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The current discussion about multinationals in India is
reminiscent
of the debate in the 1940s about the virtues and vices of the
British Raj. At that time the virtues were preached by the
ICS-the
Indian Civil Service, and the vices by the Indian National
Congress. Paradoxically. the greatness and goodness of
multinational companies are now propagated by the same Indian
National Congress supported by the new ICS-Indian Corporate
Service. The earlier ICS-cadre and the new version of it. both are
expected to praise MNCs for their own very existence. Both are
bound to-toe the Government official line as a matter of duty. The
consequences for publicly departing from the official line was
quite severe in case of the old Indian Civil Service. perhaps it
is
more so in case of the present Indian Corporate Service. Until
recently when the official line was anti-multinational the
bureaucrats, including those are in power today, trumpeted it as
an
appropriate policy for India.
The corporate heads of Indian companies and the senior executives
working in them are reluctant to express their opposition, to the
multinationals as they will be blacklisted by them for joint
ventures or jobs.
This public posture is not the true position of most of the Indian
corporations- A perfectly understandable dilemma. How to protect
the short term advantage and simultaneously not to lose the long
term prospects of the company or individually?
Recently there was a public expression by the CII; though feeble
as
it can only be, against the Government official policy of
unreservedly welcoming multinationals. It is worthwhile,
therefore- to examine the role played by multinationals in India.
The term multinational itself is a misnomer and such a corporation
does not exist in reality anywhere in the world.
The simple fact that managers from a multiplicity. of nations are
working in a corporation does not make it multinational in its
objectives. Nestle cannot claim to be an MNC because it operates
in many countries and employ local citizens. Hindustan Lever
cannot claim to be multinational because it has prefixed -its
corporate name with the word "Hindustan". This prefix may soon
disappear as it happened in many other cases e.g. Indian Oxygen to
British Oxygen. The true nature of the Organizational allegiance
can be appreciated by understanding the financial objectives that
the corporations pursue. The product they market and the
customers
they serve are irrelevant in this context. As a rule no local
citizen-is employed in the top financial position as it is
practised by most of the MNCs even in India.
The core objective of all corporations is to take money for its
promoters or prime shareholders.
The apologists for MNCs claim that India needs the management and
technology, of the multinationals to improve the quality and
reduce
the price of various products purchased by, the Indian consumers.
Further. it is argued that India needs their investments for
economic growth. It is an accepted fact that national relevance
of
a corporation is assessed by the twin criterion of quality and
cost
which should ultimately reflect in the price and value of the
product to the consumer.
Quality is not an absolute concept. It is related to price. In
the case of consumer products, if the basic quality stipulation of
chemical purity is met, the product should be judged on the two
parameters price and value. Both together determine the relevance
of the product to the country where it is marketed.
It is also often argued that uless the country imports foreign
goods the quality of Indian goods not Improve. This as an
amazingly
absurd argument.
How many foreign cars did Japan import and sell in Japanese market
in order to improve the quality of cars made by the Japanese in
Japan? Ask Micky Kantor!
We have in our country. a number of foreign airlines operating for
many years. Has it helped to improve the quality of service by
Air
India? The same is true with the banking sector. The next
suggestion could be to import some Ministers in order to improve
the performance of our own ministers in India. This might already
be happening indirectly from the World Bank and IMF!
Quality is not a virtue to be imitated. but a habit to be
cultivated by promoting professional excellence and national
pride.
It is true- competition can speed up quality programmes.
Competition can be either domestic or foreign; there is absolutely
no difference between the two. In some sectors we do produce
world
class products without foreign competition e.g. textiles and man.,
industrial products. The old Binny and Co. and Metal Box, both
multinationals. decided to sell out rather than face Indian
competition.
Importing foreign goods to improve domestic quality is like giving
a boy a new pen to improve his spelling.
In most cases the technology brought by multinationals is either
already existing in India or can easily be developed locally. As
in all countries, there are some exceptions to this, e.g.
electronics. USA also import electronic goods from Japan.
We can export Software to the USA design Satellites for space but
cannot make Soft drinks for India.
Even a one hundred percent subsidiary of a foreign company does
not
import of the latest or appropriate technology ideally suited for
India. The main objective of multinationals is NOT to transfer
their latest technology to its subsidiary or foreign associates;
but to make as much profit as quickly as possible.
One popular route for technology transfer that is generally
advocated is the Joint Venture. This again is a fallacy.
In business there are no friends; but only rivals. A Joint Venture
is an unequal association of future rivals temporarily constituted
to meet the immediate political expediency.
In all Joint Ventures one of the partners will gradually try to
acquire dominance at the expense of the other. The dominant one
invariably will be the foreign partner who reluctantly joined
hands
with the weak local partner to overcome the initial resistance of
public or political sentiments against foreign economic
domination.
If there are no free lunches there are no Joint Ventures too.
If the multinationals have imported technology and management, the
consumer should be the first beneficiary. In reality this has not
been the case, There is no instance of price reduction of products
because of the entry of a multinational in that product segment.
But there are many instances where the product price was increased
by the multinationals under the pretext of quality improvement.
In
all cases the price increase has no relation to the improvement in
quality or real value to the customer.
An example is the case of ice cream. Before the entry of a
multinational, an Indian brand of ice cream was sold for about Rs
10 to 12. The ice cream introduced by, the multinational is being
sold around Rs 30. The excuse is better "quality". What the
customer interested is to know whether the nutritional or any
other
value added to the product will justify the mark-up of three
hundred percent? Is the new ice cream introduced by the
Multinational three time-s better than the ice cream that was
available to the Indian customer before the entry of the
multi-national?
Worse still, the Indian Company seized the opportunity and
promptly
increased the price of his product from RS 10 to 12 to Rs 20 to Rs
22 to cash in by piggy-backing with the MNC. The same story is
repeated in many other like soap shirts etc.
This "Price Push" i.e. matching the price of domestic products
close to the foreign brands is the new economic exploitation being
perpetrated on the consumers in this country.
This phenomenon is true with almost all product segments where the
multinationals have entered. According to the Government,
inflation
is only 4.2% but the real price rise in the market for popular
consumer products is far in excess of the official inflation
figure.
Competition is good for the consumer provided it is fair and
equal.
This should be supplemented by an effective Government machinery
and concerted community action to penalise culprits who exploit
consumers in the, name of quality Foreign consumer products have
succeeded in various countries of the world under colonial
economic
conditions and patronage.
The concept of "Brand Equity" is not a consumer friendly idea.
It is concept employed by corporations to exploit uninformed
customers by compromising quality and price to enhance corporate
profit. The customer in India is 'loaded with exorbitant prices
as
he is practically' defenceless against aggressive. often
unethical,
marketing propaganda. All advertisements, including the end
currently on TV to quote advertised on TV..." is aimed at
preventing the customer exercising his choice rationally. It is
absurd to suggest that companies spend vast sums of money to
encourage a prospective customer to use his free choice. No
chance.
The advertising budget of some of the multinational companies is
more than the combined sales turnover of their Indian competitors
put together.
Is this an honest way of creating a customer choice or is it a
programme of ruthlessly eliminating indigenous competition?
The MNCs are being courted for their investments. No
multinationals can be counted for significant investments in any
country other than their "parent" country. The true corporate
loyalty can be understood by examining its investment decisions.
The MNCs including the major ones, have a dismal record of
investment in India compared to the Indian companies.
Reliance Industries, during their comparatively short period of
existence invested about Rs 14000 crores in the country on green
field projects. What has been the investment pattern of MNCs, who
existed in India for half a century and more? Their performance
in
this area is pathetic compared to their Indian counterparts.
There are a number of "inherent" financial advantages which
prompts
the MNCs to make the first investment. But very soon the plant
and
machinery set-up by the original investment becomes obsolete
quickly more so in the current state of fast moving technological
advancement. The original investment in plant and machines. need
continuous reinvestment for modernization and expansion. Most of
the MNC's in this country failed India in this respect.
Investment followed by regular re-investment is the only proof of
economic loyalty. We put money where we think our home is.
A recent instance is demonstrative of the MNC's investment policy
in India. Glaxo India, recently made a profit of Rs 210 crores;
promptly decided to declare a 175%. dividend and transferred Rs
53.55 crores to the parent company in the UK. Apparently, the
Glaxo directors in India could not find any worthwhile investment
opportunities in India! The official clarification was "the
company's new priorities are palpable and adding manufacturing
capacities is not among them". Obviously, the Indian Directors on
the Glaxo Board also agreed.
The merry days of "economic mercenaries" are not over Yet.
Most of the so-called "Asian Tigers" did not depend upon MNCs for
investment or technology or management. By maintaining
independent
decision making status for the choice of investment as well as
technology, they grew fast and could beat the multinationals in
their own game and are prospering well. The real question we have
to answer is :
What would have been the state of JAPANESE ECONOMY today, if Japan
had allowed American or British or German automobile manufacturers
to hold majority share in the Japanese auto corporations like
Toyota, Honda etc.?
Solution for our economic problem lies in the answer to this
question.
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