The Multinational Corporations (MNCs) are exiting. The MNC bonanza draws to minimalism. The high and mighty have been voicing their concerns, and attributing rationale for their departure. Their comments are well-founded, so to speak. In a nutshell, this complex phenomenon is summed up as follows:
1- MNCs are powerful entities – they have more money than most sovereigns. If a geography or country does not fit in their current strategic planning, they exit.
2- The MNCs, in addition to their current balance sheet, also do ‘scenario’ planning—usually for a 15-20 year horizon. The long-term numbers emanating from Pakistan are not exciting.
3- One of the most important reasons is that the cost of doing business in Pakistan is too high. The financial, social, security compliance (especially back home), family and the reputational costs all add up to a daunting figure besides other but equally important considerations.
4- The rapid spate of Mergers & Acquisitions since the 1990s has reduced the number of entities, especially in the Pharmaceuticals, Chemical & Financial sectors.
In 1947 some MNCs had factories in Pakistan. Most notably, ICI’s soda ash plant was in Khewra and Steel Brothers’ oil refinery near Rawalpindi. The Korean War prompted the US government to encourage western companies to invest in Pakistan and Turkey.
And so they did. By 1965 huge MNC investments poured in. ICI extended its manufacturing operations, Lever Brothers in Rahimyar Khan; and there was a pharmaceuticals galore. The so-called 22 families were also going full throttle. Pakistan was a business hub.
The MNCs during 1953-1968 period made a significant contribution in the following realms:
1- Management skills and knowhow for the fine art of managing companies.
2- The infusion of corporate life styles.
3- Limited technology transfer.
It is important to document that the MNCs did not allow much autonomy to the local affiliates. The Gora or foreign representative on the Boards of Directors of the MNCs called the shots or the regional office located offshore did. To my knowledge the only MNC in Pakistan that had some ‘Strategic Autonomy’ was led.
The Esso fertilizer company in Daharki, Sindh, had to play by the Esso (later Exxon) rule book. After the employee buyout of Esso Fertilizer (renamed Engro), the full creative energies of professionals in its management were released.
Engro went from success to success under the tutelage and leadership of their new management teams. This very significant management development has not been fully documented by the business schools and taught as a case study. I can cite many more examples of the ‘Limited Autonomy’ the local teams had but I’ll give it a miss. Better to be safe than annoy old friends and bosses.
The investment/business climate started deteriorating around 1968 as mass agitation against the Ayub regime gathered momentum.
When the Pakistan Peoples’ Party (PPP) assumed the reins of government in a truncated Pakistan, in 1971, the MNCs and the big local groups were on high alert. PPP’s Nationalization Act confirmed their fears. But the party soon realised that if the huge nationalization programme, seen as a hostile act, had to succeed it would need trained and experienced professionals for their management. It reached out to the MNCs’ chiefs in Pakistan for stewardship.
It recruited quite a few executives from within the MNCs operating in the country but alas most of them quit within 5 years. They were hounded out by the bureaucrats who were keen that the nationalized institutions were just another fiefdom of the civil service.
Pakistan had joint/additional secretaries managing steel mills, chemical plants. Even DFIs (Development Finance Institutions). Insurance companies, etc.
Fast forward to August 2024. The bounce after Covid was strong but short-lived. However, both corporate & consumer spendings rose slightly above average.
MNCs have cash & credit lines. Some markets look attractive. The GCC is again leading with its two pronged- strategy: (1) Developing internally, (2) Buying Assets abroad. Unfortunately, Pakistan is not on the menu. It will be a long haul (reforms, etc.) before MNCs look this way.
Copyright Business Recorder, 2024
The writer is a former Executive Director of the Management Association of Pakistan
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