||The Third World MNCs
By Rakesh Wadhwa
The Boss,May 15 - June 14, 2005
||In 1979, I took up my first job as a trainee at the Oberoi
head office in Delhi. Oberoi’s had just ventured to Australia with a hotel
India’s foreign exchange regulations Act (FERA) did not allow them to either
invest overseas, or, to use their Indian properties as a guarantee to secure
funds abroad. As a result the Oberoi’s had to find a foreign partner who
would make the requisite investment. They did, eventually, find a Saudi
company which provided the funds.
Thus, for Indian companies to expand their operations abroad was a
cumbersome and uncertain process. I also remember the stringent rules of
FERA which the Oberoi’s had to comply with, and, the tons of documents which
were required by the Reserve Bank of India and other government authorities.
This process all but made Indian MNCs impossible. Nepal too followed India’s
lead and made it a crime for its nationals and companies to invest abroad
legally. It is for this reason that there are no Nepalese MNCs, while
Finland – a much smaller country – has Nokia, dominating the world markets
with its cellphones.
On the one hand we are fed the myth that MNCs are greedy, rapacious, and
their only interest is to repatriate profits to their parent company, on the
other hand we prohibit our own companies from becoming MNCs. Would it not
make sense for our companies to be allowed to go abroad and send their
profits home, if MNCs are so good for the mother country?
The truth is that governments seek controls for controls sake. They restrict
MNCs of other countries and they restrict their own companies from becoming
MNCs. They regulate so that businessmen have to seek permissions, licenses,
and approvals. They get them at a great cost to themselves, and, only after
bestowing favours on those who hold the power given by law.
It would be ideal for the word economy to allow capital, investments, and
currencies to move freely. Investments would then go where required.
Companies which become great at satisfying their customers would, as they
should, become big.
Efficiency would increase all around to the benefit of consumers worldwide.
If a Nepali company was the best in producing noodles, then it would be that
company which would and should have operations in every country. Consumers
everywhere would gain.
MNCs have no inherent desire to take money to their country of origin. They
only want to maximize the return on their investment. For this they will
take their money to where they think the opportunity and returns are the
highest. It would be in Nepal’s interest to become that country.
If Nepal creates a business friendly environment, MNCs will come for their
own benefit and will, in the process of doing well for themselves, benefit
Nepal too. This would be a win-win situation which is the hallmark of
voluntary cooperation obtained under free market conditions.
What about third-world MNCs? As governments liberalize, we are increasingly
seeing companies from India, China, Malaysia, Brazil and South Africa
investing abroad. This trend has accelerated since the dawn of this century.
Indian companies, though still fettered with needless controls, are now
allowed to invest abroad. India’s Tata tea, purchased Tetley, Britain’s
premier tea company. Oberoi’s now have hotels in dozens of countries. Indian
software giants are constantly making acquisitions abroad.
Nepal too has seen a number of Indian companies investing here. Dabur, ITC,
and Hindustan Lever are perhaps the most notable.
According to World Bank estimates, the reach of the developing world MNCs is
spreading. In 2002 they had invested US$ 16 billion abroad, by last year the
figure had gone upto US$ 40 billion.
This shows that third world MNCs can effectively compete with the first
world companies. In fact, the companies from poorer nations often do better.
What they lack in financial muscle they make up by their ingenuity,
resourcefulness, and in their ability to keep overheads low. An example is
Uganda’s market for cellular phones, in which the British giant, Vodafone,
had a monopoly. As soon as South Africa’s much smaller MTN was allowed
entry, it built its operations to a size which is 20 times larger than that
of Vodafone’s Ugandan operations.
Nepalese companies too can compete in the world if allowed to do so.
(The writer an economist and a proponent of free markets contributes to
leading international dailies. Contact e-mail: firstname.lastname@example.org)
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