Multinational Corporations (MNCs): Their Impact on Society and the Economy

Multinational corporations (MNCs) are huge business organizations which open up income-generating assets in more than one country through branches or their Majority Owned Foreign Affiliates (MOFAs). They are also known as Transnational Companies or Corporations (TNCs). An MNC engages itself in the production of goods or services outside the country of its origin. By opening up income generating assets in more than one country, it makes its presence felt in the global market. It has been estimated that around a quarter of the world economy is being controlled by the big MNCs. The combined sales of these top MNCs are estimated to be much higher than the combined worth of economies of around 182 countries. The MNCs, because of their huge resources and international presence, are able to conjure up desires for their products in the minds of the people in the country of their marketing base.

The MNCs are characterized by their huge assets. The principal decisions taken by the company take into account their global market. The emergence of the MNCs has led to the monopolization of the markets. Production and investment have become global as a result of which economic activities pertaining to production; investment and trade are being conducted by the MNCs through their branches or firms in the different countries. Inter-firm transactions have led to the concentration of economic power across the countries. Initially, the development of the MNCs was through 'creeping increment'. Slowly, but steadily, the MNCs have established their subsidiaries beyond their country of origin, in developed and under­developed countries. The MNCs also aid in the transfer of resources from the host country to the country of its operations which includes technical expertise, equipment, managerial and marketing skills, among others.

The MNCs help to initiate development processes in several underdeveloped countries through the transfer of capital and technology. To establish a proper base in a foreign country, the MNCs invest in labor, raw materials, advertising and marketing. This helps the underdeveloped countries to develop their resources. The MNCs help in the development of human resource generates further employment and also help to transfer sophisticated western technologies to the underdeveloped countries. The technological expertise, advanced production skills and use of local labor in the units facilitate transfer of technology to those countries. Through Research and Development, the MNCs develop products which are superior in all respects to those which are indigenously produced by the host countries. This induces the indigenous industries to brace up for competition and encourages them to develop superior products. The MNCs, thereby, end the domestic monopoly of the indigenous industries. The MNCs, apart from the transfer of technology for production, sometimes provide marketing services for the export of indigenous products manufactured by the host countries. Exports generate foreign exchange which helps the host country in developing its economy.

The MNCs have been quite successful in India. In the post-liberalization era, as the license regime has been more or less abolished the MNCs are thriving in India. They are present in almost every sector of the Indian economy, especially in the consumer durable market and automobiles. Automobile manufacturers like General Motors, Ford, Toyota and Hyundai are making good profits. Korean companies LG and Samsung have become market leaders in electronic goods. The entire soft drink market of India is being monopolized by US Multinationals Pepsi and Coke. Though the pesticides controversy has affected the popularity of Pepsi, Coke and Cadbury's they are still key players in their segments.

Source: An article "Impact of Multinational Corporations on Society and Economy" published in "Outlook" magazine in December, 2008 by William Brown