Multinational corporation

Also called: MNC, Transnational corporation, TNC, Multinational companies · Topic: Globalisation and MNCs · NCERT: Class 10, Ch 4 "Globalisation and the Indian Economy"; Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"; Class 11, Ch 5 "Rural Development"; Class 11, Ch 6 "Employment: Growth, Informalisation and Other Issues"

Meaning

A multinational corporation (MNC) is a company that owns or controls production in more than one country. "Controls" is the key word: an MNC can direct production in factories it does not own, for example by placing outsourcing orders with small local producers.

MNCs matter because they are the main way production is spread across countries. They link far-apart places into one production chain, and they bring foreign investment, technology and jobs. They can also dominate local markets and bargain hard with governments.

Explanation

Why MNCs choose a location

MNCs set up production where they can lower their cost of production and earn higher profits. The main pulls are:

• Closeness to markets. Selling and transport become cheaper and faster.
• Skilled and unskilled labour at low cost.
• Other factors of production are assured, such as land, power, water and raw materials.
• Government policies that protect their interests. These include easy rules, tax benefits and freedom to repatriate profits (send profits back to the home country).
• Glocalisation (adapting a global product to local tastes, culture and rules). Being "close to the market" also means fitting local culture. For example, McDonald's in India sells no beef or pork, and it sells the McAloo Tikki.

NCERT case: an industrial-equipment MNC splits one product across countries

Stage	Location	Why there
Design	Research centres in the US	Research capability
Components	China	Cheap manufacturing
Assembly	Mexico, Eastern Europe	Close to US and European markets
Customer care	Call centres in India	Skilled engineers, educated English-speaking youth

• Possible result: 50-60% cost savings.

• Worked example: if making the product in one country costs ₹100 crore, a 50-60% saving brings the cost down to ₹40-50 crore.

• Production is "divided into small parts and spread out across the globe". This is the idea behind the global value chain (GVC), where the stages of making one product (design, parts, assembly, service) happen in different countries.

Routes by which MNCs set up or control production abroad

Route 1: Joint production with a local company

• The MNC and a local firm produce together.
• The local partner gains in two ways:
• Money for more investment, such as new machines for faster production.

• Technology transfer, meaning technology, know-how and skills move from one firm or country to another.

• Example: Ford with Mahindra and Mahindra.

Route 2: Acquisition of a local company (NCERT: the most common route)

• An acquisition means buying a local firm and then expanding it.
• Cargill-Parakh case: the US MNC Cargill Foods bought Parakh Foods. With the purchase, Cargill got:
• a well-known brand
• a nationwide marketing network

• four oil refineries

• Result: Cargill became India's largest edible-oil producer, with capacity for 5 million pouches daily.

• Lesson: buying a firm is faster than building one from scratch, because the brand, the network and the plants come ready-made.

Route 3: Outsourcing to small producers

• Outsourcing means a company gets work done by outside firms, often in other countries, instead of doing it itself.
• Large MNCs order garments, footwear and sports goods from many small producers around the world. They then sell these goods under their own brands.
• The MNC controls production without owning the factories:
• It sets the price, quality, delivery and labour conditions.
• Most of the value goes to the brand. NCERT's example is jeans made in developing countries that sell in the USA for ₹6,500 (US$145), while the small producer gets only a small share.

Route 4: Competing closely with local firms, or using them as suppliers

• All four routes link production across distant places.

What gives MNCs power, and where they come from

• Investment means money spent on assets such as land, buildings and machines, in the hope of earning profit. Foreign investment is investment made by MNCs.
• Size gives bargaining power. Many top MNCs have more wealth than the entire budgets of developing-country governments, so host governments often have to negotiate with them from a weaker position.
• Home countries: nearly all major MNCs were historically American, Japanese or European, for example Nike, Coca-Cola, Pepsi, Honda and Nokia.
• Reason: the countries that industrialised early built up capital, technology and brands.

• Today some MNCs come from emerging economies, for example Tata and Infosys from India.

• The global picture:

• GVCs account for about 70% of international trade. Parts often cross borders many times before the final product is ready [5].
• GVC-linked trade was about 17% of global GDP (2024), and GVCs stayed at record highs in 2024 despite the pandemic and geopolitical shocks [5].
• MNCs make up more than half of global exports once the exports of their foreign affiliates (branches and subsidiaries abroad) are counted [5].

• Foreign affiliates' domestic sales plus exports reached US$25.6 trillion (2023), close to the total value of world trade [5].

• Intra-firm trade (MNC-controlled trade): an MNC ships cars or parts between its own factories in different countries, so much of this "trade" happens inside one company.

In India

From protection to opening

• 1950s-1980s (protection): India put barriers on foreign trade and foreign investment to protect young Indian producers, so MNCs had little room to operate.
• 1991 (opening): the New Economic Policy removed many of these barriers. MNCs could set up in India more easily, and Indian firms could expand abroad.

The rules today

• Most sectors are open to 100% FDI under the automatic route. FDI (foreign direct investment) means a foreigner investing in a business in India and controlling it. The automatic route means no prior government approval is needed. Only some strategically important sectors are kept out [4].
• More than 90% of FDI inflows come through the automatic route [4].

Latest figures

• Cumulative FDI (the total received over the period) crossed US$1 trillion between April 2000 and September 2024 [3].
• FDI inflows were US$81.04 billion (provisional, FY 2024-25), up from US$71.28 billion (FY 2023-24) [2].

• Worked example: (81.04 − 71.28) ÷ 71.28 × 100 = 9.76 ÷ 71.28 × 100 ≈ 13.7%, which is the reported ~14% growth [2].

• Top source countries (FY 2024-25): Singapore 30%, Mauritius 17%, USA 11% [2].

• Top states (FY 2024-25): Maharashtra 39%, Karnataka 13%, Delhi 12%. These states have big markets, infrastructure and skilled workers [2].
• Top sectors (FY 2024-25): services 19%, computer software and hardware 16%, trading 8%. This matches India's strength in skilled, English-speaking labour [2].

Case: Ford India (NCERT Class 10)

• Ford is a US MNC with production in 26 countries.
• It came to India in 1995 and invested ₹1,700 crore in a plant near Chennai, together with Mahindra and Mahindra (joint production).
• By 2017, it sold 88,000 cars in India and exported 1,81,000 cars to South Africa, Mexico, Brazil and the USA.
• 2021: Ford stopped making cars for India. Its Sanand (Gujarat) plant was sold to Tata Motors, a sale completed in 2023.
• Lesson: an MNC's choice of location changes as markets and costs change. An MNC that comes in can also leave.

Indian MNCs abroad

• Tata Motors and Infosys operate abroad.
• Ford sold Jaguar and Land Rover to Tata Motors in 2008 [6].

Don't confuse with

• FDI vs MNC: FDI is the flow of investment (money that comes with control over a business). The MNC is the company that makes that investment. An MNC can also control production without any FDI, through outsourcing.
• Outsourcing vs joint production: both involve local firms. Technology transfer and fresh investment reach the local partner in joint production. In outsourcing, the small producer gets only orders, and the MNC sets the terms.
• Global value chain (GVC) vs MNC: a GVC is the spread of production stages across countries, and it makes up ~70% of world trade [5]. MNCs are the firms, and they make up more than half of global exports [5]. Don't swap the two figures.
• Glocalisation vs globalisation: globalisation is the linking of economies through trade, investment and MNCs. Glocalisation is an MNC adapting a global product to local taste, as with the McAloo Tikki.

Prelims Hooks

• MNC = a firm that owns or controls production in more than one nation. Owning the factories is not required.
• Most common route for MNC entry (NCERT) = buying local companies. Cargill bought Parakh Foods, got 4 refineries, and became India's largest edible-oil producer (5 million pouches daily).
• Ford India: entered in 1995 with ₹1,700 crore, near Chennai, with partner Mahindra and Mahindra. The Sanand plant went to Tata Motors (2023).
• FDI FY 2024-25 = US$81.04 bn (provisional, ~14% growth). Top sources: Singapore (30%) > Mauritius (17%) > USA (11%). Top state: Maharashtra (39%) [2].
• Cumulative FDI since April 2000 crossed US$1 trillion (up to September 2024) [3]. More than 90% of FDI comes through the automatic route, which needs no prior government approval [4].
• NCERT industrial-equipment case: design in the US, components in China, assembly in Mexico and Eastern Europe, customer care in India, giving 50-60% cost savings.

Mains Points

• Location is a policy choice, and keeping investors is as hard as attracting them.
• MNCs choose a place for its markets, cheap skilled labour, assured inputs and friendly policy.
• The 1991 opening and the automatic route (more than 90% of FDI) [4] turned a protected India into an FDI destination worth US$1 trillion cumulatively (April 2000 to September 2024) [3].

• Ford's exit in 2021 shows that policy must also make India "sticky", so investors stay after they come.

• Each MNC route benefits local firms differently (GS-III: quality vs quantity of FDI, competition policy).

• Joint production brings money and technology transfer.
• Acquisition (Cargill-Parakh) can concentrate market power in the MNC's hands.

• Outsourcing gives small producers orders, but the MNC sets price, quality and labour conditions and keeps most of the value (the ₹6,500 jeans).

• GVC integration is an opportunity, but FDI is unevenly spread.

• GVCs are about 70% of world trade and were at a record high in 2024 [5]. India's FDI goes mostly to services and software (35% together, FY 2024-25), which fits its "customer care" role in the NCERT case [2]. The next step is manufacturing links (components and assembly), which is the aim of Make in India.
• Singapore and Mauritius together give 47% of FDI. Part of this is money routed through them because of tax treaties [2].
• Three states (Maharashtra, Karnataka, Delhi) get 64% [2]. This can widen regional inequality, a GS-II link to federalism and balanced growth.

Related concepts

• Joint production
• Technology transfer
• Acquisition of local companies
• Outsourcing to small producers
• Glocalisation

Read more

• MNCs: why and how production spreads across countries