Globalisation and the Indian Economy
MNCs and production across countries
Explain what MNCs are and how they spread production across countries.
So much choice. Today we can buy the latest phones, cameras and TVs made by the world's top companies, and new car models appear every season. Not long ago, the Ambassador and Fiat were almost the only cars on Indian roads. How did our markets change so fast, and how does it affect people's lives?
Production used to stay inside countries. Until the middle of the 20th century, goods were mostly made within one country. What crossed borders were raw materials, food and finished goods. Colonies like India sent out raw materials and food, and bought finished goods. Faraway countries were linked mainly by trade.
Multinational corporations (MNCs). An MNC (multinational corporation) owns or controls production in two or more countries. It puts its offices and factories wherever labour and other resources are cheap, so production costs less and profits are higher. They choose places that are:
- close to markets;
- full of skilled and unskilled workers at low cost;
- sure to supply other things they need;
- run by governments with friendly policies.
One product, many countries. A big MNC making industrial equipment:
- designs it in research centres in the United States;
- has the parts made in China (a cheap place to manufacture);
- assembles them in Mexico and Eastern Europe (close to markets in the US and Europe);
- runs customer care from call centres in India (skilled engineers and educated, English-speaking young people).
This can save the MNC 50-60 per cent of its costs. Production is broken into small parts and spread across the globe.
Investment. Money spent on assets like land, buildings, machines and equipment is investment; when an MNC makes it, it is foreign investment. Example: Ford Motors, an American company producing in 26 countries, arrived in India in 1995, investing Rs 1700 crore in a big plant near Chennai, together with Mahindra and Mahindra. In 2017 it sold 88,000 cars in India and exported 1,81,000 more to other countries. (It has since stopped making cars for sale in India, exporting cars and engines on a small scale.)
Three ways MNCs spread production.
- Joint production with a local company: the MNC brings money for new machines and the latest technology.
- Buying up local companies, the most common route. Cargill Foods, a huge American MNC, bought Indian companies like Parakh Foods, with its brand, sales network and four refineries. Cargill is now India's largest edible oil producer, able to make 5 million pouches a day.
- Ordering from small producers: in garments, footwear and sports goods, MNCs buy from many small producers (like women in Ludhiana stitching footballs at home) and sell under their own brand. They have huge power over price, quality, delivery and working conditions.
Many top MNCs are richer than the entire budgets of developing-country governments.
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