Contents

EXECUTIVE SUMMARY .............................................................................................. 2

1. Company overview ..................................................................................................... 2
2. Analysis method and scale ......................................................................................... 2
ANALYSIS: PAKISTAN OPPORTUNITIES AND CHALLENGES FOR TEA
EXPORTING.................................................................................................................... 4
A. Country overview ....................................................................................................... 4
B. Factors analysis ........................................................................................................... 5
I. Political status ............................................................................................................. 5
1. Political Ideology......................................................................................................... 5
2. Political risk................................................................................................................. 5
3. Legal system ................................................................................................................ 6
4. International relations: .............................................................................................. 7
II. Economic growth ........................................................................................................ 8
1. Economic system ......................................................................................................... 8
2. Economic Freedom Index .......................................................................................... 8
3. Factors influencing exporting to Pakistan ............................................................... 8
a. Trade Policy ................................................................................................................. 8
b. Business Freedom ........................................................................................................ 9
c. Fiscal Freedom ............................................................................................................ 9
d. Financial market ....................................................................................................... 10
e. Infrastructure ............................................................................................................. 10
III.

Market potential ............................................................................................. 11

1. Appeal and difficulties identification ...................................................................... 11

2. Market potential ....................................................................................................... 12
a. Import level ................................................................................................................ 12
b. Sales level ................................................................................................................... 12
c. Market potential indicator and key factors affecting business ................................ 12
3. Competitors analysis ................................................................................................ 13
a. Main competitors ....................................................................................................... 13
b. Business strategies ..................................................................................................... 14
CONCLUSION AND RECOMMENDATION ........................................................... 16
1

EXECUTIVE SUMMARY
1. Company overview
The Vietnam National Tea Corporation Ltd (Vinatea or Vinatea Corp), founded in 2005,
is the leading company in the field of tea processing and exporting. With our headquarter
in Hanoi, Vinatea has established a network of over 20 processing factories, 2 packaging
facilities, 11 business braches, as well as several research centers all around the country.
Vinatea focuses on tea-based drinks, with the products ranging from fresh green tea leaves
to dry tea bags. With the motto The place of your trust in Vietnam, Vinatea promises to
bring customers drinks of the best quality. We are currently the supplier for over 200
companies nationwide, as well as 120 international firms all over the world. With the aim
to create a world of elegant tea culture, Vinatea plans to extend its reach, bringing more
profit and earning the trust of customers worldwide.
At the moment, Vinatea is considering the penetration into the market of Pakistan.
Although the market has already been exploited by some Vietnamese companies, it is still
a fresh place for investment, as the demand for tea and agricultural products is high. If it is
possible, Vinatea plans to establish a trade relation with Pakistani companies, laying the
ground for further investment.
2. Analysis method and scale
For the last 6 months, a team of investment analyst have conducted a mass scale survey to
gather information concerning Pakistans market. Based on the data acquired, Vinatea has
been able to narrow down to the 3 most important factors that may affect the success of
investment into the country: political status, economic growth and market potential.
The data, although secondary, shows the answer to many questions concerning whether or
not Vinatea should pour its money into Pakistan. On a scale of 100, each factor, and its
sub-factor, is assessed, and the average has been calculated. Overall, the potential score of
the country is put at 54, meaning the investment MAY be successful. However, the
potential seems not convincing enough for us to invest right away.
2

Here is the table showing the assessment on each factor:

Table 1: Factors assessment and scaling (on the scale of 100)

Political and
legal stability

Political
safety

Legal
enforcement

42
Economic
growth
58

25
Business
freedom
60
Import
capacity
70

35
Fiscal
freedom
80
Sales
capacity
70

Market potential
62

Intellectual
Taxation
Trade
property
privileges
relation
protection
40
50
60
Financial
Trade
Infrastructure
market
regulation
65
30
55
Consumption
Market
Competition
level
intensity
free level
60
65
45

After a long time of consideration, Vinatea has come to the conclusion that we should not
export right now. Instead closer monitoring is needed in order to minimize the risks we
may encounter, and maximize the profit we may obtain. The recommended time is 1 year.
Below is our detailed analysis, as well as the recommendation for the company, so that in
the near future, we may be confident to step into the market.

ANALYSIS: PAKISTAN
OPPORTUNITIES AND CHALLENGES
FOR TEA EXPORTING

A. Country overview
Pakistan (or the Islamic Republic of Pakistan) is located in the South Asia, with Islamabad
the capital city. Pakistan is the 6th most populous country in the world, with a huge number
of Hinduism and Buddhism followers. Pakistan shares the border with four countries,
including China, Afghanistan, India and Iran. On the one hand, Pakistan appears to be in
such an instable political status, with many incidents of violence and terrorism happening
on a regular basis. On the other hand, it is ranked the 25th economy of the world in term of
purchasing power.
Pakistan is known for its semi-industrialized economy, which mainly focuses on textile,
chemical, food processing, agriculture and other heavy industries. Privatization is
implemented in some state-run industries, but the economy still heavily regulated.
Currently, there have been some recoveries in relation between Pakistan and Afghanistan
and US, especially Vietnam. Pakistan and Vietnam have signed some bilateral pacts to
promote trade between the 2 countries. They also share some common features in
geography. In fact, with its tropical climate (hot in summer, cold in winter), Pakistan is a
perfect market for tea, with the demand exceeding the internal supply. As the result,
Pakistan has to import a lot of tea from foreign countries, including Kenya, China, and
Vietnam. It is now one of Vietnams biggest tea-importing partners. It is because of this
fact that Vinatea decided to pay some attention toward this country.

B. Factors analysis
I.

Political status

1. Political Ideology
Pakistan is a parliamentary democratic nation, with the Prime Minister as head of the
government, and the president as head of the state. This country has a long history of
domestic disputes and political crises, resulting in unstable economic situations.
Pakistan is said to be the fifth largest democracy in the world, with wide participation in
the field of politics. Currently, the country has five keys parties, comprising 90% of
national assembly seats. Religion is also said to be a major factor in politics, with Islam
having the largest number of followers.
2. Political risk
According to the Political Risk Services, in October 2013, Pakistan has the overall risk
rating of 55, ranking as one of the countries with the highest risk index. Although the index
has increased compared to October 2012, which was only 52 (meaning the situation has
brightened up), Pakistan remains an unattractive destination for foreign investors.
Figure 1 shows the main sources of risks in Pakistan compared to the world average. The
most important source comes from regional and governmental instability. There has been
constant internal insecurity in Pakistan, resulting from strained relations between the civil
government and the military force. Violence, politically motivated, happens on a regular
basis, aiming to put pressure on Government ruling. In January 2014, terrorism in Pakistan
caused nearly 500 deaths, including 241 civilians, 86 security force and 133 militants.
Pakistans government is also believed to have a high rate of corruption. It is so widespread
and deeply entrenched that the people of Pakistan are now losing their trust in their own
rulers. Corruption also hampers economic growth and developments. It erodes the beliefs
of exporters to Pakistan so this market is becoming less attractive to them.

Figure 1: Main sources of risks in Pakistan (2013)

3. Legal system
Pakistans legal system adopt the basis of common law, which is supposed to enable and
encourage foreign investment, as well as to protect investors. The 1976 Foreign Investment
Protection and Promotion Act and the 1992 Protection of Economic Reforms Act stated
that (legal) foreign companies cannot be acquired by the government, or be subject to
higher tax rate that domestic ones.
However, it is notable that the tax rate in Pakistan is much higher than Vietnam. Pakistani
corporate tax for tea is currently 34%, while in Vietnam it is only 25%. The sales tax also
appears high at 17% (in Vietnam it takes the form of Value added tax of 10%). Although
Vietnam and Pakistan has signed the Double Tax Avoidance Treaty, this level of tax is
rather high compared to the worlds average (24%), showing little hope for high profit.
It takes about two years to register a trademark in Pakistan. The effect of this protection
last for 10 years. An already registered trademark requires no further domestic registration.
Vinatea, therefore, should develop and register its products trademark in Vietnam in order
to save time and effort.

On product liability, we have not found any notable law or regulation on tea. In fact, tea is
classified as a normal beverage, thus regulated under the food and beverage laws.
In reality, due to the corruption of the government, the enforcement of laws is inefficient.
It is even said to have little or no protection for foreign investors. Combined with the
political situation, the legal system makes Pakistan an unsafe choice for new businesses.
4. International relations:
Considered one of the most unstable and chaotic countries in the world, it is not surprising
that Pakistan has many adversaries. The status in the border between Pakistan and
Afghanistan is tenuous. On the other hand, Pakistan has some key allies such as America,
China, or Gwada, who have formed trade routes through Pakistan as a strategic business
plan. The process in improving relation between Pakistan and Russia is also on the way.
Slow but steady, it promises the two countries a future of bilateral trade.
Concerning trade with Vietnam, Pakistan is Vietnams largest tea importer, accounting for
18.5% of our total tea export turnover. Vietnam has shipped a staggering 17,204 tons of
tea to the Pakistani market, earning in excess of US$34.66 million over the past ten months.
Pakistan and Vietnam has been developing some bilateral trade agreements such as Free
Trade Agreement (FTA). Because of many bilateral agreement signed between two
countries, Pakistan has become one faithful friend in commerce trade of Vietnam and tea
is one of the most potential products.
Furthermore, Pakistan continues to set up more bilateral and multilateral pacts with many
countries in ASEAN besides Viet Nam. Besides that, Pakistan is one of the founders of
World Trade Organization (WTO). The fact that Viet Nam is now a member of WTO can
enhance the trade agreement between two countries as well. The trade policies are fixed
and WTO will assist the two countries in negotiating and make it easier for products like
tea to penetrate Pakistan market. However, it is required to have more research carried out
to examine Pakistan market to export tea products in efficient way.

II. Economic growth

1. Economic system
Pakistan is considered a relatively free market economy. Consumers and companies in
Pakistan are free to penetrate into the market and have many different alternatives to
purchase or produce. The price set is flexible, reflecting the forces of supply and
demand.

Pakistans economic freedom score is 55.2, higher than Vietnams (50),

according to heritage.org in 2013.

However, it still depends heavily on importing. Pakistans import focuses on textiles,
chemicals, processed food, agricultural products and other products. It is now the biggest
tea-importing partner of Vietnam. As Pakistans market appears somewhat similar
compared to Vietnam in terms of business freedom, fiscal and monetary policies, as
well as governmental interference, Vietnamese companies may find it easier to adapt
to this new environment.
2. Economic Freedom Index
Pakistans economic freedom score is 55.2, making its economy the 126th in the 2014
Index. Its score has not changed much compared to last year, showing modest
improvement in investment freedom and monetary freedom. These indexes, however, are
largely offset by the deterioration in freedom from corruption, business freedom, and trade
freedom. In comparison with Vietnam, Pakistan theoretically has a more free business
environment. But the fact that the country is severely suffering from internal conflicts
makes us doubt about this.
3. Factors influencing exporting to Pakistan
a. Trade Policy
Despite the economic instability, the market status in Pakistan has shown slight
improvement. The government has put a lot of effort into strengthening the market by
moderating the level of tariff, interest rate and investment regulation.
However, the current tariff on exporters still remains at a discouragingly high level of
10.1%. Along with this is a list of non-tariff barriers that stands as an obstacle for
investors. This has been the reason for exporters hesitancy to invest into Pakistan.
8

The tariff forces them to make sacrifice. They must either keep a competitive price and
lose their profit, or push the price and see the contracts fall into domestic companies.
Although there is currently no other non-tariff barrier for tea, we find the playground a bit
unfair, since the Pakistani firms are enjoying the most favorable conditions. Vinatea
certainly has the upper hand concerning the quality of the product, but to successfully
compete within the market, we will need to find a way to keep our price low, while ensuring
the return on our money.
b. Business Freedom
Business freedom in Pakistan is considered the second most important factor that
impacts Vinateas exporting. Its business freedom index is now 69.4 (heritage.org 2013),
ranking 80th in the world, and is higher than worlds average. Starting a business takes an
average of 21 days, but no minimum capital is required. Consequently, cost to set up a
company in Pakistan is quite low and business barriers remain not too high. Completing
licensing requirements still cost almost twice the level of average annual income.
Procedure to start, operate or close a business is not as complicated as in Vietnam.
The expenditure for Vinatea to do business in Pakistan can be assessed as reasonable. This
means we can easily set up production plans and branches at a relatively low cost.
It also allows us to keep the price at a competitive level. However, due to the high tariff on
exporters, we find this hard to become reality. Vinatea may open new business for the
moment, but to develop and survive in the long run, we will have to find a way to deal with
the tariff level.
c. Fiscal Freedom
Fiscal freedom index in Pakistan is 80.6, ranking 76th in the world, higher than world
average and lower than Vietnam (82.9) (heritage.org 2013). After a small account surplus
in fiscal year 2012, Pakistans current account witness a deficit in fiscal year 2013.
Fortunately, sustainability achieving policies will be implemented in Pakistan in 2014
under the IMFs 3-year program. These include improving tax administration, eliminating
exemptions to certain sectors, and bringing all sectors including agriculture under tax
net. Pakistan government is making effort to widen the federal budget and total revenue,
9

improve government spending efficiency to boost fiscal sustainability, limit inflation

and unemployment. As a result, the fiscal status is starting to improve and will become
more stable in the next few years.
Monetary policy in Pakistan has been tightened in response to a depreciating currency and
rising inflation during the first half of 2014. Interest rate is raised by 50 basis points in
September 2013 and again in November. Monetary management has been constantly
improved in 2014 by cutting down the government borrowing from IMF, encouraging
credit from fixed investment from abroad and working capitals as business activities.
This helps companies to make better forecasts of costs, revenues and the future of
business in general, which allows company to think of business expansion.
d. Financial market
Though relatively sophisticated and diversified, the system is dominated by
commercial banks, thus remaining vulnerable to state interference. At the end of
September 2013, commercial banks assets accounted for 54% of Pakistans GDP.
This is a shockingly high proportion, considering the 57% of GDP for all financial
institutions here. Pakistans instability has forced the government to tighten their
control around the financial market by interfering with the operation of

commercial

banks. The state bank of Pakistan has constantly adjusted the discount rate in order to fight
inflation. The level has gone from 9.0% to 11.5%, and is currently standing at 10%. If this
fluctuation drags on, Vinatea finds it risky to keep pouring the money into this market.
The fact that only a small segment of population and business in Pakistan is using
banking service can also be a problem. This inconvenience to make transaction can cost
Vinatea and out partners. Some potential partners, since the company greatly relies on the
banking system to make and receive payment.
e. Infrastructure
According to the World Bank (2007), Pakistans key infrastructure shortages lies in the
water, irrigation, power and transportation. Despite governmental effort in improving the
condition, Pakistans infrastructure remains weak and inadequate for business
development. This adds to the difficulties that investors have to face when coming to
10

Pakistan. Constant lack of power and clean water may greatly affect our productions, while
the underdeveloped domestic transportation system may prevent us from carrying out the
distribution plans. Railroads were the main means of transportation, but the network in
West Pakistan has been worn out and is not suited for the new need and demand.
Communication, however, is a promising aspect. In March 2012, the number of mobile
subscribers was over 100 million. The number of Internet users has also soaring to 19
million. These numbers may seem unremarkable, but this is a great improvement in
the field of telecommunication and information technology in Pakistan. Still, if Vinatea
wants to join the business here, we will initially have to face some inconvenience
concerning business communication and interaction, but we believe these problems can
be tackled.
III. Market potential
1. Appeal and difficulties identification
Tea has been an essential part of Pakistani culture. A tropical country with hot climate,
Pakistan has huge demand for tea, since this kind of drink has been proved to have a good
effect on humans body. Climate in Pakistan shares some common features with Vietnam,
it is favorable to preserve and transport tea. However, there has been a constant lack of tea
to meet the demand here. Over 90% of tea consumed in Pakistan is imported from outside.
Luckily there is no completely banned product in Pakistan, that means tea or other
subordinate products can be availably traded in market
Traditionally, green tea was the main type of tea used by Pakistani. However, since the
introduction of black tea into the country, green tea has gradually lost its ground due to its
sophisticated nature to make and consume. Still, green tea remains a part of Pakistani
culture, and Vinatea plans to revive its popularity in the country by modifying the way the
tea is produced and packaged.
Thanks to the fact that black tea is the only type subjected to the product quality
requirement, we find it easier to pave the way for green tea to re-enter the culture without
having to meet special standards. Despite this, we expect to encounter some difficulties
during the penetration into the market. These difficulties will not only arise from the
11

countrys political and economic situation, but also from the fact that there are many
competitors planning to expand their influence.
2. Market potential
a. Import level
Pakistan is a major tea-consuming country, ranked as the third largest importer of tea in
the world.
It has been estimated that 95% of all the tea in Pakistan is imported. Only about 5% is
produced in Pakistan. To meet the demand, Pakistan has been pushing the import of tea.
The value of tea the country import rose from $120 million in 1998-1999 to $210 million
in 1999-2000, showing an increase of over 65 per cent. The most notable tea trade partner
of Pakistan is India. Its imports were 9.611 billion Rupees in 2001-2002, increased to
12.965 billion Rupees in 2006-2007, 6.53 billion Rupees in 2007-2008 and 17.417 billion
Rupees in 2008-2009.
b. Sales level
Due to the unavailability of information, the exact amount of sales for tea in Pakistan is
currently unknown to us. However, it has been reported that in the first half of 2012, a total
of 220 million kg of tea had been consumed in Pakistan.
The tea price used to be so high that tea smuggling became a major problem. The
government, in the attempt to prevent smuggling and encourage sales, decided to lower the
import tax rate for tea from 16% to only 5%. We hope the policy will still have effect when
make its entrance into the market.
c. Market potential indicator and key factors affecting business
According to Global EDGE, The Market potential index in 2014 of Pakistans overall score
is 20, ranked 66 of all countries around the world. Market in Pakistan is so promising and
appears to be an emerging one in the world. Although the market size of Pakistan is small
(with the index of 6), its growth is at a significant rate of 67 MPI points, higher than most
countries in the world. Its market intensity (68 points) and consumption capacity (43

12

points) also indicates high level of potential for investors. Recently, there is a dramatic
progress in market development
Pakistan has important strategic endowments and development potential. The country is
located at the crossroads of South Asia, Central Asia, China and the Middle East and is
thus at the door of a regional market. With a vast population, large and diverse resources,
and untapped potential for trade, the country appears a promising land, even though its
political and economic situation has not yet been stabilized. The increasing proportion of
Pakistans working-age population provides the country with a potential demographic
dividend but also with the critical challenge to provide adequate services and increase
employment.
However, recent growth has negatively affected the infrastructure here, which discourages
the investment to many areas. Constant lack of power and clean water may greatly affect
our productions, while the underdeveloped domestic transportation system may prevent us
from carrying out the distribution plans. Railroads were the main means of transportation,
but the network in West Pakistan has been worn out and is not suited for the new need and
demand. We expect the infrastructure, especially the transportation system will be
improved, or our business plan may not be carried out efficiently.
3. Competitors analysis
As the country is at a politically unstable state, we have decided not to conduct a field trip
to the potential areas. The lack of communication system also made it hard for us to gather
necessary information. Luckily, companies previously attempting to enter the market has
provided us with some information that helps identify main competitors. From here, we
can draw a strategy to bring our products into the country.
a. Main competitors
Because customers demand for tea in Pakistan is huge, there may be some competitive
producers doing business in this field. Deeper investigation into these companies will help
us come up with useful strategies to lower the price or production cost to gain the
comparative advantage, along with it a bigger share of the market.
13

From the sources we have gathered, there are two major competitors that are already in the
market: Tapal Tea, a local brand; and Unilever, a multinational corporation which has a
network of product distribution all over the world. Tapal Tea continues to be the leading
player in tea with 31% share of Pakistans retail value sales in 2013, as strong distribution
and penetration into rural areas help to maintain its stronghold. Ranking in the second
place, Unilever Tea Ltd. accounts for 25% market share, and it is looking to invest into its
distribution network to go further into rural areas for future growth.
Besides these internal companies, Vinatea will also have to face international rivals,
especially Gunpowder tea companies from China, now making increasing influence on
Pakistan consumers with 15% market share. Other companies are also looking for a chance
to get into the country, despite its internal security and conflict. Obviously, the tea market
remains too appealing for investors to resist.
Consumers keep seeking higher quality, greater hygiene and freshness. Two internal
companies (Tapal and Unilever) benefit from their long presence in Pakistan and strong
customer loyalty, while Chinese Tea provides customers with higher freshness and quality
products. As a result, we need tactics to gain customers attention, promoting our products
so that we can gradually attract them and make them to switch to our tea brand.
b. Business strategies
Trends towards consuming convenient tea has boosted tea bags sales. All our rivals have
adopted the same strategies, shifting from unpackaged tea to packaged tea and promoting
the distribution process in rural areas. This corner of the market is still new for all
competitors, meaning Vinatea has more chance to enter this part. Most of our competitors
focus on higher-income consumers, pushing the price up to earn more profit. As a result,
we are planning to focus on average income consumers, while at the same time improve
the way consumers can enjoy loose tea with much convenience such as providing more
take-away tea shops.
Besides green tea, other kinds of tea that are mainly consumed in Pakistan are Black Tea,
Herbal and Fruit tea. Black tea is common in Pakistan; in some area, it is more preferable
compared to green tea, while herbal or fruit tea seem to be fresher and healthier, but are
14

put at a much higher price. However, all these products normally serve mid and highincome urban family, since they take a long time to prepare and use. People are now
switching to black tea bag, herbal or fruit tea bag. Our company can exploit the rural market
and hit the average and low-income customers with this wide variety of products from
green tea. Still, further research on customers taste and preference will be needed.
We also have to face the fierce competition from other drinks like coffee. The drinking
places in Pakistan is more associated with coffee rather than tea. Meanwhile, traditional
green tea is mainly consumed at home. At the first phase of entering the national market,
the company should, and is currently planning to, focus on the household segment only, in
order to save the resource and avoid potential risks.

15

CONCLUSION AND RECOMMENDATION

As analyzed above, the main obstacle standing in our way is Pakistans political status. In
fact, the countrys internal conflict is a threat to the success to any company, as the market
can be affected by the Government and the military force. If Vinatea wants to penetrate
into the market, it will need to gain a favorable treatment from these forces. One way to do
this is to form a joint venture with an existing Pakistani company. However, this is not
preferable since it will shrink our hope of developing as well as the prospect of high profit.
Due to this uncontrollable factor, we recommend that Vinatea should not export to, but
wait until the internal status of Pakistan has shown some improvement.
The Pakistani market also seems to be potential, despite the difficulties coming from the
countrys internal conflicts and economic turmoil. Concerning tea products, there are hopes
for Vinatea to enter the market by focusing on low and mid-income customers. However,
the success of the business will greatly rely on the improvement of the infrastructure of the
country. In the meantime, Vinatea may conduct some research on product appeal,
determining the need of consumers in Pakistan, in order to come up with more suitable
products that attract customers. We have already owned a range of products from fresh to
dry tea and tea bag. We can focus on adapting these products to the new market as the plot
before we officially develop new kinds.
In conclusion, Pakistan is a promising land. However, it is still too risky to invest into a
market with little information and protection but full of threats and difficulties. It is true
that the more risks it has, the higher hope of profit it may bring, but we believe that 1 year
would be an enough amount of time for Vinatea to thoroughly reassess the market before
making the final decision.

16

Reference
1. Bilal, S, Naz, T 2013, Doing Business in Pakistan, Doing business in MiultiJurisdictional Guide, Thomson Reuters.
2. Business Monitor International 2014, Pakistan Business Forecast Report.
Available at businessmonitor.com.
3. Calvin, S, Goldman, QC 2013, The foreign investment regulation review, Law
business research Ltd.
4. Faqir, H 2011, The judicial system of Pakistan, Supreme Court of Pakistan.
5. Vaqar, A, Ahsan, A, Sofia, A 2013, Public Infrastructure and Economic Growth in
Pakistan: a dynamic CGE-microsimulation analysis, Partnership for Economic
Policy.

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