Role Of Mnc In India 4e52i

A PROJECT ON “MULTINATIONAL CORPORATIONS IN INDIA”

COMPULSORY SUBJECT: ECONOMICS

SUBMITTED TO UNIVERSITY OF MUMBAI

FOR SEMESTER – II OF MASTER OF COMMERCE (M.COM- 1) (BANKING & FINANCE) BY (KHUNDONGBAM SURESH SINGH)

UNDER THE GUIDANCE OF DR. KV ASSOCIATE PROFESSOR YEAR: 2014 – 2015

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DECLARATION BY THE STUDENT

I KHUNDONGBAM SURESH SINGH student of m.com part – I roll number _________ hereby declare that the project for the paper “ECONOMICS” submitted by me for semester- II during the academic year 2014- 2015, is based on actual work carried out by me under the guidance and supervision of Dr. KV.

I further state that this work is original and not submitted anywhere else for any examination

Signature of Student KH SURESH

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EVALUATION CERTIFICATE

This is to certify that the undersigned have assessed and evaluated the project on “MULTINATIONAL CORPORATIONS

IN INDIA” submitted by

KHUNDONGBAM SURESH SINGH Student of M.Com Part-I. This project is original to the best of our knowledge and has been accepted for Internal Assessment

Internal Examiner

External Examiner

Head Of The department

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Internal Assessment: Project 40 Marks Name of student

Class

Division

Roll number

First name : SURESH Father name: SUBON

M.COM

Surname

PART - I

: KHUNDONGBAM

Subject: ECONOMICS Topic for the Project: MULTINATIONAL CORPORATIONS IN INDIA

Marks Awarded

Signature

Documentation Internal Examiner (Out Of 10 Marks) External Examiner (Out Of 10 Marks) Presentation (Out of 10 Marks) Viva And Interaction (Out Of 10 Marks)

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Table of Contents Table of Contents ................................................................................................ 1 Introduction ......................................................................................................... 7 1. Giant Size: ................................................................................................. 7 2. International Operation: .......................................................................... 7 3. Oligopolistic Structure: ............................................................................ 7 4. Spontaneous Evolution: ........................................................................... 8 5. Collective Transfer of Resources: ........................................................... 8 Benefits of MNC .................................................................................................. 9 Growth of MNC in India:................................................................................... 9 1. Expansion of market territories: - ....................................................... 11 2. Market superiorities: - .......................................................................... 11 3. Financial superiorities: - ........................................................................ 12 4. Technological superiorities: - ............................................................... 12 Role of MNC in India ....................................................................................... 13 Disadvantages of MNCs ................................................................................... 14 The growth of Indian MNC’s help country in following ways: - ................. 15 Top MNCs of India ........................................................................................... 15 Introduction – TATA ........................................................................................ 17 Indian Multinational resulting in the growth of foreign market: - ............. 23 Economic Reforms in India since 1991 ........................................................... 24 1. Devaluation: ................................................................................................ 25 2. Allowing Foreign Direct Investment ......................................................... 25 3. Financial Sector Reform ............................................................................ 27 4. Reforms in Industrial and Trade Policy ................................................... 28 5|P a g e

5. Industrial Policy .......................................................................................... 29 6. Trade Policy................................................................................................. 29 7. Foreign Direct Investment ......................................................................... 30 8. Infrastructure Development ...................................................................... 32 9. Financial Sector Reform ............................................................................ 34 10.

Privatization ............................................................................................. 35

11.

Social Sector Development in Health and Education .......................... 36

Conclusion.......................................................................................................... 38 Bibliography ...................................................................................................... 40

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Introduction Multinational corporations are business entities that operate in more than one country. The typical multinational corporation or MNC normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. In some circles, a multinational corporation is referred to as multinational enterprise (MBE) or a transnational corporation (TNC). The exact model for an MNC may vary slightly. One common model is for the multinational corporation is the positioning of the executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower. The multinational corporations have certain characteristics which may be discussed below: Giant Size: The most important feature of these MNCs is their gigantic size. Their assets and sales run into billions of dollars and they also make supernormal profits. According to one definition an MNC is one with a sales turnover of f 100 million. The MNCs are also super powerful organizations. In 1971 out of the top ninety producers of wealth, as many as 29 were MNCs, and the rest, nations. Besides the operations, most of these multinationals are spread in a vast number of countries. For instance, in 1973 out of a total of (, 000 firms identified nearly 45 per cent had s in more than 20 countries. International Operation: A Fundamental feature of a multi-national corporation is that in such a corporation, control resides in the hands of a single institution. But its interests and operations sprawl across national boundaries. The Pepsi Cola Company of the U.S operates in 114 countries. An MNC operates through a parent corporation in the home country. It may assume the form or a subsidiary in the host country. If it is a branch, it acts for the parent corporation without any local capital or management assistance. If it is a subsidiary, the majority control is still exercised by the foreign parent company, although it is “incorporated in the host country. The foreign control may range any-where between the minimum of 51 per cent to the full, 100 per cent. An MNC thus combines ownership with control. The branches and subsi-diaries of MNCs operate under the unified control of the parent company. Oligopolistic Structure: Through the process of merger and takeover, etc., in course of time an MNC comes to assume awesome power. This coupled with its giant size makes it oligopolistic in char-acter. So it enjoys a huge amount of profit. This oligopolistic structure has been the cause of a number of evils of the multinational corporations.

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Spontaneous Evolution: One thing to be observed in the case of the MNCs is that they have usually grown in a spontaneous and unconscious manner. Very often they developed through "Creeping instrumentalism." Many firms become multinationals by accident. Sometimes a firm established a subsidiary abroad due to wage differen-tials and better opportunity prevailing in the host country. Collective Transfer of Resources: An MNC facilitates multilateral transfer of resources Usually this transfer takes place in the form of a "package" which includes technical know-how, equipment's and machinery, materials, finished products, managerial services, and soon, "MNCs are composed of a complex of widely varied modern technology ranging from production and marketing to management and financing. B.N. Ganguly has remarked in the case of an MNG "resources are trans-ferred, but not traded in, according to the traditional norms and practices of international trade."

Definition of MNC: A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is ed in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries. It can also be referred to as an international corporation. They play an important role in globalization. The first multinational company was the British East India Company, founded in 1600. The second multinational corporation was the Dutch East India Company, founded March 20, 1602. Horizontally integrated multinational corporations manage production establishments located in different countries to produce similar products. (Example: McDonald's) 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) Diversified multinational corporations do not manage production establishments located in different countries that are horizontally, vertically or straight (Example: Microsoft or Siemens A.G.)

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Benefits of MNC To Home Country: 1) Facilitate inflow of foreign exchange: - MNC’s collect funds from the enterprises of other countries in the form of fees, royalty, and service charges. This money is taken to the country of their origin. MNC’s make their home countries rich by facilitating inflow of foreign exchange from other countries. 2) Promote global co-operations: - MNC’s provide co-operation to poor or developing countries to develop their industries. The countries of their origin participate in such international co-operation, which is beneficial to all countries- rich and poor. 3) Ensure optimum utilization of resources: -MNC’s ensure optimum utilization of natural and other resources available in their home countries. This is possible due to their worldwide business s. 4) Promote bilateral trade relations: -MNC’s facilitate bilateral trade relations between their home countries and the other countries with which they have business relations.

To Host Countries: 1) Raise the rate of investment: - MNC’s raise the rate of investment in the host countries and thereby bring rapid industrial growth accompanied by massive employment opportunities in different sectors of the economy. 2) Facilitate transfer of technology: -Multinationals act as agents for the transfer of technology to developing countries and thereby help such countries to modernize their industries. They remove technological gaps in developing countries by providing technomanagerial skills. 3) Accelerate industrial growth: - multinationals accelerate industrial growth in host countries through collaborations, t ventures and establishment of subsidiaries and branches. They facilitate economic growth through financial, marketing and technological services. MNC’s are rightly called “messengers of progress”. 4) Promote export and reduce imports: - MNC’s help the host countries to reduce the imports and promote the exports by raising domestic production. Marketing facilities at global level are provided by MNC’s due to their global business s. 5) Provide services to professionals: - MNC’s provide the services of the skilled professional managers for managing the activities of the enterprises in which they are involved/interested. 9|P a g e

This raises overall managerial efficiency or enterprises connected with multinationals. MNC’s bring managerial revolution in host countries. 6) Facilitate efficient utilization of resources: - Multinationals facilitate efficient utilization of resources available in host countries. This leads to economic development. 7) Provide benefits of R and D activities: -Multinationals has enormous resources at their disposal. Some are utilized for R and D activities. The benefits of R and D activities are ed on to the enterprises operating in the host countries. 8) enterprises in host countries: - MNC’s to enterprises in the host countries in order to their own operations indirectly. This is how MNC’s enterprises in the host countries to grow. Even consumers get new goods and services due to the operations of MNC’s. 9) Break domestic monopolies: - MNC’s raise competition in the host countries and thereby break domestic monopolies.

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Growth of MNC in India: The MNCs share in global investment, production, employment and trade has assumed considerable proportions. According to the UN, there are 63,000 MNCs with 6, 90,000 s all over the globe with 2, 40,000 in China and only 1400 in India. The US was the forerunner in giving births to MNCs. Today, biggest MNC’s are Japanese. The global liberalization wave, paved the path for faster expansion and growth of MNCs. The value added by the foreign s of MNCs, as a percentage of global GDP grew from 5% in the 1980s to about 7% by the end of 90s. The MNCs control about a third of world output and the total sales of their foreign s is almost equal to the GNP of all developing countries. The value of the annual sales of the largest manufacturing multinational General Motors was about $178bn in 1996. The total sales of the 3 largest automobile firms of the world, namely, General Motors, Ford and Toyota is greater than the value of India’s GDP. In of direct employment, the MNCs ed for 73mn people worldwide and if indirect employment is considered, the figure approximates 150mn people. Over 350m people were employed by the foreign s of MNCs in 1988. A number of factors have contributed to the phenomenal growth of MNCs. Some of the important factors are as follows: 1) Expansion of market territories: Rapid economic growth in a number of countries resulting in rising GDPs and per capita incomes contributed to the growing standards of living. This in turn contributed to the continuous expansion of market territories. MNCs both contributed to the expansion of market territories and also grew in size and spread as a result of expansion of market territories. 2) Market superiorities: In many ways, MNCs have an edge over domestic firms, such as: a) Availability of reliable and current data, b) MNCs enjoy market reputation, 11 | P a g e

c) MNCs encounter relatively less problems and difficulties in marketing the products, d) MNCs adopt more effective advertising and sales promotion techniques, and e) MNCs enjoy faster transportation and adequate warehousing facilities 3) Financial superiorities: MNCs also enjoy a number of financial advantages over domestic firms. These are: a) Availability of huge financial resources with the MNCs helps them to transform business environment and circumstances in their favor. b) MNCs can use the funds more effectively and economically on of their activities in numerous countries. c) MNCs have easy access to international capital markets, and d) MNCs have easy assessed to international banks and financial institutions. 4) Technological superiorities: MNCs are technologically prosperous on of high and sustained spend on R&D. developing countries on of their technological backwardness welcome MNCs to their countries because of the attendant benefits of technology transfer.

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Role of MNC 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 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. 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 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 labor 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: 

Huge market potential of the country



FDI attractiveness



Labor competitiveness



Macro-economic stability



Advantages of the growing MNCs to India

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There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. They are as under: 

Initiating a higher level of investment.



Reducing the technological gap



The natural resources are utilized in true sense.

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The foreign exchange gap is reduced



Boosts up the basic economic structure.

Disadvantages of MNCs Roses do not come without thrones. Disadvantages of having MNCs in a developing country like India are as under

Competition to SMSI

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Pollution and Environmental hazards

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Some MNCs come only for tax benefits only

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Exploitation of natural resources

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Lack of employment opportunities

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Diffusion of profits and Forex Imbalance

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Working environment and conditions



Slows down decision making

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Economical distress

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The growth of Indian MNC’s help country in following ways: 1) MNC’s help to increases the investment level & thereby the income & employment in host country. 2) The transnational corporations have become vehicles for the transfer technology, especially to developing countries. 3) They also kind a managerial revolution in host countries through professional management and employment of highly sophisticated management techniques. 4) The MNCs enable that host countries to increases their exports & decreases their import requirements. 5) They work to equalize cost of factors of production around the world. 6) MNC’s provide and efficient means of integrating national economies. 7) The enormous resources of multinational enterprises enable them to have very efficient research & development systems. Thus, they make a commendable contribution to inventions & innovations. 8) MNC’s also stimulate domestic enterprise because to their own operations, the MNC’s may encourage & assist domestic suppliers. 9) MNC’s help to increase competition & break domestic monopolies. Top MNCs of India The country has got many M. N. C.s operating here. Following are names of some of the most famous multinational companies, who have their headquarters of operational branches based in the nation: IBM: IBM India Private Limited, a part of IBM has been operating from this country since the year 1992. This global company is known for invention and integration of software, hardware as well as services, which assist forward thinking institutions, enterprises and people, who build a smart planet. The net income of this company post completion of the financial year end of 2010 was $14.8 billion with a net profit margin of 14.9 %. With innovative technology and solutions, this company is making a constant progress in India. Present in more than 200 cities, this company is making constant progress in global markets to maintain its leading position.

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Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest pharmaceutical companies in India, started their business in the country from the year 1961. The company made its public appearance in 1973 though. Headquartered in this nation, this international, research based, integrated pharmaceutical company is the producer of a huge range of affordable cum quality medicines that are trusted by both patients and healthcare professionals all over the world. In the business year 2010, the ed global sales of the company was US $ 1, 868 Mn. Successful development of business forms the key component of their trading strategy. Apart from overseas acquisitions, this company is making a continuous endeavor to enter the new global markets, which have got high potential. For this, they are offering value adding products as well. Tata Consultancy Services: Commonly known as T. C. S., this multinational company is a famous name in the field of I. T. (Information Technology) services, Business Process Outsourcing (B. P. O.) as well as business solutions. This company is a subsidiary of the Tata Group. The first center for software researching was established in the country in 1981 in the city of Pune. Tata Consultancy earned a growth of 8.9 % during the latest quarter of this financial year, which ended on 30th September, 2011. This renowned company is presently looking forward to the 10 big deals that they have received besides the Credit Union Australia's contract as well as Government of Karnataka's Rs. 94 crore deals for a total period of 6 years. In this current business year, they are about to employ 60, 000 people to meet their business requirement. Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is among the leading commercial vehicles manufacturer in the country. They are one of the top 3 enger vehicle manufacturers. Established in the year 1945, this company, a part of the famous Tata Group, has got its manufacturing units located in different parts of the nation. Some of their well known products of the company are categorized in the following heads:  Commercial Vehicles  Defense Security Vehicles  Homeland Security Vehicles  enger Vehicles

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Introduction – TATA

Resting on the laurels of being India's top automotive manufacturer is not an option or for Tata Motors, which is looking to increase its footprint in international markets Recent years have seen a number of foreign automobile enterprises coming to India, attracted by a growing economy and an expanding market. The reverse — Indian auto companies seeking new frontiers abroad — is a trickle, but Tata Motors is working hard to change the equation. Tata Motors has come a long way since the 1950s and 1960s, when it needed technical assistance from Daimler Benz and had just commercial vehicles to power sales. Today, the company is the country's largest automobile manufacturer and has a enger vehicle business that has broken new ground in exemplary fashion. But domestic patronage, hefty as it may be, is ultimately limiting, particularly with increasing competition. That is why the exploration of foreign markets is an imperative for ambitious automobile companies such as Tata Motors. Besides competition, the automotive business, particularly the commercial vehicle market, is characterised by its considerably strong link to national economies. Companies looking to do more than just stay afloat cannot afford to keep their business connected solely to the fortunes of one country. Another reason that Tata Motors is looking outwards is cost advantage. Until now Indian companies, manufacturers in particular, have been protected by high duty structures and a generally depreciating rupee. But sometime in the near future, if import restrictions are relaxed or the rupee begins to gain ground, India may not continue to have the low-cost manufacturing advantage it has enjoyed thus far. In that scenario, a presence in countries that offer greater cost advantages for manufacturing will pay off. A third argument for overseas expansion is the fact that the automotive business relies so much on economies of scale, which translate into price benefits. Tagging along is the competitiveness factor, where quality and efficiency are directly improved (or should be) 17 | P a g e

as a result of the high level of competition in foreign markets. Discussing the company's plans, Praveen Kadle, Tata Motors' executive director of finance and corporate affairs, is quick to make the difference between international businesses and export activity. "A large number of Indian companies began their international operations with exports, but exports constitute only a segment of international business, and using the interchangeably means taking a very narrow view of things," he says. Tata Motors is looking to widen its foreign campaign to more than just exports. In 2002, recognising the need to integrate its international strategy with its domestic one, the company split its previously independent international business arm into commercial and enger segments and, as part of its overall business strategy, merged them with its commercial and enger vehicle business units. As part of its plans, the company has plotted four routes to international expansion. The first is the traditional method of export, at which the company has been quite successful, notching up export revenue of Rs969 crore in the first nine months of FY 2004-05, recording a growth of 41 per cent from sales in Europe, Africa, the Middle East and Asia. The second is setting up assembly operations abroad. This does not necessarily involve establishing a full-scale manufacturing unit, but an operation where kits are sent in semi knocked down or completely knocked down assemblies, or as a fully assembled vehicles and sold in that market. Tata Motors worked this into its strategy when it set up its first assembly operation in Malaysia in 1974. Since then the company has similarly expanded into Malaysia, Bangladesh, Senegal, South Africa and Ukraine. All these assembly operations are set up by the distributors of Tata Motors for these countries. The third scenario would be actual acquisition, the route Tata Motors took with Daewoo South Korea. Here, Tata Motors bought the full-fledged heavy vehicle-manufacturing unit and, in the process, gained not just a manufacturing asset base, but access to the market through an already strong brand identity. The company was also presented a wide choice in of the markets in which it could use the Daewoo brand and, more importantly, access to R&D capability in the area of commercial vehicles. In the short period of six years since the launch of enger cars, Tata Motors has already achieved the No.2 position in the domestic car market in India. The company has successfully launched Indica in South Africa and Turkey and is marketing it under its own brandname. 18 | P a g e

An independent international effort will call for the company to dig deep into its pockets. "The automobile business is a resource-intensive one," explains Mr Kadle. "There needs to be consistent profitability and a proven track record. Businesses have to contribute, on an ongoing basis, a significant amount of cash for their survival and future growth. You need this winning combination: a track record of profitability, cost competitiveness, global sourcing for components/aggregates, effective capital-base management, and the ability to raise resources from international capital markets at the right time." Expanding on the company's globalisation plans, Mr Kadle explains, "Tata Motors does not plan to be all over the world. Supply will follow demand and the company will need to address the markets for different vehicles as stand-alone projects. For example, the compact-sized Indica will be marketed in countries where the company perceives a substantial market for it, like it did in Europe. The same goes for our commercial vehicles business." He adds that China is a distinct possibility for expansion, an opinion that is justified by just a glance at the dragon's consumption patterns. Right from commodities to automobiles, annual demands are phenomenal. "China is a big market and, I think, if you want to be a successful auto company then you may have to have some presence there. But, at the same time, one must keep in mind that no major auto company, except maybe Volkswagen, has made serious money in China. One has to be very careful in one's approach to the Chinese market." Tata Motors' immediate goal is to achieve a 20 per cent contribution to its overall revenue from its international businesses by 2006. This seems to be realistic enough following the Daewoo acquisition, and its own products getting into more than 70 countries. Looking at successful global auto majors, for whom anywhere from 30 to 50 per cent of their business accrues from overseas sales, Tata Motors is still a long way off, but Mr Kadle believes that with its aggressive growth strategy a contribution of around 35 per cent may be achievable in five-six years. The trickle factor will by then begin to gather force.

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Illustration of Tata steels global strategy with the use of global strategy framework: 1. Identify business unit: Amongst the various SBU of Tata groups, I have selected Tata steel company (with special reference to their take over of Corus) as the SBU for the study of global strategy framework. 2. Evaluate Industry potential for globalization: Market factors pushed for globalization. The market needs for steel was homogeneous and they had global customers. Because of homogeneity of needs, the brands and advertising were transferable. Economic factors were also favourable for globalization. Because of standardization of core products, the company was able to enjoy economies of scale in manufacturing. Since the company is ninety nine years old, they also enjoy the benefit of steep learning curve. Again, the raw material cost in U.K. is high. This can be offset

by sourcing

from

India,

where

raw

materials

are

comparatively

cheaper.Environmental factors increased the potential for global strategy. Since Corus had good sales network at various countries, the transportation costs of Tata steel will be reduced. Again, government policies like easing foreign currency restrictions both in UK and India were favourable for global strategy. Global moves of competitor i.e. Mittal acquiring Arcelor also forced the Tata steel to go for global strategy. 3. Evaluate current extent of globalization: The current extent of globalization is measured under 5 dimensions. 

Market participation: Tata steel has sales in various countries like USA, Srilanka, Nepal, Shanghai etc but it lacked global identity or image.



Product standardization: The basic product was standardized throughout the world. At final stages the product was customized as per the requirements.



Activity concentration: Tata steels technological and integration, finance, strategy etc were concentrated only in India whereas the manufacturing activities were dispersed in India, USA, UK, Thailand, Vietnam, Malaysia etc. Trading was done in Bangladesh, Srilanka, Nepal, South Africa, Hong Kong, etc.



Marketing uniformity: The market positioning and marketing mix strategy were uniform throughout the world.

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

Integration of competitive moves: Tata steel has taken an integrated approach to global competitors. They have tough competition with Mittal steels in almost all countries.

4. Identify strategic need for change in the extent of globalization: From the previous analysis, Tata steel concluded that its extent of globalization was significantly lower than the industry potential and lower than its competitor’s global strategy. The Mittal Arcelor is ranked number one in steel industry in the world whereas the Tata steel ranked fifty sixth (before acquiring Corus). Furthermore, the industry potential for Tata steel had a strong need to develop a more global strategy. The next issue was whether Tata steel would be able to implement such a strategy. 5. Evaluate organisational / internal factors: To internal ability of Tata steel to implement global strategy is tested under the following factors: 

Structure: The head quarter of Tata steel was located in India. The five main functions such as technological and integration, finance, strategy, corporate relation and communication and global minerals were centralized. While the production, selling and distribution was decentralized and the divisions heads were given autonomy to take decisions.



Management processes: The management processes were favourable for global strategy. Since the strategy and corporate communication was centralized, there was well cross- border co-ordination.



People: There were no foreign nationals working in India either at corporate or divisional levels. There were many foreign nationals overseas, but these were mostly in their home countries and there was little movement between international and domestic jobs. But the leader Ratan Tata, through his action and statements had a global approach.



Culture: Tata steel had a strong Indian national identity than a global identity. But some SBU of Tata group like Tetley Tea, Taj group of Hotels had created global identity.

6. Identify organizational ability to implement globalization: Tata steel had the ability to implement globalization because of its rich experience of 99 years of

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running a business successfully in India. Hence it had the ability to acquire big steel company like Corus. 7. Diagnose scope and direction of required changes: The most important change, the Tata steel has to do is to encourage the transfer of people between nations. According to IISI data, the average hourly rate of pay in UK steel was 6 times that of Brazil and 10 times that of India. So by movement of people, the company can reduce the cost and strengthen its competitive advantage of low cost leadership. Tata groups in foreign countries should blend into the adopted corporate culture. For better brand visibility, more Tata companies will have to go abroad and learn to flourish abroad.

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Indian Multinational resulting in the growth of foreign market: India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowly and surely embarked on the global path and lead to the emergence of the Indian multinational companies. With each ing day, Indian businesses are acquiring companies’ abroad, becoming worldpopular suppliers and are recruiting staff cutting across nationalities. While an Asian Paint is painting the world red, Tata is rolling out Indicas from Birmingham and Sundram Fasteners nails home the fact that the Indian company is an entity to be reckoned with. 

Tata Motors sells its enger-car Indica in the UK through a marketing alliance with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access to markets in Korea and China.



Ranbaxy is the ninth largest generics company in the world. An impressive 76 percent of its revenues come from overseas.

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Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company outside Japan to list on the New York Stock Exchange in 2001.

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Asian Paints is among the 10 largest decorative paints makers in the world and has manufacturing facilities across 24 countries.

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Small auto components company Bharat Forge is now the world's second largest forgings maker. It became the world's second largest forgings manufacturer after acquiring Carl Dan Peddinghaus a German forgings company last year. Its workforce includes Japanese, German, American and Chinese people. It has 31 customers across the world and only 31 percent of its turnover comes from India.



Essel Propack is the world's largest manufacturers of lamitubes - tubes used to package toothpaste. It has 17 plants spread across 11 countries and a turnover of Rs 609.2 crore for the year ended December 2003. The company commands a staggering 30 percent of the 12.8 billion-units global tubes market.



About 80 percent of revenues for Tata Consultancy Services come from outside India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest tech IPO this year and India's largest IPO ever.

Infosys has 25,634 employees including 600 from 33 nationalities other than Indian. It has 30 marketing offices across the world and 26 23 | P a g e

Economic Reforms in India since 1991 Economic reforms were introduced by the Rajiv Gandhi government (1985-89), it was the Narasimha Rao Government that gave a definite shape and start to the new economic reforms of globalization in India. Presenting the 1991-92 Budgets, Finance Minister Manmohan Singh said: “After four decades of planning for industrialization, we have now reached a stage where we should welcome, rather fear, foreign investment. Direct foreign investment would provide access to capital, technology and market.” In the Memorandum of Economic Policies dated August 27, 1991 to the IMF, the Finance Minister submitted in the concluding paragraph: “The Government of India believes that the policies set forth in the Memorandum are adequate to achieve the objectives of the program, but will take any additional measures appropriate for this purpose. In addition, the Government will consult with the Fund on the adoption of any measures that may be appropriate in accordance with the policies of the Fund on such consultations.” Era of 1991 Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient. With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy. Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital was flying out of the country and we were close to defaulting on loans. So in order to over situation follow policies and steps were initiated by then UPA government under the leadership of Narasimha Rao.

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1. Devaluation: In 1991, India still had a fixed exchange rate system, where the rupee was pegged to the value of a basket of currencies of major trading partners. India started having balance of payments problems since 1985, and by the end of 1990, it found itself in serious economic trouble. The government was close to default and its foreign exchange reserves had dried up to the point that India could barely finance three weeks’ worth of imports. As in 1966, India faced high inflation and large government budget deficits. This led the government to devalue the rupee. At the end of 1999, the Indian Rupee was devalued considerably. Therefore the first steps towards globalization were taken with the announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis. 

Disinvestment-In order to make the process of globalization smooth, privatization and liberalization policies are moving along as well. Under the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector. Company such as Modern Foods India Ltd., BALCO an aluminum company and very recent example is coal.



Dismantling of the Industrial Licensing Regime: at present, only six industries are under compulsory licensing mainly on ing of environmental safety and strategic considerations. A significantly amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not falling within 25 kms of the periphery of cities having a population of more than one million.

2. Allowing Foreign Direct Investment With the initiation of new economic policy in 1991 and subsequent reforms process, India has witnessed a change in the flow and direction of foreign direct investment (FDI) into the country. This is mainly due to the removal of restrictive and regulated practices such as 

The removal of quantitative restrictions on imports

Trade policy reform has also made progress, though the pace has been slower than in industrial liberalization. Before the reforms, trade policy was characterized by high tariffs and 25 | P a g e

pervasive import restrictions. Imports of manufactured consumer goods were completely banned. For capital goods, raw materials and intermediates, certain lists of goods were freely importable, but for most items where domestic substitutes were being produced, imports were only possible with import licenses. The criteria for issue of licenses were nontransparent; delays were endemic and corruption unavoidable. The economic reforms sought to phase out import licensing and also to reduce import duties. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were finally removed on April 1, 2001, almost exactly ten years after the reforms began, and that in part because of a ruling by a World Trade Organization dispute on a complaint brought by the United States, the reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate that applies now. 

Throwing Open Industries Reserved For The Public Sector to Private Participation.

The list of industries reserved solely for the public sector -- which used to cover 18 industries, including iron and steel, heavy plant and machinery, telecommunications and telecom equipment, minerals, oil, mining, air transport services and electricity generation and distribution -- has been drastically reduced to three: defense aircrafts and warships, atomic energy generation, and railway transport. Industrial licensing by the central government has been almost abolished except for a few hazardous and environmentally sensitive industries. The requirement that investments by large industrial houses needed a separate clearance under the Monopolies and Restrictive Trade Practices Act to discourage the concentration of economic power was abolished and the act itself is to be replaced by a new competition law which will attempt to regulate anticompetitive behavior in other ways for instance power generation, transmission and distribution in Mumbai (Tata and reliance power) foreign direct investment in India increased from US $ 129 million in 1991-92 to US$ 2,214 million in April 2010. The cumulative amount of FDI equity inflows from August 1991 to April 2010 stood at US$ 134,642 million, according to the data released by the Department of Industrial Policy and Promotion (DIPP). Today, India provides highest returns on FDI than any other country in the world. Therefore, India is evolving as one of the 'most favored destination' for FDI in Asia and the Pacific.

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

Non Resident Indian Scheme

The general policy and facilities for foreign direct investment as available to foreign investors/ Companies are fully applicable to NRIs as well. In addition, Government has extended some concessions especially for NRIs and overseas corporate bodies having more than 60% stake by NRIs 

Wide-ranging financial sector reforms

In the banking, capital markets, and insurance sectors, including the deregulation of interest rates, strong regulation and supervisory systems, and the introduction of foreign/private sector competition. 3. Financial Sector Reform India’s reform program included wide-ranging reforms in the banking system and the capital Markets relatively early in the process with reforms in insurance introduced at a later stage. Banking sector reforms included: a. measures for liberalization, like dismantling the complex system of interest rate controls, eliminating prior approval of the Reserve Bank of India for large loans, and reducing the statutory requirements to invest in government securities; b. measures designed to increase financial soundness, like introducing capital adequacy requirements and other prudential norms for banks and strengthening banking supervision; c. Measures for increasing competition like more liberal licensing of private banks and freer expansion by foreign banks. These steps have produced some positive outcomes. There has been a sharp reduction in the share of nonperforming assets in the portfolio and more than 90 percent of the banks now meet the new capital adequacy standards. However, these figures may overstate the improvement because domestic standards for classifying assets as non-performing are less stringent than international standards. India’s banking reforms differ from those in other developing countries in one important respect and that is the policy towards public sector banks which dominate the banking system. The government has announced its intention to 27 | P a g e

reduce its equity share to 33-1/3 percent, but this is to be done while retaining government control. Improvements in the efficiency of the banking system will therefore depend on the ability to increase the efficiency of public sector banks. The above factors are some of the important factors which have robust the growth of Indian mnc’s India was a latecomer to economic reforms, embarking on the process in earnest only in 1991, in the wake of an exceptionally severe balance of payments crisis. The need for a policy shift had become evident much earlier, as many countries in East Asia achieved high growth and poverty reduction through policies which emphasized greater export orientation and encouragement of the private sector. India took some steps in this direction in the 1980s, but it was not until 1991 that the government signaled a systemic shift to a more open economy with greater reliance upon market forces, a larger role for the private sector including foreign investment, and a restructuring of the role of government. India’s economic performance in the post-reforms period has many positive features. The average growth rate in the ten year period from 1992-93 to 2001-02 was around 6.0 percent, as shown in Table 1, which puts India among the fastest growing developing countries in the 1990s. This growth record is only slightly better than the annual average of 5.7 percent in the 1980s, but it can be argued that the 1980s growth was unsustainable, fuelled by a buildup of external debt which culminated in the crisis of 1991. In sharp contrast, growth in the 1990s was accompanied by remarkable external stability despite the East Asian crisis. Poverty also declined significantly in the post-reform period, and at a faster rate than in the 1980s according to some studies (as Ravalli on and Datt discuss in this issue). 4. Reforms in Industrial and Trade Policy Reforms in industrial and trade policy were a central focus of much of India’s reform effort in the early stages. Industrial policy prior to the reforms was characterized by multiple controls over private investment which limited the areas in which private investors were allowed to operate, and often also determined the scale of operations, the location of new investment, and even the technology to be used. The industrial structure that evolved under this regime was highly inefficient and needed to be ed by a highly protective trade policy, often providing tailor-made protection to each sector of industry. The costs imposed by these 28 | P a g e

policies had been extensively studied (for example, Bhagwati and Desai, 1965; Bhagwati and Srinivasan, 1971; Ahluwalia, 1985) and by 1991 a broad consensus had emerged on the need for greater liberalization and openness. A great deal has been achieved at the end of ten years of gradualist reforms. Industrial Policy Industrial policy has seen the greatest change, with most central government industrial controls being dismantled. The list of industries reserved solely for the public sector -- which used to cover 18 industries, including iron and steel, heavy plant and machinery, telecommunications and telecom equipment, minerals, oil, mining, air transport services and electricity generation and distribution -- has been drastically reduced to three: defense aircrafts and warships, atomic energy generation, and railway transport. Industrial licensing by the central government has been almost abolished except for a few hazardous and environmentally sensitive industries. The requirement that investments by large industrial houses needed a separate clearance under the Monopolies and Restrictive Trade Practices Act to discourage the concentration of economic power was abolished and the act itself is to be replaced by a new competition law which will attempt to regulate anticompetitive behavior in other ways. 5. Trade Policy Trade policy reform has also made progress, though the pace has been slower than in industrial liberalization. Before the reforms, trade policy was characterized by high tariffs and pervasive import restrictions. Imports of manufactured consumer goods were completely banned. For capital goods, raw materials and intermediates, certain lists of goods were freely importable, but for most items where domestic substitutes were being produced, imports were only possible with import licenses. The criteria for issue of licenses were nontransparent; delays were endemic and corruption unavoidable. The economic reforms sought to phase out import licensing and also to reduce import duties. Import licensing was abolished relatively early for capital goods and intermediates which became freely importable in 1993, simultaneously with the switch to a flexible exchange rate regime. Import licensing had been traditionally defended on the grounds that it was necessary to manage the balance of payments, but the shift to a flexible exchange rate enabled the government to argue that any balance of payments impact would be effectively dealt with through exchange rate flexibility. Removing quantitative restrictions on imports of capital 29 | P a g e

goods and intermediates was relatively easy, because the number of domestic producers was small and Indian industry welcomed the move as making it more competitive. It was much more difficult in the case of final consumer goods because the number of domestic producers affected was very large (partly because much of the consumer goods industry had been reserved for small scale production). Quantitative restrictions on imports of manufactured consumer goods and agricultural products were finally removed on April 1, 2001, almost exactly ten years after the reforms began, and that in part because of a ruling by a World Trade Organization dispute on a complaint brought by the United States. 6. Foreign Direct Investment Liberalizing foreign direct investment was another important part of India’s reforms, driven by the belief that this would increase the total volume of investment in the economy, improve production technology, and increase access to world markets. The policy now allows 100 percent foreign ownership in a large number of industries and majority ownership in all except banks, insurance companies, telecommunications and airlines. Procedures for obtaining permission were greatly simplified by listing industries that are eligible for automatic approval up to specified levels of foreign equity (100 percent, 74 percent and 51 percent). Potential foreign investors investing within these limits only need to with the Reserve Bank of India. For investments in other industries, or for a higher share of equity than is automatically permitted in listed industries, applications are considered by a Foreign Investment Promotion Board that has established a track record of speedy decisions. In 1993, foreign institutional investors were allowed to purchase shares of listed Indian companies in the stock market, opening a window for portfolio investment in existing companies. These reforms have created a very different competitive environment for India’s industry than existed in 1991, which has led to significant changes. Indian companies have upgraded their technology and expanded to more efficient scales of production. They have also restructured through mergers and acquisitions and refocused their activities to concentrate on areas of competence. New dynamic firms have displaced older and less dynamic ones: of the top 100 companies ranked by market capitalization in 1991, about half are no longer in this group. Foreign investment inflows increased from virtually nothing in 1991 to about 0.5 percent of GDP. Although this figure remains much below the levels of foreign direct investment in many emerging market countries (not to mention 4 percent of GDP in China),

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the change from the pre-reform situation is impressive. The presence of foreign-owned firms and their products in the domestic market is evident and has added greatly to the pressure to improve quality. These policy changes were expected to generate faster industrial growth and greater penetration of world markets in industrial products, but performance in this respect has been disappointing. As shown in Table 1, industrial growth increased sharply in the first five years after the reforms, but then slowed to an annual rate of 4.5 percent in the next five years. Export performance has improved, but modestly. The share of exports of goods in GDP increased from 5.7 percent in 1990-91 to 9.7 percent, but this reflects in part exchange rate depreciation. India’s share in world exports, which had declined steadily since 1960, increased slightly from around 0.5 percent in 1990-91 to 0.6 percent in 1999-2000, but much of the increase in world market share is due to agricultural exports. India’s manufactured exports had a 0.5 percent share in world markets for those items in 1990 and this rose to only 0.55 percent by 1999. Unlike the case in China and Southeast Asia, foreign direct investment in India did not play an important role in export penetration and was instead oriented mainly towards the domestic market. One reason why export performance has been modest is the slow progress in lowering import duties that make India a high cost producer and therefore less attractive as a base for export production. Exporters have long been able to import inputs needed for exports at zero duty, but the complex procedure for obtaining the necessary duty-free import licenses typically involves high transactions cost and delays. High levels of protection compared with other countries also explains why foreign direct investment in India has been much more oriented to the protected domestic market, rather than using India as a base for exports. However, high tariffs are only part of the explanation for poor export performance. The reservation of many potentially exportable items for production in the small scale sector (which has only recently been relaxed) was also a relevant factor. The poor quality of India’s infrastructure compared with infrastructure in east and Southeast Asia, which is discussed later in this paper, is yet another. Inflexibility of the labor market is a major factor reducing India’s competitiveness in exports and also reducing industrial productivity generally (Planning Commission, 2001). Any firm wishing to close down a plant, or to retrench labor in any unit employing more than 100 workers, can only do so with the permission of the state government, and this permission is

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rarely granted. These provisions discourage employment and are especially onerous for laborintensive sectors. The increased competition in the goods market has made labor more willing to take reasonable positions, because lack of flexibility only leads to firms losing market share. However, the legal provisions clearly remain much more onerous than in other countries. This is important area of reform that has yet to be addressed. The lack of any system of unemployment insurance makes it difficult to push for major changes in labor flexibility unless a suitable contributory system that is financially viable can be put in place. The government has recently announced its intention to amend the law and raise the level of employment above which firms have to seek permission for retrenchment from 100 workers at present to 1000 while simultaneously increasing the scale of retrenchment compensation. However, the amendment has yet to be enacted. These gaps in the reforms provide a possible explanation for the slowdown in industrial growth in the second half of the 1990s. It can be argued that the initial relaxation of controls led to an investment boom, but this could have been sustained only if industrial investment had been oriented to tapping export markets, as was the case in East Asia. As it happened, India’s industrial and trade reforms were not strong enough, nor adequately ed by infrastructure and labor market reforms to generate such a thrust. The one area which has shown robust growth through the 1990s with a strong export orientation is software development and various new types of services enabled by information technology like medical transcription, backup ing, and customer related services. Export earnings in this area have grown from $100 million in 1990-91 to over $6 billion in 2000-01 and are expected to continue to grow at 20 to 30 percent per year. India’s success in this area is one of the most visible achievements of trade policy reforms which allow access to imports and technology at exceptionally low rates of duty, and also of the fact that exports in this area depend primarily on telecommunications infrastructure, which has improved considerably in the post-reforms period. 7. Infrastructure Development Rapid growth in a globalized environment requires a well-functioning infrastructure including especially electric power, road and rail connectivity, telecommunications, air transport, and efficient ports. India lags behind east and Southeast Asia in these areas. These services were traditionally provided by public sector monopolies but since the investment needed to expand capacity and improve quality could not be mobilized by the public sector, 32 | P a g e

these sectors were opened to private investment, including foreign investment. However, the difficulty in creating an environment which would make it possible for private investors to enter on that would appear reasonable to consumers, while providing an adequate riskreturn profile to investors, was greatly underestimated. Many false starts and disappointments have resulted. The greatest disappointment has been in the electric power sector, which was the first area opened for private investment. Private investors were expected to produce electricity for sale to the State Electricity Boards, which would control of transmission and distribution. However, the State Electricity Boards were financially very weak, partly because electricity tariffs for many categories of consumers were too low and also because very large amounts of power were lost in transmission and distribution. This loss, which should be between 10 to 15 percent on technical grounds (depending on the extent of the rural network), varies from 35 to 50 percent. The difference reflects theft of electricity, usually with the connivance of the distribution staff. Private investors, fearing nonpayment by the State Electricity Boards insisted on arrangements which guaranteed purchase of electricity by state governments backed by additional guarantees from the central government. These arrangements attracted criticism because of controversies about the reasonableness of the tariffs demanded by private sector power producers. Although a large number of proposals for private sector projects amounting to about 80 percent of existing generation capacity were initiated, very few reached financial closure and some of those which were implemented ran into trouble subsequently.i Civil aviation and ports are two other areas where reforms appear to be succeeding, though much remains to be done. Two private sector domestic airlines, which began operations after the reforms, now have more than half the market for domestic air travel. However, proposals to attract private investment to upgrade the major airports at Mumbai and Delhi have yet to make visible progress. In the case of ports, 17 private sector projects involving port handling capacity of 60 million tons, about 20 percent of the total capacity at present, are being implemented. Some of the new private sector port facilities have set high standards of productivity. India’s road network is extensive, but most of it is low quality and this is a major constraint for interior locations. The major arterial routes have low capacity (commonly just two lanes in most stretches) and also suffer from poor maintenance. However, some promising 33 | P a g e

initiatives have been taken recently. In 1998, a tax was imposed on gasoline (later extended to diesel), the proceeds of which are earmarked for the development of the national highways, state roads and rural roads. This will help finance a major program of upgrading the national highways connecting Delhi, Mumbai, Chennai and Calcutta to four lanes or more, to be completed by the end of 2003. It is also planned to levy modest tolls on these highways to ensure a stream of revenue which could be used for maintenance. A few toll roads and bridges in areas of high traffic density have been awarded to the private sector for development. The railways are a potentially important means of freight transportation but this area is untouched by reforms as yet. The sector suffers from severe financial constraints, partly due to a politically determined fare structure in which freight rates have been set excessively high to subsidize enger fares, and partly because government ownership has led to wasteful operating practices. Excess staff is currently estimated at around 25 percent. Resources are typically spread thinly to respond to political demands for new enger trains at the cost of investments that would strengthen the capacity of the railways as a freight carrier. The Expert Group on Indian Railways (2002) recently submitted a comprehensive program of reform converting the railways from a departmentally run government enterprise to a corporation, with a regulatory authority fixing the fares in a rational manner. No decisions have been announced as yet on these recommendations. 8. Financial Sector Reform India’s reform program included wide-ranging reforms in the banking system and the capital markets relatively early in the process with reforms in insurance introduced at a later stage. Banking sector reforms included: (a) measures for liberalization, like dismantling the complex system of interest rate controls, eliminating prior approval of the Reserve Bank of India for large loans, and reducing the statutory requirements to invest in government securities; (b) measures designed to increase financial soundness, like introducing capital adequacy requirements and other prudential norms for banks and strengthening banking supervision; (c) measures for increasing competition like more liberal licensing of private banks and freer expansion by foreign banks. These steps have produced some positive outcomes. There has been a sharp reduction in the share of non-performing assets in the portfolio and more than 90 percent of the banks now meet the new capital adequacy standards. However, these figures may overstate the improvement because domestic 34 | P a g e

standards for classifying assets as non-performing are less stringent than international standards. India’s banking reforms differ from those in other developing countries in one important respect and that is the policy towards public sector banks which dominate the banking system. The government has announced its intention to reduce its equity share to 33-1/3 percent, but this is to be done while retaining government control. Improvements in the efficiency of the banking system will therefore depend on the ability to increase the efficiency of public sector banks. 9. Privatization The public sector s for about 35 percent of industrial value added in India, but although privatization has been a prominent component of economic reforms in many countries, India has been ambivalent on the subject until very recently. Initially, the government adopted a limited approach of selling a minority stake in public sector enterprises while retaining management control with the government, a policy described as “disinvestment” to distinguish it from privatization. The principal motivation was to mobilize revenue for the budget, though there was some expectation that private shareholders would increase the commercial orientation of public sector enterprises. This policy had very limited success. Disinvestment receipts were consistently below budget expectations and the average realization in the first five years was less than 0.25 percent of GDP compared with an average of 1.7 percent in seventeen countries reported in a recent study (see Davis et.al. 2000). There was clearly limited appetite for purchasing shares in public sector companies in which government remained in control of management. In 1998, the government announced its willingness to reduce its shareholding to 26 percent and to transfer management control to private stakeholders purchasing a substantial stake in all central public sector enterprises except in strategic areas.ii The first such privatization occurred in 1999, when 74 percent of the equity of Modern Foods India Ltd. (a public sector bread-making company with 2000 employees), was sold with full management control to Hindustan Lever, an Indian subsidiary of the Anglo-Dutch multinational Unilever. This was followed by several similar sales with transfer of management: BALCO, an aluminum company; Hindustan Zinc; Computer Maintenance Corporation; Lagan Jute Machinery Manufacturing Company; several hotels; VSNL, which was until recently the monopoly service supplier for international telecommunications; IPCL, a major petrochemicals unit and 35 | P a g e

Maruti Udyog, India’s largest automobile producer which was a t venture with Suzuki Corporation which has now acquired full managerial controls. An important recent innovation, which may increase public acceptance of privatization, is the decision to earmark the proceeds of privatization to finance additional expenditure on social sector development and for retirement of public debt. Privatization is clearly not a permanent source of revenue, but it can help fill critical gaps in the next five to ten years while longer term solutions to the fiscal problem are attempted. Many states have also started privatizing state level public sector enterprises. These are mostly loss making enterprises and are unlikely to yield significant receipts but privatization will eliminate the recurring burden of financing losses. 10. Social Sector Development in Health and Education India’s social indicators at the start of the reforms in 1991 lagged behind the levels achieved in Southeast Asia 20 years earlier, when those countries started to grow rapidly (Dreze and Sen, 1995). For example, India’s adult literacy rate in 1991 was 52 percent, compared with 57 percent in Indonesia and 79 percent in Thailand in 1971. The gap in social development needed to be closed, not only to improve the welfare of the poor and increase their income earning capacity, but also to create the preconditions for rapid economic growth. While the logic of economic reforms required a withdrawal of the state from areas in which the private sector could do the job just as well, if not better, it also required an expansion of public sector for social sector development. Much of the debate in this area has focused on what has happened to expenditure on social sector development in the post-reform period. Dev and Moolji (2002) find that central government expenditure on towards social services and rural development increased from 7.6 percent of total expenditure in 1990-91 to 10.2 percent in 2000-01, as shown in Table 4. As a percentage of GDP, these expenditures show a dip in the first two years of the reforms, when fiscal stabilization compulsions were dominant, but there is a modest increase thereafter. However, expenditure trends in the states, which for 80 percent of total expenditures in this area, show a definite decline as a percentage of GDP in the post-reforms period. Taking central and state expenditures together, social sector expenditure has remained more or less constant as a percentage of GDP.

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Closing the social sector gaps between India and other countries in southeast Asia will require additional expenditure, which in turn depends upon improvements in the fiscal position of both the central and state governments. However, it is also important to improve the efficiency of resource use in this area. Saxena (2001) has documented the many problems with existing delivery systems of most social sector services, especially in rural areas. Some of these problems are directly caused by lack of resources, as when the bulk of the budget is absorbed in paying salaries, leaving little available for medicines in clinics or essential teaching aids in schools. There are also governance problems such as nonattendance by teachers in rural schools and poor quality of teaching. Part of the solution lies in greater participation by the beneficiaries in supervising education and health systems, which in turn requires decentralization to local levels and effective peoples’ participation at these levels. Nongovernment organizations can play a critical role in this process. Different state governments are experimenting with alternative modalities but a great deal more needs to be done in this area. While the challenges in this area are enormous, it is worth noting that social sector indicators have continued to improve during the reforms. The literacy rate increased from 52 percent in 1991 to 65 percent in 2001, a faster increase in the 1990s than in the previous decade, and the increase has been particularly high in the some of the low literacy states such as Bihar, Madhya Pradesh, Uttar Pradesh and Rajasthan.

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Conclusion In conclusion, MNCs are beneficial to less developed countries. They improve the foundations of a "backwards" economic environment through the diffusion of capital, technology, skills, and exports. MNCs have a direct effect on the development of a more citizen welfare conscious government. Accordingly, the number of jobs increases, consumer spending increases, the tax base grows and health care is more widely accessible. They also have an apparent lasting effect on the values and institutions of the host country. The values of the country change to reflect a country committed to staying in pace with a rapidly changing global environment; extending to political norms and nationalistic tendencies. Once there is openness to capitalism, or a more developed capitalist society emerges then there will be a more stable global society. However, in the end there really is no other more reliable way to improve the social, economic, and political environment of a state than by allowing a MNC to invest. The MNCs is fascinating and important for understanding economic globalization. There has been substantial progress in the literature in the past couple of decades. As a consequence, the government policy was progressively tightened in the following 1) Some industries were not allowed to import technology at all, the underlying principles of the policy being that a) No ‘inessential’ article should be produced with fresh imports of technology (this gave the exiting domestic and foreign producers automatic protection against fresh imports of technology). b) Where domestic capacity was ‘adequate’ no technology should be imported; 2) Among industries where technology imports were allowed, the maximum rate of royalty was laid down; 3) In some designed industries, foreign investment was allowed in principle, but sanction in individual cases was a matter of istrative decision; 4) The normal permissible period of agreements was reduced from ten years to five, and renewals were generally frowned upon; 5) Exports and other marketing restriction were generally not allowed, and often an obligation to export a certain proportion of the output was insisted upon; 6) A clause was often inserted in the agreements granting permission to the importer to sublicense the technology;

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7) The CSIR was allowed to look at applications for approval of technology imports, and if it expressed willingness to supply the technology, approval was withheld or at least delayed. The most effective curb on the activities of foreign companies, especially MNCs, was supposed to come with the ing of the Foreign Exchange Regulation Act (FERA) in 1973 to which we now turn. Multinational companies are not disadvantage to our country. India needs MNCs to become developed country. But employees of these companies should not take responsibility for overloaded work just for high salary. So that, there can have fulfillment of ion and also fulfillment of personal life.

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Bibliography Books: 1. Introduction To International Economics Author: Dominick Salvatore Publisher: John Wiley& Sons, 2011 2. Economics Of Global Trade And Finance, Johnson Mascarenhas 3. Mithani&Jhingan, International Economics, S.Chand& Co.

Newsletters and Articles: 1. 2. 3. 4.

The Hindu Economic Times Business Line Times Of India

Websites: 1. http://www.weikipedia.com/ 2. http://www.tatamotors.com/ 3. http://discuss.itacumens.com/index.php?topic=21961.0 4. http://www1.ximb.ac.in/s/fac/Amar/AmarNayak.nsf/dd5cab6801f17235 85256474005327c8/060eac2cc3faa40265256c78003ff893/$FILE/Indian%2 0companies-colloquium.pdf 5. http://www.docstoc.com/docs/22877979/TATA-CASE-STUDY 6. http://www.improvementandinnovation.com/features/article/case-studyhow-tata-steels-created-a-global-strategy-framework/ 7. http://www.americanessays.com/study-aids/free-essays/business/indiaattractive-destination-to-the-world.php 8. http://business.mapsofindia.com/india-company/multinational.html 40 | P a g e

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