Production across countries: MNCs
A Multinational Corporation (MNC) owns or controls production in more than one country. MNCs set up factories and offices where they get cheap labour and other resources, so they can make more profit.
MNCs choose places that are:
- close to markets,
- with skilled and unskilled labour at low cost,
- with raw materials and good roads, power and communication,
- with government policies that look after their interests.
How MNCs spread production
- Joint production with local companies: the MNC gives money (investment) and new technology; the local firm gets a bigger market.
- Buying local companies: MNCs with huge wealth buy up local firms and expand.
- Orders to small producers: in garments, shoes and sports goods, MNCs order goods from small producers and sell them under their own brand names. They set price, quality and delivery terms.
Money spent to buy assets like land, buildings and machines is investment; investment by MNCs is foreign investment.
Foreign trade and integration of markets
Foreign trade lets producers reach markets beyond their own country, and gives buyers more choice. When goods travel, prices in different markets tend to become equal. For example, cheaper toys made abroad reach Indian shops, so Indian toy makers must lower prices or improve quality.
Globalisation is the process of rapid integration or interconnection between countries, through the movement of goods, services, investment, technology and people. MNCs play a major role in it.
Factors that enabled globalisation
1. Technology
Transport became faster and cheaper, especially with containers that carry goods on ships, trains and trucks. Air travel became cheaper. Information and communication technology (telephone, mobile, internet, fax) lets companies work across countries instantly: a magazine can be designed in Delhi and printed in Mumbai, a call centre in India can serve customers abroad.
2. Liberalisation of foreign trade and investment
A trade barrier is a restriction on trade, like a tax on imports. After 1947, India put barriers to protect its young industries from foreign competition. Around 1991, India decided that its producers were ready to compete, and removed many barriers. Removing barriers set by the government is called liberalisation.
World Trade Organization (WTO)
The World Trade Organization aims to liberalise international trade. It makes rules on trade and checks that they are followed. About 164 countries are members.
But developed countries have often kept trade barriers and given large support (subsidies) to their own farmers, while asking developing countries to remove barriers. So many people say WTO rules are not always fair to poorer countries.
Impact of globalisation on India
- Consumers, especially the well-off in cities, get more choice and better quality at lower prices.
- New jobs in industries and services where MNCs invested, like mobile phones, cars, food processing and banking.
- Top Indian companies grew by using new technology and partnering with foreign firms; some became MNCs themselves.
- IT and services grew, such as data entry, call centres and software.
But many small producers (batteries, toys, dairy, plastics) could not compete with cheap imports and closed. Workers face flexibility in labour laws: many are hired temporarily, work long hours with low pay and little security. In garment export units, for example, workers may have no fixed jobs.
The struggle for fair globalisation
Fair globalisation would create opportunities for all and make sure the benefits are shared better.
- The government should enforce labour laws so workers get their rights.
- It should support small producers until they become strong enough to compete.
- It can use trade and investment barriers where needed to protect local producers.
- It can join with other developing countries to negotiate fairer rules at the WTO.
- People's organisations and campaigns can also push for fairness.
Key formulas and definitions
- MNC: company that owns or controls production in more than one country.
- Investment: money spent on assets like land, buildings and machines; by MNCs = foreign investment.
- Globalisation: rapid integration of countries through goods, services, investment, technology, people.
- Trade barrier: restriction on foreign trade, e.g. import tax (tariff).
- Liberalisation: removing government barriers to trade and investment (India, 1991).
- WTO: organisation that makes rules to liberalise international trade.
- Fair globalisation: benefits shared by all, with protection for workers and small producers.
Worked examples
1. An Indian toy costs ₹200. An imported toy costs ₹120. With no tariff, which will buyers prefer, and what happens to Indian makers?
Buyers prefer the cheaper ₹120 toy. Indian makers must cut costs or improve quality, or they may lose business.
2. A 50% import tax is put on the ₹120 toy. What is its new price?
Tax = 50% of 120 = ₹60. New price = 120 + 60 = ₹180, still below ₹200 but closer.
3. A large MNC buys an Indian biscuit company. Which way of spreading is this?
Buying up a local company.
4. Why do MNCs set up call centres in India?
India has English-speaking skilled workers at lower cost, and the internet lets them serve customers abroad instantly.
5. Why did India put trade barriers after 1947?
To protect its young industries from foreign competition until they grew strong.
6. Give one gain and one loss from globalisation in India.
Gain: consumers got better choice and prices. Loss: many small producers shut down and workers lost job security.
Common mistakes
- Thinking MNCs only sell goods abroad. MNCs control production in more than one country.
- Believing globalisation helped everyone equally. Benefits went mostly to well-off groups; small producers and workers often lost.
- Thinking the WTO has made trade fully fair. Rich countries still protect their farmers.
- Confusing liberalisation with globalisation. Liberalisation (removing barriers) is one cause of globalisation.