Economic Development Through Multinational Corporations: A Case Study of Pakistan

The role of multinational corporations in the global economy cannot be underestimated. Multinational corporations are business enterprises that operate in more than one country and operate in many areas primarily in technology, manufacturing, and services. Multinational Enterprises significantly help developing economies like Pakistan by providing employment, foreign capital, and new technologies. This article will look into how Multinational corporations can affect economic development in Pakistan by evaluating their background, investment activity and effects on different sectors of the economy.

Understanding Multinational Corporations

Multinational corporations (MNCs), also known as “big business,” are massive players in the world economy [1]. An MNC is a company that makes a range of foreign direct investments (FDI) into another country and exercises control over important operations in that country [2]. Alternatively, it can be described as a company that manages operations in more than one country, even if it does not own them [3]. MNCs are global companies that can have amazing influence over multiple aspects of modern society, such as the environment, security, jobs, communities, and even how a country works. An MNE may be considered any business that operates in more than two countries with a parent company in the home country and with branches abroad. Some of these businesses are very large and operate in over 100 countries and employ hundreds of thousands of people outside their home country [4]. For example, in 2022, IBM had 297,900 employees globally, which shows the magnitude of their operation. 

Role Of Multinational Enterprises

Multinational companies (MNCs) help countries grow by boosting industries, creating jobs, and bringing in new technology. In countries like Pakistan, they bring in money, provide employment, and help improve infrastructure. MNCs have a strong impact on both the countries they invest in and their home countries. Their investments can greatly influence the economy of the country they operate in [5]. They also help develop trade, better communication systems, transport, energy, and technology. MNCs work in many sectors, including manufacturing and food, and are a big part of the global supply chain [6]. About 20% of non-farming jobs are provided by these companies, especially in industries that use advanced technology. They also help share technology and skills, open up new types of businesses, create more jobs, and reduce debt [7]. According to IMF, the key mechanism for MNCs to grow and expand to the global market is through Foreign Direct Investment (FDI), which is described as the investment of capital for the long term in a foreign country [8]. Foreign direct investment, or FDI, refers to the investment that a company makes in a country where it doesn’t have residency [9]. This type of investment is often seen as more stable and manageable compared to other forms, which is especially important for developing nations. FDI has grown a lot over time. In the 1990s, developing countries got around $150 billion in FDI each year. By 2005, it had increased to $334 billion, and by 2010, it was almost $574 billion a year, according to a UN report [10]. FDI helps countries by connecting them to the world economy and boosting growth. One major benefit MNCs give developing countries is advanced technology. They bring in research and development that local companies may not be able to afford [11]. This leads to more innovation and better productivity. MNCs also offer a lot of jobs and improve workers’ skills. These jobs often pay better than local companies. For example, global companies in Hungary and Brazil paid 4% to 6% more than local firms. In Indonesia, foreign-owned factories paid 33% more to factory workers and 70% more to office workers compared to local companies [12]. 

Case Study: Impact of MNCs in Pakistan

Multinational corporations contribute to the economic development of developing countries, especially in places like Pakistan. Pakistan has faced several obstacles, including political instability, poor governance, inconsistent policies, security threats, including terrorism, and uncontrollable corruption. Despite these hurdles, Pakistan was able to attract foreign investors to address the growing needs of the consumer as well as create economic development. Presently, Pakistan has about 30,000 companies that are foreign-owned and involved in value-added processes, 600 of which receive large investments from foreign investors. Numerous local Pakistani businesses have also formed joint ventures with international businesses. These companies have added to Pakistan’s economic development in many ways through production, marketing plans, strategic alliances, and technological exchange. If the country is able to overcome the obstacles discussed above, foreign investment could further increase significantly as a part of Pakistan’s economic development. Other factors that attract investors are that Pakistan has a low cost of labor, which supports labour-intensive sectors. Pakistan is one of the many developing countries where labour is cost-effective. Global brands producing their products in these countries have labor costs covering only 1% to 3% of the final retail price, while their profit margins are greater than 50% [13]. While perhaps not a point of pride, Pakistan’s comparatively weak regulatory environment allows multinationals to earn a significant profit with fewer restrictions. In addition, the falling value of the Pakistani rupee against the US dollar has made investment more affordable and attractive, especially for international businesses. Pakistan is strategically located at the crossroads of Asia, providing direct access to Central Asian states rich in resources, bordering China and India, and having a long coastline along the Arabian Sea to support international shipping. The adaptability of Pakistan’s economy and its beneficial regional position can provide various advantages for multinational companies. 

The history of foreign investment by multinational companies in Pakistan goes back to the early 1900s. In 1913 Steel Brothers made an investment in Rawalpindi, and thus what we now call Attock Oil was established. In 1932, the German company Siemens invested in the power and electrical infrastructure. Then in 1935, Imperial Chemical Industries invested in a soda ash plant at Khewra and took advantage of the naturally occurring limestone and salt in the area. After independence in 1947, a number of global companies, including Unilever, Shell, Burma Oil, Imperial Tobacco, banks, and many others, looked at Pakistan as a promising investment location. All of these investments helped to increase the potential of foreign capital inflow and development of Pakistan’s economy. There are now many joint ventures between Pakistani entrepreneurs and foreign entities, which are the main sources for attracting foreign capital, ensuring technology transfer, and developing this nation’s economy [14]. In recent years, a number of multinational companies have invested in Pakistan, including $177 million from China in April 2024 alone. The US and UK were also two of the biggest foreign investors, contributing $190 million and $122 million, respectively. The UAE, Norway, Japan, the Netherlands, and Singapore were also noteworthy contributors to foreign direct investment in Pakistan. These corporations have created jobs in key economic sectors such as energy, IT, pharmaceuticals, textiles, power, engineering, mining, telecommunications, beverages, oil and gas, and banking. These Jobs have helped lessen poverty and triggered economic development. It is safe to say that Pakistan provides a number of strategic advantages to multinational companies, making it an attractive destination for international investors. 

Conclusion

Multinational corporations have been an economic driver in Pakistan in a number of ways. They have created employment, developed and maintained infrastructure, collaborated with local industries, and also provided access to modern technologies and business practices. Although there are challenges to the MNCs in Pakistan, like poor governance, enforcement of regulations, etc., there are also many advantages to foreign investors operating in Pakistan. With the right policies, Pakistan can continue to attract MNCs to invest in its economy. This shows that MNCs operating in a smart and fair government policy environment can be a positive force for development.

References

[1] ‘Leviathans: Multinational Corporations and the New Global History’ (2005) 43 Choice Reviews Online 43 <https://doi.org/10.5860/choice.43-1688> accessed 12 April 2025.

[2] David P McCaffrey and John H Dunning, ‘Multinational Enterprises and the Global Economy’ (1995) 40 Administrative Science Quarterly 189 <https://doi.org/10.2307/2393707> accessed 12 April 2025.

[3] Michael R Smith and Peter Dicken, ‘Global Shift: Transforming the World Economy’ (2000) 25 Canadian Journal of Sociology 399 <https://doi.org/10.2307/3341650> accessed 17 April 2025.

[4] Irfan Ul Haque, Muneera Moulabuksh Ahmed and Syed Zubair, ‘The Relevance of the Value System in the Performance of Multinational Companies in Karachi, Pakistan’ (2021) 4 Pakistan Journal of International Affairs <https://doi.org/10.52337/pjia.v4i1.160> accessed 17 April 2025.

[5] Richard E Caves, ‘Causes of Direct Investment: Foreign Firms’ Shares in Canadian and United Kingdom Manufacturing Industries’ (1974) 56 The Review of Economics and Statistics 279 <https://doi.org/10.2307/1923965> accessed 17 April 2025.

[6] United Nations Research Institute for Social Development (UNRISD), Combating Poverty and Inequality: UNRISD Flagship Report 2010 (United Nations Publications 2010).

[7] Sir Leon Brittan, ‘Investment Liberalization: The Next Great Boost to the World Economy’ (1995) 4(1) Transnational Corporations 1 <https://www.international-arbitration-attorney.com/wp-content/uploads/investment-liberalization-the-next-great-boostto-the-world-economysir-leon-brittanthe-libera.pdf> accessed 17 April 2025.​

[8] IMF, Balance of Payments Manual, 5th edn (International Monetary Fund) <https://www.imf.org/external/np/sta/bop/bopman.pdf> accessed 10 February 2025.

[9] James Chen, ‘Foreign Direct Investment (FDI)’ Investopedia (12 May 2019) https://www.investopedia.com/terms/f/fdi.asp accessed 17 April 2025.

[10] United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2010: Investing in a Low Carbon Economy (United Nations 2010) https://unctad.org/webflyer/world-investment-report-2010-investing-low-carbon-economy accessed 17 April 2025.

[11] Jeffrey A Hart, The Politics of International Economic Relations (Routledge 2013) <https://doi.org/10.4324/9781315006154> accessed 17 April 2025.

[12] Carlos Lozaday, ‘Multinationals, Wages, and Working Conditions in Developing Countries’ (2001) <http://www.nber.org/digest/oct03/w9669.html> accessed 24 January 2012.

[13] Workers Rights Consortium, ‘The Impact of Substantial Labor Cost Increases on Apparel Retail Prices’ (2005) <https://ecommons.cornell.edu/bitstream/476a5ed3-b0dc-4578-8dfe-a4d0838cde79/content> accessed 17 April 2025.

[14] Irfan Ul Haque, Muneera Moulabuksh Ahmed and Syed Zubair, ‘The Relevance of the Value System in the Performance of Multinational Companies in Karachi, Pakistan’ (2021) 4 Pakistan Journal of International Affairs <https://doi.org/10.52337/pjia.v4i1.160> accessed 17 April 2025.