Table of Contents

EXECUTIVE SUMMARY.........................................................................3
INTRODUCTION..................................................................................4
OVERVIEW OF THE COMPANY..............................................................4
HUMAN RESOURCE MANAGEMENT ISSUES............................................5
Hiring Expatriates as senior managers...............................................................5
Absence of HR strategy within Sri Lankan organizations....................................7
Talent development and its retention.................................................................8
Absence of Performance Appraisal in Sri Lankan organizations..........................9
Cultural differences............................................................................................ 9
Lack of Strategic knowledge.............................................................................10
MAJOR LEGAL ISSUES TO BE AWARE OF WHILE OPERATING IN SRI LANKA
.......................................................................................................10
Rule of law of Sri Lanka.................................................................................... 10
Company law.................................................................................................... 11
Contract law..................................................................................................... 11
Foreign investment law in Sri Lanka.................................................................12
Protection law................................................................................................... 12
Leaves and Relevant Benefits...........................................................................12
Termination of contract..................................................................................... 13
Taxation............................................................................................................ 13
Property Law..................................................................................................... 13
Foreign Exchange law....................................................................................... 13
Intellectual Property law................................................................................... 14
Environmental protection law...........................................................................14
POLITICAL ISSUES & RISKS................................................................14
Board of Investment......................................................................................... 15
Sri Lankas Political status on international level..............................................15
Declining Foreign Direct Investment (FDI) value..............................................15
Top Risks making Sri Lanka Politically Unstable................................................15
Instable Government Policies........................................................................... 16
Ideological Conflicts between Diverse Union Governments..............................16
Absence of Political Resolution.........................................................................16
Weak Judiciary and Legal system.....................................................................17
Fluctuating Electricity Prices............................................................................. 17

Slow Economic Growth..................................................................................... 17

Corruption......................................................................................................... 18
Terrorist Groups in Sri Lanka.............................................................................18
ADVANTAGES OF OPERATING WORLD-WIDE........................................19
Advantages of going multinational for the BA Company..................................19
Advantages of going multinational for Sri Lanka..............................................19
Other advantages for BA..................................................................................20
WHY SHOULD THE COMPANY OPERATE IN SRI LANKA?........................20
Supportive government policies for foreign investors......................................20
Educated and Skilled Workforce.......................................................................21
Strong practice to UN and International Laws..................................................21
Strong Location................................................................................................. 22
Plans for developing Infrastructure...................................................................22
Attractive business environment for foreign investors.....................................22
BIBLIOGRAPHY.................................................................................23

Executive summary

Following are the chief outcomes of the four identified risks and issues prevailing in
Sri Lanka:
Human resource management: There are very distinct variations in the culture, HR
procedures and society between both countries including unavailability of strategic HRM,
inability to develop and retain talented workforce, absence of performance appraisal methods
and lack of strategic knowledge. The possible solutions for these include provision of
strategic HRM and Performance appraisal process, seeking means to develop, train and retain
skilled employees, and lastly provide strategic knowledge to the managers.
Legal implications: Sri Lankan democracy is declining due to its deteriorating rule of law. It
is a result of replacement of human rights, independent judiciary and freedom of talk by the
highly centralized power of Executive presidency, ongoing anti-terrorism laws and
indulgence of armed forces in suppressing the protests. Laws regarding the foreign investors
provide assurances to some extent but their implementation remains doubtful.
Political issues and risks: Sri Lanka is currently under dark clouds of falling economy and
continual rising political risks. This is due to its poor public relations in global arena, its weak
enforcement of Rule of Law, rigid bureaucratic rule, inability to cope with rising conflicts,
non-serious attitude of public authorities, and disability to enforce set policies.

Benefits of going multinational: The most important advantages of expanding business on

international level include supportive governmental policies for foreign investors, educated
and skilled workforce, strong practice to UN and International Laws, strong location, plans
for developing Infrastructure, and attractive business environment for foreign investors.

Introduction
In this formal report, the challenges and feasibility of expanding business in Sir Lanka
is assessed in three dimensions namely Human resource management (HRM), Legal and
Political. In the last, advantages of going multinational are being discussed.
While discussing HRM issues, the cultural and social differences between the two
countries have been explained and possible effect these differences can bring on the HRM
practices. The major focussed issues discussed here include unavailability of strategic HRM,
inability to develop and retain talented workforce, absence of performance appraisal methods
and lack of strategic knowledge
Under the legal challenges, rule of law situation is discussed followed by some
important Sri Lankan laws regarding the foreign investors.
Political risks have been identified and assessed with the help of recent events. This
part of report involves the most of the research from the authentic sources. This segment of
report ends with discussing the slow economic growth of Sri Lanka and its corruption and
terrorism scenarios.
In the last part of the report, some general and most important advantages have been
explained to support the argument of going multinational, and especially in Sri Lanka.

Human Resource Management Issues

When an organisation is established and operated on a global level, it faces several
consequences while implementing HRM policies in both local and global states. For example,
it hires diverse workforce with varying cultures, expertise, skills and languages. This requires
the management to cope with the totally new employees and treat them fairly. It requires
them to award promotions and incentives to all without any biasing behaviour. Each and
every information needs to be shared among all organisational units, no matter how far they
are, through online sources, such as email, video-conferencing, internet, intranet and sharing
of electronic data. Moreover, the global organisation needs to invite all members and
authorities during decision making. Thus, the company has to operate effectively in both its

headquarters and subsidiaries, otherwise variations of culture, economics, wages and

government employment policies can affect its HRM operations and reputation drastically
(Kim, Park and Prescott, 2014).
Some of the highlighted HRM practices include performance appraisal and
compensation policy, job satisfaction and security, training and development, selection and
recruitment, teamwork and information sharing (Abdullah, Boyle and Joham, 2009).
Every country has its own policies and procedures for implementing the HRM
practices. BA cannot simply implement its national HRM policy in its Sri Lankan subsidiaries
due to various issues, which are detailed here below:

Hiring Expatriates as senior managers

The role of senior managers is the most crucial one because their actions and
performance decide the profit or less level of the company. This section of hiring expatriates
as senior managers will through light on the recruitment policy of BA. A subsidiary is
completed after hiring of its senior managers. Before recruiting an expatriate managers, their
advantages should be considered if they align with the strategic objectives of the business.
Some of the businesses goals can be well achieved by the expatriates but effectiveness is
essential in accomplishing them.
Definition of expatriate. An expatriate an employee who is sent to live abroad for a
defined time period. Companies use expatriate managers and send them abroad for highpotential career development and to co-ordinate global lines of business (definition of
expatriate, 2014).
If BA prefers to appoint UK managers on the key positions for the new hub then it
would be an ethnocentric staffing policy in which expatriate are preferred to run a subsidiary.
Following will be the main advantages of expatriate managers.
Advantages

They will have a better insight and experienced knowledge of conducting business than local

ones.
The headquarters will be able to easily communicate with them since they will among their

previously existing managers.

An expatriate can provide trusted and effective oversight for the head office about foreign

operations. This will also allow closer monitoring and coordination with the new subsidiary.
The process of international assignments will give the employees an international exposure

and train them for future leadership promotions.

Company can get a competitive advantage in foreign markets by managing the business

effectively through the expatriates.

Expatriates can be helpful in unifying the corporate culture, it will also bring in the cultural

similarity with the way business and management is done in the home country.
An expatriate can also bring in managerial or technical expertise that are insufficient in Sri

Lanka. Expatriates will also help transfer core competencies to local management.
Senior posts being covered by home country managers will gives the company dominant
power. This will also help company to maintain their standard & foreign representation in the

host country.
The cost will be less because the cost of lengthy recruitment process will be saved.
Training the locals with our expertise can make them lead future projects, which is fruitful for
companys long-term survival (Boyacigiller, 1990).
Shortcomings

It is not easy and there are a lot of difficulties to be faced, upon choosing expatriates.
Expenses include shifting of an individual or family abroad and the time consumed in their

adjustment with the changed culture and lifestyle which can be highly expensive.
Presence of expat manager would limit the promotion opportunities of the host national
countries which may result in the reduced productivity and higher staff turnover among that

group.
Expatriate managers may take longer to understand the local dynamics which might result in

the wrong decisions.

Following this approach will send wrong message to the Sri Lankan people. It will mean that
the company believe that there is a lack of qualified managers in host country. This will also
mean that the company just want to focus on its culture and little regard for others culture.

This is also called as cultural myopia.

It also cost more to send your own manager to a different country as more allowances such as
travel allowance and daily allowance.

An expatriate may face personal and family problems, as they will be living away from their
family, and this may lead to a high failure rate. The expatriate may return back to the home

country soon or the expatriate employee may fail to meet the performance targets
Expatriate failure can cost 3 times the expatriates remuneration therefore it is significant to
take the right decisions. UK has 38% expatriate failure rate. Sri Lanka is a developing
country and so the chances of our managers to fail are quite high. However these problems
can be mitigated if BA carries out the requirement and selection process carefully in the UK.
BA will need to carry out extensive cross culture training in the UK before sending their
employees to Sri Lanka, and these training should be carried out by someone who is based in
Sri Lanka and is well aware of the ground realities.

On the other hand, upon their return after the completion of an extensive project or their
failure to execute the job, readjustment back in home country will be another issue it mainly
include Career anxiety, Loss of status and pay, Social consideration, Effect on partners
carrier, Organisational responses.

Hiring local managers

If BA decides to hire locals on senior posts then it will be a polycentric staffing policy in
which locals are preferred to run the subsidiary. Following are the advantages of doing so:
Advantages

It will cost less to recruit local managers from Sri Lanka since their benefits and salary

package charges will be less comparatively.

Locally hired managers will not face obstacles raising from language differences. Moreover,
the cultural and language harmony will prevent the company from spending money on

cultural and linguistic training courses.

Local hiring of managers will assist in efficiently managing the local politics and
management. Moreover, the company will be praised by the society when they see their local

citizens being hired in it.

This will promote cultural diversity in the BA Company.
Locally hired managers will assist BA in understanding the Sri Lankan working environment.
Disadvantages

 Additional costs will be spent during the hiring, selection and evaluation process of the local
managers. Moreover, their benefits will be set only as directed by the Recruitment agency
and companys policy.
The local managers cannot get experience as they could have gained by working outside Sri
Lanka.
Since the Sri Lankan company branch is isolated from the main subsidiary, the difference of
policies, communication, coordination, attitude and objective among both countries can raise
obstacles.
Communication gap can be raised due to language barrier between both countries. This will
increase the cost to be spent on the training of Sri Lankan managers to meet the objectives set
the BA Company.
According to Welch et al. (1998), lack of experience can lead to wrong decisions.

Absence of HR strategy within Sri Lankan organizations

i. Issue No 1.
Every company is able to meet its set objectives and goals only when it has a sound
HR strategy complying with its set mission. Sri Lankan companies do create HR strategies
but do not compile and document them in written formats. This is a very big issue for the
international companies like BA who seeks for starting their businesses in it. When there are
no written forms of HR strategies, the company cannot get a written proof of what possible
policies and guidelines do those Sri Lankan companies hold. This will put the company in
ambiguity that whether there are any such policies or company practices any procedure on
their own (HR challenges, 2013).
ii. Issue No. 2
Secondly, the HR strategies of Sri Lankan companies do not award Employee Value
Proposition (EVP) i.e. the performance of the employees are not balance with their
compensation packages and other incentives and rewards (HR challenges, 2013).

Talent development and its retention

iii. Issue No 1.
The Sri Lankan companies do not focus on talent and expertise while hiring
employees, rather they focus on mere personalities and status. In this way, the BA Company

will be faced with inadequacy of skilled workforce since its HR will not focus on finding
talented ones. Thus, it wont be able to progress well in Sri Lanka as compared to in the UK
and Italy (HR challenges, 2013).
iv. Issue No 2.
The Sri Lankan HR strategies are not strong enough to retain its minimal, yet talented
workforce. This is due to various reasons including unjustified pay packages, low quality of
management, absence of health benefits, long working hours, and inequality between
employees talent and their job responsibilities and duties (Ariyawansa, 2008).
Moreover, the talent retention is further threatened by poor roles of managers within
Sri Lankan organisations, as detailed below:

The managers expect excellence in the performance of their employees and do not motivate
them on their any slight progress. They further degrade by insulting them and giving bad
remarks for the poor performances in front of all colleagues and workforce (Ariyawansa,

2008).
Managers do not detail job roles in detail, rather prefer quick ways of communication via
email or voice mail. This hinders the direct communication between managers and their

workforce.
The employees are not trained or provided coaching under leadership of their managers.
Decision making is only done at top management level and excludes employees in it. This is
quite contrary to UK companies where decisions are made by consulting both top to bottom

management and workforce.

Talented employees are not appreciated through incentives or job promotions.
Issues at employees level are not resolved by managers. This prolongs the situation and
slows down the production and performance (Ariyawansa, 2008).

Absence of Performance Appraisal in Sri Lankan organizations

v. Problem.
Recent studies have shown HR managers in Sri Lanka do not consider Performance
Appraisal (PA) as a necessary tool for enhancing the performance of their workforce and
businesses. The managers have established a vague organisational culture in which good
workers are not rewarded for better performance, and weaker ones refrain from performing

well and hesitate to get their work evaluated. This often results into lesser work competition
and more jealousy among employees (Opatha, 2013).
Moreover, Line managers do not train and develop their employees. They are not even
advised by the top management to practice PA within the company. As a result, the Sri
Lankan companies either lacks absence of PA, or even they get one established, it is very
weak due to inadequacy of PA and HRM knowledge among its managers (Opatha, 2013).

Cultural differences
vi. Problem.
The Sri Lankan organisations has poor evaluation of organizational culture due to
which a wide gap has been arisen between old top management and up-to-date lower staff.
This shows that when Sri Lankan firms do not give importance to their existing culture, how
they can assist the international employees culture dwell within their own (HR challenges,
2013).

Lack of Strategic knowledge

vii. Problem.
The HR managers in Sri Lanka lacks strategic knowledge since they invest more time
in resolving operational problems rather than mitigating strategic ones. Moreover, their
inadequate strategic skills and experience hinders them from becoming CEO, a position
which is mainly taken by the financial experts (HR challenges, 2013).

Major Legal issues To Be Aware of while operating in Sri

Lanka
Arbitration centre of Sri Lanka resolves the arguments and disputes between the
business entities (Ezendu, 2013).

Rule of law of Sri Lanka

Rule of law is defined as a set of legal rights and regulations which generate
flourishing and just societies. It applies equal law for all, either public or government, in
order to protect fundamental rights and prevail justice wherever reachable (Keerthisinghe,
2014).

Sri Lankan democracy is declining due to its deteriorating rule of law. Currently, Sri
Lanka itself and many other countries are showing grave concern for current situation for its
rule of law. New Zealand reported that Sri Lanka is nowadays avoiding its rules of law and
practice of human rights which is quite condemnable (Rule of Law, 2013). Indian and
Canadian government are avoiding to go there because of current rising human rights
violations in Sri Lanka. The current deteriorating condition of its rule of laws is a result of
replacement of human rights, independent judiciary and freedom of talk by the highly
centralized power of Executive presidency, ongoing anti-terrorism laws and indulgence of
armed forces in suppressing the protests (Pinto-Jayawardena, 2013).

Generally, the legal considerations for investing in Sri Lanka puts forward two
general laws which must be followed in order to initiate investment here i.e. the Commercial
law of Sri Lanka and the General contract law (Harris and Varia, 2010).
Following are the most important legal issues, which would be of consideration
before going to Sri Lanka:

Company law
According to this law, the foreign companies which are incorporated outside of Sri
Lanka, and after the date of contract made established their businesses within Sri Lanka, must
consult the register for registration, right after one month of its date of establishment. The
company registrar under the Act is granted complete authority over its land. However, if it
decides to transfer the property ownership to some other company etc., it is subjected to
100% tax which worth the value of the property (Harris and Varia, 2010, p. 1).

Moreover, the foreign companies, that initially had business running within Sri Lanka,
before signing under Company law, must get itself registered as an overseas company. It can
be done by providing all required documents to the registrar, thereby getting a certificate of
registered overseas company from it (Harris and Varia, 2010, p. 1).
The documents which needed to be submitted to the registrar include certification of
the companys constitution, personal and official information of the company directors, a Sri
Lankan citizen who represents the company and proves its authenticity on his behalf, address
of international headquarters of company (in this case its UK address of BA) and its location
within Sri Lanka, and lastly documented proof of companys incorporation (Harris and Varia,
2010, p. 2).

Contract law
This law stated that all companies which sign contract with the government,
companies or local authorities, and the contract worth a value above US $50,000 must get
their contract governed by the Public Contract Act. The relevant contracts representatives
must get the contract registered by the registrar of the Public contract law (Harris and Varia,
2010, p. 2).

Foreign investment law in Sri Lanka

Foreign investment is allowed in several areas of economy. In order to invest in Sri
Lanka, the foreign companies must open a Share Investment External Rupee Account
(SIERA) in the Commercial bank of Sri Lanka. No foreign company can acquire shares if it
not approved by the Central bank of Sri Lanka (Harris and Varia, 2010, p. 2).
Restrictions. Foreign investors have to face numerous restrictions while investing as
discussed here below:

Foreign companies cannot invest in money lending or retail trade when the share
capital is less than US $1 million (Harris and Varia, 2010, p. 5).

In production sector, the foreign investment is allowed up to 40% of the share capital

of the related Sri Lankan company.

In transportation and shipping industries, foreign investment margin is set by the Sri
Lankan government and legal authorities.

Leaves and Relevant Benefits

Annual leaves are awarded depending on the month in which the employees are hired.
For example, 14 days annual leave is awarded to those who get employed between 1st January
and 31st March. Similarly, 7 days annual leave is awarded to those who get jobs between 1st
July and 30th September. Casual leaves are awarded 7 annually depending the reason is
private matter or sickness. Similarly, maternity leave is awarded for 84 working days
(Shamal, 2013).

Termination of contract
The contract of working employees cannot be terminated by the will of the employer
when the employee is working for more than one year. The termination is awarded only in
two cases. Firstly, the employees himself/herself applies for termination of the job contract,
or the termination is approved by the Labour Commission (Shamal, 2013).

Taxation
The persons who are employed in both Sri Lanka and other state is freed from double
taxation. United Kingdom and Italy is among those countries with which Sri Lanka has
signed Double Taxation agreements. However, Stamp Duty tax is imposed on every exported
and imported instrument. Moreover, 100% tax on share capital is imposed on foreign
companies who decide to transfer their ownership (Harris and Varia, 2010, p. 3).

Property Law
The Sri Lankan government impose Property law according to which a special
taxation is imposed on foreigners who buy land and property there. Moreover, the foreigner

can purchase the land after getting permission from Controller of exchange. Additionally, if a
foreigner sale the property, he/she can transfer that capital money abroad only after getting a
approval for doing so (Harris and Varia, 2010, p. 3).

Foreign Exchange law

The Exchange Control act imposes several restrictions in following cases:

While borrowing money or making transactions.

During settlement of property.

During import and export of goods.

In matters dealing with securities and debts (Harris and Varia, 2010, p. 3).

The Controller of exchanges grants permission for above matters only when the
foreign company has approval from the Central bank of Sri Lanka (Harris and Varia, 2010, p.
3).

Intellectual Property law

The law relating to intellectual property rights in Sri Lanka is contained in the
Intellectual Property Act No. 36 of 2003 (the 2003 Act). The 2003 Act is consistent with
the World Trade Organisation's Agreement on Trade Related Aspects of Intellectual Property
Rights and provides protection for literary, artistic and scientific works and rights of
performers. It also allows for the protection and registration of industrial designs, patents,
trademarks, trade names and layout designs of integrated circuits (Harris and Varia, 2010, p.
4).

Environmental protection law

The National Environmental Act inspects companies, assesses the effect of their
working on environment, and issue license to those who protect environment at most (Harris
and Varia, 2010, p. 4).

Political issues & risks

Sri Lanka is currently under dark clouds of falling economy and continual rising
political risks. This is due to its poor public relations in global arena due to which foreign
investors are stepping back from collaborating with Sri Lanka. Other reasons which are
adding to the downfall of political reputation of Sri Lanka include its weak enforcement of
Rule of Law, rigid bureaucratic rule, inability to cope with rising conflicts, non-serious
attitude of public authorities, and disability to enforce set policies (Overseas business risk Sri
Lanka, 2013).

Highlighted political risks of which the company must be concerned for are discussed
here below:

Board of Investment
The present condition of the Board of Investment (BOI) is deteriorating. Initially, it
was designed to facilitate investors, but currently it is unstable due to its excessive indulgence
of Economic Development Ministry (EDM) in it. Moreover, EDM has put a restriction on
BOI i.e. it can only provide an allowance up to the set limit of US $3 million, which is quite
insufficient as compared to US $500,000 allowance mainly awarded in other countries.
Additionally, the foreign investors have to face political issues by not only BOI, but also from
Tourism authority, Health ministry, Sri Lankan government and all authorities who are part of
that project (Overseas business risk Sri Lanka, 2013).

Sri Lankas Political status on international level

Currently, the declining public and media relations has ranked Sri Lanka among the
most politically risked countries. For example, OECDs Country Risk Classification Report
has rated Sri Lanka as 6, on a scale of 0-6, as the most risked country for investors. Similarly,
Sri Lanka has been reported to contain maximum political risks according to the 2009 report
of the MIGA World Investment Political Risk. Due to its political instability, Sri Lanka has
now been mapped on Political Risk Map among countries such as Libya and Egypt (Overseas
business risk Sri Lanka, 2013).

Declining Foreign Direct Investment (FDI) value

The political instability and risks has pictured Sri Lanka as a most risky business
region. Due to it, the investment ratio has greatly declined in Sri Lanka, as a result of which,
its Foreign direct investment (FDI) has decreased up to $500 million by 2010 (Overseas
business risk Sri Lanka, 2013).

Top Risks making Sri Lanka Politically Unstable

According to AON report, foreign investors has reported various political risks which
refrain them from investing in Sri Lanka. Those top-rated risks include:

Ongoing strikes and declining public relations.

Public riots which delays international seminars and meetings in Sri Lanka, as foreign
authorities of ministry hesitate to visit there.

Civil Commotion.

Disordered Supply Chain.

Extreme Debt Compensation (Overseas business risk Sri Lanka, 2013).

Instable Government Policies

The government policies in Sri Lanka are either weak or not practiced as required. For
example, car taxation fluctuate abruptly. Foreign tourists are awarded visas after passing
through great problems. Moreover, government even though passed a budget for Investors,
still it objected them by nationalising public sector organisations and businesses (Overseas
business risk Sri Lanka, 2013).

Ideological Conflicts between Diverse Union Governments

The union governments of Sri Lanka are many and share opposed reviews which arise
into raging conflicts, thus resulting into Political risks and instability. For example, the left
wing of Presidents party proposes to introduce mixed economy, which is opposed by the
right wing, which proposes a Liberal free economy, and both of these are further contradicted
by Nationalist right wing who exerts on analysing the environmental impact more. And here
these conflicts and varying views do not end. Furthermore, Power sector is liberalised as
compared to Distribution and marketing sector which are not yet. Such differences in reviews
of unions and varying government response arise more political conflicts and instability
(Overseas business risk Sri Lanka, 2013).

Absence of Political Resolution

In 2010, a political conflict arose between two ethnic groups, the Sri Lankan
government and Tamil government, which resulted in killing massacre of large number of
people. Despite of the conflict outcomes and termination later, the war crimes happened in

that period has not been exposed on international level. The government, despite of its
accountability, has not been fully transparent through media to the global world. This
proposes the future threat of rebellious citizens for its government (Matsangou, 2013).

Weak Judiciary and Legal system

The Judicial system of Sri Lankan Courts is quite weak since cases end up mostly in
pile of pending cases. It is further worsened by imposition of very high and unreasonable
court fees which are not simply affordable for everyone. When public trust is not maintained,
the political instability arise in the society. Nowadays, the judiciary of Sri Lanka is supervised
under the authority of Community Mediation Boards, which is run on favoured and
volunteered cases. This is also not a promising solution for its weak judiciary (Matsangou,
2013).

Fluctuating Electricity Prices

Another political concern for the BA Company while operating in Sri Lanka is the
unexpected fluctuation in electricity prices there. Even though energy sector of Sri Lanka has
progressed by 65% in the National Electrification ratio, it is still charging high prices for
electricity consumption due to scarcity of technological development and rising expenditure
of running operations. Moreover, all of the energy resources are not available fully to all
companies, as a result of which public opposition, especially among Tamils, is highly
expected ((Matsangou, 2013).

Slow Economic Growth

European Union, the chief trading party of Sri Lanka, has passed through a devastated
downturn in global economy due to which its exports has been limited. The deficiency of
resources also badly affected the agricultural sector, which is a key employment and

production source of Sri Lanka. As a result of declining economic growth and hostile
development in export market, living costs have increased drastically. This has led to
increasing demands of trade unions who want their wages increased in order to meet with
daily expenses. Moreover, imports prices have increased due to increased power energy
resources prices and greater than 13% depreciation in the Sri Lankan currency (Aneez, 2012).

The overall economic downturn has eventually declined its GDP growth by 6.4% in
2012 (Matsangou, 2013).

Corruption
Corruption is constantly rising among the Public sector in Sri Lanka. It is highly
prominent in lower courts. Bribery is a common practice in legal sector. Politicians and
governmental authorities keep piling their assets and wealth, and refrain from providing their
assets transparency to the public. An anti-corruption legalisation is introduced but not
practiced due to unavailability of skilled staff in the investigation bureau. Most importantly,
Sri Lankan government does not provide protection to public, due to which corruption is keep
rising (A snapshot of corruption, 2013).
According to Sri Lanka (2012), Sri Lanka has been ranked on 76th position among
corrupted countries, as reported in the annual Global Corruption Perception Index (CPI). This
is due to the weak anti-corruption mechanism in Sri Lanka.

Terrorist Groups in Sri Lanka

Currently, around 37 Tamil terrorist groups exist in Sri Lanka who combat its military
forces by joining the democracy. Their aim is to get an independent state of Tamil Eelam and
opposed the idea of United Sri Lanka. The possible threats imposed by these terrorist groups
include re-organisation of the LTTE in international fields, comeback of terrorism, taking Sri
Lankan internal affairs in front of global arena, challenges posed by local geopolitical

situations and risk of instability created within Sri Lanka via unforeseen means (Sri Lanka is
still under threat, 2014).
In 2013, the threat of terrorism is more evident due to more authoritarian government
and suffering people (Aneez and Sirilal, 2013).

Advantages of operating world-wide

BA Company has many advantages for operating outside of the UK and Italy, both for
its home state and Sri Lanka, as stated below:

Advantages of going multinational for the BA Company . The

global operation will let the company to promote and market its products and services,

produced in the UK, on international level in Sri Lanka. It will give more exposure to its
development. Moreover, the employees of the company will be awarded job opportunities at
both national and international levels. In this way, industrial activity of the UK Company will
be enhanced. Additionally, global operation let the company to maintain balance of its
revenues. Lastly, global operating provides home company with advantage of foreign culture
(Soni, 2012).

Advantages of going multinational for Sri Lanka. Due to operation of

the BA in Sri Lanka, the investment ratio, and levels of employment and income will rise in
Sri Lanka. It will be industrially and economically developed by latest technologies coming
from the UK Company, British Airportico. The management expertise of Sri Lankan firms
will improve and strengthen. The market and trading unions in Sri Lanka will get more
revenue through BA operations, thus they will get more stable economically, and thus result
into lesser political instability in Sri Lanka. Moreover, local monopolies will be demolished
and a competitive market will exist there. The import expenses and export revenues will
increase in Sri Lanka, thus making it stable economically, and thus inviting more foreign
investors to establish businesses there (Soni, 2012).

Other advantages for BA. Other advantages of going multinational for BA

Company includes wide access to world-wide consumers, and wide access to diverse
workforce.

When BA will operate outside of the United Kingdom, it can gain unlimited revenues
through its international consumers. It is reported that most of the multinational firms earn
more from global customers as compared to local ones during times of economic recessions
in home country (Hamel, 2014).

Similarly, while operating outside of the UK, the company can hire and train diverse
and skilled labour. Normally, the wages and working hours vary from country to country. So,

the company can earn best if it go multinational in countries where employees wages are
affordable and working hours are flexible for producing maximum production (Hamel, 2014).

Why should the company operate in Sri Lanka?

BA Company must opt for operating in Sri Lanka due to the following reasons:

Supportive government policies for foreign investors

It has been reported that economic freedom for foreign investors is quite prevalent in
Sri Lanka. Total foreign ownership is awarded to foreign investing companies who seek for
buying or renting a property there. Revenues, capital, fees, and forex transactions are not
restricted. Its legal system is transparent. The Constitution protects foreign investments under
several State Acts. It has agreement for freeing countries, including the UK and Italy, from
double taxation (Why do Business, 2013).

Following figure shows the ranking or Sri Lanka among World economic freedom
rankings (Why do Business, 2013):

Fig. (Why do Business, 2013).

Educated and Skilled Workforce

Sri Lanka has a literacy rate of 91.4% which has ranked it among the most literate
populated country in South Asia. The BA Company must operate here since Sri Lanka largely
invests on educating its public and training those using advanced learning methods and
technologies. Statistical data shows that half of student population in Sri Lanka are
technically and strategically trained after gaining higher education. Their main spoken
language is English which is another advantage for BA to operate here and recruit employees
who can easily communicate with them verbally. Moreover, these educated and skilled
workforce is available for their services at reasonable income rates (Why do Business, 2013).

Strong practice to UN and International Laws

Sri Lanka provide equal life and employment opportunities to all men and women. It
strongly abide by the child labour laws and prevail equal gender environment in all sectors
(Why do Business, 2013).

Strong Location
Sri Lanka is cantered at the crossroads of chief shipping courses which connects
South Asia, Far East and the Pacific with Europe and USA. Moreover, under governmental
legal policy, Sri Lanka has recently signed free trade agreements with India and Pakistan. In
this way, the BA Company of the UK can easily ship its products to Asian countries,
especially to India. This awards free trade market access to the company (Why do Business,
2013).

Plans for developing Infrastructure

Sri Lankan government has planned to develop its infrastructure by investing in new
projects including development of Sea port, Hambantota port and Airports. This is an open
invitation to BA Company for signing the construction contract in a joint venture in Sri
Lanka.

Attractive business environment for foreign investors

Among South Asian countries, Sri Lanka is ranked as most liberalized economic
country. Its investment laws are transparent, and commercial laws are based on British Laws.
So, it will be quite easy for the BA to cope with legal policies there. Moreover, Board of
Investment award concession to the foreign investors who seek to start business there within
joint venture. In this way, the company wont have to pay 100% ownership of investment
after getting approval for concession from Investment Board (Why do Business, 2013).

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