integration for ITC's Cigarettes business. It is today India's most

sophisticated packaging house.

ITC is a board-managed professional company, committed to creating enduring value for the

shareholder and for the nation. It has a rich organisational culture rooted in its core values of

respect for people and belief in empowerment. Its philosophy of all-round value creation is

backed by strong corporate governance policies and systems

The Company’s beginnings were humble. A leased office on Radha Bazar Lane, Kolkata,

was the centre of the Company's existence. The Company celebrated its 16th birthday on

August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed

J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was

historic in more ways than one. It was to mark the beginning of a long and eventful journey

into India's future. The Company's headquarter building, 'Virginia House', which came up on

that plot of land two years later, would go on to become one of Kolkata's most venerated

landmarks.

Three Stages of Evolution

1. Export stage

Initial inquiries => firms rely on export agents

Expansion of export sales

16


Further expansion þ foreign sales branch or assembly operations (to save transport

cost)

2. Foreign Production Stage

There is a limit to foreign sales (tariffs, NTBs)

DFI versus Licensing

Once the firm chooses foreign production as a method of delivering goods to foreign markets,

it must decide whether to establish a foreign production subsidiary or license the technology

to a foreign firm.

Licensing

Licensing is usually first experience (because it is easy)

e.g.: Kentucky Fried Chicken in the U.K.

It does not require any capital expenditure

It is not risky

Payment = a fixed % of sales

Problem: the mother firm cannot exercise any managerial control over the licensee (it

is independent)

The licensee may transfer industrial secrets to another independent firm, thereby

creating a rival.

Direct Investment

It requires the decision of top management because it is a critical step.

It is risky (lack of information) (US -> Canada)

Plants are established in several countries

Licensing is switched from independent producers to its subsidiaries.

Export continues

17


3. Multinational Stage

The company becomes a multinational enterprise when it begins to plan, organize and

coordinate production, marketing, R& D, financing, and staffing. For each of these

operations, the firm must find the best location.

Rule of Thumb

A company whose foreign sales are 25% or more of total sales. This ratio is high for small

countries, but low for large countries, e.g. Nestle (98%: Dutch), Phillips (94%: Swiss).

WHAT IS THE FUTURE OF MNCS IN INDIA?

Current trends in the international marketplace favour the continued development of

multinational corporations. Countries worldwide are privatizing government-run industries,

and the development of regional trading partnerships such as the North American Free Trade

Agreement (a 1993 agreement between Canada, Mexico, and United States) and the

European Union have the overall effect of removing barriers to international trade.

Privatization efforts result in the availability of existing infrastructure for use by

18


multinationals seeking to enter a new market, while removal of international trade barriers is

obviously a boon to multinational operations.

Perhaps the greatest potential threat posed by multinational corporations would be their

continued success in a still underdeveloped world market. As the productive capacity of

multinationals increases, the buying power of people in much of the world remains relatively

unchanged;this could lead to the production of a worldwide glut of goods and services. Such

a glut, which has occurred periodically throughout the history of industrialized economies,

can in turn lead to wage and price deflation, contraction of corporate activities, and a rapid

slowdown in all phases of economic life. Such a possibility is purely hypothetical, however,

and for the foreseeable future the operations of multinational corporations worldwide are

likely to continue to expand.

MNC IN INDIA ARE ATTRACTED TOWARDS:

India’s large market potential

India presents a remarkable business opportunity by virtue of its sheer size and growth

Labour competiveness

FDI attractiveness

GOVERNMENT SUPPORT:

Both revenue and capital expenditure on R&D are 100% deductible from taxable

income under the Income Tax Act.

A weighted tax deduction of 125% is allowed for sponsored research in approved

national laboratories and institutions of higher technical education.

19


A weighted tax deduction of 150% is allowed on R&D expenditure by companies in

government-approved in- house R&D centres in selected industries.

A company whose principal objective is research and development is exempt from

income tax for ten years from its inception.Accelerated depreciation is allowed for

investment in plant and machinery made on the basis of indigenous technology.

Customs and excise duty exemptions for capital equipments and consumables

required for R&D.

Excise duty exemption for three years on goods designed and developed by a wholly

owned Indian company and patented in any two countries out of: India, the United

States, Japan and any country of the European Union.

POLICIES THAT HELPED MNCs GROW IN INDIA

FDI Policy : Most sectors including manufacturing activities permitted 100% FDI

under automatic route (No prior approval required)

Industrial Licensing : Licensinglimited to only5 sectors (security, public health &

safety considerations)

20


Exchange Control: All investments are on repatriation basis.

Original investment,profits and dividend can be freely repatriated

Taxation: Companies incorporated in India treated as Indian companies for taxation

Convention on Avoidance of Double Taxation with 71 countries including Korea

WHY MNC’S IN INDIA

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.

GROWTH OF MNC’S IN INDIA

NUMBER OF COMPANIES

21


Geographical distribution of largest companies

Most of the largest companies, by revenue, are American or Japanese. In 1996, 162 of the

500 largest companies globally were from the United States and 126 from Japan. Only a few

of the largest companies are from developing countries. An exception is China, which has

three entries in the top 500 list (Fortune Magazine, Top 500 and Biggest revenues and

increases in revenues: http://www.fortune.com)

Measured by foreign assets, the distribution of the largest companies looks very much the

same. Most of the top 100 companies with largest foreign assets are from the United States,

Japan, the United Kingdom, France and Germany. In this list, Japanese companies are not as

prominent.

22


In 1995, the list of the top 100 transnational corporations (TNCs), measured by foreign

assets, included two companies from developing countries for the first time. These were

Daewoo and Venezuela (Oil Company). Total foreign assets of the top 100 TNCs in 1995

amounted to $1.7 trillion, while total foreign sales were $2 trillion, and total employment

5,800,000.

In 1996, the total revenues of the 500 largest companies globally were $11.4 trillion, total

profits were $404 billion, total assets were $33.3 trillion, and the total number of employees

was 35,517,692. The top ten companies accounted for 11.7% of the total revenues of the top

500, 15% of profits, and 13.6% of employment, according to Fortune Magazine.

23


America was home to 31 of the 50 most profitable firms, and seven of the top ten. The most

profitable, however, was Shell (the Netherlands) – with profits of $8.9 billion. Shell's profits

increased by 28.7% over 1995.

In 1996, the top 500 companies did not get bigger, they got richer. Their profits increased by

25.1%, while revenues increased only by 0.5%, assets by 3.5%, and the number of employees

by 1.1%.

Only in Western Europe and United States largest companies are top

MNCs

Most of the largest American and European companies in terms of revenues are also the

largest in terms of foreign assets. The largest American companies, by revenue, are GM, Ford

and Exxon. By foreign assets, the largest American companies are Ford, GE, Exxon and GM

(data of the United Nations Conference on Trade and Development, UNCTAD).

Shell, which is the only European company among the ten largest by revenues, also had the

largest foreign assets ($79.7 billion) in 1995 (Fortune Magazine and UNCTAD).Compared to

their revenues; large Japanese companies have fairly modest foreign assets. For example,

Mitsui had foreign assets of $16.6 billion, Itochu $15.1 billion, Marubeni $13.4 billion,

Sumitomo $12.0 billion, and Toyota $36.0 billion in 1995 (UNCTAD).

SECTOR WISEGROWTH:BANKING SECTOR

India's banking sector is booming at a great pace in spite of its relatively small size in

comparison of its counterparts in other leading economies. Indian banking sector has been

found lucrative by eminent players from the international world. For e.g.In India, Citibank

and Standard Chartered Bank has more than half of all credit card receivables and personal

loans, which has generated more than Rs. 200 crore of profit for both banks. In 2003, Oriental

Bank of Commerce was listed by Forbes magazine in its 'Global 200 Best Companies' list. In

1990s, after a long gap of more than 20 years, the apex bank, Reserve Bank of India (RBI)

has issued licenses to 9 new private banks. In this, Times Bank got merged with the HDFC

24


Bank. The RBI also allowed Kotak Mahindra Finance Company to become a bank. These

banks have shown their edge over each other’s with the introduction of new products and

technologies. Most of the banks paid their focus on the retail sector and provide internet

banking, phone banking and mobile banking services to their customers and have cornered

one of the largest segments of the India's banking sector by targeting the India's growing

middle income class. The Indian banking sector has seen a proliferation of new services

which has shown an improvement in customer service.

Indian banking sector's growth to remain high

MUMBAI: Despite intense competition and high inflationary pressures, India's banking

sector will continue to show high growth owing to the country's strong economic expansion,

credit rating agency Standard & Poor's (S&P) said on Thursday.

"Growth in India's banking sector will remain high, bolstered by sound economic growth

prospects. “Thegross non-performing loans (NPLs) for our portfolio of rated Indian banks

increased to 2.5 per cent as of March 31, 2010, from 2.2 per cent a year ago. This was in line

with our expectations," the ratings agency said.

It added, however, that the increase in NPLs was contained by the quick economic recovery,

modest leverage and low sectorial concentration in the banks' loan books. Besides this, the

banks had low exposure to sensitive sectors.

Economic Reforms of the Banking Sector In India

Indian banking sector has undergone major changes and reforms during economic reforms.

Though it was a part of overall economic reforms, it has changed the very functioning of

Indian banks. This reform have not only influenced the productivity and efficiency of many

of the Indian Banks, but has left everlasting footprints on the working of the banking sector in

India.

25


1. Reduced CRR and SLR : The Cash Reserve Ratio (CRR) and Statutory

Liquidity Ratio (SLR) are gradually reduced during the economic reforms period in

India. By Law in India the CRR remains between 3-15% of the Net Demand and Time

Liabilities. It is reduced from the earlier high level of 15% plus incremental CRR of

10% to current 4% level. Similarly, the SLR Is also reduced from early 38.5% to

current minimum of 25% level. This has left more loanable funds with commercial

banks, solving the liquidity problem.

2. Deregulation of Interest Rate : During the economic reforms period, interest

rates of commercial banks were deregulated. Banks now enjoy freedom of fixing the

lower and upper limit of interest on deposits. Interest rate slabs are reduced from Rs.20

Lakhs to just Rs. 2 Lakhs. Interest rates on the bank loans above Rs.2 lakhs are full

decontrolled. These measures have resulted in more freedom to commercial banks in

interest rate regime.

3. Introduction of CRAR :Capital to Risk Weighted Asset Ratio (CRAR) was

introduced in 1992. It resulted in an improvement in the capital position of commercial

banks, all most all the banks in India has reached the Capital Adequacy Ratio (CAR)

above the statutory level of 9%.

4. Improved Profitability and Efficiency :During the reform period, the

productivity and efficiency of many commercial banks has improved. It has happened

26


due to the reduced Non-performing loans, increased use of technology, more

computerization and some other relevant measures adopted by the government.

With these reforms, Indian banks especially the public sector banks have proved that they are

no longer inefficient compared with their foreign counterparts as far as productivity is

concerned.

SERVICE SECTOR:

Service Sector in India today accounts for more than half of India's GDP.

According to data for the financial year2006-2007, the share of services, industry and

agriculture in India’s GDP is 55.1% 26.4% and 18.5% respectively

27


The sector, growing by 10 per cent annually, contributes 55.2 per cent to the GDP and a

quarter of total employment. It also contributes over one-third of country's total exports,

besides accounting for a higher share in foreign direct investment (FDI), the Survey noted.

As per the advance estimates for 2010-11, the two broad services categories -- trade, hotels,

transport and communication and financing, insurance, real estate and business services --

have performed well with growth of 11 per cent and 10.6 per cent, respectively.

The survey said only community; social and personal services have registered a low growth

of 5.7 per cent, thuscontributing to the slight deceleration in the growth of the sector.

Service sector and its growth

It mainly consists of following:

28


Trade, Hotels and Restaurants , Railways ,Other Transport & Storage, Communication (Post,

Telecom) ,Banking ,Insurance ,Dwellings, Real Estate, Business Services ,Public

Administration, Defence ,Personal Services ,Community Services ETC.

Reasons for growth

1. Strong growth in foreign demand

2. Liberalisation

3. Sophistication in the information technology

4. Foreign Investment and Deregulation

5. (36% between 1992-2002)

6. Greater private sector participation

7. Increased private consumption of services ( 64 % of India’s GDP-Europe-58%,Japan-

55%)

Ministry of commerce FDI inflow 2000-2009

SHARE OF TOP INVESTING COUNTRIES: FDI EQUITY INFLOWS(FINANCIAL YEAR-

WISE)

Amount Rupees in crores (US$ in million)

Rank Country 2006-07

(April-

2007-08

(April-

2008-09

(April-

2009-10

(April-

October

Cumulative

Inflows

(April ‘00 to

Percentage

to total

Inflow (in

29


March) March March) ‘09) October ‘09) terms of

rupees)

1 Mauritius 28,759

(6,363)

44,483

(11,096)

50,794

(11,208)

36,572

(7,550)

197,845

(44,415)

44

2 Singapore 2,662

(578)

12,319

(3,073)

15,727

(3,454)

6,456

(1,335)

40,307

(9,146)

9

3 Us 3,861

(856)

4,377

(1,089)

8,002

(1,802)

6,359

(1,322)

34,318

(7,657)

8

4 Uk 8,389

(1,878)

4,690

(1,176)

3,840

(864)

1,636

(340)

24,541

(5,567)

5

5 Netherlands 2,905

(644)

2,780

(695)

3,922

(883)

3,224

(670)

19,076

(4,260)

4

6 Japan 382

(85)

3,336

(815)

1,889

(405)

4,590

(950)

4,590

(950)

3

7 Cyprus 266

(58)

3,385

(834)

5,983

(1,287)

5,557

(1,155)

15,607

(3,428)

3

8 Germany 540

(120)

2,075

(514)

2,750

(629)

2,160

(449)

11,648

(2,622)

3

9 France 528

(117)

583

(145)

2,098

(467)

1,119

(234)

6,601

(1,461)

1

10 UAE 1,174

(260)

1,039

(258)

1,133

(257

2,591

(537)

6,597

(1,457)

1

TOTAL

FDI

INFLOWS

*

70,630

(15,726)

98,664

(24,579)

122,919

(27,329)

85,273

(17,644)

478,399

(107,484) ------

COUNTRY WISE

FDI inflows into BRIC countries, 2005-08 (US$ billions

30


2005 2006 2007 20080

20

40

60

80

100

120

INDIARUSSIABREZILCHINA

US

United States is India's second largest source of FDI, second largest trade partner after EU

and the largest services export destination. There is significant potential for India and the US

to further strengthen their economic ties, by effectively leveraging India’s inherent

advantages.

JAPAN:

India is certainly more friendly with Japan. There is a CEPA (comprehensive economic

partnership agreement) signed for free trade and there are also plans to celebrate India and

Japan's 60 years of partnership.

31


As Asian MNCs grow in size, their need for executive talent, and their ability to pay for that

talent, will rise proportionately, if not faster than their Western counterparts. Yet, Asia’s

emerging MNCs often can be at a disadvantage when recruiting top talent, despite their

increasing need for such talent.

32


This is the top 10 as published in July 2011. It is based on the companies' fiscal

year ended on or before 31 March 2011

Rank Company Country Feild

1 Wall mart stores United stores retail

2 Royal Dutch shell Netherlands petroleum

3 Exxon mobile United states petroleum

4 BP united kingdom petroleum

5 Sinopec china petroleum

6 China national

petroleum

china petroleum

7 State grid china power

8 Toyota motors japan automobile

33


SECTOR WISE GROWH OF MNC’S

8%

15%

28%

15%

24%

10%

Sales

banking and insurancechemicals and petroliumother sectorconsumer durables and other consumer productsindustrial equipment and systemfood products and beverages

Role of Multinational Corporations

34


Multinational corporations (MNCs) are huge industrial organizations having a wide network

of branches and subsidiaries spread over a number of countries. The two main characteristics

of MNCs are their large size and the fact that their worldwide activities are centrally

controlled by the parent companies. Such a company may enter into joint venture with a

company in another country. There may be agreement among companies of different

countries in respect of division of production, market, etc. These companies are to be found

in almost all the advanced countries, with the USA perhaps the biggest amongst them. Their

operations extend beyond their own countries, and cover not only the advanced countries but

also the LDCs.

Many MNCs have annual sales volume in excess of the entire GNPs of the developing

countries in which they operate. MNCs have great impact on the development process of the

Underdeveloped countries.

MNC's plays an important role in boosting up Indian Economy. In support of this we can say,

MNC's bring foreign investors to India and hence helps in globalization of Indian Market.

Arguments for MNCs (The positive role:) The MNCs play an important role

in the economic development of underdeveloped countries.

35


1. Filling Savings Gap: The first important contribution of MNCs is its role in filling the

resource gap between targeted or desired investment and domestically mobilized savings. For

example, to achieve a 7% growth rate of national output if the required rate of saving is 21%

but if the savings that can be domestically mobilised is only 16% then there is a ‘saving gap’

of 5%. If the country can fill this gap with foreign direct investments from the MNCs, it will

be in a better position to achieve its target rate of economic growth.

2.Filling Trade Gap: The second contribution relates to filling the foreign exchange or

trade gap. An inflow of foreign capital can reduce or even remove the deficit in the balance of

payments if the MNCs can generate a net positive flow of export earnings.

3. Filling Revenue Gap: The third important role of MNCs is filling the gap between

targeted governmental tax revenues and locally raised taxes. By taxing MNC profits, LDC

governments are able to mobilize public financial resources for development projects.

4. Filling Management/Technological Gap: Fourthly, Multinationals not only

provide financial resources but they also supply a “package” of needed resources including

management experience, entrepreneurial abilities, and technological skills. These can be

transferred to their local counterparts by means of training programs and the process of

‘learning by doing’.

Moreover, MNCs bring with them the most sophisticated technological knowledge about

production processes while transferring modern machinery and equipment to capital poor

LDCs. Such transfers of knowledge, skills, and technology are assumed to be both desirable

and productive for the recipient country.

5.Other Beneficial Roles: The MNCs also bring several other benefits to the host

country.

(a)The domestic labour may benefit in the form of higher real wages.

36


(b) The consumers benefits by way of lower prices and better quality products.

(c) Investments by MNCs will also induce more domestic investment. For example, ancillary

units can be set up to ‘feed’ the main industries of the MNCs

(d) MNCs expenditures on research and development (R&D), although limited is bound to

benefit the host country.

Apart from these there are indirect gains through the realization of external economies.

Arguments Against MNCs(The negative role): There are several

arguments against MNCs which are discuss below.

1. Although MNCs provide capital, they may lower domestic savings and investment rates by

stifling competition through exclusive production agreements with the host governments.

MNCs often fail to reinvest much of their profits and also they may inhibit the expansion of

indigenous firms.

2. Although the initial impact of MNC investment is to improve the foreign exchange

position of the recipient nation, its long-run impact may reduce foreign exchange earnings on

both current and capital accounts. The current account may deteriorate as a result of

substantial importation of intermediate and capital goods while the capital account may

worsen because of the overseas repatriation of profits, interest, royalties, etc.

3. While MNCs do contribute to public revenue in the form of corporate taxes, their

contribution is considerably less than it should be as a result of liberal tax concessions,

excessive investment allowances, subsidies and tariff protection provided by the host

government.

4. The management, entrepreneurial skills, technology, and overseas contacts provided by the

MNCs may have little impact on developing local skills and resources. In fact, the

development of these local skills may be inhibited by the MNCs by stifling the growth of

indigenous entrepreneurship as a result of the MNCs dominance of local markets.

37


5. MNCs’ impact on development is very uneven. In many situations MNC activities

reinforce dualistic economic structures and widen income inequalities. They tend to promote

the interests of some few modern-sector workers only. They also divert resources away from

the production of consumer goods by producing luxurious goods demanded by the local

elites.

6. MNCs typically produce inappropriate products and stimulate inappropriate consumption

patterns through advertising and their monopolistic market power. Production is done with

capital-intensive technique which is not useful for labour surplus economies. This would

aggravate the unemployment problem in the host country.

7. The behaviour pattern of MNCs reveals that they do not engage in R & D activities in

underdeveloped countries. However, these LDCs have to bear the bulk of their costs.

8. MNCs often use their economic power to influence government policies in directions

unfavourable to development. The host government has to provide them special economic

and political concessions in the form of excessive protection, lower tax, subsidized inputs,

cheap provision of factory sites. As a result, the private profits of MNCs may exceed social

benefits.

REASON FOR SLOW GROWTH

Some problems are shared by domestic corporations

Taking advantage of limited liability

38


Mining companies take out resources, distribute profits, leaving no money To

clean up mess

Use of economic power to get favourable legislation

Campaign contributions

Distorted information (cigarette companies oil companies)

Massive cheating in hard-to-detect ways

Even in U.S.—Exxon in Alaska and Alabama cases

Required extra-ordinarily sophisticated detection, beyond capability of most

developing countries

If this happens in U.S., what must be happening elsewhere?

power—to get special legislation and treatment that benefits themselves,

regulations, short circuiting environmental, health, worker regulations

Sometimes they seek, and get, special tax and tariff treatment; sometimes simply

persuading governments not to enforce existing regulations

Sometimes special treatment is above board—necessary to induce

corporation to come; but sometimes based on corruption

Leverage economic power with political power

Lack of “moral sensibilities” (or weaknesses in public pressure)

R&D CENTERS IN INDIA HELP MNCS TO SAVE $40 BILLION

The cost of running R&D Centers in India has continued to decline over the last two years.

R&D Centers of MNCs in India have generated significant cost savings for their headquarters

because of the lower operating costs over the years.

39


According to a study titled ‘R&D Operations Cost 2010 - The Need to Look Beyond Cost

Control’ by the management consulting firm Zinnov Management Consulting, R&D centers

in India have helped parent organizations save a total of $40 billion in the last three years.

Currently, the cost of running R&D centers in India stands at ` 18.2 lakh per person per year.

It reveals that the cost has declined by 0.9 per cent in Rupee terms, 4 per cent in U.S. Dollar

terms, and 3.3 per cent in Euro terms in FY 2010, indicating signs of continued cost

optimization due to the constrained economic environment. The decline was primarily driven

by strict budgetary constraints of R&D centers of global companies in the form of minimal or

no salary increments, focus on variable pay, freeze on hiring, and cost optimization across

infrastructure, travel, and communication.

Bringing into perspective a comparative analysis of cities, the study says that the Bangalore-

based companies incur higher cost as compared to the other cities.

FDI POLICY AND ITS IMPACT ON MNC’S

FOREIGN DIRECT INVESTMENT POLICY

MNCs are source of FDI, the movement of capital across national borders that grants the

investor control over an acquired asset.

40


FDI may comprise > 20% of global GDP.

In its recent foreign direct investment (FDI) policy, the Government of India had announced

additional methods for issue of shares for consideration other than cash, such as: (a) import of

capital goods/ machinery/ equipment (including second-hand machinery); (b) pre-operative/

pre-incorporation expenses (including payments of rent, etc.). The RBI has now implemented

these schemes by prescribing the detailed conditions on which this share issuance facility will

be available to Indian companies.)

Foreign direct investment (FDI) has become a key battleground for emerging markets and

some developed countries. Government-level policies are needed to enable FDI inflows and

maximize their returns for both investors and recipient countries.

Foreign direct investment (FDI) has become a key battleground for emerging markets and

some developed countries. Government-level policies are needed to enable FDI inflows and

maximize their returns for both investors and recipient countries.

Foreign direct investment (FDI) policies play a major role in the economic growth of

developing countries around the world. Attracting FDI inflows with conductive policies has

therefore become a key battleground in the emerging markets.

Developed countries also seek to bring in more FDI and use various policies and incentives to

attract overseas investors, particularly for capital-intensive industries and advanced

technology.

The primary aim of these policies is to create a friendly business environment where foreign

investors feel comfortable with the legal and financial framework of the country, and have

the potential to reap profits from economically viable businesses. The prospect of new growth

opportunities and outsized profits encourages large capital inflows across a range of industry

and opportunity types.

Investors tend to look for predictable environments where they understand how decision-

making processes work. Governments therefore are incentivized to build up a track record of

rational decision making. The business environment often requires work to remove onerous

regulations, reduce corruption and encourage transparency. Governments often also seek to

improve their domestic infrastructure to meet the operational needs of investors.

Providing fiscal incentives for attracting FDI is a subject of controversy – analysts have

argued both in favour and against the idea. A general consensus is developing in favour of

41


certain incentives which have been proven historically to grow profits and therefore foreign

investments.

When policies are effective, significant FDI investments are injected into countries that help

the domestic economy to grow. Different countries and regions offer various kinds of fiscal

incentives, with a related variance in the level of FDI investments attracted.

Governments are increasingly setting up promotional agencies to foster foreign direct

investment. These agencies promote FDI-friendly policies, identify prospective sectors and

investors, and structure specific deals and incentives for major foreign investors such as

multi-national corporations (MNCs).

Global trade associations also play a major role in some of these investment activities. These

associations are tasked with creating a positive environment for foreign direct investors and

ensuring that both investors and recipient countries enjoy a favourable environment.

The formation of human capital is vital for the continued growth of FDI inflows. To enable

the most beneficial, technology and IP-driven FDI, highly skilled personnel are necessary.

Governments must therefore enact policies to provide training and skills upgrading to

develop their workforce and meet the employment needs of foreign investors.

The advantages of FDI are as follows.

1. It supplements the meagre domestic capital available for investment and helps set up

productive enterprises.

2. It creates employment opportunities in diverse industries.

3. It boosts domestic production as it generally comes in a package - money, technology etc.

4. It paves the way for internationalisation of markets with global standards and quality

assurance and performance based budgeting.

5. It pools resources productively - money, manpower, technology.

6. It creates more and new infrastructure.

7. For the home country it a good way to take advantage in a favourable foreign investment

climate (e.g. low tax regime).

42


8. For the host country FDI is a good way of improving the BoP position.

FDI is prohibited in only the following activities:

i. Retail Trading (except single brand product

retailing);

ii. Atomic Energy;

iii. Lottery Business;

iv. Gambling and Betting;

v. Business of chit fund;

Vi.Nidhi Company;

vii. Trading in Transferable Development Rights

(TDRs); and

viii. Activities/sectors not open to private sector

Investment.

GROWTH IN FDI

FDI equity inflows into India :

Thirteen-fold growth between 2003-04 and 2009-10

FDI inflows into India:

43


In terms of international practices of calculating FDI (i.e. by taking into account re-

invested earnings and other capital), FDI inflows were nearly US $ 37.18 billion

during 2009-10

Stable pace of inflows:

FDI inflows have somewhat flattened out over the course of the last three years

However, the pace of inflows has been stable This is including during 2009-10, at the

height of the global economic slowdown

This is despite a significant fall in global FDI inflows

Global FDI flows to India down 31% in 2010

However, China and other countries in South-East Asia continued to witness massive FDI

flows, UNCTAD said in its Global Investment Trends Monitor report issued on Tuesday.

UNCTAD says global FDI flows remained almost stagnant in 2010, increasing by 1 per cent

to $1.122 trillion. UNCTAD forecasts that global FDI flows are likely to remain between

$1.3 trillion and $1.5 trillion in 2011. FDI inflows into India amounted to just $23.7 billion

last year, as against US$34.6 billion in 2009. “In India, we have seen a sharp decline and we

can’t explain why this has happened,” said UNCTAD Investment & Enterprise Division

Chief, James X Zhan, who prepared the investment report.

“We don’t have the analysis,” he said, maintaining that the decline in global FDI flows into

India was based on the figures compiled by the central bank.

However, in sharp contrast, China received FDI worth$274.6 billion last year, compared to

$233 billion in 2009. There is a “structural change,” Zhan said in regard to the higher FDI

flows to China, which is receiving huge investments on services and research and

development activities.

Many Western companies have shifted their research facilities to China and there is rapid

development in the hinterlands of the Communist country as well. The sharp increase in

global FDI flows to East and South-East Asian countries and Latin American nations in 2010

44


marked the first time that developing countries outpaced rich nations in attracting foreign

investments.

China, Hong Kong and other South-East Asian countries like Indonesia, Malaysia, Singapore

and Thailand were the main beneficiaries of the heightened FDI flows in the form of mergers

and acquisitions (M&As) and greenfield investment.

Part of the reason for the stagnant investment flows the world-over was largely due to the

poor performance of the developed economies, especially European countries, which were

the worst-hit by the global financial turmoil. The United States, which was the epicentre of

the global economic meltdown in 2008, is gradually recovering from the crisis, with FDI

flows increasing by 40 per cent last year to $186.1 billion from $129.9 billion in 2009.

“The quarterly fluctuations during 2010 indicate that the worldwide FDI recovery is still

hesitant,” said the report.

Several risk factors such as the slow global economic recovery, investment protectionism,

rising sovereign debt and continued volatility in the currency markets are likely to slow down

the pace of foreign direct investment across the globe in 2011, it said.

FDI Approvals in 2007

The FDI Approvals in 2007 resulted in stupendous rise of the Indian Services, Computer

Software & Hardware and Telecommunication sectors. The cumulative amount of Foreign

45


Direct Investment in India during the period from April 2007 to October 2007 was Rs

269,786 Crores.

This resulted in significant growth in areas like industrial production, agriculture, food grain

production, imports, exports and wholesale price indexes, which further fuelled growth,

productivity and employment in India.

The main countries that contributed to the inflow of FDI in India during

April 2007 to October 2007 were -

Mauritius ,USA ,UK ,Netherlands ,Singapore ,Japan ,Germany ,France , Switzerland,

Cyprus ,

The main sectors which contributed to the bulk of the FDI inflow in India

during April 2007 to October 2007 were -

Services sector - including financial and non-financial sector

Computer Software and Hardware

Telecommunication - including radio paging, cellular mobile and basic telephony

Automobile industry

Housing and real estate

Power

Chemicals - other than fertilizers

Metallurgical industries

Drug and pharmaceuticals

The main Indian states that attracted the bulk of the FDI inflow in India

during April 2007 to October 2007 were -

46


Maharashtra, Delhi,Karnataka, Tamil Nadu, Andhra Pradesh, West Bengal, Chandigarh, Goa,

Madhya Pradesh, Kerala, Orissa, Rajasthan, Utter Pradesh, Assam, Bihar

The FDI Approvals in 2007 and its effects on the economy of India are as

follows -

FDI - India envisage of attracting $10 billion of foreign direct investment (FDI) this

year as inflows have nearly doubled to US$ 4.4 billion.

FIIs - net investments in equities crossed US$ 7 billion.

Industrial Growth exceeded 10% till October 2007.

Manufacturing growth rate has exceeded 12 % till October 2007.

The mining and quarrying sector has registered a growth of 4% till October 2007.

The electricity sector recorded 12% growth till October 2007.

Consumer durables and non-durables have also recorded upswings.

Telecommunication sector with inflows of US$ 405 million has registered the

maximum growth of 950%.

Merchandise exports recorded strong growth.

The automotive industry achieved a growth rate of over 20% till October 2007.

The biotechnology industry registered more than 40% growth till October 2007.

47


Encouraged by the stupendous growth in 2005-06 the IT and ITES industry is

targeting US$ 60 billion milestone in exports by 2010.

The US$ 47 billion Indian textile industry is expected to grow to US$ 115 billion by

the year 2012.

The US$6.4 billion Indian retail industry is expected to grow over 20% annually to

US$ 23 billion by 2010.

The robust pharmaceutical market in India ranks 4th worldwide and is expected to

cross business worth Rs 100,000 crores in formulations and bulk drug production by

2010.

Corporate India has recorded its highest rise in salaries at 22% till October 2007.

India's Balance of Payments remained comfortable.

The Invisibles Account - remained positive and financed 2/3 of the trade deficit.

India got $4.8bn FDI in 2001-02

48


PTI May 26, 2002, 01.07pm IST

NEW DELHI: Foreign Direct Investment increased marginally to $4.8 billion in 2001-02

from $4.5 billion in the previous fiscal despite the global recession following the September

11 terrorist attacks in the US.

Total FDI inflow last fiscal was $4.826 billion, which works out to Ds 22,168 core, as per the

latest data compiled by the Department of Industrial Policy and Promotion.

However, inflows declined by over 19 per cent in April this year at $221.8 million against

$275.1 million in the same month a year earlier.

Total FDI inflows including ADRs/GDRs and pending advance in April was marginally

lower at Rs 1064.77 crore as against Rs 1238 crore in April 2001.

During the fiscal year under review, telecommunication sector attracted the highest FDI

inflow at $867.39 million, accounting for over 17 per cent of total FDI.

Power, oil and refinery sector attracted the second highest FDI amount at $633.09 million,

accounting for 13.58 per cent of the total FDI, followed by the electrical equipment sector a

distant third with $435.27 million, translating to nine per cent of the total FDI.

The transportation sector attracted FDI inflows of $189.66 million accounting for 3.86 per

cent of the total while service sector garnered $157.78 million accounting for 3.24 per cent of

the total inflows.

FDI inflows post 87% growth in May 2002

PTI Aug 9, 2002, 04.33pm IST

49


NEW DELHI: India's foreign direct investment inflows registered an impressive growth of

87 per cent at $501 million (net of ADRs/GDRs) in May against $268 million in the same

period last year.

As per latest data compiled by the industry ministry, FDI inflows continue to post impressive

growth in the current calendar year with cumulative FDI inflows during January-may

registering a growth of 60 per cent at $1.89 billion as compared to $1.18 billion in the

corresponding period a year earlier.

The impressive growth in FDI has been achieved at a time when there has been a steep

decline in the global FDI flows.

Government in May2002, approved 254 foreign collaboration proposals amounting to $471.2

million which in rupee terms amounted to Rs 2,261.54 crore.

A sector-wise break-up reveals that telecommunications attracted the highest FDI approvals

in the month of May at 195.6 million dollars cornering 41.51 per cent share of the total FDI

approval in the month.

Service sector including both financial and non-financial services attracted $114.1 million

accounting for a share of 24.22 per cent while fuels attracted the third highest FDI approvals

with $47.8 million accounting for a share of 10.14 per cent.

Himachal Pradesh with $168.8 million accounting for a share of 35.83 per cent received the

highest number of FDI approvals during May. Delhi, Maharashtra, Gujarat and Goa were the

other states in the top five.

FDI inflows cross $3 bn mark in July

ET Bureau Sep 11, 2009, 09.59am IST

50


MUMBAI: The Indian economy could well be on its way out of the woods if the money

pumped into the country by foreigners is anything to go by.

For the first time in more than one year, foreign direct investment (FDI) crossed the $3-

billion mark on a monthly basis. Total FDI inflows amounted to $3,476 million in July, up

55% from $2,247 million a year ago, latest data from the RBI monthly bulletin released on

Thursday show.

More heartening though is the fact that cumulative inflows from April-July , despite being

lower at $10.5 billion compared with $12.3 billion in the year-ago period, are marginally

higher than inflows through the portfolio route, which amounted to $10.35 billion over the

same period.

Global FDI flow slows down

TNN Sep 18, 2002, 04.40am IST

51


NEW DELHI: The World Investment Report of the United Nations Conference on Trade and

Development (UNCTAD), released on Tuesday, revealed a decline of 51 per cent in global

FDI flows in 2001.

But the global fall primarily concerned the developed countries. Some developing countries

like India, in fact, experienced a sizeable jump in FDI inflows.

After stagnation of FDI inflows at around $ 2.5 billion for three years, India recorded inflows

of $3.6 billion in 2001. And, outward flow of FDI (that is investments made by Indian

companies abroad) amounted to $ 745 million in 2001 — a big sum indeed in view of the

capital-scarce nature of the economy.

But, the only Indian company, Reliance, which used to figure among the large transnationals

in the World Investment Report in previous years, does not find mention this year. This is

because the report now lists companies which are not just large but have large assets abroad.

With this new criteria, ONGC, with its proposed investments of billions of dollars abroad in

Sakhalin and Sudan, may perhaps find a mention in future reports.

Globally, 2001 has turned out to be an watershed year regarding FDI flows. The trend of

annual growth of over 40 per cent was reversed. The report offers a few explanations for the

drastic drop.

One, mergers and acquisitions in the developed world, main driver of FDI flows in the late

90s and in 2000, might have reached a saturation point. Second, the events of September 11,

though did not directly affect FDI flows, depressed economic sentiments and accentuated the

global economic slowdown, resulting into a massive fall in FDI flows.

The report ranks India low in terms of indices of FDI performance and FDI potential. But

economists Nagesh Kumar said the indices have been prepared with crude method and do not

reflect the true position of large economies like India.

52


Global FDI flows to India down 31% in 2010: UNCTAD

PTI Jan 17, 2011, 10.31pm IST

GENEVA: Global foreign direct investment (FDI) flows into India dropped by over 31 per

cent in 2010 despite robust economic growth, according to the United Nations Conference on

Trade and Development (UNCTAD).

However, China and other countries in South-East Asia continued to witness massive FDI

flows, UNCTAD said in its Global Investment Trends Monitor report issued on Monday.

UNCTAD says global FDI flows remained almost stagnant in 2010, increasing by 1 per cent

to USD 1.122 trillion.

UNCTAD forecasts that global FDI flows are likely to remain between USD 1.3 trillion and

USD 1.5 trillion in 2011.

FDI inflows into India amounted to just USD 23.7 billion last year, as against USD 34.6

billion in 2009. "In India, we have seen a sharp decline and we can't explain why this has

happened," said the UNCTAD's investment and enterprise division chief, James X Zhan, who

prepared the investment report.

"We don't have the analysis," he said, maintaining that the decline in global FDI flows into

India was based on the figures compiled by the central bank.

However, in sharp contrast, China received FDI worth USD 274.6 billion last year, compared

to USD 233 billion in 2009. There is a "structural change," Zhan said in regard to the higher

FDI flows to China, which is receiving huge investments on services and research and

development activities.

Many Western companies have shifted their research facilities to China and there is rapid

development in the hinterlands of the Communist country as well.

The sharp increase in global FDI flows to East and South-East Asian countries and Latin

American nations in 2010 marked the first time that developing countries outpaced rich

nations in attracting foreign investments.

53


China, Hong Kong and other South-East Asian countries like Indonesia, Malaysia, Singapore

and Thailand were the main beneficiaries of the heightened FDI flows in the form of mergers

and acquisitions (M&As) and greenfield investment.

Part of the reason for the stagnant investment flows the world-over was largely due to the

poor performance of the developed economies, especially European countries, which were

the worst-hit by the global financial turmoil.

The United States, which was the epicentre of the global economic meltdown in 2008, is

gradually recovering from the crisis, with FDI flows increasing by 40% last year to USD

186.1 billion from USD 129.9 billion in 2009.

"The quarterly fluctuations during 2010 indicate that the worldwide FDI recovery is still

hesitant," said the report.

Several risk factors suchas the slow global economic recovery, investment protectionism,

rising sovereign debt and continued volatility in the currency markets are likely to slow down

the pace of foreign direct investment across the globe in 2011, it said.

54


FDI climbs 55% in July

ET Bureau Sep 11, 2009, 02.00am IST

MUMBAI: The Indian economy could well be on its way out of the woods, if the money

pumped into the country by foreigners is anything to go by.

For the first time in more than one year, foreign direct investment crossed the $3-billion mark

on a monthly basis. Total FDI inflows amounted to $3,476 million in July, up 55% from

$2,247 million a month ago, shows the latest data from RBI monthly bulletin that was

released on Thursday.

More heartening though is the fact that cumulative inflows from April-July, despite being

lower at $10.5 billion compared with $12.3 billion in a year-ago period, are marginally higher

than inflows through the portfolio route, which amounted to $10.35 billion over the same

period.

This, according to experts, points to the foreign investors' faith in the resilience of the Indian

economy, which has weathered the recessionary headwinds better than most countries and is

set once again to move to a high growth trajectory. FDI inflows are inherently more stable

than the portfolio money that is invested into shares and considered more volatile.

"Inflows overall are looking up since sentiment in the India story is bullish, considering the

new government's stress on infrastructure, an improvement in industrial production and the

growth in exports in absolute terms since April. We believe going ahead, inflows will

continue to remain buoyant," said ShubhadaRao, chief economist, YES Bank.

According to SidharthSanyal, economist at Edelweiss Securities: "We are bullish on capital

inflows through all routes such as FDI as well as the portfolio route including QIPs. As far as

FDI is concerned, it is less volatile than foreign portfolio flows. So we might see it picking up

steadily over a period of time, as investors here is betting on the country's long-term growth

story."

However, around $1.5 billion is through acquisition of shares of Indian companies by

foreigners, which technically does not qualify as Greenfield investments. Though this is a

55


secondary investment, it indicates the prospects and promise that India holds for overseas

investors, said an economist with a research firm, who declined to be named.

Notably, India has also in some way done better than neighbours China and Pakistan, which

saw a dip in FDI inflows. In July, China's FDI plunged by 35.7% ($5.36 billion), though in

absolute terms, it annually receives much higher FDI than India.

The government has scaled down its FDI target for FY10 by $5 billion to $30 billion. This

works out to average monthly inflows of around $2.5 billion. The current trend indicates

growth in line with target. FDI inflow in India came down as the global recession deepened

in the months after the Lehman collapse last year. It hit a low of $1 billion in November

2008. But things started looking up after April this year, when inflows started picking up on

improved global liquidity conditions.

Share of top investing countries FDI equity inflow

56


SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS

RANK SECTOR

Cumulative

inflows(august

1991- march2010)

amount in

Rs.crore(US $ IN

MILLION)

PERCENTAGEOF

TOTAL

INFLOWS (RS)

1 SERVICES SECTOR (financial

& non-financial)

101,019 (22,687) 22(%)

2 Computer software & hardware 42,259 (9,529) 9(%)

3 TELECOMMUNICATIONS

(radio paging, cellular mobile,

basic telephone services)

39,179 (8,600) 8(%)

4 Housing & real estate 34,348 (7,701) 7(%)

5 Construction activities

(including roads& highways)

30,557 (6,945) 7(%)

6 Power 20,006 (4,428) 4(%)

7 Automobile industry 19,566 (4,322) 4(%)

8 Metallurgical industries 12,990 (3,032) 3(%)

9 Petroleum & natural gas 11,261 (2,612) 2(%)

10 Chemicals(other than

fertilizers)

10,567 (2,343) 2(%)

Total FDI inflow 2,32,014

57


Analysis of FDI inflow and outflow in India

Total FDI inflows in India

Sr.

Number

Financial year Total

FDI(Rscrore)

Total FDI

Inflows(U

S mill)

% Growth Over

Previous Year

1 2001-01 18406 4,029 -----------

2 2001-02 29235 6,130 (+)52

3 2002-03 24367 5,035 (-)18

4 2003-04 19860 4,322 (-)14

5 2004-05 27188 6,051 (+)40

6 2005-06 39674 8,961 (+)48

7 2006-07 103367 22,826 (+)146

8 2007-08 138276 34,362 (+)51

9 2008-09 161481 35,168 (+)02

In 2006-07 the total FDI inflow in India was US $ 22,826 million while the outflow of FDI

from India was US $ -15046 million resulting in total FDI of US $ 7693 million. Thesame

trend continued and the total FDI substantially increased to US $ 15401 million inthe year

2007-08 due to an increase in the inflow of US $ 34236 million. During theglobal slowdown

period the FDI showed a positive trend in 2008-09 with an increase of FDI to US $ 17496

million.

58


Classification of Net FDI in India

Classification of Net FDI in India

(Amount in US $ million)

particulars 2006-07 2007-08 2008-09

Credit debit net credit debit net credit debit net

(i)In India 22826 87 22739 34361 125 34236 35148 166 34982

Equity 16481 87 16394 26866 108 26758 27975 166 27809

Reinvested

earning

5828 0 5828 7168 0 7168 6426 0 6426

Other capital 517 0 517 327 17 310 747 0 747

ii)abroad 764 15810 15046 2477 21312 18835 1110 18596 -17486

Equity 764 13368 12604 2477 16898 14421 1110 14668 -03558

Reinvested

earning

0 1076 -1076 0 1084 -1084 0 1084 -1084

Other capital 0 1366 -1366 0 3330 -3330 0 2844 -2844

India has emerged as the second most attractive destination for FDI after China and aheadof

the US, Russia and Brazil. India has experienced a marked rise in FDI inflows in thelast few

years. Not surprisingly India’s growth strategy has depended predominantly ondomestic

enterprises and domestic demand as opposed to FDI and export demand.1 For instance,

India’s FDI as a share of GDP in 2007 represented only about 1.7 percentcompared to 2.8

percent in China and even below Pakistan, and its share of gross fixedinvestment is 5.2

percent compared to 7.0 in China and 16.7 per cent in Pakistan

59


Share of top 7 investing Countries: FDI equity inflows

(Percentage to total inflows - in terms of US$)

60


China may overtake India in MNC R&D investment: study

A recent study by consultation firm Zinnov reveals that China is likely to take over India in

terms of investment in research and development in the next few years as it is driven by

various government incentives, schemes and high level of innovation. So much is the interest

in Chinese markets that of the Fortune 500 companies worldwide, over 400 already have

R&D centres in China, according to a study by management consulting firm Zinnov. The

country plans to increase its investment in R&D to 2.5% by 2020 from 1.45% of GDP in

2006.On the other hand, India is home to only half of the Fortune 500 companies’ R&D

centres. In fact, this growth may become a threat for India. Global firms’ R&D investment in

China stands at $7.65 billion, which may soon overtake India’s market, whose size is

estimated at $7.75 billion. India had a clear edge over China till a few years ago but now

China is competing head-to-head with India, the study says.

Moreover, the fresh R&D talent pool availability in China has also increased over the years

and Chinese centres are rapidly expanding their headcount base. The fresh talent pool in

China is estimated at 56,000 while that of India is at 45,000 - a gap which will soon become

narrow. Also, unlike India, tier-II cities in China are expanding fast and aiming at a

significant share of the MNC R&D pie.

“While the Chinese MNC R&D subsidiary market is growing at 16% annually, more than

India’s 11%, the market has also undergone a transformed innovation process where the

market growth and competition from local companies made MNCs to review their business

models. This reverse innovation process, coupled with constant innovation, played a

significant role in the evolution of the Chinese R&D ecosystem. China today hosts one-third

of the global 1,000 R&D spenders with their R&D subsidiary centres,” said Praveen

Bhadada, manager-consulting, Zinnov Management Consulting.

R&D subsidiary refers to centres other than the company’s headquarters. A firm can have

multiple centres in a country. Significantly, China is increasingly becoming an R&D hub for

many of auto companies such as Audi, Toyota and Volvo. Besides, its secondary locations

now account for nearly 50% of the MNC R&D centres.Bhadada added that manufacturing

was the single largest contributor to the R&D in China followed by semiconductors, software

and telecom.

61


RECESSION IMPACT on FDI

The recession had an impact on the total foreign investments in India, as in the year 2007-

08:Q4 the net FI was $ 4760 million which fell from $ 16892 million in 2007-08:Q3.This

stagnant growth continued till 2008-09:Q3 where this further fell to $ -5376million and in

2008-09:Q4 $ 492.However there are signs of recovery as the results of 2009-10:Q1 shows

positive growth of $ 15101 million

Why Indian youth prefer MNC'S than domestic companies

Many of Indian youth's prefer MNC's Because of Saturday and Sunday Off .One of the

reason is the fast work, promotion according to growth, no ego between employees everyone

sharing equal platform and no attitude of sluggish work. Above all is the better packages

being offered and chances of going abroad.

There are various opportunities provided in MNC's like cross functional responsibilities, etc.

which is definitely missing in Indian companies hence work become monotonous and people

loose interest....

Secondly, MNC's try to make work culture employee friendly and help people to get a break

from there usual hectic schedule like organising cultural events.

62


MNCS FOCUS ON SENIOR INDIAN PROFESSIONALS FOR

TOP GLOBAL ROLES

KOLKATA: At a time when India is being noticed for becoming the fastest-growing market

for global corporations, senior managers, too, may grab greater attention in the boardrooms of

their company headquarters.

Some top MNCs, who are betting on India like never before, have started instituting

mentoring programmes for executives here to prepare them and make them ready to take on

leadership roles abroad. If things go as planned, India may soon turn out to be a talent hub for

senior management from its current status of churning out capable, though mostly middle-

management, staff.

For instance, Japan's largest consumer electronics maker, Panasonic, has identified 10

employees in its offices in India who might make it to global roles. The $105-billion

company has structured a mentoring programme specifically for senior managers who have

been identified for this. many of them are currently undergoing training, including being

groomed directly by the company's board of directors.

"We have found that Indian managers have huge potential, which has encouraged us to make

the country a sort of global recruitment hub," says Panasonic India president, Daizo Ito.

"Indian managers could well become CEOs of markets [similar to those in Asia] in the

Middle East and Africa, or even regional and business heads."

Panasonic, which wants to become India's largest electronics company by 2018, has already

charted a career plan for the identified talent, which will be carried out over a fixed time-

frame.

63


Multinationals and India—A Plan for Progress

India’s economy has seen a slowdown after nearly a decade of unprecedented growth, as its

companies have been vulnerable to the varying fortunes of their customers, partners and

suppliers around the world. As we begin to emerge from this crisis, there is a new sense of

urgency amongst business leaders and policymakers to address long-term challenges and

exploit fresh opportunities.

Multinational companies (MNCs) will feature prominently in efforts to overcome these

challenges and drive the next phase of sustainable economic growth, not least by driving

inward investment, nurturing talent and encouraging innovation. Although India’s recent

growth has been impressive—second only to China since mid-2008—the country still does

not rank as high as it could on comparisons of national competitiveness. This report

demonstrates how MNCs can continue to build on best practice and help generate growth in

the future.

The report also sets out recommendations for policymakers that will help create the right

regulatory and administrative environment for inclusive growth.

64


CONCLUSION

They serve the customers and the institution best and therefore chemistry between country

and foreign MNCS has fruitful results .FDI attractiveness, labour competitiveness. Huge

market potential of the country. Policies such as FDI, Industrial licencing, taxation, exchange

control has helped MNCS to grow .there is a growth of MNCS in India because of huge

market and fast growing economies in world has played important role.

Due these MNC’S competition increase and more employment opportunities are available &

there will be reduction in reasonal disparities

To conclude, we would opine that MNC’S having a wide ambit is enviable to us, as to the

fact that, there exists lots of job opportunity paves a path for the increase in national income.

And also to create a better society, with better standard of living,and it increases labour

productivity , decrease in unemployment, and also increases the net national income of the

country. This will help the government and this will lead to increase in the export and

imports in the country.

Gives advantages to Domestic Companies throughpurchasing of raw material &resources.

New company having network to expand their business.

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, Mitsubishi etc. Have already opened their account. In other vehicle

segments too, Volvo, Mercedes Benz, and Audi etc. Have carved out their niche.

One of the fastest growing sectors in the country, telecommunications has been growing at a

feverish pace in the past few years. The speed of growth can be judged by the fact that in

2004, ten years after private telephony was introduced in India, the mobile subscriber base

had crossed the number of fixed line connections.

65


WEBLIOGRAPHY

www.enotes.com › Business

http://www.itcportal.com

businessmanagement.wordpress.com/

www.vpmthane.org/.

http://business.mapsofindia.com

United Nations Conference on Trade and Development (UNCTAD

Accenture/Confederation of Indian Industry Survey

CMIE

TIMES OF INDIA

in.answers.yahoo.com ›

THE ECONOMICS TIMES

http://www.vpmthane.org

http://EzineArticles.com/5817471

http://en.wikipedia.org

http://timesofindia.indiatimes.com

http://www.accenture.com

http://www.smetimes.in

http://www.managementparadise.com

66

http://www.smetimes.in/

http://timesofindia.indiatimes.com/

http://en.wikipedia.org/

http://EzineArticles.com/5817471

http://www.vpmthane.org/

http://www.vpmthane.org/

http://www.itcportal.com/


67


68

growth of mnc's in india

Documents