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This paper will assess the competitiveness of the Pakistani Soft drinks industry to
identify the challenges and opportunities in the Pakistani market; Part 1 highlights
Porters Diamond Model being employed as the theoretical framework. The multideterminants of the diamond model is being analysed. Part 2 assessed the
appropriateness, advantages & limitations of using FDI as an entry strategy to
Pakistan. Lastly on part 3 highlights the current management issues present in
Pakistan. Comprehensive reviews of published documents such as trade
publication reports, academic journals and industry websites are explained
throughout the framework of the model.
Porters Diamond Model comes into picture whenever certain industry or a company
wants to expand overseas. As shown in Figure 1, there are four broad determinants
of Porters model that conveys the nations competitive advantage, these
determinants are; the factor conditions, demand conditions, related & supporting
industries and the firm strategy structure & rivalry. There are two additional
determinants that can also influence the four broad determinants; these include the
intervention/role of government and the chance of events.
the most populated country in the world, having the median age of 22.8 years. In the
Pakistani economy, major industries including food and beverage industry is
considered one of the fastest growing sectors; the country is an attractive destination
for beverage industry due to the low labour cost and high in demand for service
related industries such as potential markets for fast foods (Ehsan, 2012). On the
other hand most environment of the HR management in Pakistan is not dynamic,
these include corporate downsizing (Hussain, 2015), changing skill requirement,
TQM (total quality management), and employment involvement etc. these conditions
may present certain challenges for foreign industries. Pakistani Organisations may
have to bring improvements or upgrades in the HR departments.
This aspect refers as the presence or absence of related and supplier industries in
the nation that is competitive internationally (Su, Xie, & Zhang, 2010). Porter relates
this aspect as a prevalent network for competitive advantage of economic activities
and can be configured by a top-down spreading procedures (Asmussed, Pedersen, &
Dhanaraj, 2009). Related and supporting industries in Pakistan bring out significant
inputs that relates to the internationalization and innovation, its role influences the
industrial competitiveness and provide cost effective inputs. These industries also
partake in the upgrading process therefore encouraging other companies to innovate
in the chain (Tin, 2011). Related and supporting industries discussed include the IT
industry of Pakistan, the bottling company and sugar manufacturing company.
competitive setting in the global market provides considerable benefit towards the
Pakistani Soft drinks industry (Economic and Industrial Publications, 2010). The
availability of flavouring syrup supporting manufacturing industry is expected to boost
the competitiveness of Pakistanis Soft Drink industry in various ways through the
increased in demand in consumption of Soft Drinks (Ehsan, 2012).
The Pakistani soft drinks industry is dominated by Coca-Cola & Pepsi which accounts
for two major brands in carbonated industry of soft drink in Pakistan (Mental Health
Weekly Digest, 2010). Pepsi-co enter the market through dominant strategy of using
franchised as a mode of entry to expand its market in Pakistan, catering a broad
segment and diversifying product line, taxes saved through franchising entry mode
allowed the soft drink industry to pivot towards promotions & advertising to increase
sales profit (Trade Finance, 2008). Availability and meeting the demands of
consumers is one of the key factors that contribute to the success of soft drink
industry in Pakistan.
As stated by Ferrell and Hartline (2008) a product strategy should follow the
segmentation criteria in entering the market based on the chosen market scenario,
certain characteristics like accessible, measurable & substantial to generate profit.
Ice cola for instance uses different ways of segmentation (geographic, demographic,
and psychographic) of product in Pakistan (Khan & Bhatti, 2012). Geographically, to
expand its segmentation is to target its products towards major cities of Pakistan
such as Lahore and Karachi (Shahzad et al, 2015, p. 1205). Demographically, focus
target would be the youth (15-22 yrs old) which represents the larger segment of
pakistani population (Ehsan, 2012). This accounts for increased productivity of the
Soft drink industry.
1.5 Government
The role of government affect the above four determinants as legal and policy
enforcement of the government could restrict or promote the development of the
Pakistani soft drink industry and are crucial in the formation of the competitive
advantage of a nation (Smith, 2010). The government also influences the factor &
demand conditions both in the home market and firms competition, as Porter (1990)
suggested the business organisation are the key part in generating competitive
advantage and that government should only make available resources for industries
development (Asmussen, Torben, & Dhanaraj, 2009), thereby reducing industry
pressures and generating opportunities such as investment in the development of
growth of infrastructure in Pakistan whereby firms cannot partake strong action
(Imran, 2007).
1.6 Chance
The role that chance plays would refer to the events or occurrences that is external of
the firms control, depending on the conditions at hand its influence could be negative
or positive (Asmussed, Pedersen, & Dhanaraj, 2009). Its significance is crucial for it
could create discontinuities in the Pakistani industry in which some obtain
competitive positions and some loses (Carayannis & Wang, 2011). External factors
for instance the sudden increase of Pakistans production cost which could result in
cost fluctuations in competitive position of Pakistani soft drink industry (Jacobsen,
2013). For instance the lack of investment in R&D via a sturdy support sector
appears as one of the peak constraints hampering the Industrys competitiveness
(Afraz, Hussain, & Khan, 2014).
Disruptive development outside firms such as traditional technology disruption could
play a significant role in shifting the industrys competitive advantage (Kalia, 2000).
Chance of events have commonly been favourable for the Pakistani soft drink
industry, the increased in volume consumption have benefited from the demographic
market (Ehsan, 2012). The outcome of chance events as a source of advantage for
the transportation infrastructure resources of Pakistani industry have been,
otherwise, relatively limited and would require special attention from the government
(Javed & Khurram, 2006).
The favourable geographical location of Pakistan and its fast growing software
development fields (Ali & Amina, 2005), and the increasing potential of the growing IT
industry (Kalia, 2000), have certainly contributed to the industrys competitiveness as
well as the increasing interest of foreign industries in establishing branches in
Pakistan (Asmussed, Pedersen, & Dhanaraj, 2009).
For the investment policy of Pakistans government, two broad groups are formed
such as the manufacturing & non-manufacturing service (Chackochen &
Ramalingam, 2012). In the manufacturing sector, foreign equity amount investment
should not be lesser than US$ 0.3 million, under the companies ordinance the
individual should be company integrated (Manes, 2009). On the sector of service, the
investment amount of foreign equity should not be lesser than US$ 0.15 million.
The country of Pakistan has a very liberal policy towards the repatriation for
Foreign Direct Investors, that gives the direct investors added advantages in
investing in Pakistan (Shabbir & Naveed, 2010). Advantages such as:
Foreign Equity can be owned by the business for the first five years, in a joint
venture minimum share of the local Pakistani partner will be in the ratio of
60:40 for the service sector (Chu, 2010).
To all foreign investors that made investments in the approved sectors has
had availability to the facility for contracting foreign private loans, and theres
full repatriation of profits, capitals gains and dividends (Chackochen &
Ramalingam, 2012).
The Federal Board of Revenue or (FBR) will likely not inquire to funds
sources on specific investment or question the investment sources
(Chackochen & Ramalingam, 2012), on the other hand, FBR would want to
be informed as to the payment of requisite income tax from the investor to the
specific investment.
On average the industry sector takes 3-7 days to resolve an issue with the
government officials (Jackson et al, 2014), studies confirmed that labor inspectors
are deemed most corrupted so as officials of electricity that threatens most firms
with power suspension unless side payments are made (Hussain et al, 2012).
Although relative to compared countries lesser firms in Pakistan are being
inspected, incidents of bribe payments are relatively higher (Manes, 2009).
Dominating the analysed surveys inefficacy & crime of the judicial is another
constraint in Pakistan (Azam, 2012), percentage increase from 21.4 to 32.5 in 2007
firms reporting crime & disorder have become a major constraint (Manes, 2009). As
analysed by Hussain et al (2012), surveys pinpointed that, although security &
crime losses have minimal widespeard in Pakistan than in comparator countries,
their potency is greater.
Compared with the fifth of firms in comparator countries, surveys pinpointed that the
judiaciary functioning is a consequential obstacle for the 3 rd of Pakistani firms
(Manes, 2009). Significant problems could occur that hinders business activity with
the absence of a fair & effective methodology of dispute resolution (Gillani,
Rehman, & Gill, 2009).
Long-term investment is also adversely affected for the investment protection need
was not consistently fulfilled and as an outcome of the judicial system perception, in
2007 Pakistani firms of about 5% chose to resolve their disputes in court which led
to 40% decrease since year 2002 (Manes, 2009).
Conclusion
High liberal policy presented the repatriation for Foreign Direct Investors, gives
Pakistanis foreign investors added advantages in investing in Pakistan with the
use of Foreign Direct Investment as an entry strategy to Pakistan.
Pakistans corruption and disorder was due to poor governance, the state may need to
establish credibility for the economic improvement of investing firms.