Lahore College For Women University

Working Of Multi National Companies In Pakistan
3/12/2011

Roll no:2577

Hira Arshad

Lahore College for Women University, Lahore.
Department of Pol.Sci/IR/Pak.Studies PAPER:

´Good Governanceµ
TOPIC:

´working of multi national companies in pakistanµ
PRESENTED TO:

Mrs Sadia Falki
PREPARED BY:

Hira Arshad Roll# 2577

MS Pol.Science Semester I Session 2010-2012
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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:  National Sovereignty:
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The Source Of Domination:  Infant Industries:  Knowledge And Skills Transfer:  Cultural Effects:  Dumping

‚ Findings: ‚ Conclusion

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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. 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
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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 eo p l e m ay cr it iciz e, But, I have to fly« from one region to another, from the Earth to the sky, to utilize my potential, to bring prosperity to everyone, I have to fly«««
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Don¶t obstruct me, d o n ¶t cr it i c iz e . Channelise me I n right direction, And you w ill find that I can take you, through a prosperous ride. I b eli e ve , I c an f ly« ..

In the poem µI¶ stands for Multinational Companies2

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." For example, rules established in the World Trade Organisation( WTO) regarding trade-related intellectual property rights (TRIPs) and trade-related investment measures
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(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 Cooperation 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 Middle-East companies are active in construction, communications and other fields. Japanese are mainly in the automotive industry, like Toyota, Suzuki, Nissan, Honda.3

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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  Standard Charter Bank  Pak al Saudi Bank  Crescent Commercial Bank
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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 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. 5

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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 capital account of the host country benefits from the initial capital flow. 6

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 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

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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:
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.

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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¶S8

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 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.

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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: 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
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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 their home country while they are using resources if home country which bad practice. 9

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 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.

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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, ³international relations 8th edition´, (new dehli:pearson,2008) PP 336-339 7. Ibid, 339 8. James lee ray, ³global politics´ , (boston:Houghton Mifflin company,1979) P 222 9. M. Aslam chaudhary, ³globalization,wto,trade and economic liberalization in pakistan´, (Lahore:ferozsons,2004)

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BIBLOGRAPHY 

Goldstein , Joshua S., pevehouse, jon C. pevehouse, ³international relations 8th edition´, (new dehli:pearson,2008)  Ray, James lee, ³global politics´ , (boston:Houghton Mifflin company,1979)  Chaudhary, M. Aslam, ³globalization,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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