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Impact of socio-political environments on corporate governance of Multinational Corporation in Emerging Economies


Multinational Corporation (MNC) also known as Transnational Corporation in which the enterprise is registered and operates in more than one country at a time. Multinational Corporations play a significant role in shaping the worldwide economy. In financial terms, a firm’s benefits in setting up a multinational corporation consist of both vertical and horizontal economies of scale and an expanded market share. Critics of the multinational corporation generally view it as an economic and regularly political way of overseas domination.

Developing nations, with a narrow range of exports (regularly of primary goods) as their financial base, are especially vulnerable to economic exploitation. Monopolistic practices, abuse of human rights, and disruption of traditional approaches to financial growth are among the risks that host countries face. Despite the prevalence of the financial activities of MNCs throughout the globe, few pieces of research exist that take a look at their political influence on overseas policy. This chapter develops a theoretical framework for how MNCs’ particular positions within the marketplace affect their political activities.


The view that global corporations have been divorced from the nation-state has been to be extensively expressed as the pace of globalization accelerated from the 1980s. Over the past 40 years, the world has long gone through an unprecedented generation of globalisation. People, capital, goods, and ideas had been moved around the world with freedom, now no longer seen since the 19th century. The results of the growing global integration of international production, the international dispersion of key capabilities inclusive of technological innovation with multinational systems, and the fact that a few multinationals employ far greater numbers of employees and sell extra services and products outside their domestic economic system than within all have all endorsed the hypothesis of a “borderless world”, is now the classic phrases of Ken’ichi Ohmae in 1990.

The beginnings of this modification targeted optimising costs, as MNCs shifted production strategies and management practices around the world. As a result, both MNC and global productiveness have progressed dramatically. International collaboration and international trade deals have also substantially benefited Asian economies in the last decade, with this vicinity turning into a critical launch pad for some of the world’s biggest MNCs. Shareholders of MNCs have benefited from this tailwind too, as bigger markets, a decrease in production costs, and apt use of head office domiciles to lessen tax payments have all progressed the bottom line. The market capitalisation of the pinnacle 50 MNCs grew greater than 3 times quicker than the average publicly traded company. For example, MNCs withinside the United States., which has the world’s biggest economy, make disproportionate contributions to the national economy: they constitute a very small number of overall American companies ( less than 1%), and a massive fraction of GDP, exports, imports, research and development, and private sector worker compensation; specifically, U.S. MNC parent companies in 2016 constituted greater than 24% of private sector GDP ( value added) and 26% of private sector employee compensation; U.S. MNCs are engaged in more than half all U.S. exports and more than 40% of U.S. imports. Likewise, MNCs in the world dominate the global economic system in addition to their national economies.

Recent political developments bring multinational lobbying efforts into stark relief. Multinational companies have been vocally averse to the Trump Administration’s escalation of trade tensions, tightening of immigration restrictions, and disruption of global value chains. Intensive lobbying, however, does now no longer usually equate with political power. While the Trump administration has in large part rebuffed MNCs’ attempt to maintain existing exchange agreements, individual companies have lobbied effectively to win tariff exemptions. In different policy domains along with corporate taxation and the proposed destination-primarily based totally on Cash Flow Tax, multinationals lobbied on both aspects of the issue. Despite the prevalence of the financial activities of MNCs throughout the globe, few studies exist that observe their politics have an impact on overseas policy-making.

In this regard, the primary contribution of this chapter is to analyze MNCs’ distinct position as political actors. MNCs are politically distinct in addition to economically. They act politically in methods that fluctuate among domestic corporations, or even from large domestic areas. MNCs are essentially political actors whose distinct interests must be incorporated into our knowledge of foreign policy-making.

Role of Multinational Corporations in the Indian Economy

Multinational corporations nowadays have a modern impact on the international economic system. In the sector of international trade and international finance, multinational corporations have come to exercise enormous power. In the early seventies, the MNCs accounted for approximately one-eighth of all international trade. From the character in their growth, it could be presumed that in the early eighties their share will rise to one-fourth.

The significance of MNCs isn’t constrained to production, as they’re additionally significant contributors to international trade. It has been anticipated that trade inside MNCs, referred to as intra-firm trade, accounts for approximately one-third of total world trade.

While multinational companies performed a massive role withinside the advertising of growth and alternate in South-East Asian countries they now no longer play many roles withinside the Indian economy wherein the import-substitution development strategy was followed. Since 1991 the adoption of the industrial policy of liberalization and privatisation path of private foreign capital has been identified as essential for the rapid increase of the Indian economy.

Before 1991, MNCs did now no longer play many roles in the Indian economy. In the pre-reform period, the Indian economy was ruled with the aid of using public enterprises. To prevent the attention of economic power the Industrial Policy 1956 did now no longer permit private firms to develop in size beyond a point. By definition, MNCs are quite huge and may function in several countries. While MNCs performed a significant role withinside the promotion of growth and trade in South-East Asian countries they now no longer play many roles in the Indian economy wherein the import-substitution development strategy was followed.

Since 1991 with the adoption of the industrial policy of liberalisation and privatisation role of private foreign capital, has been regarded as essential for a rapid increase in the Indian economy. Since source the bulk of foreign capital and funding are MNCs, they had been allowed to function withinside the Indian economy subject to some regulations.

The following are the important reasons for this change in policy towards multinational companies in the post-reform period:

  • Transfer of Capital- the MNCs transfer investment, and advanced technology to developing countries via setting up branches and subsidiaries. Therefore developing countries like Nepal get benefited from receiving advanced technology and capital investment from such companies.
  • Increase in Employment Opportunity- MNCs calls for a huge number of skills in addition to unskilled employees to operate their activities. Thus it gives employment opportunities to the people of the host country as a result in the economic standard of society being improved.
  • Good International Relation- MNCs acknowledge the country withinside the global market. It creates harmonious relations among the parent company and subsidiary countries. It recognizes exporting country to all over the world.
  • Increase in Government Revenue- A MNC is a massive scale business. It can pay a massive amount of duties, income tax, VAT, etc. to the government. Therefore Government revenue is expanded because of the operation of such companies.
  • Mass Production- with help of the advanced technology, they could produce fine quality goods and products at an cheaper price. Due to job innovation and specialization help produce more consumption increase as the production of more units lessens the cost.
  • Research and Development- the whole world, is in need of research and Development. To meet global standards for its products and services, an MNC conducts numerous research and development activities. Constantly such programs are beneficial to society. It allows for increasing better equipment, fine products and advanced technology in production.
  • Promotion of Foreign Investment- In the current years, external assistance to developing countries has been declining. This is due to the fact the donor developed countries have now no longer been willing to part with a larger proportion of their GDP as assistance to developing countries. MNCs can bridge the gap among the requirements of foreign capital for increasing foreign investment in India. The liberalised foreign investment pursued since 1991 lets MNCs make investments in India subject to different ceilings fixed for different industries or projects.
  • Promotion of Exports- With extensive links all around the world and producing products efficaciously and consequently with lower costs multinationals can play a significant role in promoting exports of a country wherein they invest.
  • Non-Debt creating Capital inflows- In the pre-reform period in India, while foreign direct investment with the aid of using MNCs became discouraged, we relied heavily on external commercial borrowing (ECB) which was of debt-creating capital inflows. This raised the load of external debt and debt service payments reached the alarming figure of 35 per cent of our current account receipts. This created doubts about our ability to meet our debt obligations and there has been a flight of capital from India and which ended in a balance of payments crisis in 1991.
  • Investment in Infrastructure- With a large command over financial resources and their advanced capacity to raise resources globally and inside India it’s far stated that MNCs could invest in infrastructure which includes power projects, modernisation of airports and ports, and telecommunication. The investment in infrastructure will provide a lift to industrial growth and assist in creating profits and employment in the Indian economy. The external economies generated by investment in infrastructure by MNCs will therefore crowd in investment by the indigenous private sector and could consequently stimulate economic growth.
  • Technology Transfer- Another vital position of MNCs is they transfer high state-of-the-art technology to developing countries which can be essential for raising the productivity of the working class and permit them to start new productive ventures requiring high technology. Whenever MNCs set up their subsidiary production units or joint-venture units, they now no longer only import new equipment and machinery embodying a new technology but also competencies and technical know-how to use the new equipment and machinery.

Political Influence of Multinational Corporations

The position that MNCs play in both economic and political marketplaces. The method of political influence that MNCs employ may also differ from issue to issue and country to country. In this regard, scholars as exemplified have identified three major channels through which companies may also exert their influence lobbying, indirect as an instrument of the state, and unintentional influence through their agenda-setting power. First, companies may at once engage in political activities which include lobbying and campaign contributions to have an effect on policy-making or to press political leaders to address their demands. In doing so, they also can work with industry associations and political action committees to advance their interests. MNCs can leverage their bargaining power by presenting both “inducements” or “promises of new investment” and “deprivations” or threats of withdrawal of investment.

Second, MNCs maintain an unintended role in foreign policy as an instrument of the state. In this view, governments have used MNCs to add to the national interest by strengthening the outcomes of sanctions via MNC production networks, facilitating capital transfers through companies to strengthen monetary policy, or permitting MNCs’ foreign affiliates to assist in intelligence gathering. Finally, companies can preserve considerable agenda-setting power from their mere presence abroad. Firms’ “privileged position” in the view of governments assists political leaders’ in defining problems, devising policies, and prioritizing objectives.

A key finding of the research on business political activity is that big firms lobby the most. Numerous research shows that big firms spend the most on direct lobbying. This arises for numerous reasons. First, those companies have the most resources. The size of the company reduces the “ primary costs of lobbying”: the initial expenses to set up a lobbying presence and the actual amount spent to influence policy. Bigger firms have the extra capability to pay them in advance costs of establishing a lobbying presence. Therefore, big firms “select into” lobbying while smaller companies cannot.

Another department of the literature specializes in choices of MNCs about which host country to make investments in. This range of choice is frequently seen as giving MNCs top-notch leeway to negotiate better deals with host countries and to persuade their politics. In particular, the range of veto players in the government, the degree of private property protection, and the volume of democracy all may also affect whether or not MNCs can protect their investments and as a result whether or not they make investments in the first place. First, more veto players, on the one hand, make it more difficult for governments to change policies and therefore lessen any ex-post attempts to extrude a bargain with MNCs. However, more veto players may also imply more access points for MNCs and make it simpler for them, in particular in combination with other foreign and domestic firms, to influence policy. Second, more democracy and better private property protection, on the one hand, allow MNCs to be much more likely to find allies in the host country to assist them. On the other, more political competition and more space for different interest groups in vigorous democracies appear to weaken MNCs and reduce their effect. When political leaders desire foreign investment, this capacity to choose locations allows MNCs to exercise important influence over the host country and its politics. The conditions that maximize MNC political influence are nonetheless a lot debated, however.

MNCs were playing a vital role in the economic growth and development of the country, leveraging the enhancing ease of doing business and liberalised regulatory environment. The Government on its component has constantly targeted easing the policy and regulatory environment for MNCs in India. Recognizing the pivotal role performed by the MNCs has eased and enhanced the scope for their participation in the Indian economic system and continues to do so. Among numerous initiatives, the Government has slashed the corporate tax rates, liberalized Foreign Direct Investment (FDI) policies and norms in several sectors, and rigorously rationalized regulatory compliances burden for them. In most sectors, FDI is now beneath neath the automatic route, besides from a small negative list, making India one of the most open large economies in the world.

A large number of MNCs have taken their business to the next level, positioning India both as a business hub serving international clients and as a base for exports thereby developing greater employment possibilities for the local nationals, sharing international practices, and more importantly helping the local people through CSR initiatives. Today, our marketplace has become a priority for foreign corporations seeking to get a bigger share of the global marketplace and they are constantly adapting techniques to amplify their footprint in India. This creates a sturdy base for the country which is rapidly moving toward strengthening its structures through the initiative of Aatmanirbhar Bharat.

India is seen as a neutral destination in the global landscape. India acquired USD 70 billion from institutional investors between January 2019 and July 2020. Despite the pandemic, the country has acquired more than USD 20 billion in investments across the world in the course of the first half of the year. We must continue to be seen as a country this is bridging international powers and shaping our foreign policy accordingly. It is encouraging to see that the Government is working rigorously in this direction.

MNCs are believed to be exceedingly beneficial for developing countries in terms of bringing employment opportunities and new technology that spill over to domestic firms. Furthermore, MNCs often gain from government subsidies, which can in the future be linked to investment in local firms. Through their involvement in investing in local startups, MNCs can play an important role in constructing an entrepreneurial ecosystem in developing countries and, if executed correctly, might solve the standard coordination failure that most governments struggle with or are unable to cure.


Studies over years indicate that the impact of MNCs on host States is neither as positive nor as negative. MNCs indeed play an important role in developing countries. They can create more employment opportunities for a huge labor force, train them and promote the development of high-level skills. Moreover, MNCs help increases GDP growth and capital formation and reduce poverty. Today MNEs are more and more complexly integrated, they rely on more intense communication and their behavior is rather proactive than a reactive one. They also face increasing competition from online enterprises that are enlarging their market share. A successful strategy is based on the added value it brings, on the way it makes a difference, on the sector’s attractiveness, and on the market maturity phase, so that it helps the enterprise gain a profitable and competitive position. The capital flow of MNCs may be permitted but not at the cost of national interest.

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