Exploitation & Social Impact of Multinational Companies

Submitted by: Wajahat Ali Khan 053205-023

Submitted to: Mr. Shahid Rasheed

University of Management & Technology


Introduction ……………………………………………………….3 Literature review………………………………………………….4 Multinational Companies & Globalization………………….. 5 Major Multinational companies operating Pakistan…………6 Multinational companies operating in Pakistan, their products and their substitutes available………………………6 Exploitation by multinational companies…………………….. 7 Foreign Banks in Pakistan……………………………………...9 Finding …………………………………………………………..14 Conclusion …………………………………………………...… 15 Bibliography…………………………………………..………...16


A multinational company has branches in many countries. Toyota and Sony are examples. Benefits Multinational companies do bring some benefits to developing countries. They provide jobs and increase the wealth of the local people. The country gains some wealth by way of taxes. Problems However, there are some as well. The jobs are often low-skilled and poorly paid. Much of the profit will go out of the country, and the company may pull out to relocate in a country where it can make a greater profit. Multinational companies are primarily interested in making profits for their shareholders. Paying wages is an expense that the company will try to reduce to as low a level as possible.
The controversies surrounding the process of globalization have raised concerns that multinational companies

(MNCs) might be pursuing profit at the expense of vulnerable workforces, the environment and so on. In response to such concerns, MNCs have increasingly taken steps aimed at demonstrating their social responsibility as business organizations. One prominent development has been the elaboration and adoption of a Code of Conduct concerning corporate social responsibility (CSR).


Literature review
The literature on Cultural Social Responsibility, (CSR) and exploitation is vast. Much attention has been devoted to issues such as whether CSR codes tend to arise from either ‘ethical’ or ‘economic’ considerations. Relating to whether structural factors influence the incidence and form of CSR codes in MNCs and second, on the evidence concerning the extent to which these codes are negotiated with employee representatives. On the first of these issues, there is some limited evidence suggesting that exploitation by multinational companies is common in Pakistan. The major reason is, Pakistan’s Unstable Political Frame works, that don’t let any business to flourish in Pakistan. The fake feudal laws and unauthentic dictatorship and corrupt judicially don’t encourage Pakistani companies to work properly. That is why multinational companies come and rule local markets that should me ruled by local or national businesses.


Multinational Companies & Globalization
Overview of Role of Multinational Companies in Global business
Globalization has made a tremendous impact throughout the world in past few years. There are various reasons involved in this progression. Globalization 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 crossborder 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. Global exchange 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 (Johnson & Turner, 2003). Besides these there are other few factors like economic factors, cultural factors, technological factors, and social factors which have influence to a greater extent. The emergence and activities of transnational and multinational enterprises had impacted to a huge extent on the concept of globalization, and multinationals have played an important role. Given their international reach and mobility, prospective countries, and sometimes regions within countries, must compete with each other to have MNCs locate their facilities (and subsequent tax revenue, employment and economic activity) within.


Major Multinational companies operating in Pakistan
Uni liver Coca Cola Abn-Amro PICIC Bank Al Faysal Citicorp Investment Bank (pakistan) Limited Gillette Pakistan Limited Lakson Tobacco Company Ltd. Rupali Bank Ltd Proctal & Gambal Nestle NOKIA Cresant Investing Bank DEL Dawood Hercules Chemicals Ltd Ici Pakistan Limited Novartis (pakistan) Limited Siemens Pakistan Engineering Co. Ltd PEPSI Dadex Eternit Limited Bank Alflah Emirites Global bank Raffels Exide Pakistan Ltd Johnson & Phillips (Pakistan) Ltd Bank Of Ceylon Standard Chartered Bank Ltd

Multinational companies operating in Pakistan, their products and their substitutes available Uniliver Pakistan
Unilever Product Sunsilk Close up Walls Ponds Lux Lipton Lifebuoy Energile Blue band Pakistani product Bio Amla English tooth paste IGLOO / POLKA / ROCCO and YUMMY Tibat Capri Marhaba tea Bodyguard soap Roohafza Nurpur


Procter & Gamble
P&G products Pentene Shampoo Head & Shoulders Safeguard Arial Pakistani products Medicame English anti lies shampoo Hoor soap Lado Soap / billi marka

Colgate-Palmolive (Pak) Ltd.
Colgate-Palmolive (Pak) Ltd. Products Colgate Palmolive Bright Total Lemon Max Pakistani products Hamdard tooth paste Tibat soap Sufi Soap Kleen Washing liquid

Nestle Products MilkPak Pure Life Kit Kat Nestle Fresh Juices

Pakistani Products Olpers / Haleeb Sufi Water Jubilee / Discovery / Top milk Shezan Twist




Gravity Jeans Store

Exploitation by multinational companies

Coca cola is exploiting all over the majorly in Asia. To stop it, communities in India are at forefront in challenging globalization today. Tens out of thousand villagers across the country have mobilized to confront the arrogance and impurity of one of the largest corporations in the world- the Coca-Cola Company. Coca Cola’s largest plant in Plachimada- has been shut down since March 2004 due to community opposition. Pesticides in Drink: In 2003 and again in 2006, studies found that Coca Cola products contain dangerously high levels of pesticides, including DDT, lindane and malathion. On an average, the pesticide residues were 24 times higher than European Union (EU) standards. Serven states in India imposed partial or full bans on the sale of Coca-Cola.

Water Scarcity: Communities living around Coca-Cola’s bottling plant in India are experiencing severe water storages— directing as a result of Coca-Cola’s over extraction of groundwater. A government study in desert state of Ragasthan found that groundwater level had dropped 10 meters in just 5 years since Coca-Cola started operations.


In 2004, Coca-Cola used 283 billion liters of water world wide—enough water to meet world’s drinking need for 10 days. Pollution of Land & Water: Coca-Cola has severely polluted both the groundwater and the soil around its boiling plants. A government study of seven Coca-Cola plants found that all plants were generating large amounts of toxic waste. In violation of Indian laws, the waste was not being classified and handled as industrial hazardous waste. In some areas, the company was distributing its toxic wastes. In 2004, Coca-Cola converted 2/3 of the fresh water it used into wastewater globally!

PAK SUZUKI is exploiting car industry in Pakistan in 2005 when Pakistan gets out of international quota system. That was the time when Pakistan started facing problems in international business that decision effected textile and so many other industries in Pakistan. In mid 2005 govt. of Pakistan passed a resolution in which recondition cars were allowed to import from different countries like Japan and Dubai. Everything was done the shipment was ready and about to down load. Suddenly Pak Suzuki sent a legal notice to the investors who were in that import business of recondition cars. According to Pak Suzuki recondition cars were not well off to be on roads they make superficial or unauthentic problems in the cars, they said these cars are not capable enough to be on roads etc. But the actual reason behind this was that those cars were good in condition, inexpensive & nature friendly the aspect why Pak Suzuki did all that was, these imported recondition were going to capture major of market share which was with Pak Suzuki and that was the unbearable issue. Suzuki is a multination company operating in Pakistan that is why it has a monopoly they don’t let any other car to run on road. Made In Pakistan The first Pakistani car to be assembled in Taxila was the General Motors Vauxhall in the 60s. Pakistani manufacture felt the same pains as the American and European manufacturer was feeling. It was a failure and could not compete with the Japanese cars that flooded the market. The first car 100% made in Pakistan in on the road which is ready to challenge Suzuki but due to lack of awareness wrong perception people are avoiding to buy it, being a true Pakistani it’s our foremost duty to encourage or appreciate Pakistani products.


Foreign Banks in Pakistan
Making efforts to recapture lost market share through superior technology base By SHABBIR H. KAZMI Jul 31 - Aug 06, 2000 The paradigm shift in commercial banking, resulting from freezing of foreign currency accounts (FCAs) in May 1998, has affected the foreign banks operating in Pakistan significantly — to a large extent adversely. The recovery process, through changed strategy, has started yielding positive results. Foreign banks are expected to emerge stronger in the near future as Pakistan moves towards internet based banking. Still, the competition with domestic banks is expected to remain ferocious. Over the last many years, foreign banks have continued to command nearly three-quarters of the overall profitability of the banking sector in Pakistan, in spite of the tight manacles on their expansion. Foreign banks chiefly thrived on business from top-tier multinational corporations and blue chip companies. The business of foreign banks operating in Pakistan, in the past, also flourished due to FCAs and swap dollar funds — which are no longer there. The withdrawals from resident FCAs, in the shape of rupee, was quite dramatic during the second half of 1998 which continued in 1999 — though at a lower pace. The bulk of converted amount eventually showed up in the banking system but the share of foreign banks in total deposits reduced. Domestic banks were able to increase their deposits and advances mainly due to an elaborate branch network. The lottery schemes of Habib Bank, United Bank and Muslim Commercial Bank drained desposits virtually from both domestic and foreign banks. With the loss of low cost deposits and advances, profitability of a number of key players in the financial sector came under pressure in 1998. Bank of America was the first to decide to close its operations in Pakistan. As a result of global merger of ANZ Grindlays Bank into Standard Chartered Bank, the two will become one in Pakistan also. The amalgamated bank is expected to emerge financially the strongest foreign bank in Pakistan. Many banking sector analysts expect a few more closures and more mergers and acquisitions. They estimate that within next five years the number of foreign banks in Pakistan, will come down to less than a dozen. However, these mergers and acquisitions will be aimed at attaining synergy rather than due to declining profit margin. The 21 foreign banks have a network of 85 branches largely concentrated in big cities. They have assets of over Rs 250 billion and a deposit base of over Rs 180 billion. To achieve constant growth in size they have been using innovative approach. Keeping in view the changing demands, the emphasis is more on personalized service, electronic transfer of funds and sophisticated financial products, etc. They offer innovative deposit schemes to remain competitive in resource mobilisation. Not a single foreign bank, out of 21 operating in the country, could post a billion rupee profit for the year 1999. It is a spectacular decline from the results registered for the year 1997 when three banks posted more than a billion rupee profit. These were ANZ Grindlays Bank, Citibank and Standard Chartered Bank. In 1999 ANZ Grindlays topped the list with a profit before tax of Rs 0.89 billion. It was lower than a profit of Rs 1.36 billion the year before. Bank of America posted the second highest profit of Rs 0.53 billion, 10

down from Rs 0.69 billion in 1998. Profit of Standard Chartered Bank was Rs 0.51 billion, close to that of Rs 0.53 billion for the year before. The banks which posted higher profit in 1999, compared to the previous year, were ABN Amro Bank, Mashreeq Bank, Citibank and Credit Agricole Indosuez Bank. The freezing of FCAs affected foreign banks more adversely as they had around 80 per cent of their total deposits in foreign currency in May 1998. Although the ratio has dropped to 48 per cent by the end of 1999, foreign banks still have deposits worth Rs 80 billion in foreign currencies — almost half of the banking sectors total. Deposits of almost all the foreign banks dwindled in 1999. Citibank carried forward the tradition of leading the rest by maintaining the largest deposits at Rs 38.8 billion. However, it could not resist the decline — the deposits were Rs 49.3 billion in 1998. Deposits of ANZ Grindlays receded from Rs 28.5 billion to Rs 22 billion. ABN Amro Bank registered a decline from Rs 21 billion to Rs 19.9 billion and Bank of America's deposits dwindled from Rs 14 billion to Rs 12.7 billion. The growth in advances from 1998 to 1999 is estimated around 12 per cent, which is three and half times more than the growth in deposits. The borrowing by manufacturing sector grew by 18 per cent which mainly represent Export Refinance. Foreign banks advances portfolio grew by Rs 3.27 billion and represents 15 per cent market share. Advances of domestic private banks increased by Rs 10 billion. Their exposure in export refinance and to textile sector is greater than that of foreign banks. This is evident from the fact that the borrowings of foreign banks from the central bank in 1999 represented 13 per cent of the total borrowings, while those of domestic private banks represented 20 per cent. Another important observation is that foreign banks hold four times more exposure in chemical and pharmaceutical sector and five times more exposure in Public/Government sector than domestic private banks. It is due to the domination of multinational companies in chemical and pharmaceutical sector which have group relationship internationally with the foreign banks. American Express recorded 6.4 per cent decline in advances. It had registered decline for the last three years also. The other banks which registered decline in advances were: Bank of America (12.5%), Societe Generale (6.45%), Citibank (1.6%) and Hong Kong & Shanghai Bank (4.39%). Despite a decline in the advances of Citibank, it enjoyed the highest amount of Rs 21.85 billion. Similarly, the investments of almost all the banks declined for the year 1999. The fall in investment for various banks was: For Hong Kong & Shanghai Bank 51.83%, Emirates International 65.27%, Deutsche Bank 43.09%, Citibank 45.5%, Credit Agricole Indosuez 23.3%, Standard Chartered 74.23% and Societe Generale 75.64%. Societe Generale had shown a substantial jump of 34.71% in 1998. Among others, banks like ABN Amro, ANZ Grindlays and Hong Kong Shanghai Banking Group have recorded decline in investment over the last three years. The growth of assets in case of Credit Agricole Indosuez was the highest at 24.87%, followed by Habib Bank AG Zurich (10.79%) and ABN Amro (9.33%). Standard Chartered Bank, whose assets had grown by 21.07% in the previous year, registered a decline of 4.68% during 1999. Bank of Tokyo, whose assets had nearly doubled in 1998, posted a decline of 6.54% for the year 1999. Emirates International also witnessed a decline of 8.2% in 1999. Citibank, Hong Kong & Shanghai, American Express, ANZ Grindlays and Bank of America witnessed decline in assets both in 1998 and 1999. Doha Bank, Oman International, ABN Amro and IFIC had recorded increases in assets in the last three years. The operating cost of banking sector grew by 5 per cent. Shrinking spread has forced commercial banks to rationalize their cost to income ratio through cost cutting measures. During 1999, ANZ Grindlays and 11

Deutsche Bank paid Rs 125 million and Rs 29 million as redundancy cost. Number of executives hired by the banks are higher in case of foreign banks and they are highly paid as compared to their counterparts in domestic banks. Despite the cost curtailment measures, foreign banks, as a whole, suffered as they experienced fall in profit before tax. The cost of funds for most of the banks came down during 1999. It was 15.08% for Societe Generale — being the highest among all the banks. The cost was the lowest at 7.89% for Bank of Tokyo. The reduction was substantial for Oman International at 10.27% against 17.21 per cent in 1998. For the year ended 1999, Bank of Tokyo had the lowest intermediation cost of 1.13%. whereas Deutsche Bank's cost was the highest at 10.98%. The return on assets declined for most of the banks. For Societe Generale, American Express, Doha Bank and Oman International it became negative. Mashreq Bank showed a substantial improvement as the ratio doubled from 2.05% to 4.42% in 1999. Emirates International and Bank of Tokyo registered the highest pre-tax margin of 27.5%. While in the case of the former the ratio showed substantial improvement over 1998, for the latter there was a decline. The ratio improved substantially for Mashreq Bank to 25.83% as against 14.89% for the year 1998. For ABN Amro the ratio was 17.99% for the year 1999 as opposed to 13.92% a year earlier. The pre-tax margin deteriorated for American Express, Doha Bank, Oman International and Deutsche Bank. While more than half of the total income of Mashreq Bank was non-fund based, it was one-third for Deutsche Bank. The ratio of non-fund based income, as a percentage of total income, improved for ABN Amro, American Express, ANZ Grindlays, Bank of America, Doha Bank, Bank of Tokyo and Hong Kong & Shanghai Banking Corporation. Standard Chartered Bank, Credit Agricole Indosuez and Habib Bank AG Zurich witnessed a fall in their non-fund based income ratio to total income. Fierce competition During the post May 1998 scenario, domestic banks have emerged to be ferocious competitors. Even the policies of central bank aimed at strengthening commercial banks in general helped domestic banks more while supporting foreign banks marginally. Some of these policies were: reduction in SLR, recovery of non-performing loans, exemption of accrued income at the time of calculating tax liability and rules governing provisions against doubtful loans. The reduction in return on deposits and lending rates also improved the spread for domestic banks. Half of the foreign local banks virtually reversed the provisions made in the past or made no provision for the year 1999. The amount on account of provisions came down Rs 0.1 billion for foreign banks and by Rs 1.82 billion in the case of domestic private banks for the year 1999. But, lottery schemes of Habib Bank, United Bank and Muslim Commercial Bank was a major reason for movement of deposits from foreign banks to these banks. Some analysts say, "It may not be wrong to say that foreign banks were the biggest opponents of such schemes and ultimately the central bank succumbed to their pressure." However, some of the foreign banks which came out with innovative financial products rather than complaining about the changed scenario, witnessed slow but gradual increase in deposits. One of the areas where foreign banks have been investing heavily is technology to overcome the handicap of limited branch network. Almost all the foreign banks are working actively on plans to introduce internetbased banking within the year 2000. They have the advantage of global experience. However, despite their edge they will face a tough competition from listed commercial banks.


Introduction of internet-based banking will largely depend on the policies of GoP. However, the government cannot afford to delay its introduction in the country for a long time. In the meantime foreign banks have consolidated their edge in phone-banking, ATM network and on-line banking. Offer of these services has become a norm at almost all the large-size foreign banks. While some of the banks have installed their own ATMs, others have entered or are entering into strategic alliance with other domestic and foreign banks. Offering such facilities is capital intensive. However, helps in reducing human resource cost, improving quality of services and above all bringing a bank outside the four walls of conventional branch network. As foreign banks largely cater to multinational companies and blue chip corporations they would be able to offer better services and also cater to larger number of clients. Another important development, over the years, is that small foreign banks have developed their own niche market. The foreign banks of Middle East origin concentrate more on handling remittance and international trade. Even the large-size banks have added other services. Standard Chartered Bank, Citibank and Deutsche Bank provide custodian service to foreign investors in capital markets. Citibank and Standard Chartered Bank have started financing of cars and other durable. Earlier, Citibank had established two separate entities, a housing finance company and an investment bank. However, later on it sold its stake in investment bank to Jahangir Siddiqui and Company. Citibank has also became a little more selective in distributing credit cards. The credit card experience in Pakistan was like a nightmare. Therefore, the new strategy being worked out is to replace credit cards with charged cards. On the one hand it will help in bringing default to almost zero level and, on the other hand, improve the cashflow of banks. A card holder would be allowed to purchase to the extent of amount available in his/her account only. The banks will be able to issue more cards as they will be exposed to hardly any loss. It will also be beneficial for the outlets because the transfer against purchases can be almost instant. According to some analysts foreign banks share about a quarter of deposits and total advances within the banking system. Traditionally, the foreign banks have focused on short term trade finance, targeting mainly low risk blue chip corporations and high networth individuals. A couple of years back, these banks began making foray into merchant banking, capital market operations and consumer/retail banking. The resources and expertise of their global operations proved a valuable asset in these areas and many of them were able to quickly capture large share in the capital market operations and consumer/retail banking. Outlook The successful conclusion of agreements with multilateral lenders and earliest disbursement can have a positive effect on the economy of Pakistan. In view of the low yield on the assets, surplus liquidity, low demand for credit by the private sector and the GoP's determination to bring down interest rates, the operating environment for the banking sector will continue to remain challenging. However, the expectations are the GoP's policies to revive the economy, both agriculture and industry, will increase the demand for credit. Foreign banks have enjoyed years of robust profitability, However to survive in the changed environment they will have to come up with real innovative financial products. At the same time they will have to identify new clients — other than multinational companies and blue chip corporations. In the face of stagnant private sector industrial growth and poor demand for credit, competition with domestic banks is getting tougher with the passage of time. Domestic banks are also fighting for their existence and are determined to intrude into an area considered to be an exclusive domain of foreign banks in the past. 13

SIGNIFICANT EVENTS In August 1999, a Middle Eastern Group bought the controlling stake in Union Bank from Saigol Group. Union Bank has also purchased the Pakistan operations of Bank of America. From January 2000, the Pakistan operations of the Trust Bank of Kenya have been amalgamated with Metropolitan Bank. And ANZ Grindlays will be merged with Standard Chartered Bank in Pakistan as per their global arrangement. . Rs in Bln. 1999 1998 1997 Borrowings from SBP Foreign Local 19 14 11 30 21 15 Advances to Textile Sector Foreign Local 30 28 24 37 29 26

By SHABBIR H. KAZMI Jul 31 - Aug 06, 2000 http://www.pakistaneconomist.com/database2/cover/c2000-31.asp

\ Findings
• • • • • The data analyzed in this paper are drawn from a new survey of MNCs on internet. UMT library. Daily Times, Business Recorder, Daily Jang, DAWN Articles & Journals on Blackwell Synergy, The ACM Digital Library Personal interviews with  Mr. Khalid Ibrahim Khan, senior journalist Jang group—Akhbar-e-jehan.  Mr. Kamran Baig, Visiting Faculty UMT  Mrs Asma, Manager R&D, PACKAGES LIMITED  Mrs. Humaira Shazia, Maketing Executive, PACKAGES


Our findings indicate that a majority of MNCs in Pakistan are exploiting Pakistani culture and destroying norms of society. They have created a monopoly like Suzuki and Nestle they try to discourage Pakistani product by making TV advertisements and making fun of out rural culture. They are investing in sponsoring those things with are not allowed in our religion islam as well as encouraging them like they invest in musical events all the things that are taking our youth away from patriotism. The priorities of our people are been changed by multinational companies. They have created wrong perceptions in our minds. In the name “Jashan Manaly” by Coca Cola. They have diversified our youth. I must say those multinational companies who are exploiting our culture should be banned, like Coca Cola PEPSI, LEVIS because we have Alhamdu’lillah so many substitutes to encounter them.


Corporate Responsibility”, National Policy Association, available at www.bitc.org/docs/NPA_Global_CSR_survey.pdf Methodologies for Studying Corporate Social Responsibility”, Organization Studies, http://www2.warwick.ac.uk/fac/soc/wbs/projects/mncemployment/. http://www.pakistaneconomist.com/database2/cover/c2000-31.asp www.paksuzuki.com.pk References:
• • • • •

Alan M Rugman and Thomas L. Brewer, 2001: Oxford Handbook of International -Business. Johnson Debra and Turner Colin, 2003: International Business – Theory & Practice. Hibbert Adam, 2004: Globalization. Samir DasGupta, 2005: The Changing Face of Globalization. en.wikipedia.org


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