Question 1-What is a MNC? Discuss the impact of Foreign Direct Investments in at least two sectors of the Indian economy with examples. Answer-A MNC is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries. Foreign Direct Investment (FDI) is fund flow between the countries in the form of inflow or outflow by which one can able to gain some benefit from their investment whereas another can exploit the opportunity to enhance the productivity and find out better position through performance. Below mention impact in Indian economy
i) it can cause structural changes in economic and industrial organization. The market can become either more competitive or a monopolistic one in which the TNC can exploit its market power to raise prices and make an adverse impact on the consumer ii) They enhance the productivity through introduction of new technology which in turn benefits the host economy only. The developing economies which are capital starved can take advantage of the available technological spill overs to improve upon their competitiveness. The foreign capital can help us improve our technological efficiency within a short period of time without which it would have taken years to reach that level. According to the literature, these spill overs could occur due to both the “competition effect” – when national companies, facing competition from foreign corporations, have to modernize their production and management activities – and the “demonstration effect” – when national companies emulate the more advanced techniques of their foreign competitors. iii) They provide the host countries with the access to large foreign markets because they have an established brand name and well developed distribution channel. This leads to creation of an export base for the developing nations. They add to the foreign exchange and investment resources in a host economy IV) Some of the TNCs engage in non-production functions like accounting, engineering, marketing, etc. these are high valued activities that promote manufacturing competitiveness and local capabilities. They can either boost competition tendencies or drive out local firms to gain market power. TNCs can help restructure and upgrade competitive capabilities in import substituting activities as well
Question 2 - “The technologies transferred by the MNC to their production units in the underdeveloped countries are appropriate for the latter’s social and economic development needed”. Do you agree or disagree with this statement. Support your answer with relevant examples.
Answer- I agree that the technologies transferred by the MNC to their production units in the underdeveloped countries are appropriate for the latter’s social and economic development needed below mention the points which satisfied these points i)
Increase overall company profitability. Production may be cheaper abroad and output does not have to be sent long distances to reach the end consumers.
Gain a competitive edge in foreign markets through supplying technically a superior product. iii)
Obtain grants and subsidies from foreign governments. Certain less developed countries require MNCs to bring with them the latest technology as a condition of being allowed to operatewith the local market. iv)
Overcome capacity limitations in the home country.
Exploit superior capital markets, access to skilled labour and other inputs in foreign countries. vi)
Increase the competence and potential of foreign subsidiaries. Successful technology transfer involves a learning process on the part of the recipient business. This is obviously more difficult in the case of transnational transfers because of differences in language, technical standards, production methods, perspectives on quality management and national employee attitudes and behaviour. Dealing with these...
Please join StudyMode to read the full document