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Managing MNCs
The debate on multinationals in the country has unfortunately been conducted so far at an ideological and emotional level. The stance taken has been simply pro- or anti-MNC, with either text-book economic reasons justifying "Anglo-Saxon capitalism" or political reasons proposing a ban on MNC activities. What we need, however, is a pragmatic way of looking at the activities of multinationals, without ideological blinkers. While the defensive view only sees local firms losing out to foreign companies or being dominated by them, the liberals go ga-ga over multinationals. A more rational view would be to bargain with foreign companies in order to extract concessions. A blanket anti-MNC view shuts the door on several ways in which foreign investment may benefit the country, technology being the most obvious. There are also many ways in which domestic capital can co-operate with international capital, through JVs, strategic alliances, franchises and licensing arrangements and anti-MNC rhetoric will not help ourcorporates.Multinationals should instead be seen as potential instruments to be manipulated in the national interest, not merely as threats to nationalist goals. Governments must bargain with multinationals in order to negotiate the best possible terms. These could cover a host of issues, such as ensuring local content to upgrading technology to making the MNC plant in India a base for supplying to the rest of the region. Such policies have proved to be immensely beneficial to many countries, including India. To take just one example, in Mexico, the progressive imposition of domestic content rules and export requirements on GM, Ford, Volkswagen, Nissan and Chrysler were estimated to have created 1,00,000 jobs and exports of $5 billion per year. Playing off MNCs against each other is another strategy which governments can adopt. True, there is keen competition from other countries for FDI, but the attractions of our vast market should not be underestimated. Yet another factor to be kept in mind is that therelationship between the government and the MNC changes over time, with the MNC gradually losing bargaining power. Once capital has been invested in fixed assets, the MNC is at a disadvantage. Over time, as risk is reduced, governments can renegotiate contracts on more favourable terms, and the time between successive renegotiations can also be shortened. If the east Asian and Chinese experience is anything to go by, the lesson is that a strategy of managing MNCs will work if it is combined with a number of other measures, such as ensuring domestic competition, making firms competitive in export markets, skill creation, upgrading infrastructure and time-bound clearances by the government.
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