Page 238 - DMGT401Business Environment

Unit 10: Foreign Trade

10.2.4 Demerits of MNCs Notes

Multinational corporations have become too powerful in absolute terms as well as relative to
governments.
The enormous resources controlled by multinational corporations give them a tremendous
amount of power, especially over individuals and governments. The ongoing erosion of national
barriers to trade and investment enables these firms to close shop and head overseas if government,
workers or NGOs place restrictions (e.g., minimum wage, taxation, labour standards, fines for
pollution, etc.) on them or otherwise inhibit their ability to earn profits.

Certainly, there is a danger to any organization that controls resources and market share on par
with giant conglomerates like HLL, Reliance, TATA, or AV Birla may abuse their power in ways
that undermine democratic processes or hurt consumers. But these corporations earn their profits
through efficiency and innovation, without which they would quickly lose market share to
rivals. They employ millions of workers with competitive wages, provide relatively low-cost/
high-quality goods and services to consumers and enrich shareholders. Moreover, they must
accomplish all of this without stepping beyond the boundaries of Competition/Antitrust Law/
Consumer Act in the countries in which they operate. In light of the profit motive, firms spend
money to influence legislation to its favour in case doing so is likely to enhance profitability.

10.2.5 MNCs in India

“When the Bangalore-based telecom software product company Subex Systems acquired Alcatel's
Fraud Management Group (FMG) it took quite a few by surprise in the industry. After all, Subex
with revenues of 90 crore and Alcatel the € 25 Billion French giant were in totally different
leagues. It was a part of Subex's well thought out strategy to move centre stage in the global
arena of its chosen space of telecom fraud management and revenue maximisation. With this
acquisition, Subex claims to be the largest vendor the world over for Fraud Management Systems,
based on the number of installations. It currently has 61 customers with 105 networks spread
across 37 countries." (Business India December 20, 2004 to January 2, 2005.)
"Not many know that most new generation vehicles that ply the Indian roads have Moterson's
inputs-be it Toyota, Honda, Mercedes, Ford, Hyundai or even the homegrown Maruti. From
wiring harnessing to cockpits, door trims to bumpers and plastic components, it chips in with its
produce, not just for the cars rolled out in India but also for those rolled out in the Far East. The
Group has 13 plants including at Sharjah and Ireland." (Business India, September 26-October 9,
2005.)

"If you were to ask which Indian company leads the world in a given product/segment, chances
are that you would get it wrong. It is neither Reliance nor a company from the stable of TATA or
the Birlas, Infosys or even Wipro of the country. The right answer is Subhash Chandra's Essel
Propack (EPL), the single largest specialty packaging company in the world manufacturing
laminated and seamless tubes catering to oral care, cosmetics, personal care, pharmaceuticals,
food and industrial sectors.
With an estimated 32% market share in laminated tubes globally, EPL is multinational with
manufacturing facilities in 13 countries through 21 plants including the US, the UK, Russia,
Germany, Mexico, Colombia, Venezuela, Philippines, Indonesia, Egypt, Nepal and China, besides
India. EPL was established in 1984, ventured out to become a global player in 1993 by setting its
first overseas venture in Egypt. Four years later it formed a wholly owned subsidiary in
Guanghou, China. In 2000 it acquired Switzerland's Propack A.G. which was then the world's
fourth largest laminated tubes company. This helped Essel gain access to markets in Latin
America, Indonesia, and China". (Business India, October 10-23, 2005)

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