Page 121 - Understanding Economics for Class 10

2. MNC is not only selling its finished products globally, but more important, the goods and
services are produced globally. As a result, production is organised in increasingly complex
ways. The production process is divided into small parts and spread out across the globe.
China provides the advantage of being a cheap manufacturing location. Mexico and Eastern
Goyal Brothers Prakashan
Europe are useful for their closeness to the markets in the US and Europe.
India has highly skilled engineers who can understand the technical aspects of production.
It also has educated English speaking youth who can provide customer care services. And
all this probably can mean 50-60 per cent cost-savings for the MNC! The advantage of
spreading out production across the borders to the multinationals can be truly immense.

(i) Why do MNCs prefer India as their destination for setting up business?
Ans. MNCs prefer India as their destination for setting up business because of the following
reasons:
(i) India provides cheap labour as compared to other countries like U.S.A.
(ii) Though Hindi is the national language of India, but English is also spoken fluently
in India which is beneficial in providing customer care services.
(iii) India also provides highly skilled engineers who can understand the technical
aspects of production.
These factors reduce the cost for MNCs and helps in earning more profit.
(ii) These days MNCs set up in other countries like USA, UK are hiring educated youth
who speaks English well. Do you think it leads to “Brain Drain”
Ans. yes, educated Indians are moving to other countries. They are attracted by high pay
packages, better standard of living and modern lifestyle. It leads to brain drain because
they are not using their knowledge and skills for the development of their own country.
They are providing their expertise to other countries and helping them to develop.

IV. Very short Answer type Questions
1. What is Globalisation?
Ans. The process of rapid integration or interconnection between countries through movement of
goods and services, investments and technology between countries is called as globalisation.
2. Why MNCs set up their factories in other countries?
Ans. MNCs set up their factories in other countries to reduce the cost (labour is cheap in some
countries) and increase the profits.

3. What is the most common route for MNC investments?
Ans. The most common route for MNC investments is to buy up local companies and then to
expand production.

4. Why did the Indian Government remove barriers to a large extent on foreign trade and
foreign investment?
Ans. The Indian Government removed barriers so that goods could be imported and exported
easily and also foreign companies could set up factories and offices here.

5. What are trade barriers?
Ans. Trade barriers are restrictions imposed by the governments of a country to check free
international exchange of goods and services.

Economics Class X E-107