Assignment 2 MNCs In Pakistan

Submitted To: Sir Imran Ali

Submitted By: Daud Aftab CIIT-BBA-SP09-032

Subject: Global Business Management

Comsats Institute of Information and Technology

Multinational corporations (MNCs) are key players in international business; they are defined as "a business that has direct investments (in the form of marketing of manufacturing subsidiaries) abroad in multiple countries". Transnational corporations are among the world's biggest economic institutions. A rough estimate suggests that the 300 largest MNCs own or control at least one-quarter of the entire world's productive assets, worth about US$5 trillion. The vast numbers of MNCs are located all around the world; they vary widely in size and interest. Their intention is to "take a package of capital, technology, managerial know-how, and/or marketing skills to carry out production or business services abroad". Their effects are far reaching, affecting the daily lifestyle of the average consumer. Partly because of their size, MNCs tend to dominate the sectors in which they specialize. As a result, their transnational business ventures offer much debate about their impact on developing countries; many arguments have been proposed on this subject alone.

Growth and efficiency of developing countries:

The first topic is the growth and efficiency of developing countries, which have opened their doors to MNCs. It is important to address the long-term effects because they suggest how a developing country will either improve or decline in their position on the world market. The five general areas to be focused on in this topic are capital, technology, skills, exports and level of integration. Capital, the means of production, is the basic need of an underdeveloped society. It allows for improvement in the structure of the economic system. Through foreign direct investment (FDI), companies are able to diffuse the much needed resource into third world countries. Technology is also brought into the country with the MNC; the movement of technology to produce goods as well as for communication purposes. This is not only important for production and distribution by the foreign firm, but also for the development of similar, local companies. These local firms may not have the most efficient machinery and materials for production and a host country may state that a firm must make its building and equipment plans public knowledge. The introduction of technology to the developing world can lead to cleaner more efficient technologies.

Welfare of the citizens:

The welfare of the citizens within a country can be greatly improved by the infiltration of MNCs. Foreign firms bring with them the promise of jobs. The host country will usually stipulate that the investing company use local labor, this will help to boost the national economy. These jobs will also most likely pay more than existing domestic companies; they are used to having to pay more to skilled workers in more advanced economies, as well as the fact that they will be using cheaper labor and increasing their profits just by moving to this country. Investing in local labor also boosts the resident income, thus increasing the ability of citizens to purchase and consume. As the income levels rise, people are driven to buy more, even luxury items to show status. The tax base will rise with the income levels; the government will have more money to spend on domestic needs. Health care, education and other domestic programs can be funded. These programs lead to longer, healthier lives for citizens in addition to improved opportunities through education and aid from the state.

Improve values and institutions:

Developing a country through FDI improves both the country's values and institutions. Once a country is past just making sure that its government stays in power it has the ability to concentrate on more important issues; envision Maslow's "Hierarchy of Needs" but on a national scale. The investment in a society by MNCs is just plain good, and healthy, for the society in general; it promotes a strong work ethic within the community. It also makes the country more receptive to change because they are more active on the global market. This is important for the continued economic improvement of the country.

MULTINATIONAL COMPANIES IN PAKISTAN

Pakistan provides an ideal environment for investment by multinationals another foreign companies and organizations because of its important geo strategically 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 clearer. The multinationals have invested $ 5.193 billion 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 Middle-East companies are active in construction, communications and other fields. Japanese are mainly in the automotive industry, like Toyota, Suzuki, Nissan, Honda.

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 Standard Charter Bank Pak al Saudi Bank Crescent Commercial 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

THECOST 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, multinational companies can provide quality vehicles totem....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 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 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 a lot of benefits in this respect. The communication corporations like Telenor, Mobil ink, 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 arises when a foreign MNC employs a number of citizens. Many multinational corporations set their industries in Pakistan and recruit the local people, terms of their education and skills.

Balance of Payment: A countrys 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 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 consumers choice increases. In turn this can increase the level of 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 provides 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 MNCS 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.

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: Profits go back to the headquarters of the MNC rather than staying in Pakistan -the benefits, therefore, might not be as great. MNCS use the local resources of Pakistan and in return dont 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 affect the countrys 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 dont 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 MNCS

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 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 dont 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.

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 Baluchistan, day 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. MNCS 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 MNCS. So that Pakistan as ales developing country should not deprive from its rights.