What is MNC? Discuss the beneficial and harmful effects of MNCs on Indian economy.

 Q. What is MNC? Discuss the beneficial and harmful effects of MNCs on Indian economy.

Ans. Meaning of Multinational Enterprise/Corporation

Multinational corporation is that corporation whose sphere of activity is spread over more than one country. These corporations are known by several names e.g. Transnational Corporation, International Corporation or Global Corporation. Various MNCs are working in our country like Hindustan Unilever, Johnson and Johnson, Philips, Colgate, Coca-Cola, Pepsi, LG, Nestle, Samsung, Hyundai,Cadbury, Vodafone etc.

In the words of President of I.B.M. a world famous corporation, “Multinational Corporation is one that (i) operates in many countries, (ii) carries out research, development, marketing and manufacturing in many countries, (iii) has a multinational management, (iv) has a multinational stock ownership.”

The United Nations defines MNCs as, “Enterprises whose area of working – factories, mines, sales, offices and the like are in two or more countries.”

The Encyclopedia of Management (2005) put multinational companies as business concern with operation in more than one country.

In short, multinational corporation is a big firm, whose headquarter is located in one country but whose trading and manufacturing activities are spread over many other countries.

Beneficial effects of MNCs on Indian economy: 

(1) Availability of Capital: Multinational corporations help to solve the problem of capital faced by underdeveloped countries. Underdeveloped countries suffer from lack of capital. Consequently, their rate of economic growth is low. By making investment in underdeveloped countries, MNCs help them to achieve the objective of higher economic growth.

(2) Availability of Modern Techniques and Management: MNCs provide modern technology and managerial services to enterprises established by them. As a result, the productivity of those enterprises increases and resources are optimally utilised. It is through the medium of multinational corporations that technology has been transferred from developed countries to developing countries. MNCs are providing managerial, administrative and technical skills to developing countries. In many areas MNCs are providing complex and modern technology.

(3) Availability of Marketing Services: Multinational corporations make available marketing services especially related to export marketing, advertising, market research, storage facilities, transport, packaging, branding, etc. All these services are efficiently performed by multinational corporations.

(4) Availability of Foreign Exchange: Multinational corporations bring their capital in foreign currency. It increases the inflow of foreign currency in domestic country. This increases the availability of foreign exchange with the domestic country. It helps the country to make payment of essential imports.

(5) Increase in Employment: Countries, wherein multinational corporations (MNCs) establish their subsidiaries, get employment opportunities. By increasing investment, these subsidiaries set up new enterprises. Consequently, employment increases.

(6) Increase in Knowledge: MNCs impart training to local employees in respect of modern management, marketing, finance, export, etc. In this way, their ability and skill to organise and conduct their activities on modern lines enhances.

(7) Increase in Exports: The multinational corporations utilise cheap domestic labour and their huge capital resources to convert raw materials into finished products. The managerial skill, availability of capital, modern technology and other sources of MNCs result in proper utilisation of resources. Because of better technology, the quality of products is better and these products find easy entry in foreign markets. It leads to increase in exports of the country.

(8) Increase in Competition: Entry of MNCs promotes competition in the domestic economy. Increased competition results in lower prices, which is beneficial for consumers e.g., entry of LG, Samsung, Sony, etc. in electronics has promoted competition in India. It has resulted in decrease in prices of electronic goods.

(9) Increase in Industrialisation: Multinational corporations make important contribution in the industrialisation of developing countries. They provide managerial skills, technical know-how and adequate funds required for starting a new industry. Many industries are set up in India by the MNCs, e.g. Phillips, Glaxo, Colgate, Hindustan Uni lever, Proctor and Gamble, Nestle, BPL, Ceat, MRF, etc.

Harmful effects of MNCs on Indian economy:

(1) Outflow of Funds from Host Country: Host country is one where multinational corporations set up their subsidiaries. The main objective of these MNCs is to earn maximum profit. To achieve this objective they invest their capital in underdeveloped countries. Such an investment proves very profitable. Big chunk of profits earned in underdeveloped countries goes to the headquarters of MNCs. Moreover, MNCs take large amount of foreign exchange out of country by way of dividend, royalty, management fees, etc. Because of the operations of MNCs in India, large amount of foreign exchange has gone out of the country. So, in the long run balance of payments becomes unfavourable.

(2) Harmful for Indigenous Producers: MNCs prove harmful to indigenous producers. By making use of improved technology in their production system, these corporations fix lower price of their products and thus compete out indigenous producers. Once the indigenous industry is completely destroyed by this competition, MNCs take full control over the market. By virtue of their competitive strength, they throw out indigenous producers from highly profitable, progressive and developed sectors. It is difficult for local industries to stay in the market for long in the face of huge capital resources, high technology, competent management possessed by these corporations.

(3) Unbalanced Regional Development: Foreign investors set up industries in developed cities and towns whiere infrastructural facilities are easily available and not in backward areas. This leads to further development of already developed areas and the backward areas remain untouched. Thus, regional disparities increase.

(4) Less use of Modern Technology: MNCs do not make much use of modern technology in underdeveloped countries. These corporations use new equipments and technologies only if the same are helpful in reducing the costs and raising their profits. But they take no interest in developing technology for underdeveloped countries because without spending anything on the improved technology, they succeed in raising their profits.

(5) Tax Evasion: Government of the host country imposes corporation tax on the income of companies and corporations, with a view to increase its revenue. In order to avoid corporation tax, MNCs reduce the amount of their profit by adopting transfer pricing methods. According to this method, MNCs buy intermediate goods from their subsidiaries abroad at high price and thus reduce their local profits. Similarly MNCs export their products to their subsidiaries abroad at lower prices, so as to under-value the exports to show lower local profits. Thus, MNCs over-invoice the imports and under-invoice the exports, so as to show less profits. That way through manipulation of bills MNCs evade tax.

(6) Lack in Morality and Ethics: Some MNCs indulge in unethical and corrupt practices for their self-interest They do not hesitate to offer bribe to highly placed officials and politicians of other countries to allow them to enter into such transactions which only serve their own interest.

(7) Political Interference: MNCs prove detrimental to the economic and political freedom of the host countries. These interfere in the politics of the country. These corporations make all efforts to bring that political party to power in the host country which is favourably inclined to them.

(8) Encourage Demonstration Effect: The MNCs incur heavy expenditure on advertisement and publicity. It results in wasteful expenditure whose burden is ultimately born by Indian consumer. MNCs produce products for upper class of consumers like cold drinks, ice-creams, cosmetics, washing machine, cars, high priced shoes etc. This creates demonstration effect. People of underdeveloped countries are crazy about the products of MNCs. It also leads to diversion of resources toward production of non-essential goods.

(9) Competition with Small-Scale Industries: Various MNCs are allowed production in the area where small-scale industries were doing well e.g. potato chips, wafers, biscuits, jam, cosmetics, etc. Because of heavy advertisement and brand image of MNCs, our small-scale industries fail to compete with MNCs e.g. entry of Uncle Chips has resulted in failure of many SSI units (small-scale units) who were producing potato chips. Similarly, entry of Hindustan Unilever Ltd. in consumer goods industry has badly affected many small-scale units producing consumer goods.

(10) Production of Prohibited Goods: The main objective of the multinational corporations is to earn profits. In order to get more profits they indulge in the production of even those goods which are harmful for the consumers. Many of the medicines and other products, the production of which has been prohibited in foreign countries are being manufactured and sold in India by multinational corporations. As such the multinationals earn profits even at the cost of the health of consumers.

(11) Problem of Brain Drain: MNCs recruit qualified and skilled engineers, technicians, experts in India and after sometime, these Indian experts are posted abroad in the foreign subsidiaries of MNCs. So that way, MNCs are draining Indian talent and expertise to the other countries.

(12) Non-Essential Products: MNCs are producing such products as can be produced with the help of local technology such as lipstick, toothpaste, cosmetics, ice-cream, biscuits, colas, processed foods, etc. Most of the MNCs are producing consumer goods which are not essential for the economic development of a nation. The main aim of these corporations is to earn profit. These corporations take no interest in the production of capital goods, wage goods and development of scarce resources of the country.

(13) Multiple Collaborations: It means more than one technology agreements for the import of same or similar technology. If a particular technology has already been imported and now the country is importing same or similar technology through another collaboration with foreign country, then it is known as multiple collaboration. This results in repetitive payments for the import of similar technology. The problem of multiple collaboration is common in developing countries. It puts extra burden on foreign exchange reserves.

(14) Unsuitable Technology: The technology brought by MNCs was unsuitable for India. MNCs brought capital intensive technology which does not suit India as our economy is capital scarce and labour abundant economy. Keeping in view, the unemployment problem and scarcity of capital, labour intensive technology is suitable for India, but MNCs use capital intensive technology.

(15) Less Bargaining Capacity of Indian Entrepreneurs: Foreign collaboration agreements are largely in favour of foreign collaborators. Due to less bargaining power of the Indian side, foreign collaboration agreements are largely in favour of foreign collaborators and not in favour of Indians.

(16) Growth of Monopoly Powers: MNCs join hands with big industrial houses in India which lead to growth of monopolies.

(17) Harmful for Consumers: MNCs are harmful to consumers because of following:

(i) Excessive advertisements, thus charging high price from consumers.

(ii) Adopting unfair trade practices like deceptive advertisement.

(18) Purchase of Raw Material and Intermediate Goods from Foreign Subsidiaries: MNCs often purchase raw materials and intermediate goods from the foreign subsidiaries.This results in losses to Indian industries supplying raw materials and intermediate goods. 

In short, the multinationals have both the merits as well as demerits. The government should take special policy measures to avoid the demerits. It will be more appropriate if such multinationals are encouraged which guarantee the export of their production and utilise appropriate technology.

Define Operating System and explain how it acts as a Resource Manager.

 Q. Define Operating System and explain how it acts as a Resource Manager. 

Ans. Operating System: An operating system is an integrated set of specialised programs that are used to manage overall resources and operations of the computer. It is a specialised software that controls and monitors the execution of all the programs that reside in the computer. It is the interface between user and the computer.

A simple way of defining the operating system can be:

An operating system is a program that acts as an interface between the user and the computer hardware and controls and manages the overall resources of computer system.

O.S. as a Resource Manager in following ways:

1. Memory (Storage) Management 

(a) It keeps track of primary memory i.e. what part of it are im use by whom, what part are not in use etc.

(b) In multiprogramming it decides which process will get memory when and how much.

(c) Allocates the memory when the process or program request it to do so.

(d) Declaims (deallocate) the memory when the process no longer needs it or has been terminated. 

2. Processor Management

(a) Keep track of the processor and status of process.

(b) In multiprogramming it decides which process gets the processor & how much time. This function is called process scheduling.

(c) Allocate the processor (CPU) to a process.

(d) Deallocate processor when processor is no longer required.

3. Device Management 

(a) Keeps track of all devices.

(b) Decides which process gets the device when & for how much time.

(c) Allocate the device in the efficient way.

(d) Deallocate devices.

4. File Management 

(a) It keeps track of information, its location, uses, status etc. This collective facilities are often known as file system.

(b) Decides who get the resources.

(c) Allocates the resources.

(d) Deallocates the resources.

5. Security 

By means of passwords & similar techniques, preventing unauthorized access to programs & data.

6. Control over system performance 

Recording delays between request for a service & response from the system.

7. Job accounting

Keeping track of time & resources used by various jobs and/or users.

8. Interaction with the operators

The interaction takes place via the console of the computer in the form of the instructions from the operator acknowledging the same, action thereon, as well as informing the operation by means of a display screen of works & problem encountered.

9. Error -detecting aids

Production of dumps, traces, error messages and other debugging and error-detecting aids.

10. Coordination between other softwares and users

Coordination and assignment of compilers, interpretiers, assemblers and other software to the various users of the computer systems.

Is economics a science or an art.

 Q. Explain whether Economics is a science or art or both.

Ans. Economics is a discipline that has debated either a science or an art or combination of both. Whether Economics is a science or art or both can be concluded by studying the characteristics of science and an art separately. 

Is Economics a Science?: In order to find out whether Economics is a science or not, it is necessary to know:

(i) What is a Science?

(ii) What are the features of Science?

(i) What is Science? The term ‘Science’ has its origin in term ‘Scientia’ of Latin language. It means ‘to know’. Science is a systematic body of knowledge concerning the relationship between causes and effects of a particular phenomenon. In science, we must collect, classify and analyse the facts systematically. In Economics also one collects, classifies and analyses economic facts systematically.

(ii) Features of Science: A detailed study of features of Science will testify that Economics is a science.

(1) Collection of Facts: In science, initially, facts concerning a subject are collected. In Economics also facts relating to economic activities are collected. For example, an economist observes that when price rises, ordinarily demand contracts. Similarly, when a consumer buys more of a commodity then the utility of that commodity diminishes. In this way, an economist collects facts relating to economic activities.

(2) Measurement: In science, efforts are made to measure the facts. To do so, facts are classified and properly presented. In Economics also facts are measured. An economist will try to measure as to how much demand has contracted due to rise in the price. If there is unemployment in the country, what is the number of unemployed? What is the rate at which the national income of the country is growing? In the measurement of these facts an economist seeks help of mathematics, statistics and econometrics. The facts which are collected in written form are called data.

(3) Explanation: After collecting and measuring the facts, the same are sought to be explained. In other words, the same are put to systematic study. By establishing a relationship between cause and effect of a fact, economic laws are framed. For example, on the basis of study of mutual relationship between change in price and consequent change in demand, law of demand is formulated.

(4) Verification or Validity of the Laws: The final feature of science is to verify the validity of scientific laws by applying the same to real life situation. In other words, whether the same conforms to the facts or not. Every science seeks to verify the validity of its laws. This verification can be done in two ways: (i) If a law is based on real assumptions, it is considered valid. (u) If the prediction based on any law comes true, then also it is taken as valid. Experiments are also conducted in this respect. Validity of economic laws is also subject to verification. For instance, many laws of Economics like, law of diminishing returns, law of diminishing marginal utility, etc. are treated as valid because the same apply to real life situations.

It is evident from the above discussion that Economics is a science. However, some scholars do not consider Economics as a science because laws of Economics are not as exact and universal as the laws of physics and chemistry are. In fact their disagreement is not justified. According to Seligman, there are two broad branches of science: (i) Social science, and (ii) Natural science. Economics is a social science as it deals with human beings, whereas physics and chemistry etc, are natural sciences as they deal with lifeless matter.

(1) Arguments in favour of Economics being a Social Science.

Following arguments may be advanced in favour of Economics being a Social science:

(i) Systematic Study: Social Science refers to that science which studies man as a member of the society. It studies those activities of such social men that are concerned with wealth. In other words, it studies mutually dependent activities regarding consumption, production, exchange, etc. of wealth. Facts relating to economic activities are collected, classified and measured. 

(2) Scientific Laws: Laws of Economics like law of demand, law of supply etc. are scientific laws. These laws establish cause and effect relationship between economic phenomenon. Law of demand states that with an increase in the price of a commodity, say Rasgullahs, its demand will contract. In this way, the law establishes relationship between change in price (that is cause) and the resultant change in demand (that is effect).

(3) Validity of Laws: Every science verifies validity of laws. If a law of is based on realistic assumptions or its predictions come true, then it will be treated as valid. Many laws of Economics like law of diminishing returns, law of diminishing marginal utility, being based on real experiences of life, are treated as valid.

It is evident from the above account that Economics is a social science. It makes a systematic study of the economic activities of the human beings on the basis of scientific laws. 

(2) Arguments against Economics being a Natural Science 

Those who believe that Economics is not a science, as a matter of fact, mean that Economics is not an exact science like that of a natural science. They put forward following arguments against Economics being a natural science.

(1) Difference among Economists: There are differences among economists with regard to most of the economic problems. On the contrary, there are very little differences among natural scientists with regard to their subject.

(2) Exact Lawsı Laws of natural science like law of gravitation of physics is an exact law in all respects. According to this law anything thrown up must come down because of gravitational pull. On the contrary, laws of Economics are not perfectly exact. For example, law of demand will be valid only if there is no change in the income, fashion, etc., of the consumer.

(3) Universal Laws: Laws of natural science are universally applicable. They hold good at all places and at all times. However, laws of Economics are not universal laws. They are not valid at all places and at all times. The same are subject to change.

(4) Verification of Truth: Natural scientists can verify the truth of the laws relating to their science in the laboratories by conducting experiments. On the basis of these laws correct predictions can be made to a large extent. But no laboratory exists to verify the correctness of economic laws. The only apparatus available with the economists to measure economic activities is money as a measuring-rod but even this measure is not exact. Value of money itself goes on changing, and so cannot serve as a dependable measure. Consequently, predictions made on the basis of economic laws prove wrong very often. It can, however, be said that compared to other social sciences, Economics is a more exact science because it possesses a measuring-rod in the form of money.

In short, it can be asserted that Economics is not a natural science but a social science.

Is Economics An Art? Whether Economics is an art or not, is yet another controversial subject among the economists. Some economists do not consider Economics to be an art. However, some are of the opinion that Economics is not only a science but also an art. 

Before taking any final decision in this regard, it is essential to know what is an art? Science is concerned with ‘knowing’ and art is concerned with ‘dong’. Art is the practical application of knowledge for achieving definitely ends.

As an art, Economics helps us in the solution of our practical problems. Its study enables us to know the best methods of achieving economic ends.

Arguments in favour of Economics being an Art.

Many economists consider Economics as an art on the following grounds:

(1) Solution of the Problem: Most of the problems of the world are economic problems. Economics can prove to be a more useful subject for the people if it can help in the solution of their economic problems. Study of Economics tells us how an economy can make efficient and optimum use of its scarce resources.

(2) Realistic Situation: Actual situation with regard to the study of Economics is that economists spend most of their time seeking solution to real economic problems like inflation, unemployment, depression, economic development etc. Economics is therefore an art. As an art Economics formulates policies designed to promote economic welfare of the people.

(3) Empirical Basis of Assumptions: (Empirical means based on direct observation or experience rather than just theory or ideas.) By dividing Economics into science and art, one can dispel doubts that arise in respect of the real nature of economic laws.

(4) Verification of Economic Theory: Study of Economics as an art facilitates verification of economic theories. It is through art that their validity can be verified. 

Arguments against Economics being an Art:

Following arguments are advanced against Economics being an art:

(1) Different nature of Science and Art: Science and art have different nature of their own. If Economics is a science then it cannot be an art. On the contrary, if it is taken as an art, it will have no claim on science.

(2) Nature of Economic Problems: Economic problems are not purely economic in nature. They are influenced by political, religious and social conditions also. It may not therefore be possible for the economists to tackle their problems purely on the basis of economic point of view.

(3) Uncertainty: If Economics is recognised as an art, then different economists will formulate different policies and suggest different solutions to different problems. Such solutions may be mutually contradictory. Consequently, an element of uncertainty will be imparted to Economics.

(4) Lack of Immediate Solution: Economics may not be made use of to seek immediate solution of economic problems. Its laws cannot be applied immediately to solve economic problems.

Conclusion: From the above analysis it can be well concluded that, Economics is both a science as well as an art. In the words of Cossa, “Science requires art, art requires science, each being complementary to each other.” Prof. Mehta, suggests that as a science it should be called ‘economics’ and as an art it should be christened as ‘economy’.

is economics science or art

“Business without efficient management is a house built on sand, which can fall at any time”. Explain this statement.

 Q. “Business without efficient management is a house built on sand, which can fall at any time”. Explain this statement. 

[Write meaning, characteristics and importance  of management]

Ans. This statement means that Just as a house built on sand lacks a strong foundation and collapses easily, a business without effective management lacks direction, coordination, and control, making it highly vulnerable. The following facts clarifies the statement. 

(1) Achieving Pre-determined Objectives: Each organisation is established with certain aim. Management is the only medium and power which can help in the successful attainment of these objectives. A manager with the help of his expertise and cleverness makes an assessment of future events. He makes plans, creates an organisation, distributes work, grants requisite authority, direct the employees and control them. 

(2) Ensuring Maximum Utilization of Resources of Production: Management is that power which by establishing an effective coordination between the various resources of production makes an optimum use of these resources. In every big enterprise a train-load of gold is provided. It can be achieved by making a better use of resources and putting an end to useless or meaningless expenses. It means that all the available resources of the organisation have been likened with gold but to profit from the available resources requires their proper utilization. It is, therefore, clear that the most efficient use of the limited resources is the key to the successful business. This fact can be converted into reality with the help of management.

(3) Overcoming Competition: These days business is not localised but it has assumed national or even intemational dimensions. Competition is increasing with the widening of area and larger dimension of business. A modern producer faces competition not only from a local producer or competition at the national level but international competition is also getting sharper. In such a competitive atmosphere only that organisation can survive which can make available to its customers the best quality of goods at the cheapest rates. Only an efficient and clever manager can make it a reality and save the reputation of an organisation.

(4) Ensuring Integration with Changing Environment: Management is not only limited to various internal functions of an organisation but it has to compromise with the outer atmosphere also. On the one hand technical experts are devising new ways of production and, while on the other hand progressive organisations are applying modern marketing techniques. Even customers do not easily accept the produced goods because they are now wide awake and their standard of living has also improved and their tastes have also undergone a change. Thus, only an efficient manager can coordinate his work with the fast changing atmosphere. With the help of efficient and effective management a coordination between the new and prevalent work system and methods can be established to save the reputation of an organisation.

(5) Ensuring Smooth Running of Large Scale Business: Keeping in view the profits of large scale production, Importance of management has started getting preference. In view of the large scale production the means of production (Men, Money, Material, Machine, etc.) will also be required on a large scale. Apart from this, business shall have to face various legal formalities. To perform these functions efficiently and in a controlled manner, the need of an efficient manager is paramount. Therefore, without an efficient manager smooth running of large scale business is not possible.

(6) Maintaining a Sound Organisational Structure: A sound organisational structure is needed for the success of any enterprise. A sound organisational structure means defining a clear relationship between the superiors and their subordinates. It has to be decided what work will be done by various persons and what rights and duties they enjoy. It will lead to the creation of a team spirit and keep the work atmosphere clean and healthy. All the superiors and subordinates will work without any tension. A sound organisational structure can be created by an efficient manager.

(7) Establishing Good Labour-Owner Relationship: Labour and capital are the two main resources of production. The owners invest capital and determine objectives while the labour tries to transform those objectives into reality. Therefore, existence of a sweet relationship between the two is of paramount importance. There was a time when there were no labour unions and the owners thought it fit to exploit the labour to the maximum possible extent. Now the labour unions exist and they are sufficiently organised to exert pressure on the owners to get their demands conceded. Industrialists too have realised their importance. It is clear to them that without the efficiency of labour more profits cannot be expected. The efficiency of labour can be increased only when their problems are effectively solved. This can be possible only through management. An efficient manager, with the help of his knowledge and experience, understands the feelings of labour and tries to remove their grievances. He makes arrangements for their training to increase their efficiency. He offers them an opportunity to be partners in the process of management. He also establishes a system of sharing the profits, establishing their individual identity and making timely efforts to solve their problems.

(8) Giving importance to Research and Investigation: A recent research has brought out the fact that only those companies or business enterprises which are constantly taking interest in research activities are developing fast. In the context of business, research and investigation mean finding out new products and new markets for the extension of business field, new methods of distribution and adopting the use of new techniques to solve financial problems and using new techniques in the field of communication, It is thus abundantly clear that research is needed to develop business at a rapid pace and this job can be accomplished by an efficient manager. Efficient managers invariably establish research and investigation department to achieve this important purpose.

(9) Fulfilling the Social Responsibility: A business establishment starts its activities in society. prospers and reaches the climax of development in the same social surroundings. Thus, no organisation can remain aloof from society and yet survive. That is why every enterprise is considered as an integral part of society. When an enterprise is so much indebted to society, it should also realise its responsibilities towards society. The social responsibilities of a business organisation include ensuring the safety of the capital and sufficient profit, proper remuneration and work conditions for the employees, making available to the consumers goods of good quality at the right time and proper prices, making available the opportunities of employment to the people and making efforts to raise their standard of living. An enterprise can ensure these expectations only through the medium of management. Thus, management has a special significance in the task of fulfiling the social responsibilities of business

(10) Aiming at Increased Profits: In order to increase the profits of any organisation it is the basic principle either to increase the sales revenue or reduce costs. Increasing the sales revenue is beyond the control of an organisation to some extent but to affect a reduction in costs is primarily an internal affair of the organisation and it can certainly be accomplished with the help of good quality raw material, modem machinery and trained employees. By reducing costs the profits of an organisation can be achieved by the management and future development can be expected.

In conclusion, it can be said that management is the life-breath of business and it will not be wrong to say, business without efficient management is a house built on sand, which can fall any time.

Importance of efficient management in business