Lahore College For Women

University

Working Of Multi National

Companies In Pakistan

Roll no:2577
Hira Arshad
 Lahore College for Women University,
Lahore.
Department of Pol.Sci/IR/Pak.Studies
PAPER:
“Good Governance”
TOPIC:
“working of multi national companies in
pakistan”
PRESENTED TO:

Mrs Sadia Falki

PREPARED BY:
Hira Arshad
Roll# 2577

MS Pol.Science
Semester I

2
 Session 2010-2012

Acknowledgement

This term paper is assigned to us by Mrs Sadia Falki. I am highly obliged and owe
special thanks and unaccountable gratitude to Mam sadia whose encouragement,
guidance and advice made me to complete this paper. Her instructions through out
the work were valuable .This acknowledgement is due to Lahore College for
Women University for providing us environment conducive enough to conduct our
studies. Moreover I am very much Thankful to my Parents who prayed for us and
give us support.

Hira Arshad

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 Objective of research study

The objective of this research study is that

 What is the importance of multi national companies in this globalised
world?
 What are the positive impacts of multi national companies on a less
developing county like Pakistan?
 What are the negative impacts of multi national companies on a less
developing county like Pakistan?

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 CONTENTS

 Introduction
 Significance Of Mncs In World Affairs
 Influence In Nations' Political Affairs
 Multi National Companies And International Politics
 Multi National Companies In Pakistan
 List Of Multinational Corporations Working In Pakistan
 The Benefits Of Multinationals
 Availability Of Quality Goods And Services In The Host Country
 Skills, Production Techniques And Improvements In The Quality Of
Human
Capital
 Tax Revenues
 Improvements In Infrastructure
 Employment Effects
 Balance Of Payment
 Competition And Economic Growth
 Learning Of Skills
 Foreign Policy
 The Costs Of Multinationals
 De-Merit Goods:
 Repatriation Of Profits:

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  National Sovereignty:
 The Source Of Domination:
 Infant Industries:
 Knowledge And Skills Transfer:
 Cultural Effects:
 Dumping
 Findings:
 Conclusion

6
G
lobalization has accelerated in recent years, a development that has
significant implications for the regulation and governance of international
business, trade and investment. International business implies no
fundamental shift in the underlying principles of trading or business functions but simply
more cross-border transactions. In simpler terms it includes all commercial transactions
– private and governmental – between two or more countries. Private companies
undertake such transaction for profit; governments may or may not do the same in their
transactions.

The world has seen a tremendous increase in the global transactions and foreign
trade in recent years. The main reason behind this is that now more and more countries
are getting engaged in trading with each other in order to increase their profit or sales or
protecting them from being eroded by competition. The main objectives which are
influencing the companies to engage in international business are expansion of
sales,acquiring resources, minimizing competitive risk and diversification of sources of
sales and supplies. Besides these there are other few factors like economic factors,
cultural factors, technological factors, and social factors which have influence to a
greater extent.

INTRODUCTION

Multinational Corporation (MNC) is a corporation or an enterprise that

manages production or delivers services in more than one country. It can also be
referred to as an international corporation. The International Labour Organization
(ILO) has defined an MNC as a corporation that has its management headquarters in
one country, known as the home country, and operates in several other countries,
known as host countries.

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 The Dutch East India Company was the first multinational corporation in the
world and the first company to issue stock. It was also arguably the world's first mega
corporation, possessing quasi-governmental powers, including the ability to wage war,
negotiate treaties, coin money, and establish colonies.

The first modern multinational corporation is generally thought to be the East

India Company. Many corporations have offices, branches or manufacturing plants in
different countries from where their original and main headquarters is located.

Some multinational corporations are very big, with budgets that exceed some
nations' GDPs. Multinational corporations can have a powerful influence in local
economies, and even the world economy, and play an important role in international
relations and globalization.1

They have the capacity to shape global trade, production, and financial
transactions. Multinational corporations are viewed by many as favoring their home
operations when making difficult economic decisions, but this tendency is declining as
companies are forced to respond to increasing global competition. Multinational
corporations are sometimes perceived as large, utilitarian enterprises with little or no
regard for the social and economic well being of the countries in which they operate, but
the reality of their situation is more complicated.

The w ay is long,
the path is full of thorns,
P e opl e m a y cr it i c i ze ,
But, I have to fly…
from one region to another,
from the Earth to the sky,

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 to utilize my potential,
to bring prosperity to everyone,
I have to fly………
Don’t obstruct me,
don’t criticize.
Channelise me
I n right direction,
And you w ill find
that I can take you,

through a prosperous ride.

I b el ie ve , I ca n fl y… ..

In the poem ‘I’ stands for Multinational Companies 2

In more recent times, multinational corporations have grown in power and

visibility, but have come to be viewed more ambivalently by both governments and
consumers worldwide. Indeed, multinationals today are viewed with increased suspicion
given their perceived lack of concern for the economic well-being of particular
geographic regions and the public impression that multinationals are gaining power in
relation to national government agencies, international trade federations and
organizations, and local, national, and international labor organizations. Despite such
concerns, multinational corporations appear poised to expand their power and influence
as barriers to international trade continue to be removed.

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SIGNIFICANCE OF MNCS IN WORLD AFFAIRS

Influence In Nations' Political Affairs

MNCs' influence over countries, particularly those in the less-industrialized world,
has not been manifest solely in sheer economic power or manipulative price transfers.
Such influence has also been reflected in corporations' willingness and ability to exert
leverage directly by employing government officials, participating on important national
economic policy making committees, making financial contributions to political parties,
and bribery. Furthermore, MNCs actively enlist the help of Northern
governments to further or protect their interests in less-industrialised nations; assistance
that has sometimes has involved military force. In 1954, for instance, the US launched
an invasion of Guatemala to prevent the Guatemalan government from taking (with
compensation plus interest) unused land of United Fruit Company for redistribution to
peasants.

Mncs And International Politics

Especially since the 1980s, MNCs' involvement at international political
negotiations and fora has accompanied and encouraged the rise of global corporate
economic power. In an effort to reduce barriers to trade and investment capital flows in
the last decade, MNCs have lobbied vigorously to shape to their liking Europe's Single
Market agreement, the North American Free Trade Agreement (NAFTA), and the World
Trade Organisation ( WTO). For MNCs, so-called free trade lessens governmental
restrictions on their movement and ability to maximise returns. "The deregulation of
trade aims to erase national boundaries insofar as these affect economic life,"
economists Herman Daly and Robert Goodland have noted. "The policy-making
strength of the nation is thereby weakened, and the relative power of MNCs is
increased."

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 For example, rules established in the World Trade Organisation( WTO) regarding
trade-related intellectual property rights (TRIPs) and trade-related investment measures
(TRIMs) will be of particular benefit to MNCs. The first gives corporations greater
capacity to privatize and patent life forms, including plant and other genetic resources of
less-industrialized nations and peoples.

MULTI NATIONAL COMPANIES IN PAKISTAN

Pakistan provides an ideal environment for investment by multinationals and

other foreign companies and organizations because of its important geo strategical
importance. With expanding business relations with the countries of the Economic Co-
operation Organization. There are no restrictions on remitting back the profits. Facilities
for maintaining foreign currency accounts concessions have also been allowed to
foreign firms in respect of borrowing rules, etc. A large number of multinationals have
been maintaining industries and doing business in the country for a long time. A brief
review of those would make the picture more clear.

The multinationals have invested Rs. 60 million in Pakistan. Initially, the British
and European trading and business houses had taken the lead as they had been
present in this area for a long time. However, today USA leads with 25% investment,
followed by UK (13%), International lending institutions (11%), Germany (6%), Japan
(3.25%). Recently, Japan's investment in the automobile industry has increased
substantially, thereby increasing its share.

Siemens of Germany is perhaps the oldest in the industrial field in Pakistan,

having established its industry in 1932, while ICI is the second, having set up the soda
ash factory in 1942. These have since expanded their activities in a number of other
fields. Unilever, Imperial Tobacco, Shell, Burma Oil also came soon after Independence
in 1947. Their consumer products are household names here. The US, German, British
and other pharmaceuticals came in the second wave. Many European, Korean and

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Middle-East companies are active in construction, communications and other fields.
Japanese are mainly in the automotive industry, like Toyota, Suzuki, Nissan, Honda. 3

LIST OF MULTINATIONAL CORPORATIONS WORKING IN PAKISTAN

(SECTOR WISE BREAKUP)

AUTOMOBILE
 Toyota
 Honda
 BMW
 Nissan
 Hinopak Motors
 SUZUKI

ELECTRONICS
 Philips
 Hawaii
 Samsung
 LG
 Sony
 Toshiba
 Intel

BANKING
 Citibank
 HSBC
 Al-Falah Bank
 Royal Bank of Scotland

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  Standard Charter Bank
 Pak al Saudi Bank
 Crescent Commercial Bank
 Dubai Islamic Bank

TELECOMMUNICATION AND IT
 Mobilink
 Warid Telecom
 Telenor
 Wateen Telecom
 China Mobile

FOOD AND PERSONAL CARE PRODUCTS

 Murree Brewery
 Procter & Gamble
 Unilever Pakistan
 McDonald
 Pizza Hut
 KFC
 Pepsi
 Coca-Cola
 Nestle Pakistan

ENGINEERING
 Siemens
 Medicines
 Novartis
 Aventis 4

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THE COST AND BENEFITS OF MNCS

THE BENEFITS OF MULTINATIONALS

Availability of Quality Goods And Services In The Host Country:

In some cases, production in a host country may be primarily aimed at the export
market. However, in other cases, the inward investment might have been made to gain
access to the host country market to circumvent trade barriers. In the case of many
Japanese car manufacturers the investment made into UK production has enabled
them to get a foothold in the EU and to avoid tariff barriers. In Pakistan, where there is
no industry for vehicles, multi national companies can provide quality vehicles to
them....most of the transportations are imported in Pakistan from all over the world.

Skills, Production Techniques And Improvements In The Quality Of Human

Capital:
It can be argued that MNCs bring with them new ideas and new techniques that
can help to improve the quality of production and help boost the quality of human capital
in the host country. Many will not only look to employ local labor but also provide them
with training and new skills to help them improve productivity and efficiency. Highly
qualified people of Pakistan get recruited in these companies...unemployment rate
decreased in Pakistan due to the recruitment of Pakistani people from all over the
world.

Tax Revenues:
For the host country (Pakistan), there is a likelihood that the MNC will have to be
subject to the tax regime in that country. As a result, many MNCs pay large sums in

14
taxes to the government of Pakistan. But in the case of Pakistan, the problem might be
that there is a large amount of corruption and bad governance and as a result MNCs
might not contribute the tax revenue they could and even if they do it might not find its
5
way through to the government itself.

Improvements In Infrastructure:
In addition to the investment in a country like pakistan, in production or
distribution facilities, a company might also invest in additional infrastructure facilities
like road, rail, port. new buildings and communications facilities. This can provide
benefits for the whole country. pakistan got alot of benefits in this respect. The
communication corporations like telenor, mobilink, warid improved the communication
facilities

Employment Effects:
Another beneficial effect of the MNCS is that they bring employment
opportunities to the host country that would otherwise not be created. Direct effect arise
when a foreign MNC employs a number of citizens. Many multi national corporations set
their industries in pakistan and recruit the local people,iterms of their education and
skills.

Balance of Payment:
A country’s balance of payment keeps the track of both its payments and
receipts from the other countries. The balance of payment effect is an important
consideration for the host country. When a MNC establish a foreign subsidiary the
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capital account of the host country benefits from the initial capital flow.

Competition and economic growth:

Efficient functioning of markets depends on adequate level of competition
between the producers. When a new enterprise is established, the number of players in
the market and consumer’s choice increases. In turn this can increase the level of

15
competition in a national market, thereby driving down the market prices and increasing
the economic growth. Increased competition in pakistan tends to stimulate capital
investments by firms in plant and equipment, research and development as the struggle
to gain a competitive edge over the rivals. We can take example of competition between
MITCHELL'S Fruit Farms Ltd and unilever food products. A healthy competition
between them providing a quality assurance in these products.

Learning of skills:
Benefits arise when a local enterprise learns valuable skills from the MNCS by its
exposure in the market. A firm can learn about specific superior management
techniques, superior products and process techniques. Our local people of Pakistan
getting knowledge from these MNC’S about the latest techniques and trends.

Foreign policy:
The establishment of MNCs helps in creating the relationship with different
countries in the world. Thus helps in enhancing the foreign relations. Due to these
economic transactions of goods there is a less fear of War Between the States.
Flexibility can be seen in the foreign policy of Pakistan and India due to exchange of
goods and expanded businesses.7

The Costs of Multinationals

The costs can be summarized in the points below - for the most part, the costs
are closely linked to the benefits but it will depend on the extent of the benefits that
might arise as a result of the activity of the MNC.

De-Merit Goods:
Some companies are producing goods that are not beneficial our society and not
match with our mind sets. Examples Includes alcoholic drinks, tobacco products and
baby milk etc.

Repatriation of profits:

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 Profits go back to the headquarters of the MNC rather than staying in Pakistan -
the benefits, therefore, might not be as great. MNC’S use the local resources of
Pakistan and in return don’t give benefits of that level.

National sovereignty:
The government of Pakistan is worried that the establishments of MNCS is
accompanied by some loss of economic independence. The concern is that the key
decisions that can effect the country’s economy are made by the foreign parent that has
no real commitment to the host country and over which Pakistan have no real control.

The source of domination:

The MNCS enjoys the benefit of domination. They are politically controlling the
economy of the country. They are dominating Pakistani domestic decisions

Infant Industries:
The newly established industries suffer a lot due to the arrival of the multinational
companies. The don’t get the enough time to developed and fully establish. Before the
flourish the conditions becomes so worst due to MNCs that they wiped out. Like LAYS
the international food brand is so popular in PAKISTAN that no other local chips
company is developing due to its hype.

Knowledge and Skills Transfer:

The multinational companies usually hire the skilled, trained and professional
employees already working in the domestic companies of Pakistan. So the knowledge
and skills transfers from these domestic companies to the multinational companies
subsidiaries. Our local talent is serving these MNC’S 8

Cultural Effects:
Sometimes the multinational companies affect the values, norms and traditions
of the host country very badly as IN PAKISTAN. they bring with them their own culture

17
 and try that the local people of pakistan l adopt these values. Through different
marketing strategies they try to sell luxurious products to the people. Some people who
don’t have enough money to fulfill their basic needs as a result they adopt different
illegal ways for acquiring these products which is very bad for the society.

Dumping
The multi national companies tried to fail the local products by making their
product low price. The best example of this is Chinese low quality products in Pakistani
market .

Findings:

1. New and sunk companies of Pakistan facing problems due to MNCs. As new
companies are struggling for growth and development. While sunken companies are in
danger, it is difficult for them to survive. In these conditions if MNCs come in these
industries then domestic countries will finished.
2. Due to MNCs society face environmental problems. As they pollute our environment.
For example different factories of Multan, Lahore, and Karachi pollute water and air.
Telecommunication companies have adjusted their tower in urban areas. Their ultra
void is harmful for human health. These things are very harmful for our society.

3. Unethical issues:-
MNCs are involved in many unethical issues like follows

i. Illegal products:-
Some products are not good for our society like wine, ham burger and pizza,
low quality products. It is unethical to sell these products in Pakistan.

ii. Cultural Differences:

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 Pakistan is Muslim country and Islam has specific values, traditions. these
companies are effecting these values with the help of their products and

marketing. They are forcing our youngsters to go against our own traditions.

iii. Child Labors:

MNCs are hiring Childs labors. As they are cheaply available in Pakistan
which is unethical. They are playing with their lives.
4. MNCs are developed organizations in their fields. Domestic industries are facing
problems due to MNCs. Domestic industries are producing their product in higher cost
so they have to charge high price but due to high competition with they are unable to
charge high price and they go to end.

5. No doubt consumers are taking benefit from MNCs as they get at low cost.

• Quality
• New Technology
• Variety
6.MNCs are very important source of getting foreign exchange which is useful for
Pakistan.
7. MNCs are improving our relations with other countries with which they belong. People
and Government of other countries are coming closer to Pakistan due to MNCs.

8. MNCs have created lot of jobs in Pakistan. Which very good for our country as

due to it poverty decrease and people become prosper.

9. One bad practice of MNCs is repatriation of profit. According to it they sent their profit to
9
their home country while they are using resources if home country which bad practice.

CONCLUSION

Pakistan these days is facing an immense crisis in political, social and economic
drawback, recently Pakistan is passing through a series of chronic and painful problems
include political, socioeconomic, energy crises, security, uncertainty in Balochistan, day

19
to day suicide bombing, foreign Drones attacks and worst situation of law and order in
FATA and NWFP. These all are brain blasting and heart pinching for all true Pakistanis.

Pakistan has been facing many crisis and problems since the time of its independence,
but today the number of problems has multiplied to an extreme. From the basic
necessities like food, clothes and shelter to the security of lives.

In this era of globalization, states have to interact with each other for social, political,
economics purposes.....Pakistan have to adopt the things which is necessary in
globalization. MNC’S are not bad it self but the way to use or utilize it is different. Some
laws should be made and properly implemented for these MNC’S. So that Pakistan as a
less developing country should not deprive from its rights.

The problem of Dumping

Lost of cultural moorings

Indian market

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 REFERENCE

1. http://en.wikipedia.org/wiki/Multinational_corporation
2. Ashish kumar,,,Role of mnc in international affairs, 2005

3. Ansarul Haque Economic Review, Role of multinational

companies in Pakistan economy, Nov 1993
4. www.pakistanibusiness.com
5. http://www.scribd.com/doc/29353099/Sitara-MNC-s-in-pakistan
6. Joshua S. Goldstein, jon C. pevehouse, “international relations 8th
edition”, (new dehli:pearson,2008) PP 336-339
7. Ibid, 339
8. James lee ray, “global politics” , (boston:Houghton Mifflin
company,1979) P 222
9. M. Aslam chaudhary, “globalization,wto,trade and economic
liberalization in pakistan”, (Lahore:ferozsons,2004)

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 BIBLOGRAPHY

 Goldstein , Joshua S., pevehouse, jon C. pevehouse, “international

relations 8th edition”, (new dehli:pearson,2008)
 Ray, James lee, “global politics” , (boston:Houghton Mifflin
company,1979)
 Chaudhary, M. Aslam, “globalization,wto,trade and economic
liberalization in pakistan”, (Lahore:ferozsons,2004)

 http://en.wikipedia.org/wiki/Multinational_corporation
 Ashish kumar,,,Role of mnc in international affairs, 2005

 Ansarul Haque Economic Review, Role of multinational

companies in Pakistan economy, Nov 1993
 www.pakistanibusiness.com
 http://www.scribd.com/doc/29353099/Sitara-MNC-s-in-pakistan

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