Management Consulting/International Finance

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Question
A small country like Switzerland has more number of big multinational corporations all over the world. Why not in India? Substantiate your views with appropriate data and examples.

Answer
THE  ECONOMIC  POLICY  AND FOREIGN  POLICY  HELPED  THE  SITUATION.
WHEREAS  A  DEVELOPING   COUNTRY  LIKE  INDIA  CANNOT  SUSTAIN.


Intra-Company Trade and Manipulative Price Transfers
The post-Second World War period witnessed not merely a rise in TNCs' control of world trade, but also growth of trade within related enterprises of a given corporation, or "intra-company" trade. While intra-company trade in natural resource products has been a feature of TNCs since before 1914, such trade in intermediate products and services is mainly a phenomenon of recent decades. By the 1960s, an estimated one-third of world trade was intra-company in nature, a proportion which has remained steady to the present day. The absolute level and value of intra-company trade has increased considerably since that time, however. Moreover, 80 per cent of international payments for technology royalties and fees are made on an intra-company basis.12
Problems stemming from intra-company trade concern TNCs' ability to maximise profits by avoiding both market mechanisms and national laws with an instrument of internal costing and accounting known as "transfer pricing." This is a widespread technique whereby TNCs set prices for transfers of goods, services, technology, and loans between their worldwide affiliates which differ considerably from the prices which unrelated firms would have had to pay.
There are many benefits TNCs derive from transfer pricing. By lowering prices in countries where tax rates are high and raising them in countries with a lower tax rate, for example, TNCs can reduce their overall tax burden, thus boosting their overall profits. Virtually all intra-company relations including advisory services, insurance, and general management can be categorised as transactions and given a price; charges can as well be made for brand names, head office overheads, and research and development. Through their accounting systems TNCs can transfer these prices among their affiliates, shifting funds around the world to avoid taxation. Governments, which have no way to control TNCs' transfer pricing, are therefore under pressure to lower taxes as a means of attracting investment or keeping a company's operation in their country. Tax revenue which might be used for social programs or other domestic needs is thus lost.
Moreover, in countries where there are government controls preventing companies from setting product retail prices above a certain percentage of prices of imported goods or the cost of production, the firms can inflate import costs from their subsidiaries and then impose higher retail prices. Additionally, TNCs can use overpriced imports or underpriced exports to circumvent governmental ceilings on profit repatriation, causing nation-states to suffer large foreign exchange losses. For instance, if a parent company has a profitable subsidiary in a country where the parent does not wish to re-invest the profits, it can remit them by overpricing imports into that country. During the 1970s, investigations found that average overpricing by parent firms on imports by their Latin American subsidiaries in the pharmaceutical industry was 155 per cent, while imports of dyestuffs raw materials by Indian TNC affiliates were being overpriced between 124 and 147 percent.
Influence in Nations' Political Affairs
TNCs' influence over countries, particularly those in the less-industrialised world, has not been manifest solely in sheer economic power or manipulative price transfers. Such influence has also been reflected in corporations' willingness and ability to exert leverage directly by employing government officials, participating on important national economic policy making committees, making financial contributions to political parties, and bribery. Furthermore, TNCs actively enlist the help of Northern governments to further or protect their interests in less-industrialised nations, assistance which has sometimes has involved military force. In 1954, for instance, the US launched an invasion of Guatemala to prevent the Guatemalan government from taking (with compensation plus interest) unused land of United Fruit Company for redistribution to peasants.14
Perhaps the most notorious example of TNCs' meddling in the political affairs of a sovereign state, however, occurred in the early 1970s, when International Telephone and Telegraph (ITT) offered the US Central Intelligence Agency US$1 million to finance a campaign to defeat the candidacy of Salvador Allende in Chilean national elections. Though this offer was refused, and Allende democratically elected, ITT continued to lobby the US government and other US corporations to promote opposition to Allende through economic pressure including the cutoff of credit and aid and support of Allende's political rivals. After copper mines in Chile owned by the firms Kennecott and Anaconda were nationalised, the US government took a series of steps based largely on the recommendations of ITT to subvert Allende.15
Disclosure of ITT's efforts to overthrow Allende helped prompt initiatives in the United Nations to draft a TNC Code of Conduct to establish some guidelines for corporate behaviour. This move was part of more general concern about the extent of corporations' economic and political influence which emerged in the 1960s and 1970s, and which led some less-industrialised countries to demand that TNCs divest from certain sectors or to require changes in the terms of a company's investment. Yet such developments have been minor and temporary obstacles to the augmentation of TNCs' economic power, and overall the past three decades have been characterised by increased regional economic integration, the liberalisation of many international markets, and the opening up of new are as such as Central and Eastern Europe.
TNCs and International Politics
Especially since the 1980s, TNCs' involvement at international political negotiations and fora has accompanied and encouraged the rise of global corporate economic power. In an effort to reduce barriers to trade and investment capital flows in the last decade, TNCs have lobbied vigorously to shape to their liking Europe's Single Market agreement, the North American Free Trade Agreement (NAFTA), and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). For TNCs, so-called free trade lessens governmental restrictions on their movement and ability to maximise returns. "The deregulation of trade aims to erase national boundaries insofar as these affect economic life," economists Herman Daly and Robert Goodland have noted. "The policy-making strength of the nation is thereby weakened, and the relative power of TNCs is increased."16
For example, rules established in the GATT's recently concluded Uruguay Round regarding trade-related intellectual property rights (TRIPs) and trade-related investment measures (TRIMs) will be of particular benefit to TNCs. The first gives corporations greater capacity to privatise and patent life forms, including plant and other genetic resources of less-industrialised nations and peoples. TRIMs render illegal certain measures which countries_ notably Southern nations_have employed to encourage TNCs to establish linkages with domestic firms. TRIPs, TRIMs, and other GATT rules fall under the authority of the World Trade Organisation (WTO), a new supranational body which works with the World Bank and other financial institutions to manage global economic policy to serve transnational corporate interests.17
In another demonstration of transnationals' growing political might, and perhaps the most striking example to date of organised corporate lobbying on the world stage, TNCs' efforts at the 1992 United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro undermined sections of the Summit's key documents. And well before the Summit took place, TNC pressure had led to the removal from UNCED materials proposals to regulate the practices of global corporations.19
This success in Rio underscores a broader issue: although TNCs are collectively the world's most powerful economic force, no intergovernmental organisation is charged with regulating their behaviour. United Nations efforts to monitor and to some extent address TNCs' impacts, notably through the UN's Centre on Transnational Corporations (CTC), have recently been decimated. Under a 1992 restructuring, the CTC lost its independent status, and in 1993 it was dismantled and a 17-year attempt to negotiate the aforementioned Code of Conduct on TNCs was abandoned. A new Division on Transnational Corporations and Investment emerged_with the aim of promoting foreign direct investment.
TNCs, Human Health, and the Environment
The unwillingness or inability of national governments to control TNCs in a period of deregulated global trade and investment does not bode well for people's health or the environment. TNC operations routinely expose workers and communities to an array of health and safety and ecological dangers. All too often these operations erupt into disasters such as the gas release at the Indian subsidiary of the US-based corporation Union Carbide in Bhopal.
To regard such tragedies only as "accidents," however, distracts attention from the larger, inherent harm to the planet and its inhabitants TNCs' industrial development strategies cause. For example, TNC activities generate more than half of the greenhouse gases emitted by the industrial sectors with the greatest impact on global warming. TNCs control 50 percent of all oil extraction and refining, and a similar proportion of the extraction, refining, and marketing of gas and coal. Additionally, TNCs have virtually exclusive control of the production and use of ozone-destroying chlorofluorocarbons (CFCs) and related compounds.20
In destructive minerals extraction, TNCs still dominate key industries. In aluminum, for example, just six companies account for 63 per cent of the mine capacity, 66 per cent of the refining capacity, and 54 per cent of the smelting capacity. Four TNCs account for half the world's tin smelting capacity.22 With respect to their influence on global agriculture, TNCs control 80 per cent of land worldwide which is cultivated for export-oriented crops, often displacing local food crop production.23 Twenty TNCs account for about 90 per cent of the sales of hazardous pesticides.24Additionally, because TNCs control much of the world's genetic seed stocks as well as finance the bulk of biotechnology research worldwide, they are poised to reap large financial rewards from patenting life forms.
TNCs also manufacture most of the world's chlorine _ the basis for some of the most toxic, persistent, and bioaccumulative synthetic chemicals known such as PCBs, DDT, dioxins and furans, chlorinated solvents, and thousands of other organochlorine compounds. These chemicals' impacts on health include: immune suppression; birth defects; cancer; reproductive, developmental, and neurological harm; and damage to the liver and other organs. As a group, TNCs lead in the export and import of products and technologies that have been controlled or banned in some countries for health and safety reasons. For instance, 25 per cent of total pesticide exports by TNCs from the US in the late l980s were chemicals that were banned, unregistered, canceled, or withdrawn in the US itself.25 And a handful of Northern companies are responsible for the nuclear technology now found at plants in South America and Asia.
TNCs and their business associations claim that deregulated trade and investment will produce enough growth to end poverty and generate resources for environmental protection. The unrestricted free trade and investment-based growth beloved by TNCs, however, is the same kind of development which has led to overexploitation of land and natural resources, air, water, and soil pollution, ozone depletion, global warming, and toxic waste generation. As economists Herman Daly and Robert Goodland observe: "The dream that growth will raise world wages to the current rich country level, and that all can consume resources at the U.S. per capita rate, is in total conflict with ecological limits that are already stressed beyond sustainability."27
TNCs and Occupational Safety
There have been many instances of TNCs failing to control industrial hazards at their facilities in less-industrialised nations as thoroughly as in their home countries. The situation in Bhopal, where comparison of operations of Union Carbide's Indian subsidiary and a similar plant in the US has revealed many double standards, is only the most infamous example of what the Industrial Labour Organisation acknowledges is a prevailing trend: "In comparing the health and safety performance of home-based [TNCs] with that of the subsidiaries, it could generally be said that the home country operations were better than those of subsidiaries in the developing countries."28 The case of the German TNC Bayer's chromate production factory in South Africa is illustrative. Chromate is a corrosive compound which can cause respiratory illness including lung cancer. Bayer has owned the facility, Chrome Chemicals, since 1968. In 1976, a South African government report noted health problems in nearly half the plant's employees which were related to their work and which, it said, "are extremely disturbing and would appear to indicate a lack of concern regarding the physical welfare of the workers."29
In 1990, a trade union learned that several workers had developed lung cancer, although none had been informed that the disease might be related to their employment. Chrome Chemicals management refused the union's request to review the plant's industrial hygiene records, and in 1991 the firm shut down much of its operation and laid off most of its workers. In South Africa, lung cancer was not added to the list of compensable occupational diseases until 1994, and Bayer has so far refused to provide compensation to a growing number of former employees at Chrome Chemicals who have developed lung cancer. Bayer could not get away with this in Germany, where as early as 1936 lung cancer was considered a compensable occupational disease for chromate workers. Indeed, German compensation authorities consider any labourer with more than three months of chromate work eligible for compensation if lung cancer develops subsequently.30
TNCs and Employment
In an era of declining constraints on their mobility and the attraction of cheaper wages in less-industrialised nations eager to draw foreign investment, TNCs are eliminating jobs in their home countries and shifting production abroad. Although overall TNCs' employment in their home countries has changed little in the last decade, among the 300 largest corporations employment in 1989 was lower than it had been in 1980. US-based TNCs have eliminated jobs especially vigorously. Between 1982 and 1993, for example, US TNCs cut over three-quarters of a million jobs at home but added 345,000 jobs outside the United States.31 For workers in the US and other industrialised countries, TNCs' increased willingness to move operations to lower wage areas along with their greater use of automation, subcontractors, and part-time labour have rendered the strike relatively ineffective and undermined trade unions' collective bargaining power. In the US, there were one-tenth the number of strikes in 1993 as in 1970, and only 12 per cent of the US workforce is currently unionised, a lower proportion than in 1936.32
In less-industrialised regions, the lure for TNCs of fewer costs and regulations offers little promise to workers of decent working conditions, sufficient pay, or job security. Tax breaks and subsidies governments use as incentives are no guarantee that the TNCs will not move on after the benefits have expired, and as cost advantages now found in Singapore appear in, say, Bangladesh, the countries currently experiencing an influx of investment may eventually find themselves in the same position as that of the US and other industrialised nations today.
More fundamentally, as Richard Barnet has emphasised, the transnational corporate order cannot begin to solve the chronically severe unemployment problems in Asia, Latin America, and Africa, where an estimated 38 million new job seekers enter the labor market annually.35 A comparison of the growth in TNCs' outward foreign investment stock worldwide and their estimated global direct employment in recent decades lays this fact bare. Between 1975 and 1992, outward FDI stock increased almost seven times, whereas TNCs' employment did not even double. In less-industrialised countries, TNCs added only five million employees between 1985 and 1992.  

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