The Third World MNCs

The Third World MNCs

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 in Adelaide.

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: everest@mos.com.np)