Study on Bangladesh

April 15, 2013

The Prospects and Challenges of Multinational Corporation in Developing Country

Group Members
Richard Anick Gomes 091011072 Sharmin Chowdhury- 091011151 Rumana Afroz 091011025 Sibbir Ahmed 091011143 Asma Islam 091011116

Letter of Transmittal
13th August, 2012 To Nazmul Hossain University of Liberal Arts Bangladesh Subject: A study on Multinational Corporation in Bangladesh. Dear Sir, We the undersigned students were assigned to find the prospects and challenges of Multinational Corporation in developing country. In doing this analysis we have followed your guidelines. As per your direction, we have added information which is recommended in term paper.

We sincerely hope this term paper will fulfill the requirements suggested by you under the course International Financial Market. We hope it will be accepted by you.

Sincerely yours, Richard Anick Gomes Sharmin Chowdhury Rumana Afroz Sibbir Ahmed Asma Islam

Acknowledgement
At first we would like to thank Mr. Nazmul Hossain for giving us support, courage, and opportunity to work on this term paper. We are also grateful to those people without whom it was quite impossible for us to continue preparing the entire term paper. During our preparation, besides some point we did not face any major difficulty rather we enjoyed our each & every moment. All of the group members were really co-operative .We had done our research and web search and came to understand many events about this term paper.

Executive Summary
Multinational corporations can provide developing countries with critical financial infrastructure for economic and social development. In our term paper at first we find out what is the Multinational Corporation? We are finding that Multinational Corporation is an enterprise operating in several countries but managed from one (home) country. Generally, any company or group that derives a quarter of its revenue from operations outside of its home country is considered a multinational corporation. After the finding we are analysis that Multinational companies have become the central institutions of developing nations. The government of a country should be concerned about food security, industrial production and other commodities that the country needs for its citizens. These concerns encourage developing nations to implement transnational corporation to fulfill their necessities. The expansion of the business of MNCs has been going on with a great speed together with economic development, technological development and other prospects.

In the reason we can say that MNC also good for our Bangladesh. Because of many analysts believe that MNC is good for developing country economy. After a long analysis we found some factors that are good for our country and we also found some factors that are not good for our country. With the realization that multinational corporations create such a mixed bag of pros and cons for Bangladesh, there is a clear impetus to examine that there is some advantages and disadvantages of these institutions. To this end, this investigation considers what benefits and problems are engendered when multinational corporations establish themselves in developing nations. Through a careful consideration of the benefits and drawbacks of these institutions, it will be possible to identify critical businesses standards that should be used by these organizations. Further, by examining the advantages and disadvantages of multinational corporations, recommendations for what role the development countries should play in policing these organizations will be identified.

When multinational organizations get into a developing country, which time the local economic development changes. As a direct result the basic economic infrastructure of the country changes along with significant parts of local culture and tradition. So we see that MNC not only affect the economy but also affects the culture and tradition.

Finally, we can say that Multinational Corporations (MNCs) are providing notable benefits to the international countries. In addition to improving the standard of living in many developing countries, these organizations are also providing a strong source of economic development.

Tables of Content
Letter of Transmittal Acknowledgement Executive Summary Introduction Objectives of the Study Methodology of the Study Literature Review Findings & Analysis Advantages and Disadvantages Recommendations for Bangladesh Conclusions References 01 02 03 06 07 08 09 10 14 16 17 18

Introduction
Multinational companies have become the central institutions of developing nations. A
multinational corporation (MNC) or multinational enterprise (MNE) is a corporation enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. They play an important role in globalization. Multinational corporations are important factors in the processes of globalization. National and local governments often compete against one another to attract MNC facilities, with the expectation of increased tax revenue, employment, and economic activity. To compete, political entities may offer MNCs incentives such as tax breaks, pledges of governmental assistance or subsidized infrastructure, or sloppy environmental and labor regulations. These ways of attracting foreign investment may be criticized as a race to the bottom, a push towards greater autonomy for corporations, or both. MNCs play an important role in developing the economies of developing countries like investing in these countries provide market to the MNC but provide employment, choice of multi goods etc.

Below are some multinational companies: Apple Inc. BMW Citigroup Coca-Cola Dell Electronic Arts Unilever HSBC Intel Corporation Luxottica McDonald's Malaysia Airlines Nike, Inc. Red Bull Sony Computer Entertainment Toyota

Objectives of the Study

The objective of this study is to find out challenges and prospects of multinational corporation (MNC) in developing countries and also a study on Bangladesh. This study is about the development of Multinational Corporation in developing countries. Our main objectives is to analysis the challenges and prospects of Multinational Corporation to find their problems and conditions. Another objective of this study is what is the conditions of Multinational Corporation in Bangladesh and give some recommendations.

Methodology of the Study

Methodology includes direct observation, face-to-face discussion, study of files, circulars and practical work. We collected data in two ways. One is primary source and another is secondary source.
We have made necessary discussion among us regarding our information.

Desk research/ Internet research: We study on existing literatures by internet. Some analysis the recent study on Multinational Corporation and we summarize the important factors and define the most important factors.

Literature Review
BBC womens hour. Women and Globalization. BBC Womens hour. http://www.bbc. cok/rad io4/women hour/.Accessed June 22,2009. BBC World Service. Fast Food Factory. BBC World Service. http://www.bbc.co.uk/worldservice/specials/1616_fastfood/page2.shtml (accessed June 23,2009). Neidik, Abbey. Coca Cola Conquest. Microfilms Inc, 1998. Reynaldo, Martorell. Obesity. The Ifpri. February 11,2002. http://www.ifpri.org/2020/focus/focus05/focus 05_07.htm(accessed June 24,2009). Supp, Barbara. Quite Revolution. http://spiegel.de/international/world/0.1518.60581300.html (accessed June 14, 2009).

Findings & Analysis

First of all we need to know, what is Multinational Corporation? Multinational Corporation is an enterprise operating in several countries but managed from one (home) country. Generally, any company or group that derives a quarter of its revenue from operations outside of its home country is considered a multinational corporation. After the industrial revolution in Britain a lot of MNCs got birth. Since then the expansion of the business of MNCs has been going on with a great speed together with technological development and other prospects. Manipulation of markets has been back to the fold due to the upper hand of MNCs. The position of MNC in developing countries Multinational companies have become the central institutions of developing nations. The government of a country should be concerned about food security, industrial production and other commodities that the country needs for its citizens. These concerns encourage developing nations to implement transnational corporation to fulfill their necessities. It is difficult to say that, is MNC is helpful for developing country? Because many analysts believe that MNC is good for developing country economy and many thinks that MNC is not good for developing country. After a long analysis we found some factors that are good for developing country and we also found some factors that are not good for developing country. Now today MNC doing their business in many developing country. Our term paper is on prospects and challenges of developing countrys MNC. There are some good reasons that MNC helps in economy of developing country. MNC provides jobs and increase investment in developing country. MNC also helps to increase the national income and can sometimes even help in the development of the infrastructure of the developing countries. Although MNC has some advantages in developing country like Multinationals Corporation provides investments in developing countrys economies. They are valuable source of taxation, revenue and foreign exchange. They create employment.
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 They encourage positive work ethics. Allows access to markets already created. Multinational companies (MNCs) are not without benefits, which may be to the government, the economy, and the people or even to itself. Cole (1996) stated that the size of multinational organization is enormous; many of them have total sales well in excess of the GND of many of the world's nations. Cole also stated that World Bank statistics of comparison between multinational companies and national GNPs shows, for example, that large oil firms such as Exxon and Shell are large in economic terms that nations such as South Africa, Australia and Argentina are substantially greater than nations such as Greece, Bulgaria and Egypt. Some of the benefits of multinational companies are: There is usually huge capital investment in major economic activities. The country enjoys varieties of products, services and facilities, brought to their door steps. There is creation of more jobs for the common people. The nation's pool of skills is best utilized and put to use effectively and efficiently. There is advancement in technology as these companies bring in state-of-the-arttechnology for their businesses. The demand for training and retraining and advancement in the people's education becomes absolutely necessary. This will in turn help strengthen the economy of the nation. The living standard of the people is boosted. Friendliness between and among nations in trade i.e. it strengthen international relation. The balance of payments of nations in trade is improved on. MNCs are beneficial to less developed countries. They improve the foundations of a "backwards" economic environment through the diffusion of capital, technology, skills, and exports. MNCs have a direct effect on the development of a more citizen welfare conscious government. Accordingly, the number of jobs increases, consumer spending increases, the tax

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base grows and health care is more widely accessible. They also have an apparent lasting effect on the values and institutions of the host country. PROBLEMS/CHALLENGES DEVELOPING COUNTRY There is no company without problems it is facing. Whether an organization is big or small, there will certainly be some sort of problems or negative factor/influence militating against its survival or continuity. Weihrich and Koontz (1994) states that the operation of multinational companies needs to be weighed against the environmental challenges and most of the challenges being faced by multinational companies are: There is usually acute shortage of manpower - people with lack of managerial and technical skills. The challenge of unfriendly business environment. There is usually the problem of conflicting interest among the three parties - the government, the MNC and the general public. There may be huge cost of labor in the host country, at least to get the expatriate managers from home country or somewhere else. FACING MULTINATIONAL COMPANIES IN

EFFECT ON DEVELOPING COUNTRY The problems start when the MNC become much powerful then it begins to interfere in the government decision making process. In many cases the MNC has a higher turnover than the fiscal budget of the developing countries, than the MNC may try to divert the government decisions which is favorable for itself but may not be good for the country as a whole. These global companies are profit minded and they search for cheap human power, exploiting laborers rights in developing countries, especially of womens by giving them fewer wages and by misusing their rights. Thus, presence of multinational companies is promoting the existence of a callous environment for employees in third world nations. The existence of multinational companies mitigates poverty in developing nations. Most of the countries are involved in free trade, and they exchange commodities with each other. As the

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trade barriers are reduced, the rich nations dump cheap products into poor countries, and the multinational companies act as catalysts for this process. Conversely, the process of globalization has exploited manufactures in developing countries, and has caused massive disruptions in living conditions. As multinational companies have emerged in developing countries, local producers have to compete with these large companies, adversely affecting the local economy. Moreover, these multinational companies also use the national resources of these developing nations such as natural resources, infrastructure and human power. For example, some companies are making furniture by destroying forests in developing countries, which devastates the natural environment and affects the local furniture producers as well. Below are some factors that affect developing country by MNC

Companies are often interested in profit at the expense of the consumer. Multinational companies often have monopoly power which enables them to make excess profit. For example, Shell made profits of 14bn last year

Their market dominance makes it difficult for local small firms to thrive. For example, it is argued that big supermarkets are squeezing the margins of local corner shops leading to less diversity.

In developing economies, big multinationals can use their economies of scale to push local firms out of business. In the pursuit of profit, multinational companies often contribute to pollution and use of non renewable resources which is putting the environment under threat. MNCs have been criticized for using slave labor workers who are paid a pittance by Western standards

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Advantages and Disadvantages

MNC's directly and indirectly help both the home country and the host country. But there are advantage and disadvantages for home country and also for host country. Advantages of MNC's for the host country MNC's help the host country in the following ways The investment level, employment level, and income level of the host country increases due to the operation of MNC's. The industries of host country get latest technology from foreign countries through MNC's. The host country's business also gets management expertise from MNC's. The domestic traders and market intermediaries of the host country gets increased business from the operation of MNC's. MNC's break protectionalism, curb local monopolies, create competition among domestic companies and thus enhance their competitiveness. Domestic industries can make use of R and D outcomes of MNC's. The host country can reduce imports and increase exports due to goods produced by MNC's in the host country. This helps to improve balance of payment. Level of industrial and economic development increases due to the growth of MNC's in the host country. Advantages of MNC's for the home country MNC's home country has the following advantages. MNC's create opportunities for marketing the products produced in the home country throughout the world. They create employment opportunities to the people of home country both at home and abroad. It gives a boost to the industrial activities of home country.

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MNC's help to maintain favorable balance of payment of the home country in the long run. Home country can also get the benefit of foreign culture brought by MNC's.

Disadvantages of MNC's for the host country MNC's may transfer technology which has become outdated in the home country. As MNC's do not operate within the national autonomy, they may pose a threat to the economic and political sovereignty of host countries. MNC's may kill the domestic industry by monopolizing the host country's market. In order to make profit, MNC's may use natural resources of the home country indiscriminately and cause depletion of the resources. A large sum of money flows to foreign countries in terms of payments towards profits, dividends and royalty. Disadvantages of MNC's for the home country MNC's transfer the capital from the home country to various host countries causing unfavorable balance of payment. MNC's may not create employment opportunities to the people of home country if it adopts geocentric approach. As investments in foreign countries are more profitable, MNC's may neglect the home countries industrial and economic development.

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Recommendations for Bangladesh

The Indian Sub-continent has been an exquisite land of attraction for the businessmen since a long been. Bangladesh, after achieving birth in 1971 had become a fascinating body by the MNCs. As capitalization is going on through the world the MNCs are given an unwritten license to expand their business over the world. In this sequel action American Life Insurance Company ltd. Launched in Bangladesh as a first ever MNC. Since then to today around 100 MNC have been competing in Bangladesh. Since the mid 1980s, investment in developing countries has significantly increased, greatly due to globalization. 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. So Bangladesh will have less unemployment problem. MNCs are beneficial to less developed countries like Bangladesh. They improve the foundations of a "backwards" economic environment through the diffusion of capital, technology, skills, and exports. So Bangladesh need to be more focused on MNCs. MNCs has a direct effect on the development of a more citizen welfare conscious government. Accordingly, the number of jobs increases, consumer spending increases, the tax base grows and health care is more widely accessible. They also have an apparent lasting effect on the values and institutions of the host country. The values of the country change to reflect a country committed to staying in pace with a rapidly changing global environment; extending to political norms and nationalistic tendencies. Once there is openness to capitalism, or a more developed capitalist society emerges then there will be a more stable global society. However, in the end there really is no other more reliable way to improve the social, economic, and political environment of a state than by allowing a MNC to invest. So Bangladesh must need to be aware of this. List of some Multinational Corporation in Bangladesh
Chevron (PetroleumIndustry)

Grameenphone Ltd(Concern of Telenor,Telecommunicationindustry)

Unilever Bangladesh(FMCG)

British AmericanTobacco (Cigarette)

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Conclusions
After a analysis we found that in some country MNC doing good work and on the other hand in some countries MNCs works is not good enough. In analysis we also found that MNC interupt in government decision and it is not good for countrys economy. MNC also gain a huge amount of profit which is not helpful for developing like Bangladesh. Finally we would like to conclude that, sometimes MNC is good for countrys economy and sometimes it is not good for developing countrys economy.

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References
http://www.euppublishing.com/doi/abs/10.3366/E0954889008000078 http://voices.yahoo.com/multinational-corporations-their-effects-developing-385313.html http://www.youthkiawaaz.com/2010/01/multinational-companies-a-curse-to-developingcountries/ http://wiki.answers.com/Q/Do_Multinational_companies_help_in_economy_for_develop ing_countries http://voices.yahoo.com/multinational-corporations-benefits-drawbacks1982694.html?cat=4 http://ezinearticles.com/?expert=Oluwanisola_Seun http://ezinearticles.com/?Benefits-and-Challenges-of-Multinational-Companies%28MNCs%29&id=5171208 http://www.preservearticles.com/2012010319694/what-are-the-advantages-anddisadvantages-of-multinational-corporations.html

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