A Comprehensive Report on Multinational Corporations in Pakistan (MNCs in Pakistan)

1. Multinational Corporations - Definition:

Globalization has brought about many changes in the living standard of the people throughout the world. From a simple & small item such as a needle to massive machine, globalization is witness in every function of life. One of the fundamental reasons behind this is the growth of the Multinational Corporations or MNCs as they are frequently referred to. According to Investopedia, a good definition of an MNC is that A corporation or a company that has its assets and facilities in on country other than its home company. Such companies have offices and factories in other countries and generally have a centralized head office, form they coordinate global management. Very large multinational companies (MNCs) have budgets which exceeds even the budgets of small countries. When compared globally, nearly majority of the firms in the world are either American, European or Japanese. As these MNCs claim to create jobs, wealth and improve the living standards of the people and bring advanced technologies that are important for the development of such countries. Some of the big names western markets are Nike, Coca Cola, Johnson & Johnson, Unilever, Nestle, Barclays, Standard Chartered Bank, BMW, Mercedes etc. Whereas others say that the multinational corporation can have an undue political influence over the government, exploit developing or under developed nations and are a reason for job losses in home countries.

2. Multinational Corporations - Concept:

The concept of a multination company revolves around investment and revenue generation. As the company itself is located in a different region, therefore the investment is called Foreign direct Investment. This can also be done by expanding its operation form one to more countries and then further more form one city to many different towns and localities. In terms of ownership the company itself owns or partially owns the company. This owner ship is rendered in the form of Stocks. Stocks are offered for sale in the local financial market.

3. Multinational Corporations - Historical Background:

The historical evidence of an MNC dates back to as far back as trade itself. Especially in the Greek and Roman eras when the borders were openly marked and heavily fortified. In those days the traders had to travel long distances and carry the goods along with themselves, make the transactions and then once again travel long distance back to the home towns.

The definition of a multinational corporation fits perfectly on the Dutch East India Company (Vereenigde Oost-Indische Compagnie, VOC) which was formed back in 1602. This was officially the world first MNC as the authority to operate and govern the investment/revenue transaction resided at the home country which was Great Britain. This company was not only involved in trade but also possessed quasi-government powers, including the ability to wage wars, imprison and execute convicts. It sent nearly a million Europeans to work in other territories and paid annuls dividend of almost 18%, during its 200 year rule.

4. Multinational Corporations in Pakistan:

There has been a tremendous growth in the multination companies in Pakistan. According to KSE there are 165 companies operating in Pakistan, out of them there are 47 multination companies. The economic and the investment policies announced by the Government of Pakistan are the main reason behind this growth. Some of them are mentioned below: 1. Security of investment 2. Return of Capital up to 50% 3. Stability and Predictability of economy considering improved economic conditions 4. Availability of liquidity 5. Expanding infrastructure 6. Cheap Labour 7. Various areas of investment such as agriculture, textile, telecom, IT, energy etc.

Apart from the above, factors such as capital markets, liberal investment policy, liberal foreign exchange, friendly investment policies, No restriction on payment of royalties, National Industrialized Zones etc, are contributing factors towards the growth of MNCs in Pakistan. In Pakistan, as a contemporary trend any organization assuming the position of an MNC has to fall under two basic criteria namely; it should have its existence in other country/countries apart from the home country and the companys office structure has to be spread over a total area of 60 thousand sq. ft. The growth of the MNCs is evident from the growth in Profits and Dividends repatriated in June 2009 of around US $ 729.5 million by these MNCs operations in Pakistan. The four major sectors where multinational companies are operating are categorized under the industries which are mentioned below: 1. Pharmaceutical Industry: Pakistans Pharma industry is has shown a tremendous growth since the birth of Pakistan in 1947. Today there are around 400 units operating in Pakistan, out of which the share of MNCs is 25 units. The current market value of the Pakistani Pharmaceutical industry is around US $ 2 bn with a growth rate of 12% per annum. Whereas the share of Multination companies is around 6.5%. (Local companies growth rate is around 27%). GSK is the leading company with a market share of 15% with a turnover of Rs 8 billion. Other big names are ICI, Sanofi Aventis, Johnson & Johnsons, Abbot Industries, Pfizer, Lilly, Hilton, Merck etc.

2. Automotive Industry: Automotive Industry has been the one of the fastest growing industries. It has seen 70-80% growth around 2007-2008 especially due to car financing. Toyota is the leading multination company which was founded in 1937. Toyota has the honor of being the leading, most popular and most successful car manufacture in Pakistan., followed by Honda, Suzuki, Nissan, BMW, Hinopak in Pakistani market. The contribution to the GDP is 2.8% which further plans to growth by 5% at the end of 2015. 3. Banking Industry: Pakistan banking sector is playing a pivotal role in the growth of the economy. Today there are 36 commercial banks, which included 25 private, 4 public sectors and 7 multination banks. The total sector holds assets worth Rs. 6.5 trillion with a growth rate of 15.8 %.Where as the share of the foreign banks among the assets distributions around Rs. 241 billion. At present the growth is focused towards the Islamic banking sector in Pakistan. The multinational sector is contributing greatly towards the growth of this sector. Almost all the multinational banks are involved in Islamic operations. Standard Chartered bank is the leader among this industry with assets more than Rs. 314 million (as of 2009). The multination banks are SCB, HSBC, Bank Alfalah, Barclays, Citibank, Dubai Islamic Bank 4. Telecom Industry: Telecom industry of Pakistan has been on one of the highest growth rate in the world. It has seen a growth rate of 80% since 2007. Mobilink, Warid, Telenor and Zong are the multinational companies in Pakistan operating in the industry. Mobilink is the market leader with the market share of 31%, with more than 31 million subscribers, Telenor has 23.4 million, Warid 16.38 million and Zong has 6.7 million subscribers as of 2011. There are more than 97 million mobile subscribers in Pakistan. The remaining sectors along with the major players are: 5. Electronic Industry: a. Phillips b. LG c. Sony d. Samsung e. Intel f. Haier 6. Personal Care Industry: a. Unilever b. Procter & Gamble c. Johnson & Johnson

7. Energy Sector: a. Shell b. Caltex c. Byco 8. Food Industry: a. KFC b. Mac Donald c. Pizza Hut d. Pepsi e. Coca Cola

5. Contribution of the MNC in the Economy: Multinational companies have played a pivotal role in the development of human capital along with financial and infrastructural benefits to the local economy. These factors are discussed below: 1. Foreign Direct investment: The multinational companies attract a lot of FDI. Pakistan as a developing economy is in need of such investment. During the year 2008, the FDI form the multination companies investment was around $ 408 million. This was a high growth rate of 37%. A cumulative figure of FDI earned between 2001-2008 stands at $ 15.8 million. 2. Tax Revenue: Local government, which are also called host countries receive a huge amount of Tax amounts. The government collects tax revenue of Rs. 53 Billion in the year 2011.

3. Improved infrastructure: The multinational contribute toward the building of roads, railways, schools as a part of their CSR (Corporate Social Responsibility) initiative. Apart from form contributing towards the production facilities. Unilever has a Sustainable Living Plan for 2020 and contributed Rs. 2.3 million towards flood victims. Nestle dedicated Rs 64 million towards school development; Procter & Gamble contributed Rs 60 million towards children development. 4. Employment Opportunities: The MNCs in Pakistan are responsible for contributing towards both direct and indirect employment of the Pakistani nationals. With unemployment rate as high as almost 6% in 2012, the expansion of infrastructure and investment results in the increase of number of jobs. Only Japanese and Korean multination companies employ 150,000 people directly, contribute 29% to the GNP, 22 % to total the receipt.

6. Conclusion:
Pakistan today is facing tough economical and energy situations. Keeping in view the financial and social aspect the following factors are of immense importance in the Pakistani industry: 1. Tax Free Zone: The Government of Pakistan should implement a Tax free zone policy for the multinationals. This shall not only benefit the Multinational Corporations in Pakistan in expanding its operations but it will attract FDI on a massive scale.

2. Consumer Healthcare Commission: There are various MNCs in Pakistan operating in many different sectors. Therefore it is very important to ensure the active participation of the Health care and Quality assurance representative from the Government sector. This shall ensure two things: a. Quality products b. Customer Service c. Increased Competition 3. CSR and Poverty Reduction Collaboration: The Government of Pakistan has failed to fulfill the Poverty Reduction Goals of United Nation. Keeping in view the CSR initiative of the MNCs Pakistan the Government should realize the potential of the process and professionalism of the MNCs. It should join hand with these companies for social Uplifting. 4. Human Capital Optimization: The Government should take advantage of the quality human resource present at the multination companies in Pakistan. They should optimize the human talent by involving these professional to improve the equality of work and processes by imparting Training to the government sector. 5. Industry Policies and Regulations: The MNCs is Pakistan should have a proper Prudential Regulation industry wise. This shall ensure curtailing of the unethical practices in the industry. The PRs would also ensure quality of product and service. Government should regularize strict polices and regulation for this purpose.

The MNCs play an important part in the social, infrastructure and economical development of any country. Keeping in view the Pakistan status among the Developing nations, the Multinational Corporations in Pakistan are playing a critical role, which shall grow with the times to come.