By Harshvardhan, the Subject Matter Expert at Edumarz
Solution: MNCs or Global Enterprises have played an important role in the Indian Economy In the last 2 decades or so. They have become a common feature of most developing economies in the world. MNCs as is evident from what we see around us, are gigantic corporations that have their operations in a number of countries. They are characterised by their huge size, a large number of products, advanced technology, marketing strategies and network of operations all over the world. Global enterprises thus are huge industrial organisations that extend their industrial and marketing operations through a network of their branches in several countries. These enterprises operate in several areas producing multiple products with their business strategy extending over a number of countries. They do not aim at maximising profits from one or two products but instead spread their branches all over.
These corporations have distinct merits which distinguish them from other private sector companies, public sector companies and public sector enterprises. These are as follows:
- Huge capital resources: These enterprises are characterised by possessing huge financial resources and the ability to raise funds from different sources. They are able to tap funds from various sources. They may issue equity shares, debentures or bonds to the public. They are also in a position to borrow from financial institutions and international banks. They enjoy credibility in the capital market. Even investors and banks of the host country are willing to invest in them. Because of their financial strength, they are able to survive under all circumstances.
2.Foreign collaboration: Global enterprises usually enter into agreements with Indian companies pertaining to the sale of technology, production of goods, use of brand names for the final products, etc. These MNCs may collaborate with companies in the public and private sectors. There are usually various restrictive clauses in the agreement relating to the transfer of technology, pricing, dividend payments, tight control by foreign technicians, etc. Big industrial houses wanting to diversify and expand have gained by collaborating with MNCs in terms of patents, resources, foreign exchange etc. But at the same time, these foreign collaborations have given rise to the growth of monopolies and concentration of power in a few hands. Advanced technology: These enterprises possess technological superiorities in their methods of production. They are able to conform to international standards and quality specifications. This leads to the industrial progress of the country in which such corporations operate since they are able to optimally exploit local resources and raw materials. Computerisation and other inventions have come due to the technological advancements provided by MNCs.
3.Product innovation: These enterprises are characterised by having highly sophisticated research and development departments engaged in the task of developing new products and superior designs of existing products. Qualitative research requires huge investment which only global enterprises can afford.
4.Marketing strategies: The marketing strategies of global companies are far more effective than other companies. They use aggressive marketing strategies in order to increase their sales in a short period. They possess a more reliable and up-to-date market information system. Their advertising and sales promotion techniques are normally very effective. Since they already have carved out a place for themselves in the global market, and their brands are well-known, selling their products is not a problem.
5.Expansion of market territory: Their operations and activities extend beyond the physical boundaries of their own countries. Their international image also builds up and their market territory expands enabling them to become international brands. They operate through a network of subsidiaries, branches and affiliates in host countries. Due to their giant size, they occupy a dominant position in the market.
6.Centralised control: They have their headquarters in their home country and exercise control over all branches and subsidiaries. However, this control is limited to the broad policy framework of the parent company. There is no interference in day-to-day operations.