Page 99 - Understanding Economics for Class 10

InterLInKInG ProductIon Across countrIes
 While setting up factories and offices for production in a country, MNCs look for certain
conditions:
 Place is close to the markets;
Goyal Brothers Prakashan
 Availability of skilled and unskilled labour at low costs;
 Availability of other factors of production is also assured.
 MNCs might look for government policies that look after their interests.
After assuring these conditions, MNCs set up their production units.
 To buy assets such as land, building, machines and other equipment, money is spent and
is called as Investment. Investment made by MNCs is called foreign investment. It is
done in the hope that these assets will help in earning profits in future.
 Sometimes, Production by MNCs is also done jointly with the local companies of these
countries. Local companies also get benefitted by working jointly with MNCs. The benefit
to the local company is two-fold. SECOND, MNCS MIGHT BrING WITH THEM THE WE WILL SHIFT
THIS FACTOry TO
 First, for faster production, LATEST TECHNOLOGy FOr PrODUCTION. ANOTHEr COUNTry.
IT HAS BECOME
additional investment is required ExPENSIvE HErE!
like for buying new machines.
The additional investment is
provided by MNCs.
 Second, MNCs bring latest
technology for production.

 MNCs make investment by buying up (Courtesy: NCERT)
local companies and then expand production. This is the most common route of making
investments by MNCs. It is easy for huge companies to do so.
 Example:
 A very large American MNC, Cargill Foods, has bought over smaller Indian companies
such as Parakh Foods. A large marketing network is built by Parakh Foods in various
parts of India, where its brand was well-reputed.
 Also, Parakh Foods had four oil refineries, whose control has now shifted to Cargill.
Cargill is now the largest producer of edible oil in India, with a capacity to make 5
million pouches daily.
 In fact, wealth of many of the top MNCs exceeds the entire budgets of the developing
country governments. Such enormous wealth with MNCs shows the power and influence
of these MNCs!
 Production is controlled by MNCs in one more way. Orders for production are placed
by large MNCs in developed countries to small producers. Example: Garments, footwear,
sports items etc. Production of these items is carried out by a large number of small
producers around the world.
 After producing these items, they are supplied to MNCs who sell these items under their
own brand names to the customers.
 For these distant producers, price, quality, delivery, and labour conditions are determined
by MNCs. They have the tremendous power in doing so.
 Hence, many ways are there through which MNCs are expanding their production and
engage with local producers in different countries worldwide.

Economics Class X E-85