MULTINATIONAL CORPORATIONS IN INDIA

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1 MULTINATIONAL CORPORATIONS IN INDIA by Manisha S. Gupta Lecturer, Department of Economics Faculty of Social Sciences Banaras Hindu University, Varanasi GANGA KAVERI PUBLISHING HOUSE D. 3/77, Jangamawadimath,Varanasi-1001 (India)

2 CONTENTS (a) 1.1.3(b) 1.1.3(c) Preface Acknowledgements List of Tables List of Figures INTRODUCTION DEFINITION Ownership Criterion Nationality Mix of Headquarter Manager Business Strategy Ethnocentric Polycentric Geocentric DIFFERENT NAMES OF MULTINATIONAL CORPORATIONS (MNCs) CHARACTERISTICS OF MNCs Giant Size International Operations Spontaneous Evolution Oligopolistic Structure Collective Transfer of Resources REASONS FOR THE GROWTH OF MNCs Expansion of Market Territory Marketing Superiorities Financial Superiorities Technological Superiorities Product Innovation Stage 1 Stage Stage 3 Stage 4 Stage Stage 6 Stage 7 Page Hi V xiii xvi

3 viii Multinational Corporations in India ROLE OF MULTINATIONALS THE CASE FOR MULTINATIONAL CORPORATIONS THE CASE AGAINST MULTINATIONAL CORPORATIONS MULTINATIONALS IN INDIA REFERENCES REVIEW OF LITERATURE AND 0-4 RESEARCH METHODOLOGY.1 REVIEW OF LITERATURE 0. RESEARCH METHODOLOGY 4..1 The Reason for the Selection of this Topic 4.. Aims and Objectives of the Study The Chapter Scheme Tools and Techniques used in the Study 4.. Analysis and Interpretation of Data 4..6 Limitations of the Study 4 REFERENCES HISTORY OF MULTINATIONAL 4-0 CORPORATIONS IN GLOBAL AND INDIAN ECONOMY 3.1 HISTORY OF MNCs/MNEs IN GLOBAL ECONOMY 4 EVOLUTION OF AMERICAN MNEs 6 3. HISTORY OF MULTINATIONALS IN INDIAN ECONOMY (Pre-lndependence Era) HISTORY OF MULTINATIONALS IN INDIAN ECONOMY (Post-Independence Era) HISTORY OF MULTINATIONALS IN INDIAN ECONOMY (Post-Liberalisation Era) 74 REFERENCES THE ROLE OF MULTINATIONAL CORPORATIONS IN DEVELOPING ECONOMIES LIKE INDIA 4.1 GOAL OF MULTINATIONALS

4 Contents ix FINANCIAL INVESTMENT POTENTIAL (i) MNCs:The Financial Goals (ii) MNCs Investment Objectives (iii) Theories of Financial Investment by MNCs (iii-a) Theory of Industrial Organisation 4.1.1(iii-b) Product Cycle Theory (iv) Economic Power of Multinationals (v) Conclusion 4.1. TECHNOLOGICAL POTENTIAL (i) Structure of Technology in Developing Countries 4.1.(ii) Basic Characteristic of Transfer of Technology (iii) The Form of Transfer of Technology (iv) Theories Related to the Technology Transfer (iv-a) Technology Gap Theory (iv-b) Product Cycle Theory (v) Cost of Technology Transfer in 4.1.(vi) Multinational Firms 103 Various Issues Related to the Transfer of Technology (vi-a) License and Patents (vi-b) Research and Development (R&D) Activities in the Developing Countries (vi-c) Adaptability of Products and Processes to Local Conditions (vi-d) Linkage to the Host Country's Domestic Economy Conclusion MANAGEMENT POTENTIAL Managerial Structure Entrepreneurial Structure Functional Structure Decentralised Structure Formalisation of Multi-Structured Managerial Structure Factors Affecting the Multinational Managerial Structure Entrepreneurial Growth Functional Structure Functional Growth Decentralised Structure

5 x Multinational Corporations in India 4.1.3(ii-e) Decentralised Growth (ii-f) Multi-structured Structure (iii) Multinational Firm, Managerial Structure and Decision-making Process (iv) The Company Planning and Control Process of MNCs (v) Advantages of Global Company Planning (vi) The Role of Top Management (vii) Conclusion LINKAGE EFFECT ON EXPORT OF LESS DEVELOPED COUNTRIES (i) Import Substituting Multinationals (ii) Export-Oriented Multinationals (iii) Role of MNCs in Developing Exports from Less Developed Countries (iv) Conclusion 131 REFERENCES 13. GROWTH OF MULTINATIONAL 13-1 CORPORATIONS IN INDIA.1 FOREIGN DIRECT INVESTMENT IN INDIA: NATION WISE DISTRIBUTION 13. FOREIGN DIRECT INVESTMENT IN INDIA: MAGNITUDE AND DISTRIBUTION 13.3 PORTFOLIO INVESTMENT IN INDIA FOREIGN DIRECT INVESTMENT IN INDIA: SECTORAL OR INDUSTRY WISE DISTRI- BUTION AND AREAS OF INVESTMENT 146. t FOREIGN DIRECT INVESTMENT IN INDIA: STATE WISE DISTRIBUTION 14.6 FOREIGN DIRECT INVESTMENT IN SELECTED ASIAN DEVELOPING COUNTRIES 1 REFERENCES 1 6. EVALUATION OF MNCs IN INDIAN 1-1 ECONOMY 6.1 THE CASE FOR MULTINATIONAL CORPORATIONS 160

6 Contents xi 6. THE CASE AGAINST MULTINATIONAL CORPORATIONS (a) 6..1 (b) 6..1(c) 6..1(d) (a) (a) 6..3(b) 6..3 c) 6..3(d) Economic Implications Haphazard and Unbalanced Development Concentration of Means of Production and Distribution Industrial Structure and Performance Linkages Impact on Employment Employment Creation in Developing Countries, viz., India Impact on Technology: Transfer of Technology Issue Cost of Technology Transfer Type of Technology Transferred in India Payments for the Receipt of Technical Knowledge. 10 Transfer of Technology and Ideology of Developed Nations Impact on Exports, Capital- Inflows, Savings and Balance of Payments, (a) Impact on Exports (b) Performance of Multinational Corporations in India's Exports (c) Impact on Capital- Inflows and Savings (d) Impact on Balance of Payments The Social Effects of the Multinational Corporations in India 1 6..(a) Global Developmental Imbalances 1 6..(a-i) 6..(a-ii) The Global Developmental Imbalance Between High-Growth and No-Growth Countries 1 The Imbalance Between Economic Growth and Human Development (a-iii) The Growing Imbalance Between State and Market (a-iv) The Persisting Imbalance Between Men and Women (b) Social Tension (c) Socio-Cultural Transformation 0 6..(d) Political Interference and Challenge to Sovereignty of Nation States 10

7 xii 6..(e) Multinational Corporations in India Other Effects REFERENCES SUMMARY AND SUGGESTIONS FINDINGS SUGGESTIONS SUGGESTIONS FOR FUTURE Measures to Improve Financial Investments in India Measures to Make the Transfer of Technology Effective in India Steps to Improve Management Potential in India Measures to Improve Exports from India SUGGESTIONS TO IMPROVE THE FUTURE ROLE OF MULTINATIONALS IN INDIA Remittance Policy Transfer Pricing Tax System Licensing Restrictive Business Practices Cartels Operating Risk Reduction Mechanism Annexure 40- BiblioaraDhv 60-71

brief FOUR Global Money System 280 Ten The Foreign Exchange Market 281 Chapter Eleven The International Monetary System 307

brief FOUR Global Money System 280 Ten The Foreign Exchange Market 281 Chapter Eleven The International Monetary System 307 brief PREFACE xiii ONE Introduction and Overview 2 Chapter One Globalization 3 TWO Country Differences 36 Two National Differences in Political Economy 37 Three Political Economy and Economic Development