Paper 1 Business Environment & Entrepreneurship Part A Business Environment 30 Marks 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Form of Business Organisation LLP Proprietorship AOP Co-Op Society Partnership OPC Pvt Co Public Co Trust 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Business Environment MSME Large Enterprise MNC 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Business Environment Scale of Business MSME 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME For the removal of doubt, it is hereby clarified that in calculating the investment in plant and machinery: 1 2 3 4 The cost of pollution control equipment The cost of research and development equipment The cost of industrial safety devices and Such other items as may be specified by notification shall be excluded. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz Santa Singh owns & operates a call centre. It is a profitable business. He is also rich by birth. He has taken the premises on rent. Rent is Rs. 1. 00 lac pm. The capitalised value of the premises is Rs. 2. 00 crores. He has installed computers worth 9. 00 lacs in the business; no other equipment. He owns a BMW-Z 4 costing Rs. 60 lacs. He drives this car to work everyday. The call centre is a micro enterprise, because it has p&m worth < 10 lacs The call centre is a small enterprise, because it has p&m worth > 10 lacs, since BMW-Z 4 is used in business Don’t forget the capitalised value of premises; the call centre is a medium enterprise, because actual + notional value of investment is > 2. 00 crores Only computers will be considered under p & m; neither car, nor premises 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz Banta Singh owns & operates a factory for the manufacture of pendrives. He also repairs for free, in the same factory premises, pendrives sold by him & found defective by customers. Total investment in p&m is Rs. 3. 00 crores. The factory should be registered as a small enterprise under the category of Manufacturer The factory should also be registered as a medium enterprise under the category of Service Provider – Repairs & Maintenance is an integral part of production & after-sales service. It does not require a separate registration 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz Banta Singh is an accomplished manufacturer of pendrives. He is also an accomplished mechanic for repairs to pendrives. He has now decided to offer repairs & maintenance service in respect of all brands sold in the market – own + rivals’ for a fee. Total investment in p&m remains steady at Rs. 3. 00 crores. The factory should be registered as a small enterprise under the category of Manufacturer The factory should also be registered as a medium enterprise under the category of Service Provider – Repairs & Maintenance of all brands is a separate independent service. It requires a separate registration 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz Funny that Banta’s factory is registrable as a small manufacturer & simultaneously as medium sized service provider True, that is how the law is written If Banta Singh can separate his Repairs & Maintenance Section, he could perhaps register as a small service provider, in addition to registration as a Small Manufacturer If the investment in Repairs & Maintenance Section is between 10 lacs & 2 crores 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz How does it matter, whether Banta Singh’s factory & workshop are registered as Micro or Small or Medium Manufacturer/Service Provider Government offers incentives to Micro or Small or Medium enterprises The scale of incentives is linked to the status of the enterprise ie whether Micro or Small or Medium Manufacturer/Service Provider Claiming incentives under an erroneous category can lead to serious consequences Market Development Assistance is one such incentive 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first (a) schedule to the Industries (Development and Regulation) Act, 1951, as – a micro enterprise, where the investment in plant and machinery (i) does not exceed twenty five lakh rupees; a small enterprise, where the investment in plant and machinery is (ii) more than twenty five lakh rupees but does not exceed five crore rupees; or a medium enterprise, where the investment in plant and machinery (iii) is more than five crore rupees but does not exceed ten crore rupees; 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Micro & Small scale units can get registered with the Directorate of Industries/District Industries Centre in the State Government concerned. Such units can manufacture any item including those notified as exclusively reserved for manufacture in the small scale sector. Small scale units are also free from locational restrictions. However, a small scale unit is not permitted more than 24 per cent equity in its paid up capital from any industrial undertaking either foreign or domestic. If the equity holding from another company (including foreign equity) exceeds 24 per cent, the unit loses its small scale status. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz Why would a large house want to invest in a MSME? Because MSME has inherent adaptability towards technical change, which the large house may want to exploit Am I right in using the word “exploit”? No, the right word is “synergise”. MSME would manufacture & large house could sell A large house could themselves set up a MSME, why invest elsewhere? No, establishing & running a MSME is a skill, different from skills of large house management. Its a different DNA or separate ball game. Tata, Birla & Mahindra can never imagine establishing a MSME 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz Then why would a large house want to invest in a MSME? Because the large house may want to control manufacture in a MSME – perhaps trade secrets Can’t they set up a large unit? Yes, they can. But every industry must be sustainable. Scale of manufacture counts in providing sustainability. Moreover licensing laws prohibit entry of large houses into MSME sector What is sacrosanct about 24% Look at it the other way. MSME would have 76% equity. This much hold is good enough to stall any adverse moves from large house. It is also adequate to implement its initiatives. ¾ th majority is the idea Can this be called a BPO type arrangement? 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Quiz But there is no absolute bar at 24% True. The MSME would lose that status & become subject to licensing laws on crossing 24% How does that help the MSME? It provides a natural environment for MSME to grow at the right time. Upon achieving large industry status, they are regulated by government licensing laws, which is good for the economy Why is it necessary to regulate production? Given the freedom, an industrialist may be tempted to look for the most lucrative area of manufacture, without concerns about demand & supply economics. Government intends to play a useful role here by regulations. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME All Industrial Undertakings are free to select the location of a project. Industrial License is required if the proposed location is within 25 km of the Standard Urban Area limits of city unless, it is to be located in an area designated as an "industrial area" before the 25 th July, 1991. Electronics, Computer software and Printing and any other industry, which may be notified in future as "non polluting industry", are exempt from such location restriction. The location of industrial units is further regulated by the local zoning and land use regulations as also the environmental regulations, as applicable. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME IEM for Medium Enterprises to SIA. Medium enterprises will generally submit an Industrial Entrepreneurial Memorandum to the Secretariat of Industrial Approvals (SIA). But they will require an industrial license for manufacture of items reserved for small enterprises. Registration with DIC for Micro & Small Enterprises must register with District Industries Centre. Industrial License Licensing is mandatory for large industrial units engaging in the manufacture of items reserved for compulsory licensing. Medium Enterprise engaging in manufacture of any product, outside notified industrial estates will also require an industrial license 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Industrial License is Compulsory for these Sectors Large & Medium Enterprises engaging in Manufacture of items reserved for Small Enterprises 098 251 20338 Any Enterprise engaging in the Manufacture of Electronic Aerospace Equipment & Defence Equipment CS Smitesh Desai Any Enterprise related to the production or use of atomic energy including the carrying out of any process, preparatory or ancillary to such production or use lex 4 biz@yahoo. com
MSME Industrial License is Compulsory for these Sectors Coal & Lignite 098 251 20338 Petroleum (other than crude) & its Distillation Products Distillation & Brewing of Alcoholic Drinks CS Smitesh Desai Sugar Animal Fats & Oils lex 4 biz@yahoo. com
MSME Industrial License is Compulsory for these Sectors Cigars and cigarettes of tobacco and manufactured tobacco substitutes 098 251 20338 Asbestos and asbestos-based products Plywood, decorative veneers, and other woodbased products such as particle board, medium density fiber board, and blackboard CS Smitesh Desai Tanned or dressed furskins Paper and Newsprint except bagasse-based units. (i. e. except units based on minimum 75% pulp from agricultural residues, bagasse and other non conventional raw materials) lex 4 biz@yahoo. com
MSME Industrial License is Compulsory for these Sectors Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches 098 251 20338 Hazardous chemicals Drugs and Pharmaceuticals (according to Drug Policy) CS Smitesh Desai Entertainment electronics (VCR's, color TV's, Chamois Leather CD players, tape recorders) lex 4 biz@yahoo. com
MSME All industrial undertakings whether exempt or not from compulsory industrial licensing, are statutorily required to submit a monthly production return in the prescribed proforma every month, so as to reach the Industrial Statistics Unit (ISU) by the 10 th of the following month positively. This data is used by the government for publishing IIP (index of industrial production) data. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Food Pickles & Chutneys Products Bread Mustard Oil Ground Nut Oil Except solvent extracted 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Wood & Wooden Furniture 098 251 20338 Wood Products Wooden Fixtures CS Smitesh Desai lex 4 biz@yahoo. com
MSME Paper Products Exercise Books 098 251 20338 Registers CS Smitesh Desai lex 4 biz@yahoo. com
MSME Other Chemicals Wax Candles 098 251 20338 & Chemical Products Laundry Soap Safety Matches Fire Works CS Smitesh Desai Agarbatties lex 4 biz@yahoo. com
MSME Glass & Ceramics Glass Bangles 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Mechanical Engineering Excluding Transport Equipment Steel Almirah Rolling Shutters Steel Chair – all types Steel Tables – all other types Steel Furniture – all other types Padlocks 098 251 20338 Stainless Steel Utensils CS Smitesh Desai Domestic Utensils Aluminium lex 4 biz@yahoo. com
MSME A small scale unit manufacturing small scale reserved item(s), on exceeding the small scale investment ceiling in plant and machinery by virtue of natural growth, needs to obtain a Carryon-Business (COB) License. No export obligation is fixed on the capacity for which the COB license is granted. However, if the unit expands its capacity for the small scale reserved item(s) further, it needs to apply for and obtain a separate industrial/license. The application for COB License should be submitted in revised form "EE", which can be downloaded from the web site (http: //dipp. nic. in) along with a crossed demand draft of Rs. 2500/- drawn in favour of the Pay & Accounts Officer, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, payable at New Delhi. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and Environment for setting up an industrial project. A Notification (SO 60(E) dated 27. 1. 94) issued under The Environment (Protection) Act, 1986 has listed 30 projects in respect of which environmental clearance needs to be obtained from the Ministry of Environment & Forest, Government of India. This list includes industries like petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper etc. However, if investment is less than Rs. 1000 million, such clearance is not necessary, unless it is for pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating industries. Further, any item reserved for the small scale sector with investment of less than Rs. 10 million is also exempt from obtaining environmental clearance from the Central Government. Powers have been delegated to the State Governments for grant of environmental clearance for certain categories of thermal power plants. Seting up industries in certain locations considered ecologically fragile (e. g. Aravalli Range, coastal areas, Doon valley, Dahanu, etc. ) are guided by separate guidelines issued by the Ministry of Environment and Forests, Government of India. Details can be obtained at the website of Ministry of Environment and Forests (http: //envfor. nic. in). 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Land allotment from Industrial Development Authority/or shed Allotment from District Industries Center or Industrial Development Corporation. Sheds are provided by such corporations on long term lease of 99 years on commercial rental terms. The industry is allowed to create a charge over the leased land/structure with the prior permission of the corporation, for the purposes of availing funding facilities. Transfer of land & structure is also permissible subject to prior approval on payment of premium. Standard Design Factories are built within SEZ, which are available for commercial rent. Such regulated allotment of land & structures attract concessional stamp duty & registration fee. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME NOC from Pollution Control Board under the provision of Water (Prevention of Pollution) Act 1974, Air (Prevention of Pollution) Act 1981, Environment (protection) Act 1986 is necessary. However, in case of non-polluting SSI industries, which are presently exempted by Pollution Control Board from obtaining NOC, the SSI registration granted by District Industries Center itself is Sufficient and no separate application for NOC is needed. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Building Map approval from concerned Authority/Designated Authority of notified area. Development Fire Department NOC Registration with Factory Inspector in appropriate category – below/above 10/20 workers Registration with ESI & PF Board Registration with Legal Metrology Office for weights & measures 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Obtain PAN, TDS number & TCS number Registration under the local VAT Law, Entry Tax Law or Octroi Law Registration under the Central Sales Tax Act, 1956 for conduct of inter-state trade & commerce with the use of C forms, E-1/2 Forms, F Forms & Forms H Apply for TIN Registration with Excise Office via www. aces. gov. in Registration for Service Tax via www. aces. gov. in 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Letter of Intent to be filed with Ministry of Industries, Government of India, by specified industries presently notified by Government of India, as well as those, not covered under the provisions for exemptions, from Industrial Licensing. Sanction of power for Construction/Production & Administrative use. NOC from District Magistrate, for storage of Diesel for the units which store diesel for their D. G. Sets/Furnace etc & Explosive License from Central Government NOC from Drug Controller, for setting Drugs & Pharmaceuticals and Cosmetics products manufacturing units, covered under Drugs & Cosmetics Act 1940. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME NOC from Director Ayurvedic & Unani medicines, for setting up Ayurvedic/Unani medicines manufacturing units. NOC from Forest Department, for setting up wood based units. Allotment Assurance from state Excise Department for setting up Alcohol based units for ensuring the availability of Alcohol. Registration under Shop and Commercial Establishment Act for the units having employees posted in their offices, not covered under the Factories Act, 1948. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Industrial License from Ministry of Industry, Government of India. Presently, some Industries, are required to obtain industrial License from Ministry of Industry as well as those not covered under the provisions for exemptions from Industrial Licensing. Government of India. Factory License under the Factories Act 1948, in case of factories where manufacturing process is carried on with the aid of power, if the number of workers employed is ten or more, and without aid of power, if the number of workers employed is twenty or more. Clearance from Director, Electrical Safety, under Indian Electricity Rules 1956, if power connection/D. G. set is installed. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME Drug License under Drugs & Cosmetics Act 1940, for Drugs and Pharmaceuticals and Cosmetics products manufacturing units covered under Drugs & Cosmetics Act. Excise License under the State Excise Act for Distilleries & Breweries, covered under the said Act. License from Food Commissioner, for units manufacturing food items License under Milk and Milk Product order for milk based industries Registration of Boiler if used in production process under the Indian Boilers Act 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MSME in the case of the enterprises engaged in providing or rendering of (b) services, as – a micro enterprise, where the investment in equipment does not (i) exceed ten lakh rupees; a small enterprise, where the investment in equipment is more than (ii) ten lakh rupees but does not exceed two crore rupees; or (iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Business Environment Scale of Business Large Enterprise 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Large Enterprise Growth of the industrial sector at a higher rate and on a sustained basis is a major determinant of a country's overall economic development. In this regard, the Government of India has issued industrial policies, from time to time, to facilitate and foster the growth of Indian industry and maintain its productivity and competitiveness in the world market. In order to provide the Central Government with the means to implement its industrial policies, several legislations have been enacted and amended in response to the changing environment. The most important being the Industries (Development and Regulation) Act, 1951 (IDRA) which was enacted in pursuance of the Industrial Policy Resolution, 1948. The Act was formulated for the purpose of development and regulation of industries in India by the Central Government. The main objectives of the Act is to empower the Government: - (i) to take necessary steps for the development of industries; (ii) to regulate the pattern and direction of industrial development; (iii) to control the activities, performance and results of industrial undertakings in the public interest. The Act applies to the 'Scheduled Industries' listed in the First Schedule of the Act. However, small scale industrial undertakings and ancillary units are exempted from the provisions of this Act. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Large Enterprise The Act is administered by the Ministry of Industries & Commerce through its Department of Industrial Policy & Promotion (DIPP). The DIPP is responsible formulation and implementation of promotional and developmental measures for growth of the industrial sector. It monitors the industrial growth and production, in general, and selected industrial sectors, such as cement, paper and pulp, leather, tyre and rubber, light electrical industries, consumer goods, consumer durables, light machine tools, light industrial machinery, light engineering industries etc. , in particular. It is also responsible for facilitating and increasing the foreign direct investment (FDI) inflow into the country as well as for encouraging acquisition of technological capability in various sectors of the industry. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Large Enterprise The development council shall perform the following functions assigned to it by the Central Government: - (i) recommending targets for production, co-ordinating production programmes and reviewing progress from time to time. (ii) suggesting norms of efficiency with a view to eliminating waste, obtaining maximum production, improving quality and reducing costs. (iii) recommending measures for securing the fuller utilisation of the installed capacity and for improving the working of the industry, particularly of the less efficient units. (iv) promoting arrangements for better marketing and helping in the devising of a system of distribution and sale of the produce of the industry which would be satisfactory to the consumer. (v) promoting the training of persons engaged or proposing engagement in the industry and their education in technical or artistic subjects relevant thereto, etc. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Large Enterprise The IDRA empowers the Central Government to regulate the development of industries by means of licensing with suitable exemptions as decided by the Government. Accordingly, the entry into a business or the expansion of an existing business may be regulated by licensing. A licence is a written permission from the Government to an industrial undertaking to manufacture specified articles included in the Schedule to the Act. It contains particulars of the industrial undertaking, its location, the articles to be manufactured, its capacity on the basis of the maximum utilisation of plant and machinery, and other appropriate conditions which are enforceable under the Act. If an application for licence is approved and further clearance (such as that of foreign collaboration and capital goods import) are not involved and no other prior conditions have to be fulfilled, an industrial licence is issued to the applicant. In other cases, a letter of intent is issued, which conveys the intention of the Government to grant a licence subject to the fulfilment of certain conditions such as approval of foreign investment proposal, import of capital goods, etc. The Government may order for investigation before the grant of licence to an industrial undertaking. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Large Enterprise It can make a full and complete investigation if it is of the opinion that in the respect of any schedule industry or undertaking, there has been or is likely to be: - (i) a substantial fall in the volume of output; or (ii) a marked deterioration in the quality of output or an unjustifiable rise in the price of the output. Also, if it is of the opinion that any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to the public interest, it orders investigation. As a result of such investigations, the Government is empowered to issue directions to the industrial undertaking for all or any of the following purposes: 1 Regulating the production of output by the industrial undertaking and fixing the standards of production; 2 Requiring the industrial undertaking to take such steps as the Central Government may consider necessary to stimulate the development of the industry to which the undertaking relate. 3 Prohibiting the industrial undertaking from resorting to any act or practice which might reduce its production, capacity or economic value; 4 Controlling the prices, or regulating the distribution, of an output for securing its equitable distribution and availability at fair prices. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Large Enterprise The power of control entrusted to the Central Government under the Act extends to that of the take over of the management of the whole or any part of an industrial undertaking which fails to comply with any of the directions mentioned above. The Government can also take over the management of an undertaking which is being managed in a manner highly detrimental to the scheduled industry concerned or to the public interest. Further, the Central government can take over the management of industrial undertaking owned by a company under liquidation, with the permission of the High Court, if the Government is of the opinion that the running or restarting the operations of such an undertaking is necessary for the maintaining or increasing the production, supply or distribution in the public interest. Until liberalisation, the industrial licence was required for the establishment of a new industrial undertaking, manufacturing of a new item by an existing undertaking, change of location of an industry, substantial expansion of existing capacity and for all other purposes. But the new industrial policy has liberalised this and exempted many industries from obtaining industrial licence. In today's scenario, only 6 categories of industries require industrial licensing under the Industries (Development and Regulation) Act, 1951 (IDRA). Other industries must file an Industrial Entrepreneur Memoranda (IEM) with the Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion to obtain an acknowledgement. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Large Enterprise The power of control entrusted to the Central Government under the Act extends to that of the take over of the management of the whole or any part of an industrial undertaking which fails to comply with any of the directions mentioned above. The Government can also take over the management of an undertaking which is being managed in a manner highly detrimental to the scheduled industry concerned or to the public interest. Further, the Central government can take over the management of industrial undertaking owned by a company under liquidation, with the permission of the High Court, if the Government is of the opinion that the running or restarting the operations of such an undertaking is necessary for the maintaining or increasing the production, supply or distribution in the public interest. Until liberalisation, the industrial licence was required for the establishment of a new industrial undertaking, manufacturing of a new item by an existing undertaking, change of location of an industry, substantial expansion of existing capacity and for all other purposes. But the new industrial policy has liberalised this and exempted many industries from obtaining industrial licence. In today's scenario, only 6 categories of industries require industrial licensing under the Industries (Development and Regulation) Act, 1951 (IDRA). Other industries must file an Industrial Entrepreneur Memoranda (IEM) with the Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion to obtain an acknowledgement. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Business Environment Scale of Business MNC 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC As the name suggests, any company is referred to as a multinational company or corporation (MNC) when that company manages its operation or production or service delivery from more than a single country. A company is as international company when its manufacturing operations are performed in one country & its products are sold in many countries. As defined by ILO, MNC is a company, which has its operational headquarters based in one country with several other operating branches in different countries. The country where the head quarter is located is called the home country whereas, the other countries with operational branches are called the host countries. Apart from playing an important role in globalization and international relations, these multinational companies even have notable influence in a country's economy as well as the world economy. The budget of some of the MNCs are sometimes even higher than the GDP (Gross Domestic Product) of developing nations. Economic data suggests that liberalization in 1991 has brought into India, multitude of foreign companies and the share of US is the highest. They account for about 37% of the turnover from top 20 companies that function in India. MNC is not defined by value of investment in plant & machinery like MSMEs & large enterprise, but by operational spread in many jurisdictions. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC Why are Multinational Companies attracted to India? There a number of reasons why the multinational companies are coming down to India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting multinational companies. For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result, there was lesser number of companies that showed interest in investing in Indian market. However, the scenario changed during the financial liberalization of the country, especially after 1991. Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indian market. Apart from the regulatory aspect, India also presents MNCs with a huge qualified work-force, at competitive wages. Politically speaking, democracy in India, is a conducive environment to business growth, as opposed to communism or dictatorship. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC Profit of MNCs in India Companies come and settle in India to earn profit. A company enlarges its area of work beyond its native place when they view a wide scope to earn a profit. That is true of MNCs that have flourished here. Host country government generally scoff at profit making motive or dividend declaration by MNCs. But this will remain unchanged for long time to come. And profits are derived from: Huge market potential of the country FDI attractiveness Labour competitiveness Macro-economic stability Political stability. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC Advantages of the growing MNCs to India There are certain advantages that developing countries like India derive from the foreign MNCs: 1 Initiating a higher level of investment. 2 Reducing the technological gap 3 The natural resources are utilized in true sense. 4 The foreign exchange reserves improve 5 Boosts the basic economic structure. Disadvantages of MNCs Roses does not come without thrones. Disadvantages of having an MNCs in a developing country like India are as under: A Competition to MSME B Pollution and Environmental hazards C Some MNCs come only for tax benefits D Exploitation of natural resources E Lack of employment opportunities F Diffusion of profits and Forex Imbalance G Working environment and conditions H Slows down decision making I Economical distress 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC Mc Donald’s, the world’s largest seller of beef products has managed to grow successfully in India, a country where the cow is sacred. Yet successful MNCs like Nokia have gotten it wrong. Most companies that enter India have a few good years and then they counter a wall. That is because they are all serving the affluent which is just the top 5%, so after five or six years, the growth is stalled and it becomes highly competitive as everyone is fighting for that small pyramid on top. To win in countries like India and China, companies have to do things very differently from what they do in other parts of the world & company managements hate doing things differently for a particular geography and they hate change. The list of transnational giants, however, is getting crowded with a multitude of companies from emerging economies, including India, which are rapidly increasing their international footprint through aggressive overseas acquisitions. In the last four to five years, most Indian companies had followed a strategy of aggressive international mergers and acquisition to expand their global footprint. But business groups like Tata and Birla seem to have more advantage when it comes to becoming global, perhaps because of resources. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC To cut costs and contain attrition, Indian MNCs are moving into tier-2 cities. While 96 per cent of MNC have locate their R&D in cities like Bangalore. Increasingly many are moving to tier-2 cities such as Ahmedabad, Jaipur, Chandigarh, Coimbatore, Vadodara, Nagpur, Pune and Thiruvananthapuram. R&D talent pool is growing at the rate of 9 per cent every year and is expected to reach 2. 5 lakh by 2015. MNCs started expanding to tier-2 cities due to advantages like higher catchment area, lower attrition, cost arbitrage, etc. Typically, tier-2 cities were a preferred destination for IT and BPO companies which were grappling with commercial real estate and attrition costs. This trend is seen now with multinationals such as Dell, Nokia, Amazon and others who are looking at tier-2 cities that would be in addition to their existing centres in major cities. Cost of living in tier-2 cities is 10 -25 per cent lower compared to tier-1 cities and provide cost advantage of 15 -40 per cent in commercial real estate costs. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC The East India Company was the first major shareholder-owned multinational company (MNC). It found India rich and left it poor. When the company was established in 1600, in the reign of Queen Elizabeth I, and for 150 years thereafter, there were no products England could export that the East wanted to buy. Spices, textiles and luxury goods sailed west. Only money sailed east. It was the ability to acquire land control government services that raised the fortunes of the Company -- and broke India. As the mighty and opulent Mughal Empire declined, the Company acquired land beyond its vulnerable trading ports, extorted taxes, manipulated terms of trade in its favour, and built up a private army. In 1757 Robert Clive fought and defeated the Nawab of Bengal. Later, Lord Cornwallis defeated Tipu Sultan in the south. In both cases, and in many lesser incidents, the Company's executive officers extorted huge ransoms and accumulated unimaginable wealth. At a stroke the zamindars, under the Mughals, were transformed into landlords, and Bengal's 20 million smallholders were deprived of all hereditary rights. Just five years after the Company secured control of Bengal in 1765, revenues from the land tax had tripled, beggaring the people. The devastating effects last to this day. These conditions turned one of Bengal's periodic droughts, in 1769, into a full-blown famine. An estimated 10 million people, one third of the population of Bengal, died. But, rather than organise relief efforts to meet the needs of the starving, the Company actually increased tax collection during the famine. Granaries were locked, and grain was seized by force from the peasants and sold at inflated prices in the cities. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC The Company became feared for the brutal enforcements of its monopoly interests. For example, it was infamous for cutting off the thumbs of weavers found selling cloth to other traders, to prevent them ever working again. In rural areas two-thirds of a peasant's income was taken in tax, nearly double that under the Mughals. Consumption of salt was forced well below the minimum prescribed in English jails: the effect was to treat the people of India as sub-human, a class below the criminal. This disgraceful control of an essential commodity was only withdrawn after Gandhi's famous Salt March in 1930. The Company's performance, through pursuing profit for its shareholders and its chiefs, contrasted starkly with its claim, in the mid-19 th century, that it ruled for the moral and material betterment of India. In Britain, so powerful was the Company's grip on politics, that attempts to control its affairs could bring down a government. An attempt, led by Edmund Burke, to place the Company's Indian possessions under Parliamentary rule led to the dismissal of the government. The general election that followed was so generously funded by the Company that it secured a compliant Parliament in which a tenth of the seats were held by `nabobs'. A Nabob is an Anglo-Indian term for an East India Company servant who had become wealthy through corrupt trade and other practices. Booty from India created this new class of `nabobs', the chief executive officers (CEOs) of Georgian England. The nabobs themselves had no conscience about their wealth. Robert Clive, having extorted a fortune after the battle of Plassey, defended himself at a House of Commons enquiry into suspected corruption, saying that he was "astounded" at his own moderation at not taking more. Only a few dissenting voices, like the Quaker, William Tuke, pointed to the humanitarian disaster that the Company had wrought in India. But the case for reform was overwhelming and in 1784 the India Act transferred executive management to a Board of Control, answerable to Parliament -- a kind of public-private partnership. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
MNC Although there were expressions of intent that the Company should promote a mission to make Indians "useful and happy subjects, " the underlying ethics of the public-private partnership remained the same. By the 1850 s, just 15, 000 pounds sterling was being spent on non-English schools compared with a military budget of 5 million pounds sterling. Railways were built to accelerate access of British goods to Indian markets. Mill-made cloth brought from Britain shattered the local village economies, which were based on the integration of agriculture and spinning. The great textile cities of Bengal collapsed. Indians were worn down by the hegemony of the British presence, by the unfair trading rules, the crippling taxes, the draining of India's wealth, and the contempt in which they were held. Retaliation was inevitable. The final insult to Indian sentiments came when sepoys were forced to use a rifle cartridge greased with cow and/or pig fat -- an outrage to both Hindus and Muslims. Catastrophe struck in 1857. Mutiny. The massacre of Europeans generated a ferocious bloodlust in English society. Reprisals were brutal. Long- standing plans for increased dominance in all spectrums of Indian life and economy had now received their 'justification'. In 1858, the East India Company was abolished and direct rule by queen and Parliament was introduced. 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
Business Environment 098 251 20338 CS Smitesh Desai lex 4 biz@yahoo. com
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