Advantages of MNCs

• Access to Consumers – Access to consumers is one of the primary advantages that the MNCs enjoy over companies with operations limited to smaller region. Increasing accessibility to wider geographical regions allows the MNCs to have a larger pool of potential customers and help them in expanding, growing at a faster pace as compared to others.
• Accesses to Labor – MNCs enjoy access to cheap labor, which is a great advantage over other companies. A firm having operations spread across different geographical areas can have its production unit set up in countries with cheap labor. Some of the countries where cheap labor is available is China, India, Pakistan etc.
• Taxes and Other Costs – Taxes are one of the areas where every MNC can take advantage. Many countries offer reduced taxes on exports and imports in order to increase their foreign exposure and international trade. Also countries impose lower excise and custom duty which results in high profit margin for MNCs. Thus taxes are one of the area of making money but it again depends on the country of operation.
• Overall Development – The investment level, employment level, and income level of the country increases due to the operation of MNC’s. Level of industrial and economic development increases due to the growth of MNCs.
• Technology – The industry gets latest technology from foreign countries through MNCs which help them improve on their technological parameter.
•  R&D – MNCs help in improving the R&D for the economy.
• Exports & Imports – MNC operations also help in improving the Balance of payment. This can be achieved by the increase in exports and decrease in the imports.
• MNCs help in breaking protectionalism and also helps in curbing local monopolies, if at all it exists in the country.

Disadvantages of MNCs for the Host Country

• Laws – One of the major disadvantage is the strict and stringent laws applicable in the country. MNCs are subject to more laws and regulations than other companies. It is seen that certain countries do not allow companies to run its operations as it has been doing in other countries, which result in a conflict within the country and results in problems in the organization.
• Intellectual Property – Multinational companies also face issues pertaining to the intellectual property that is not always applicable in case of purely domestic firms
• Political Risks – As the operations of the MNCs is wide spread across national boundaries of several countries they may result in a threat to the economic and political sovereignty of host countries.
• Loss to Local Businesses – MNCs products sometimes lead to the killing of the domestic company operations. The MNCs establishes their monopoly in the country where they operate thus killing the local businesses which exists in the country.
• Loss of Natural Resources – MNCs use natural resources of the home country in order to make huge profit which results in the depletion of the resources thus causing a loss of natural resources for the economy
• Money flows – As MNCs operate in different countries a large sum of money flows to foreign countries as payment towards profit which results in less efficiency for the host country where the MNCs operations are based.
• Transfer of capital takes place from the home country to the foreign ground which is unfavorable for the economy.

• The fund provided by the owners in to a business is known as capital. You know that capital of the business depends upon the form of business organization.
• From ownership point of view, there are number of business organizations like, sole proprietorship business, partnership business, cooperative societies, joint stock companies etc.
• Total capital of the company is divided into a number of small units of fixed amount and each such unit is called a share.
• The fixed value of a share register with the registrar of Companies is called face/ nominal value. However, a company can issue shares at a price different from its nominal value or face value.
• As the total capital of the company is divided into shares, the capital of the company is known as share capital.
• A company can issue two types shares equity shares and preference shares. The issue of preference shares is one of the important sources of capital of a company.
• Redemption is the process of repaying an obligation at predetermined amounts and timings.
• The redeemable preference shares are issued on the terms that share holders will at a future date be repaid amount which they invested in the company.
• According to the Companies Act, 1956, a company can issue only redeemable shares i.e. at present a company cannot issue irredeemable preference shares.

Diversification occurs when a business develops a new product or expands into a new market. Often, businesses diversify to manage risk by minimizing potential harm to the business during economic downturns. The basic idea is to expand into a business activity that doesn't negatively react to the same economic downturns as your current business activity. If one of your business enterprises is taking a hit in the market, one of your other business enterprises will help offset the losses and keep the company viable. A business may also use diversification as a growth strategy.

Below are the reasons given for non popularity of departmental stores in Inida:

1. High cost:

One of the major disadvantages of such stores is that the cost of doing business is very high. Due to excessive departmentalisation and additional facilities offered, cost of such business remains high. In order to cover such costs, goods are generally sold at a high price. As a result, only rich customers who care for quality and services take the advantages of departmental stores.

2. Local inconvenience:

Since departmental stores are situated at central shopping areas, people living at distant places can not avail the services of such stores. For buying daily use goods and frequently purchased items, such stores are of little use since the customer cannot go to a long distance to purchase daily use items. Rather, customers prefer purchases from nearby shops.

3. Higher rent for premises:

As departmental stores are located at central shopping areas, the rents of such premises are usually very high. This also adds to the overhead expenses.

4. Lack of personal touch in selling:

In departmental stores, there is always absence of personal touch in selling because of hired salesmen, managers and supervisors. These hired personnel with different likings and temperaments cannot provide personal attention to the customers. On the other hand, a small retailer can pay personal attention to the needs of the customers.

5. Lack of proper supervision:

There is always a lack of proper supervision in the departmental store operations because of the expenses of the business. Management has to depend upon managers and supervisors who may lack interest in the business.

6. Large capital:

Departmental store requires large amount of capital for establishment and operation. In fact, a departmental store cannot be started with small capital.

7. Higher risk of loss:

Risk of loss is always higher in departmental stores. Due to undersale, some departments may face loss. Sometimes the departmental store has to sell the old stock at reduced prices to replace the old goods. This clearance sale may also lead to heavy loss.

8. Limited scope in India:

Departmental stores have not been popular in India. It cannot be opened in remote villages or small towns. They require huge capital and high managerial talents, which is lacking in India.

Lease financing is one of the important sources of medium- and long-term financing where the owner of an asset gives another person, the right to use that asset against periodical payments. The owner of the asset is known as lessor and the user is called lessee.

The periodical payment made by the lessee to the lessor is known as lease rental. Under lease financing, lessee is given the right to use the asset but the ownership lies with the lessor and at the end of the lease contract, the asset is returned to the lessor or an option is given to the lessee either to purchase the asset or to renew the lease agreement.

PURPOSE OF LEASING?

The purpose of choosing a lease can be many. Generally, a lease is structured for following reasons.

• Benefits of Taxes: Tax benefit is availed to both the parties, i.e. Lessor and Lessee. Lessor, being the owner of the asset, can claim depreciation as an expense in his books and therefore get the tax benefit. On the other hand, the lessee can claim the MLPs i.e. lease rentals as an expense and achieve tax benefit in a similar way.
• Avoid Ownership and thereby Avoiding Risks of Ownership: Ownership is avoided to avoid the investment of money into the asset. It indirectly keeps the leverage low and hence opportunities of borrowing money remain open for the business. A Lease is an off-balance sheet item.

ADVANTAGES OF LEASING

• BALANCED CASH OUTFLOW-The biggest advantage of leasing is that cash outflow or payments related to leasing are spread out over several years, hence saving the burden of one-time significant cash payment. This helps a business to maintain a steady cash-flow profile.

• QUALITY ASSETS-While leasing an asset, the ownership of the asset still lies with the lessor whereas the lessee just pays the rental expense. Given this agreement, it becomes plausible for a business to invest in good quality assets which might look unaffordable or expensive otherwise.

• BETTER USAGE OF CAPITAL-Given that a company chooses to lease over investing in an asset by purchasing, it releases capital for the business to fund its other capital needs or to save money for a better capital investment decision.

• TAX BENEFIT-Leasing expense or lease payments are considered as operating expenses, and hence, of interest, are tax deductible.

• OFF-BALANCE SHEET DEBT-Although lease expenses get the same treatment as that of interest expense, the lease itself is treated differently from debt. Leasing is classified as an off-balance sheet debt and doesn’t appear on company’s balance sheet.

• BETTER PLANNING-Lease expenses usually remain constant for over the asset’s life or lease tenor, or grow in line with inflation. This helps in planning expense or cash outflow when undertaking a budgeting exercise.

• LOW CAPITAL EXPENDITURE-Leasing is an ideal option for a newly set-up business given that it means lower initial cost and lower CapEx requirements.

• NO RISK OF OBSOLESCENCE-For businesses operating in the sector, where there is a high risk of technology becoming obsolete, leasing yields great returns and saves the business from the risk of investing in a technology that might soon become out-dated. For example, it is ideal for the technology business.

• TERMINATION RIGHTS-At the end of the leasing period, the lessee holds the right to buy the property and terminate the leasing contract, this providing flexibility to business.

DISADVANTAGES OF LEASING

• LEASE EXPENSES-Lease payments are treated as expenses rather than as equity payments towards an asset.

• LIMITED FINANCIAL BENEFITS-If paying lease payments towards a land, the business cannot benefit from any appreciation in the value of the land. The long-term lease agreement also remains a burden on the business as the agreement is locked and the expenses for several years are fixed. In a case when the use of asset does not serve the requirement after some years, lease payments become a burden.

• REDUCED RETURN FOR EQUITY HOLDERS-Given that lease expenses reduce the net income without any appreciation in value, it means limited returns or reduced returns for an equity shareholder. In such case, the objective of wealth maximization for shareholders is not achieved.

• DEBT-Although lease doesn’t appear on the balance sheet of a company, investors still consider long-term lease as debt and adjust their valuation of a business to include leases.

• LIMITED ACCESS OF OTHER LOANS-Given that investors treat long-term leases as debt, it might become difficult for a business to tap capital markets and raise further loans or other forms of debt from the market.

• PROCESSING AND DOCUMENTATION-Overall, to enter into a lease agreement is a complex process and requires thorough documentation and proper examination of an asset being leased.

• NO OWNERSHIP-At the end of the leasing period, the lessee doesn’t end up becoming the owner of the asset though quite a good sum of payment is being done over the years towards the asset.

• MAINTENANCE OF THE ASSET-The lessee remains responsible for the maintenance and proper operation of the asset being leased.

• LIMITED TAX BENEFIT-For a new start-up, the tax expense is likely to be minimal. In these circumstances, there is no added tax advantage that can be derived from leasing expenses.