Pakistan - country risk analysis - MNCE

8/13/2019 Pakistan - country risk analysis - MNCE

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BUSINESS OPPORTUNITY IN

FOREIGN MARKET PAKISTAN

M N C E Project- X MBA 24Guide Prof Anup Awasthi

Avinash DubeSanjay TripathiMayank MathurVrijendra Pal


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Pakistan Country Entry Analysis- MNCE ( x mba 24) ITM Vashi 2

CONTENTS

Executive Summary1. Introduction

o Pakistan in brief2. Market, Demographic, resources3. Business Environment4. Political Environment5. Social & Cultural Environment

6. Economic Environment7. Technical Environment8. Legal Environment9. Conclusion10.Market Analysis

11.Route to Marketo Purchase, Store and Sale companieso ZERO inventory, Purchase and sale companies

12. Reference & Acknowledgement


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Annual per Capita Income US $1085 GDP 5.8% Currency Pak Rupees (Rs.) Imports Industrial Equipment, Chemicals,

Vehicles, Steel, Iron Ore, PetroleumEdible Oil, Pulses, Tea.

Exports Cotton, Textile Goods, Rice, LeatherItems, Carpets, Sports Goods,Handicrafts, Fish and Fish Prep. andFruits.

Languages Urdu (National) and English (Official) Literacy Rate 57%

Ease of Doing Business Rank 83rd

Foreign Direct Investment USD 2.2 billion (2009-10)

Pakistan


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Executive Summary

Pakistan is one of the emerging country to do the e-retailing business after looking at the internetusers in Lahore, Islamabad, karachi Many International BIG giant e-retailers are eying on Pakistan to explore market.Total 30 mln internet users are there in Pakistane-commerce, a business model that encompasses sale and purchase of goods and services over theinternet, is growing in Pakistan slowly, but steadily. Industry experts claim the estimated marketsize of e-commerce in Pakistan is between $25-30 million a year.The retail and wholesale sector in Pakistan was worth about $40 billion in fiscal year 2012 and hasbeen growing at 5.3% in real (inflation-adjusted) terms for the past five years, much faster thanoverall economic growth during that period.

Last year saw a phenomenal spike in online selling, especially of fashion items, wristwatches andbooks were sold via online media, but the chunk of fashion products has increased phenomenallyrecently.In terms of advertisement spending, about 1% of the total market size ($500 million) belongs toonline ad spending in Pakistan, which translates into $5 million a year, according to a mobile surveycompany Ansr.io.What can stop the investors to come and invest in Pakistan

o Unstable political situationso Terrorism

The Government of Pakistan has granted numerous incentives to technology companies wishing todo business in Pakistan. A combination of decade-plus tax holidays, zero duties on computerimports, government incentives for venture capital and a variety of programs for subsidizingtechnical education, are intended there.1.00 USD=106.000 PKR 1 PKR = 0.00943396 USD (www.xe.com)



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Pakistan in brief: Is a country of 180+ Million people.

That puts it as the 6th most populous country in the world.

Its overall Tele Density stands at 72%,

Mobile Tele Density at 68.8%.

Current number of Cellular Users is 121+ Million.

The number of Internet Users in Pakistan 29+ Million

Facebook users are 8+ Million. Banking-wise, Pakistan has made great strides. Currently their are about 16+ Million

users with ATM/Debit Cards

Roughly 5,800 ATMs in the country

35,000+ POS Machines

9,300 Real-Time Online Bank Branches.

On Branchless Banking, Pakistans numbers are soaring. At present it has about 1.8

Million users who are using Branchless Banking, with quarterly growth at about 25%.



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PAKISTAN GDP

The Gross Domestic Product (GDP*) in Pakistan was worth 231 billion US dollars in 2012. TheGDP value of Pakistan represents 0.37 percent of the world economy. GDP in Pakistan isreported by the The World Bank Group. From 1960 until 2012, Pakistan GDP averaged 52.3USD Billion reaching an all time high of 231.0 USD Billion in December of 2012 and a recordlow of 3.7 USD Billion in December of 1960.

* The gross domestic product (GDP) measures of national income and output for a given country's economy. The grossdomestic product (GDP) is equal to the total expenditures for all final goods and services produced within the country in astipulated period of time.



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Real GDP (Sector Wise Data)Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09R 2009-10P

A) Commodity Producing Sector 1,792,972 1,868,125 2,041,635 2,234,671 2,348,925 2,504,569 2,535,968 2,555,948 2,646,845

I. Agriculture 904,433 941,942 964,827 1,027,403 1,092,098 1,137,037 1,148,851 1,195,031 1,218,873

II. Industry 888,539 926,183 1,076,808 1,207,268 1,256,827 1,367,532 1,387,117 1,360,917 1,427,972

Manufacturing 596,841 638,044 727,439 840,243 912,953 988,301 1,036,101 997,966 1,049,569

Large-scale 388,859 416,955 492,632 590,759 639,585 695,489 723,626 664,405 693,355

Small-scale* 207,982 221,089 234,807 249,484 273,368 292,812 312,475 333,561 356,214

Mining and Quarrying 90,431 96,418 111,473 122,621 128,288 132,254 138,047 137,707 135,411

Construction 89,241 92,789 82,818 98,190 108,195 134,536 127,076 112,884 130,203

Electricity & Gas Distribution 112,026 98,932 155,078 146,214 107,391 112,441 85,893 112,360 112,789

B) Services Sector 1,952,146 2,053,979 2,173,947 2,358,559 2,511,551 2,687,140 2,847,044 2,892,089 3,023,923

Wholesale & Retail Trade 667,615 707,665 766,693 858,695 838,426 887,294 934,231 921,015 968,150

Transport Storage & Communication 427,296 445,552 461,276 477,171 496,073 519,486 539,297 554,115 578,966

Finance and Insurance 131,761 130,081 141,768 185,501 265,056 304,514 338,386 314,813 303,521

Ownership of Dwellings 118,604 122,466 126,764 131,214 135,820 140,587 145,521 150,629 155,916

Public Administration & Defence 240,585 259,148 267,321 268,826 295,959 316,915 320,565 332,108 357,134

Community, Social & PersonalServices 366,285 389,067 410,125 437,152 480,217 518,344 569,044 619,409 660,236

GDP at Factor Cost (A+B) 3,745,118 3,922,104 4,215,582 4,593,230 4,860,476 5,191,709 5,383,012 5,448,037 5,670,768

R = Revised, P = Provisional | Source: SBP

PAKISTAN



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Factors Creating Opportunities:

Industrial safety regulations:Now the government of Pakistan is trying to give the maximum Protection to this sector andpassing number of Laws to make it more safe and stable.

Investor Friendly Environment:Government is trying to provide investor friendly environment to give the more benefit tothe investors and give them maximum safety.



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2. Economic Analysis:-

Factors that Creating Threats:

Overall economic conditions are not very sound:Over all economic conditions are not very good for any industry because rate of inflation is increasing dayby day and value of currency is going down which causing increase in the value of loan payable that isanother major threat

Efficiency of financial market is not so Good:In Pakistan all the financial institutions are controlled by government rather then the head of financialInstitution State Bank of Pakistan (SBP). Rate of interest is increasing day by day it is approximately 21%which is higher then any country in the world so it makes impossible for the service industry to take loan

facility.

Exchange controlsForeign exchange controls are various forms of controls imposed by a government on thepurchase/sale of foreign currencies by residents or on the purchase/sale of local currency bynonresidents.

Common foreign exchange controls include:o Banning the use of foreign currency within the countryo Banning locals from possessing foreign currencyo Restricting currency exchange to government-approved exchangerso Fixed exchange rateso Restrictions on the amount of currency that may be imported or exported



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Factors Creating Opportunities:

Lowest Labor Rates in the world:During the quarter ending December 2009, Labor Cost of Pakistan is very Low as Compared toother Countries so that is also an opportunity for the service sector.



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3. Social Analysis:-

Factors that Creating Opportunities:

The Pakistani people are more social:Pakistani people are more social so they have family system and they want to remain incontact with other through any means so that is the opportunity for retail sector to capturethe feelings of the people by giving offers of gifts.

Celebrate lot of festivals like:Pakistani people celebrate a lot of festivals on that occasion they wear the ne cloths and

distribute the gifts and sweets to their all family members and others. These occasions areJashn-e-Baharan, Eid Celebrations and other cultural festivals.

Literacy rate is increasing Rapidly:The literacy rate is increasing as high up to 97% in urban (97% in Islamabad in 2012).

Factors Creating Threats:Un educated People:Low Educated people could not be able to even understand the language oftelecommunication



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4. Technological Analysis:- Factors Creating Opportunities:

Technology is changing the attitudes and behavior:Technology is changing the behavior of the people and providing them opportunities to getthe bright future.

Increasing the internet users:It is huge opportunity for e-retailer to en-cash the opportunity of increasing the user base ofinternet and buying power via online

Factors Creating Threats:

Focus on increasing the Coverage:The current focus of the E-retailer industry is on increasing the coverage rather then upgradation of the systems they should up grade the systems to meet the requirement of themodern world.



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Conclusion:

The number of macro-environmental factors is virtually unlimited. In practice, the firm mustmonitor those factors that influence its industry. Even so, it may be difficult to forecast

future trends with an acceptable level of accuracy. In this regard, the firm may turn toscenario planning techniques to deal with high levels of uncertainty in important macro-environmental variables.



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Pakistan Economic ReviewPakistan economic review projects that because of strong economic policies taken up by Pakistangovernment manufacturing and financial services sectors have flourished since fiscal 2008. Export ofgoods is a major concern for Pakistan economy. From 1999, exports of Pakistan have increased from $7.5billion to $18 billion in financial year 2007-2008. Major items for exports include cotton fiber, vegetables,rice, electrical appliances, furniture, cement, tiles, marble, textiles, clothing, sports goods, powdered milk,livestock meat, software, seafood, leather goods, surgical instruments, carpets, rugs, ice cream, chicken,wheat, processed food items, Pakistani assembled Suzuki cars, salt, defense equipment, onyx, marble andengineering goods to mention a few. Some important import items of Pakistan are petroleum andpetroleum products, automobiles, medicines, industrial machinery, construction machinery, trucks,electronics, civilian aircraft, computers, pharmaceutical products, computer parts, food items, toys,defense equipment, iron and steel. Economic review of Pakistan has been focusing in recent times on how

to deal with economic recession. Economic indicators look positive in present situation. Discount rate ofcentral bank has been improved to 1.5 percentage points. This will help in dealing with high inflation ratein Pakistan.

Pakistans economy can be characterized as semi-industrialized. The countrys industrial sector constitutes24.3% of the countrys gross domestic product. Pakistan has a total labor force of 55.88 million (as of2009). The largest industries of the country are textile, cement, agriculture, fertilizer, steel, tobacco,edible oil, pharmaceuticals, construction materials, shrimp, sugar, food processing, chemicals andmachinery. However, it is worth noting that net foreign investment in industries of Pakistan constitutesonly 2.5% of the countrys GDP.



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IT industry

The second half of the first decade of 21st century has seen steady growth in the ITindustry of Pakistan.Software exports grew considerably in 2007. That year, the industrys worth wasestimated at $2.8 billion with an increase in the number of IT companies to 1306 . The

country also featured in the Global Services Location Index for the first time in 2007,Further, Pakistan ranked as the 30th best off shoring location in the world and as of 2009,its rank improved to the 20th position.

Infrastructure

Pakistan has more than 20 million Internet users in 2009. The country is said to have apotential to absorb up to 50 million mobile phone Internet users in the next 5 years thusa potential of nearly 1 million connections per month. In mid-2008, the broadband capacity reached around 5.5 million. Telecom industry created of 80,000 jobs directly and 500,000 jobs indirectly. International Mobile Companies in Pakistan = 4



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Reasons To Invest In Pakistan

Economic Outlook

Pakistan is one of the fastest growing economies of the world having touched a GDP growthrate of 8.4% in 2005. Today Pakistan has over 170 million consumers with an ever growingmiddle class. Foreign Direct investment has risen sharply from an average of $300 million inthe 1990s to over $3.7 billion in 2008-09. Fiscal deficit has declined from an average 7% ofGDP in the 1990s to around 3% in recent years. And FOREX reserves have increased from$3.22 billion in 2000-01 to $11.6 billion in June 2009.

Trained Workforce

A large part of the workforce is proficient in English, hardworking and intelligent. Pakistanpossesses a large pool of trained and experienced engineers, bankers, lawyers and otherprofessionals with many having substantial international experience.

Geo-strategic Location Located in the heart of Asia, Pakistan is the gateway to the energy rich Central Asian States,the financially liquid Gulf States and the economically advanced Far Eastern tigers. Thisstrategic advantage alone makes Pakistan a marketplace teeming with possibilities.



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Investment Policies

Current investment poalicies have been tailor made to suit investor needs. Pakistan's policytrends have been consistent, with liberalization, de-regulation, privatisation , and facilitationbeing its foremost cornerstones.

Financial Markets

The capital markets are being modernized, and reforms have resulted in development ofimproved infrastructure in the stock exchanges of the country. The Securities and ExchangeCommission of Pakistan has improved the regulatory environment of the stock exchanges,corporate bond market and the leasing sector. Whilst the Federal Board of Revenue hasfacilitated structural reform in tax and tariffs and the State Bank of Pakistan has invigoratedthe banking sector into high returns on investment.



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Repatriation of Earnings and Royalty Payment

o Full repatriation of capital, capital gains, dividends and profits, is allowed.o The facility for contracting foreign private loans (which does not involve any Guarantee byo the Government of Pakistan) is available to all those foreign investors, who make investment in sectorsopen to foreign investment, for financing the cost of imported plant and machinery required for setting upthe project. However, loan agreements should be registered / cleared by the State Bank of Pakistan.o Foreign controlled manufacturing companies / concerns will be allowed unlimited domestic borrowingaccording to their requirements for working capital.o Authorized Dealers are authorized to grant rupee loans and credits to foreign controlled companies formeeting their working capital requirements subject to observance of Prudential Regulations prescribed

under the Banking Companies.

Royalty / Technical/ Services / Franchise Fees

a) Manufacturing Sector

o There is no restriction on payment of royalty and/or technical service fees for the manufacturing sector.o However, such agreements shall be registered with the State Bank of Pakistan.o The payments of royalties and technical service fees to foreign companies will be taxed at 15%. However,reduced rates under the treaties with different countries remain applicable.



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Transport in Pakistan

a) RoadRoad transport is most popular and it carries about 90% of the total passenger traffic. Thecountry has about 248,340 kilometers of roads, of which more than 50 percent are paved.

The rest are graveled or unimproved tracks. Road traffic is increasing to nearly overwhelmingproportions, with mixtures of animal carts, high-speed cars, buses, and trucks. The principalroads of Pakistan are GT (Grand Trunk) Road, Super Indus Highway (N- 55), KarakoramHighway (N-35), Makran Coastal Highway (N-10) and Motorway Projects (M1, M2, M3,M8, M9).

b) RailwaysPakistan's railways cover roughly 7,791 kilometers. Most are in the Indus Valley, from Karachito the Punjab, with a few lines into the North-West Frontier and one westward acrossnorthern Baluchistan to the Iranian border.



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RATES OF TAX ON RETAILERS

RATES OF TAX FOR COMPANIES



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E- Shoppers Worldwide:

An interesting study by Nielsen Global Online Survey suggests that there are a total of 875million consumers worldwide, who have shopped on the web. This figure has grownexponentially 40% from 627 million since 2009. Research affirms that 85% of Internet usershave shopped online. 60% of web shoppers pay with credit cards, and a quarter usePayPal.

Most e-shoppers hail from South Korea. Surprisingly 99 percent of Internet users in South

Korea are also e shoppers. German, UK and Japanese consumers come in a close second.Indian shoppers rank third beating US consumers, who stood at number eight.On the extreme end, the worlds slowest adopters come from Egypt, where 67 percent ofthe online population have never made a purchase over the Internet, followed by Pakistan(60%) and the Philippines (55%).

The most important thing to consider is the ratio of total online spending as a percentageof total monthly spending varies by country with Chinese and Korean online consumersallocating the most via the web than any other in the region.



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Target Customer

Aged 25-44

House hold income > 50 k pm

Preferably dual income households

Household with children

Education level above bachelors

Consumers looking for convenience Average commute time to work

Number of household with internet access

Adults with credit cards

Female shoppers .



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Present Scenario of e Retailing in Pakistan :There are several Pakistani online shopping stores presently doing similar business

Vmart.pk

Symbios.pk

PakistanOnlineShop.com

HomeShopping.pk

Shophive.com

Alibaba and Amazon also operate in Pakistan.

http://vmart.pk/http://symbios.pk/http://pakistanonlineshop.com/http://homeshopping.pk/http://shophive.com/http://shophive.com/http://shophive.com/http://shophive.com/http://shophive.com/http://homeshopping.pk/http://homeshopping.pk/http://homeshopping.pk/http://pakistanonlineshop.com/http://symbios.pk/http://vmart.pk/http://vmart.pk/http://vmart.pk/


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ROUTE TO MARKET

Two positioning strategies for e-retail companies in Pakistan in future:

Purchase, Store and Sale companies(for Books, Electronics, Electricals, Mobiles, Computer & laptops and fashionGarments)

ZERO inventory, Purchase and sale companies

(for groceries and GMCD)


Forming a Joint Venture with a local Pakistan Business establishment seemsthe best option due to the perceived resistance of Indian business

establishment, the revenue sharing can be based on mutual division of roleslooking at strengths of the partners .

P h St d S l i


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Purchase, Store and Sale companiesTie up with local distributor or local manufacturer (like for staples and GMCD) for purchasing thegoods as per required and finalized master list based on customer requirement. (Just like India wefound that the same rice will not be sold in Tamilnadu what is most sold rice in Punjab)

Set up a Distribution Centre based on finalized master list, MBQ, leadtime from distributors to DC,

consumption of SKU, RTV policy.In first phase List down all A class products to gain the quality loyalty. Like Books, Electronics,Electricals, Mobiles, Computer & laptops

In second phase list down all B class products like fashion garments, and Consumer goods (add localmanufacturer to gain the high margin).

IT person is the backbone here to update it online based on advertisement and there should be real

time update in system about availability of stocksThere should be prior commitment to the customers for delivery satisfaction. (like within 24 hours or48 hours materials will get delivered)

For a new company it is good to launch in phases like first in Islamabad than Karachi than in other citythan down the line of 2 to 3 years in entire country.

Tie up with local transporter or create own fleet or own delivery boys to deliver the materials till

customer.Launch can be done with all the payment options like credit card, debit card, coupons, payment ondelivery.

Need to have huge investment here because company will be carrying at least a week Inventory.



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ZERO inventory, Purchase and sale companies

Tie up with Wholesaler or Cash & Carry for purchasing the goods

Set up a small Distribution Centre for essential and fast moving products

Set up a cutoff for putting the order and get the indented stocks purchased

from Cash & Carry or wholesale market and deliver it. (all order put in before

1:00PM will be deliver by 10:00AM in the morning)

Grocery will not give more than 5% margin but GMCD can get up to 50% of

margin.

It will be small investment here because company will not be carrying huge

inventory.



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http://www.iptu.co.uk/content/pakistan.asp

http://www.pakboi.gov.pk/index.php?option=com_content&view=article&id=126&Itemid=14

http://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-business

http://www.tata.com/company/articles/inside.aspx?artid=UmkJFQQeNgg=#sthash.Z6ClEdC7.dpuf

References & acknowledgement

http://www.iptu.co.uk/content/pakistan.asphttp://www.pakboi.gov.pk/index.php?option=com_content&view=article&id=126&Itemid=14http://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-businesshttp://www.tata.com/company/articles/inside.aspx?artid=UmkJFQQeNgg=http://www.tata.com/company/articles/inside.aspx?artid=UmkJFQQeNgg=http://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-businesshttp://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-businesshttp://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-businesshttp://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-businesshttp://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-businesshttp://www.doingbusiness.org/data/exploreeconomies/pakistan/starting-a-businesshttp://www.pakboi.gov.pk/index.php?option=com_content&view=article&id=126&Itemid=14http://www.pakboi.gov.pk/index.php?option=com_content&view=article&id=126&Itemid=14http://www.iptu.co.uk/content/pakistan.asp


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Questions ?



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Thank you

Documents

Pakistan - country risk analysis - MNCE