- A MNC is a company that owns or controls production in more than one nation.
- MNC is not only selling its finished products globally, but more important, the goods and services are produced globally.
- As a result, production is organized in increasingly complex ways. MNCs set up factories and offices for production.
- The money that is spent to buy assets such as land, building, machines and other equipment is called investment.
- Investment made by MNCs is called foreign investment.
- Foreign trade thus results in connecting the markets or integration of markets in different countries.
- The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.
- Globalization is this process of rapid integration or interconnection between countries.
- MNCs are playing a major role in the globalisation process. More and more goods and services, investments and technology are moving between countries.
- Tax on imports is an example of trade barrier. It is called a barrier because some restriction has been set up.
- Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country.
- Removing barriers or restrictions set by the government is what is known as liberalisation.
- With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export.
- The government imposes much less restrictions than before and is therefore said to be more liberal.
- World Trade Organisation (WTO) is one such organisation whose aim is to liberalize international trade.
- Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed.
- Steps to Attract Foreign Investment In recent years, the central and state governments in India are taking special steps to attract foreign companies to invest in India. Industrial zones, called Special Economic Zones (SEZs), are being set up.
- SEZs are to have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.
- Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.