Business Challenges in Pakistan with Respect to Macro Environmental Issues - Term Paper Example

Modern day Business and Globalization: In the last fifteen years the world has transformed into a Global village, as the globalization of business has taken place. Companies are entering international markets in the quest of business opportunities and outsourcing has gained popularity. Also considerable amounts of manufacturing assembly jobs that entail low skills have moved to various developing countries. Multinational corporations require their employees to be flexible and be able to adapt themselves to the work environment accordingly. In today’s fast paced business environment Companies need to be fast growing, efficient, profitable, flexible, adaptable, and future-ready and have a dominant market position because in the absence of these qualities and characteristics companies cannot pose healthy competition in the modern global economy. Hence to successfully pursue their goals and also maximize profits, it’s crucial that they be in a position to obtain entrée into new markets and come up with brand new ideas. Companies frequently opt to expand their business by means of Mergers & Acquisitions more willingly than engaging their labours on their personal business activities. This kind of growth and expansion is seen as a more rapid mode of accomplishing the primary purpose. (Krishnan 2009) Particularly in technology focused industries, where development is often boomed with the aid of amplified innovations, and companies can also stay in competition by being parallel to those which companies that are developing the innovative technology in the first place. This parallelism can be attained through both Merger as well as Acquisition. (Krishnan 2009) Today in the modern world companies can gain and sustain competitive advantage by being knowledgeable. The knowledgeable employees of an organization are its asset and are well treasured by it. (Krishnan 2009) Dimensions of the Business Environment: The business environment of a company is the macro and micro environment in which a company operates but it doesn’t have a direct control over it. It influences the company`s activities and performance in various ways, proving to be positive or negative at different stages in time. (Agrawala 2009) The macro environment is the general environment of the country in which the company is operating and it affects all companies in the economy. The next environment affecting the company is the industry and this comprises of the industrial conditions in which the company is operating in step to its competitors. Next is the microenvironment which deals with its specific markets and to other organizations that contribute to its production and distribution activities. It may also include other businesses manufacturing and marketing complimentary goods and services. (Agrawala 2009) Business Opportunities in Pakistan Since 1990 when Pakistan was on the threshold of bankruptcy, it has shown a remarkable political and economical development and has overcome the negativity in the minds of the international marketers. Pakistan is one of the most prominent countries of the Islamic world with an ever increasing population of approximately 150 million; hence it is well renowned by the international community. Considering the geographical location of Pakistan, it has close political and economic relations with the Middle East, Central and South Asia as it is the main entryway to Central Asia and supplier to the Emirates. Pakistan is a member of the South Asian Association for Regional Co-operation (SAARC) and lately noteworthy steps have been taken by SAARC, to create a South Asian Free Trade Area (SAFTA) which will also include India. (Guitard, Khan & Bienen, p 2, no date) Since 9/11 Pakistan has received sizeable economic support from its key creditors and this has made significant room for fast export growth, a positive balance of payments, reduction of the cost of debt service, a dramatic increase in the country’s currency reserves and an all time low for domestic interest rates. Due to the reduced cost of debt as well as a spectacular enlargement in remittances by overseas Pakistanis (up to USD 4 billion), the balance of payments has been encouraging positive over the last few years. (Guitard, Khan & Bienen, p 2, no date) The prime result of these extraordinary macro economic successes has been an amplified liquidity in the country and the consequent lowering of interest rates to a single digit for principal borrowers which has made it possible for companies to yield higher returns, closely pursued by an extraordinary rise in stock prices. Also the banking industry has assertively marketed consumer finance to the emerging middle class. (Guitard, Khan & Bienen, p 2, no date) There is a lot of potential in the Pakistani market and it seems quite attractive to the potential investor. It has abundant natural as well as land resources for Pakistan is primarily an agricultural country and there is extensive amount of land at hand for agricultural use. Also it is blessed with massive mineral reserves of coal, crude oil, natural gas, copper iron ore, etc. it also excels in the production of livestock and fisheries. The foreign investors find the English speaking work force very beneficial along with the presence of cost effective managers and technical workers. There is a significant middle class which is moving towards sophistication in terms of their consumption habits. Even though Pakistan still ranks among developing countries but its infrastructure and legal systems are well ahead on the road to development. Business Challenges in Pakistan with respect to Macro Environmental issues: Political: Pakistan is not very stable politically and there are major issues of corruption, although the World Bank has taken notable measures for the improvement of the situation. The political parties do not stand united and it seems as if each is concerned for its personal well being only instead of that of the entire nation. Economical: Many renowned Multinational companies have been operating in Pakistan successfully for more than the past twenty years. Most of them focusing on in oil and gas exploration and production, electrical engineering, and the pharmaceutical, food, and chemical industries but now new momentous company has made an entry recently. Pakistan presents plentiful and noteworthy opportunities for investments aiming both at using Pakistan as an export base and at utilizing an up-and-coming market with a swiftly growing middle class. (Guitard, Khan & Bienen, no date) Social: The security risk in Pakistan has more than doubled in the past few years. There is major instability in Afghanistan and large scale military operations are taking place over there and it is in turn effecting Pakistan, because besides other factors, a large amount of refugees have moved to Pakistan from Afghanistan. They are uneducated and unemployed and are burdening the already unsteady economic conditions of the Pakistan. Also the earthquake in October 2008 left a lot of people homeless, crippled and children orphaned. Then there was a major flood in the year 2010 which was another shock for the economy of the country. The increasing prices of commodities put people under a lot of pressure and they look for other means of making money when they are unable to cope with their expenses and feed their families. The Madrissas (schools where only Islamic education is given) are seemingly presenting a great security threat to the country as some of them are producing extremists. A recent example is of the assassination of the Governor Punjab Mr. Taseer Hussain who was shot by his own security guard who believed that the Governor had said unkind words for the Prophet (PBUH). This was a recent very disturbing event that occurred at the beginning of the year 2011. Technological: The levels of pollution have sky rocketed over the years and it is becoming a nuisance for the global markets. The precarious pollution levels demand a rapid action to be taken against it. Companies are therefore encouraged to use technologies for low emissions and maintain a clean environment, but these new requirements do not come cheap and require a lot of investment by the countries on a massive level. Although companies have tried to opt for renewable energy resources, but instead of adding to their profits it has turned out to be another major expense, since the productivity is substantially low while the cost is very high and this has encouraged more and more companies to explore the possibilities of outsourcing. Where it’s so expensive for developed countries, the undeveloped countries can only dream about it for it is well out of their reach. ( Konov 2010) Lately Pakistan has been unable to cope up with its demand of electricity as well as natural gas and due to this the industries are suffering badly. They have to look for energy substitutes like generators which use petrol but the price of petrol is very high so if their cost of manufacturing is so elevated then they will sell their products at higher prices and hence it will be difficult for people to purchase their products. A country cannot attain high economic growth in the absence of adequate energy since it reflects industrial output, agricultural output, transportation, etc. The load shedding of electricity in Pakistan is startling. If energy supply of an industry is restricted, then its output will be lowered and the production cost increased, forcing numerous industries to shut down leaving labour unemployed. The recent price increases are to be blamed upon the energy shortage and the amount of people living below poverty line is increasing due to unemployment and inflation, both of which are a result of the energy crisis. (Mahmedhashmi 2010) Environmental: There is political instability in the country and also major security risks. The natural disasters in the recent years have worsened the economic conditions. But still there are many untapped markets which can be explored. Overall the environment is not as bad as it is portrayed by the media and there is a considerable amount of potential here for investors. Legal: Since 1999 Business regulations have been greatly adjusted to be more liberal and most barriers to the flow of funds and international direct investment have been isolated. Foreign investors do not face any restrictions on the inflow of capital, and investment of up to 100% of equity participation is allowed in most sectors (local partners must be brought in within 5 years and contribute up to 40% of the equity in the services and agriculture sectors). If the lower levels of administration could also be made more efficient then the enforcement of laws, rules and regulations could be further improved. Another major drawback is the controversial legal framework which does not routinely identify and put into practice international settlement decisions. The judicial system also still lacks efficiency. The intellectual property rights, while legally protected, are not always enforced because pirated and copied goods are still widespread in most sectors of the economy. (Guitard, Khan & Bienen, no date) Business challenges in Pakistan with respect to the Microenvironment: Customers: Companies gain competitive advantage by fulfilling the needs and expectations of its customers. They need to find their niche and maintain it, they should also be well aware of their target market in order to succeed. Employees: The company which understands the importance of its employees and treasures them in the right manner is definitely on the road to success. It is crucial for the company to hire the right people and also keep them motivated because if the employees are happy then they will aid in the prosperity of the company. Suppliers: If the prices of the raw material increase then they will trigger an increase in price of the end product. Like Pakistan is recently suffering from the crisis of sugar, its price has increased significantly due to the gap in supply and demand. Demand has exceeded the supply and this in turn has increased the price of all the products in which sugar is used. It is quite unfortunate that due to the mismanagement in sugar industry, the consumers would suffer by having to buy it at a higher price. Before start of the crisis, sugar was being sold at a much lower price but it has increased before the month of Ramadan. The price is much higher than that of the neighbouring country India. The economic managers in Pakistan especially those looking after the agriculture sector need to evolve a policy to keep price in line with the buying power of the people so that the poor also have access to this bare essential, sugar. (Bashar 2001) Shareholders: When an organization progresses it requires a lot of capital for operation and expansion and it can be achieved by making the company public. Where it has its benefits, it also has some drawbacks, like the shareholders can put pressure on the company to yield higher returns and to accommodate the demands of the stockholders companies often have to alter their strategies and workings within the organization. Media: The media within a country can both make or break an organization. Encouraging media coverage can result in higher sales and the positive portrayal of image of the company while unfavourable media coverage can result in a decline in sales and also in the company`s reputation. In recent times the Pakistani media is fairly free to write and show what it wants and the attainment of this freedom is chiefly due to four factors: Firstly, the people have supported the need for an energetic, daring and free media. Secondly, for the past many decades the journalist community has been struggling for a free media. Thirdly, we have globalisation and the media boom to thank for it, and last but not the least, technological innovations in the media field and the materialization of fresh information and communication technologies. (Memon 2009) Competitors: Many companies gain a competitive advantage over its competitors but whats important is maintaining it Like in the case of the telecommunication sector it is very difficult to maintain the competitive advantage because the competition is so tough that each company is coming up with a new package plan every day and each one seems to be better than the other. But the trick is to never compromise on quality. The telecommunication industry of Pakistan has grown tremendously in the recent years as many new competitors have entered the market. Their intense competition can be observed from their media ads. They are constantly fighting with one another for market share and the quality and intense competitiveness of the advertising campaigns indicates the level of effort to gain market share. (Zia & Khan, no date) Future of the Business Industry in Pakistan: The industrial destiny of Pakistan profoundly depends on low-cost raw materials, easy tax policy, strong industrial infrastructure, political stability and ready and cheap finance. (Ghani & Mustaqeem, ca.2010) The main hitch which is making Pakistani market seem less attractive to foreign investments comes from the pessimistic security insight by westerners due to the Kashmir conflict, the Afghan situation as well as the internal violence in the country. Conditions have improved on the first two fronts while the third one i.e. security within the country seems to be worsening lately. The macro-economic and financial marvel of the last three years, for which we have financial support offered by the international finance community to thank for, mostly through debt rescheduling and soft loans, seems now to be having an auspicious impact on micro economic development. The infrastructure has also improved and due to it the additional cost of doing business will be lowered. With the passage of time it is expected that the above mentioned positive factors will have a promising impact on the micro-economic environment and help in overcoming poverty. Also the business regulations are more liberal and its effects can be seen through the recent booming performance of the country as well as the improved profitability of the companies in most sectors. In the past three years the macro economic situation has improved vividly making it competitive in the international market. Hence it now stands in a very spirited state of affairs compared to the countries in the region. Its competitiveness based on business regulation and administrative environment, appears to be rolling, while execution through the Government administration might not yet have reached an adequate level. Also the cost of finance which was mentioned as a negative aspect for business as freshly as a year ago is now very practical. (Guitard, Khan, & Bienen, no date) References Agrawala, K., 2009. Business Group [online]. Available at: [Accessed 16 Jan 2011]. Bashar, A., 2001. Industry & Economy, The sugar crisis continues [online]. Available at: [Accessed 16th Jan 2011]. Ghani, A. F. and Mustaqeem, F., 2010. Future of Industries of Pakistan [online]. Available at: [Accessed 16 Jan 2011]. Guitard, P., Khan, A. S. and Bienen, D., n.d. New Business Opportunities in Pakistan [online]. Available at: [Accessed 16 Jan 2011]. Konov, J., 2010. How Globalization affects Countries & Markets-updated [online]. Available at: [Accessed 16 Jan 2011]. Krishnan, C., 2009. Globalization and its Impact on Business Environment [online]. Available at: [Accessed 16 Jan 2011] Mahmedhashmi, 2010. Energy Crisis in Pakistan [online]. Available at: [Accessed 16 Jan 2011]. Memon, A. M., 2009. Pakistan: Media Freedom and Responsibility [online]. Available at: [Accessed 16 Jan 2011]. Zia, M. and Khan, S., n.d. Competition in Telecom Industry of Pakistan, A Battle for Supremacy [online]. Available at: [Accessed 16th Jan 2011] Read More