BUSINESS

OPPORTUNITY IN FOREIGN MARKET PAKISTAN

M N C E Project- X MBA 24 Guide Prof Anup Awasthi Avinash Dube Sanjay Tripathi Mayank Mathur Vrijendra Pal

CONTENTS
Executive Summary 1. Introduction o Pakistan in brief 2. Market, Demographic, resources 3. Business Environment 4. Political Environment 5. Social & Cultural Environment 6. Economic Environment 7. Technical Environment 8. Legal Environment 9. Conclusion 10.Market Analysis 11.Route to Market o Purchase, Store and Sale companies o ZERO inventory, Purchase and sale companies 12. Reference & Acknowledgement

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

Pakistan

Annual per Capita Income GDP Currency Imports Exports

Languages Literacy Rate Ease of Doing Business Rank Foreign Direct Investment

US $1085 5.8% Pak Rupees (Rs.) Industrial Equipment, Chemicals, Vehicles, Steel, Iron Ore, Petroleum Edible Oil, Pulses, Tea. Cotton, Textile Goods, Rice, Leather Items, Carpets, Sports Goods, Handicrafts, Fish and Fish Prep. and Fruits. Urdu (National) and English (Official) 57% 83rd USD 2.2 billion (2009-10)

Executive Summary
Pakistan is one of the emerging country to do the e-retailing business after looking at the internet users 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 Pakistan e-commerce, a business model that encompasses sale and purchase of goods and services over the internet, is growing in Pakistan slowly, but steadily. Industry experts claim the estimated market size 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 has been growing at 5.3% in real (inflation-adjusted) terms for the past five years, much faster than overall economic growth during that period. Last year saw a phenomenal spike in online selling, especially of fashion items, wristwatches and books were sold via online media, but the chunk of fashion products has increased phenomenally recently. In terms of advertisement spending, about 1% of the total market size ($500 million) belongs to online ad spending in Pakistan, which translates into $5 million a year, according to a mobile survey company Ansr.io. What can stop the investors to come and invest in Pakistan o Unstable political situations o Terrorism The Government of Pakistan has granted numerous incentives to technology companies wishing to do business in Pakistan. A combination of decade-plus tax holidays, zero duties on computer imports, government incentives for venture capital and a variety of programs for subsidizing technical 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. The GDP value of Pakistan represents 0.37 percent of the world economy. GDP in Pakistan is reported by the The World Bank Group. From 1960 until 2012, Pakistan GDP averaged 52.3 USD Billion reaching an all time high of 231.0 USD Billion in December of 2012 and a record low 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 gross domestic product (GDP) is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time.

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

PAKISTAN
Real GDP (Sector Wise Data)
Year A) Commodity Producing Sector I. Agriculture II. Industry 2001-02 1,792,972 904,433 888,539 2002-03 1,868,125 941,942 926,183 2003-04 2,041,635 964,827 2004-05 2,234,671 2005-06 2,348,925 2006-07 2,504,569 2007-08 2,535,968 2008-09R 2,555,948 2009-10P 2,646,845

1,027,403 1,092,098 1,137,037 1,148,851 1,195,031 1,218,873

1,076,808 1,207,268 1,256,827 1,367,532 1,387,117 1,360,917 1,427,972

Manufacturing
Large-scale Small-scale* Mining and Quarrying Construction Electricity & Gas Distribution B) Services Sector Wholesale & Retail Trade Transport Storage & Communication Finance and Insurance

596,841
388,859 207,982 90,431 89,241 112,026

638,044
416,955 221,089 96,418 92,789 98,932

727,439
492,632 234,807 111,473 82,818 155,078

840,243
590,759 249,484 122,621 98,190 146,214

912,953
639,585 273,368 128,288 108,195 107,391

988,301
695,489 292,812 132,254 134,536 112,441

1,036,101
723,626 312,475 138,047 127,076 85,893

997,966
664,405 333,561 137,707 112,884 112,360

1,049,569
693,355 356,214 135,411 130,203 112,789

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

667,615 427,296 131,761 707,665 445,552 130,081 766,693 461,276 141,768 858,695 477,171 185,501 838,426 496,073 265,056 887,294 519,486 304,514 934,231 539,297 338,386 921,015 554,115 314,813 968,150 578,966 303,521

Ownership of Dwellings
Public Administration & Defence Community, Social & Personal Services GDP at Factor Cost (A+B)

118,604
240,585 366,285 3,745,118

122,466
259,148 389,067 3,922,104

126,764
267,321 410,125 4,215,582

131,214
268,826 437,152 4,593,230

135,820
295,959 480,217 4,860,476

140,587
316,915 518,344 5,191,709

145,521
320,565 569,044 5,383,012

150,629
332,108 619,409 5,448,037

155,916
357,134 660,236 5,670,768

R = Revised, P = Provisional | Source: SBP

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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 and passing 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 to the 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 day by day and value of currency is going down which causing increase in the value of loan payable that is another 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 financial Institution 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 controls Foreign exchange controls are various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents. Common foreign exchange controls include: o Banning the use of foreign currency within the country o Banning locals from possessing foreign currency o Restricting currency exchange to government-approved exchangers o Fixed exchange rates o 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 to other 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 in contact with other through any means so that is the opportunity for retail sector to capture the 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 are Jashn-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 of telecommunication

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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 get the bright future. Increasing the internet users: It is huge opportunity for e-retailer to en-cash the opportunity of increasing the user base of internet 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 up gradation of the systems they should up grade the systems to meet the requirement of the modern world.

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Conclusion:
The number of macro-environmental factors is virtually unlimited. In practice, the firm must monitor 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 to scenario planning techniques to deal with high levels of uncertainty in important macroenvironmental variables.

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Pakistan Economic Review

Pakistan economic review projects that because of strong economic policies taken up by Pakistan government manufacturing and financial services sectors have flourished since fiscal 2008. Export of goods is a major concern for Pakistan economy. From 1999, exports of Pakistan have increased from $7.5 billion 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 and engineering goods to mention a few. Some important import items of Pakistan are petroleum and petroleum 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 of central bank has been improved to 1.5 percentage points. This will help in dealing with high inflation rate in Pakistan. Pakistans economy can be characterized as semi-industrialized. The countrys industrial sector constitutes 24.3% of the countrys gross domestic product. Pakistan has a total labor force of 55.88 million (as of 2009). The largest industries of the country are textile, cement, agriculture, fertilizer, steel, tobacco, edible oil, pharmaceuticals, construction materials, shrimp, sugar, food processing, chemicals and machinery. However, it is worth noting that net foreign investment in industries of Pakistan constitutes only 2.5% of the countrys GDP.

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Infrastructure
Pakistan has more than 20 million Internet users in 2009. The country is said to have a potential to absorb up to 50 million mobile phone Internet users in the next 5 years thus a 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

IT industry
The second half of the first decade of 21st century has seen steady growth in the IT industry of Pakistan. Software exports grew considerably in 2007. That year, the industrys worth was estimated 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.

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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 growth rate of 8.4% in 2005. Today Pakistan has over 170 million consumers with an ever growing middle class. Foreign Direct investment has risen sharply from an average of $300 million in the 1990s to over $3.7 billion in 2008-09. Fiscal deficit has declined from an average 7% of GDP 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. Pakistan possesses a large pool of trained and experienced engineers, bankers, lawyers and other professionals 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. This strategic 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 policy trends have been consistent, with liberalization, de-regulation, privatisation , and facilitation being its foremost cornerstones.

Financial Markets
The capital markets are being modernized, and reforms have resulted in development of improved infrastructure in the stock exchanges of the country. The Securities and Exchange Commission of Pakistan has improved the regulatory environment of the stock exchanges, corporate bond market and the leasing sector. Whilst the Federal Board of Revenue has facilitated structural reform in tax and tariffs and the State Bank of Pakistan has invigorated the 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 by othe Government of Pakistan) is available to all those foreign investors, who make investment in sectors open to foreign investment, for financing the cost of imported plant and machinery required for setting up the 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 borrowing according to their requirements for working capital. oAuthorized Dealers are authorized to grant rupee loans and credits to foreign controlled companies for meeting their working capital requirements subject to observance of Prudential Regulations prescribed under the Banking Companies.

Royalty / Technical/ Services / Franchise Fees a) Manufacturing Sector

oThere is no restriction on payment of royalty and/or technical service fees for the manufacturing sector. oHowever, such agreements shall be registered with the State Bank of Pakistan. oThe 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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b)

Non-Manufacturing Sector

The payment of franchise, royalty or technical fee in case of non-manufacturing sectors is allowed subject to following conditions:o In case of foreign investment in non-manufacturing sectors including food sector, the initial / olump sum fee should not exceed US$ 100,000 irrespective of number of outlets under on franchise. o A maximum 5% of net sales (excluding 15% Sales Tax) in the food sector may be allowed as franchise fee only for those items which are core items of the franchise and are the specialties of the trade name. o The payment of such fees be allowed on monthly basis. No item will be eligible for twice payment of royalty/franchise fee, e.g, soft drinks, etc. o Percentage/amount of fees etc., for other non-manufacturing projects is also be upto the maximum of 5% of net sales (excluding 15% Sales Tax). o Initial period for which such fees may be allowed to projects in non-manufacturing sectors should not exceed 5 years. o Subsequent extension in time period may be considered provided these projects also make investment in allied upstream projects. o The agreements conforming to above guidelines will be sent by the sponsors to State Bank of Pakistan for its information. o However, any relaxation or deviation from the guidelines will require prior approval of the Cabinet Committee on Investment (CCOI).

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Transport in Pakistan
a) Road Road transport is most popular and it carries about 90% of the total passenger traffic. The country 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 overwhelming proportions, with mixtures of animal carts, high-speed cars, buses, and trucks. The principal roads of Pakistan are GT (Grand Trunk) Road, Super Indus Highway (N- 55), Karakoram Highway (N-35), Makran Coastal Highway (N-10) and Motorway Projects (M1, M2, M3, M8, M9).
b) Railways Pakistan's railways cover roughly 7,791 kilometers. Most are in the Indus Valley, from Karachi to the Punjab, with a few lines into the North-West Frontier and one westward across northern 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 875 million consumers worldwide, who have shopped on the web. This figure has grown exponentially 40% from 627 million since 2009. Research affirms that 85% of Internet users have shopped online. 60% of web shoppers pay with credit cards, and a quarter use PayPal. 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 of the 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 percentage of total monthly spending varies by country with Chinese and Korean online consumers allocating 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.

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ROUTE TO MARKET
Forming a Joint Venture with a local Pakistan Business establishment seems the best option due to the perceived resistance of Indian business establishment, the revenue sharing can be based on mutual division of roles looking at strengths of the partners . Two positioning strategies for e-retail companies in Pakistan in future: Purchase, Store and Sale companies (for Books, Electronics, Electricals, Mobiles, Computer & laptops and fashion Garments) ZERO inventory, Purchase and sale companies (for groceries and GMCD)

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Purchase, Store and Sale companies

Tie up with local distributor or local manufacturer (like for staples and GMCD) for purchasing the goods as per required and finalized master list based on customer requirement. (Just like India we found 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 local manufacturer 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 stocks

There should be prior commitment to the customers for delivery satisfaction. (like within 24 hours or 48 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 city than 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 on delivery. 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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References & acknowledgement

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

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Questions ?

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Thank you

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