PRODUCTION BY MNCs

PRODUCTION BY MNCs

In general, MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; and where the availability of other factors of production is assured. In addition, MNCs might look for government policies that look after their interests. You will read more about the policies later in the chapter.

Having assured themselves of these conditions, MNCs set up factories and offices for production. The money that is spent to buy assets such as land, building, machines, and other equipment is called investment. The investment made by MNCs is called foreign investment. Any investment is made with the hope that these assets will earn profits.

At times, MNCs set up production jointly with some of the local companies of these countries. The benefit to the local company of such joint production is two-fold. First, MNCs can provide money for additional investments, like buying new machines for faster production. Second, MNCs might bring with them the latest technology for production.

But the most common route for MNC investments is to buy up local companies and then to expand production. MNCs with huge wealth can quite easily do so.

To take an example, Cargill Foods, a very large American MNC, has bought over smaller Indian companies such as Parakh Foods. Parakh Foods had built a large marketing network in various parts of India, where its brand was well-reputed. Also, Parakh Foods had four oil refineries, whose control has now shifted to Cargill. Cargill is now the largest producer of edible oil in India, with a capacity to make 5 million pouches daily!

In fact, many of the top MNCs have wealth exceeding the entire budgets of the developing country governments. With such enormous wealth, imagine the power and influence of these MNCs!

Women at home in Ludhiana making footballs for large MNCs

There’s another way in which MNCs control production. Large MNCs in developed countries place orders for production with small producers. Garments, footwear, sports items are examples of industries where production is carried out by a large number of small producers around the world.

Jeans produced in developing countries being sold in USA for Rs 6500 ($145)

The products are supplied to the MNCs, which then sell these under their own brand names to the customers. These large MNCs have tremendous power to determine price, quality, delivery, and labour conditions for these distant producers.

Thus, we see that there are a variety of ways in which the MNCs spreading their production and interacting with local producers in various countries across the globe. By setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies or buying them up, MNCs are exerting a strong influence on production at these distant locations. As a result, production in these widely dispersed locations is getting interlinked.

Ford Motors, an American company, is one of the world’s largest automobile manufacturers with production spread over 26 countries of the world. Ford Motors came to India in 1995 and spent Rs. 1700 crore to set up a large plant near Chennai. This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks. By the year 2017, Ford Motors was selling 88,000 cars in the Indian markets, while another 1,81,000 cars were exported from India to South Africa, Mexico, Brazil and United States of America. The company wants to develop Ford India as a component supplying a base for its other plants across the globe.

Cars made by Indian workers being transported to be sold abroad by MNCs.

Let’s work these out

Read the passage on the above and answer the questions.

1.  Would you say Ford Motors is an MNC? Why?

2.  What is the foreign investment? How much did Ford Motors invest in India?     

3.  By setting up their production plants in India, MNCs such as Ford Motors tap the advantage not only of the large markets that countries such as India provide but also the lower costs of production. Explain the statement.

4.  Why do you think the company wants to develop India as a base for manufacturing car components for its global operations? Discuss the following factors:

      (a)  cost of labour and other resources in India.

      (b)  the presence of several local manufacturers who supply auto- parts to Ford Motors

      (c)  closeness to a large number of buyers in India and China

5.  In what ways will the production of cars by Ford Motors in India lead to the interlinking of production?

6.  In what ways is an MNC different from other companies?

7.  Nearly all major multinationals are American, Japanese, or European, such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?

Source: This topic is taken from NCERT TEXTBOOK