Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
The traditional approach to selling in Pakistan has been through personal contact with a major wholesaler which serves a network of retailers throughout the country. However, this trend is changing. Advertising is now a growing industry and some of the large consumer manufacturers extensively promote their products through print and electronic media as well as the internet. Some of the banks regularly contact their potential customers through direct marketing. Nonetheless, personal relationships are very important, especially when selling non-consumer items to the government or large corporations. Since personal relationships take time to nurture, U.S. firms are advised to invest time in the market, preferably with a local presence or at least frequent trips to the area. Face-to-face contact is the business norm, however the current environment poses significant challenges. U.S. business travelers may face delays in acquiring a Pakistani visa. Some U.S. corporations strictly adhere to the State Department Travel Advisory recommending that U.S. citizens reconsider travel to Pakistan, which may also pose a challenge for U.S. business visitors to the country. To overcome this, some U.S. firms opt to meet with their Pakistani counterparts in a nearby third country, such as the United Arab Emirates.
In addition to personal relationships, price generally remains the dominant factor. Government procurement also places heavy emphasis on selection of the lowest bidder, provided the bidder meets the technical specifications and has relevant industry experience. Some foreign companies have excelled at providing initial lower bids and revising them later to a more realistic level, usually in connivance with “consenting” officials. Some U.S. firms have expressed their frustration in dealing with government contracts, especially in situations when they were technically qualified and submitted the lowest bids, yet were not awarded the contract or were asked to re-bid for a re-advertised contract.
U.S. products and services enjoy an excellent reputation in the local market, especially for their quality and durability. However, U.S. companies face tough competition from Chinese, Japanese, and Korean companies, which generally have a larger presence in the country and are able to offer their products and services at competitive prices. Providing after-sales services is also essential and U.S. firms are advised to establish this service either through a local/agent distributor or through their own presence in the market.
Using an Agent to Sell U.S. Products and Services
Many foreign firms in Pakistan appoint local agents to provide market intelligence and to facilitate distribution. These agents typically work on a fixed commission, which can range from two to ten percent for plant and equipment purchases, and from 15 to 20 percent for spare parts. Commissions may be computed on Free On Board (FOB), ex-factory, or Cost Insurance and Freight (CIF) basis, as mutually agreed. Some agents prefer to have suppliers quote net prices to them and they, in turn, add the commission to arrive at their selling price. Other agents operate as consultants on a retainer basis, receiving their fee regardless of the volume of total sales.
One of the most common arrangements used is an exclusive agency agreement, under which the supplier agrees to neither appoint another dealer/distributor, nor to negotiate sales through any other party. In return, the agent is barred from handling similar items produced by other companies. Under this arrangement, the agent receives commissions on all sales of the product regardless of the channels through which the order is placed. The agent often imports and stocks replacement goods most frequently required by the end-users. Agency agreements typically extend for a term of one to three years and generally require 30 to 90 days’ notice by either party for termination.
Overseas suppliers may look after the interests of their local agents in various ways. For example, the principal may arrange separate payments to the local agent in order to provide after-sales service during and beyond the warranty period. The principal often compensates the local agent for providing technical and administrative support services not directly related to any specific sales transaction.
The Commercial Service of the U.S. Department of Commerce (USDOC) can provide assistance identifying potential agents and representatives through its “International Partner Search (IPS)” and “Gold Key” services, available through U.S. Export Assistance Centers in the United States. The “International Company Profile” (ICP) can provide background information on individual agents.
Establishing an Office
A business in Pakistan may be organized as a sole proprietorship, a partnership, or as a public or private limited company. Foreign investors generally establish limited companies as required under the Pakistan Companies Ordinance, 1984. They must register with the Securities and Exchange Commission of Pakistan (SECP). Company registration offices are located in Islamabad, each of the provincial capitals and also Multan and Faisalabad in Punjab province, Sukkar in Sindh province, and Gilgit in Gilgit Biltistan. The promoters of any proposed company must also obtain confirmation from the SECP that the proposed name of their company is not deceptive, inappropriate, nor identical to the name of an already existing company. A company making any public offer of securities for sale or intending to issue capital is required to obtain approval from the Controller of Central Depository Company of Pakistan Limited (CDCPL). After registering and receiveing approvals, firms should apply for necessary utilities through the following authorities:
Electric Power: The electricity power supply in Pakistan is supplied by different agencies, both in the public and private sectors. K-Electric is a private power distribution company that provides electric power only to the Karachi area. In addition, 10 state-owned distribution companies provide power to Islamabad, Rawalpindi and other provincial regions.
Natural Gas: Two state-owned utility firms - Sui Northern Gas Pipelines Limited (for Punjab and Khyber Pakhtunkhwa provinces) and Sui Southern Gas Company Limited (for Sindh and Balochistan provinces) – provide gas distribution service.
Fixed line telephone and Fax services: The Pakistan Telecommunications Company Limited (PTCL) has sole responsibility for providing fixed-line telecommunication services in the country.
Cellular Services: Cellular telephone services are provided by the following companies: Mobilink, Telenor, Ufone, and Zong (China Mobile Company).
Internet and Broadband: Following are some of the leading service providers: PTCL, Nayatel, WorldCall, Qubee, Link Dot Net, Wateen, WiTribe and Comsats. In early 2014, the Government of Pakistan auctioned 3G network licenses to Mobilink, Ufone, and Telenor and a 3G/4G license to Zong. Later in 2016, 4G network licenses were also auctioned to the local service providers.
Water: Local government municipal authorities.
All manufacturing concerns employing more than 10 persons are required to register with the appropriate provincial Chief Inspector of Industries under the Factories Ordinance, 1984. Companies are also required to register with the Income Tax Department of the Federal Board of Revenue (FBR) and obtain a National Tax Number (NTN).
Within 30 days of establishment, foreign companies must file the following documents with the Registrar of Joint Stock Companies, Ministry of Finance, Islamabad:
A certified copy of the charter, statutes, or memorandum, and articles of association of the company;
- The full address of the registered or principal overseas office of the company;
- The names of the chief executive and directors of the company;
- The names and addresses of persons resident in Pakistan who are authorized to accept any legal notice served on the company.
A company making any public offer of securities or capital (Initial Public Offiering) is required to obtain approval from the Central Depository Company (CDC). U.S. firms may find it advantageous to use the services of a local attorney to complying with these formalities.
Contact details and information regarding forming a company and Initial Public Offering (IPO) for securities in Pakistan may be obtained from the following websites:
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
The concept of franchising is not new in Pakistan, especially in the hospitality and food service sectors. U.S. companies dominate the franchise market in Pakistan in large part due to the fact that U.S. firms are the pioneers in this sector, and have the strongest marketing to support their brands. Several major U.S. hotel chains, along with a rapidly growing number of major U.S. restaurants, ride sharing, and U.S. car rental companies are currently represented in Pakistan through franchisees.
Franchising provides U.S. companies with a quick way to enter the market without major capital commitment. By operating through local franchisees, U.S. firms can gain access to local expertise and significantly reduce the problems of adjusting to an unfamiliar business environment.
However, franchising in Pakistan is not without challenges and barriers. Potential areas of dispute between franchisor and franchisee include quality control, intensity of marketing efforts by the local franchisee, and possible conflict of interest on part of the franchisee. The local affiliate may end up as a competitor once the franchise agreement expires or is terminated.
A key consideration in establishing a franchise operation in Pakistan is quality control, particularly if the enterprise proposes to use locally produced items. In Pakistan, all imported food items - particularly meat items - must be certified “halal” (slaughtered in accordance with Islamic ritual). In 2019, the Government of Pakistan enacted a Special Regulatory Order – SRO 237(1)2019, which proclaims that all products imported in to Pakistan must have their labeling details printed in Urdu along with halal certification from the designated certifying authoritites.
Prior to entering an agreement with a local company, U.S. firms may perform due diligence by contacting a local U.S. Export Assistance Center (USEAC) and purchasing the International Company Profile service, offered by the U.S. Commercial Service. Before selecting a partner, U.S. firms are advised to identify a number of candidates and evaluate each carefully.
Few currency exchange regulations of the State Bank of Pakistan (SBP) also pose a challenge to the growth of this sector. One major stumbling block is the SBP’s guidelines on commercial remittances which limits the initial franchise fee up to $100,000 (regardless of the number of outlets) for the duration of the franchise. Similarly, the SBP also limits the continuing franchise fee to five percent of their monthly net sales, which may suppress franchisor profits.
Furthermore, Pakistan’s energy crisis and less developed processed food market (red meat, poultry, and sea food) also pose a challenge to the franchisees where they mostly rely on the import of major ingredients.
In spite of these challenges, international franchisers are seriously considering this market - where competition and labor costs are low and profit margins are still high. Major U.S. companies with franchise operations in Pakistan include Marriott, Days Inn, Best Western, Ramada, 4 Points by Sheraton, Pizza Hut, KFC, Subway, McDonald’s, Dunkin Donuts, Domino’s Pizza, Papa John’s Pizza, P.F. Chang’s, Burger King, Hardees, Nike Retail, UPS, FedEx, Princeton Review, Berlitz, Gymboree, Baskin-Robbins, Cold Stone Creamery, Texas Chicken, Crocs,Dickey’s BBQ Pit, Dippin’ Dots as Minimelts ice cream, Hertz and Avis. Most franchise operations have concentrated their activities around Karachi and Lahore; however some of the food outlets have opened branches in Hyderabad, Faisalabad, Islamabad, Rawalpindi, Multan, and Peshawar among other cities.
Until recently, direct marketing in Pakistan was limited to direct mail advertising, with leading pharmaceutical firms, banks, and large publishing groups as major users. Pharmaceutical companies employed direct mail to reach out to doctors, hospitals, and medical professionals. Publishers used direct mail to reach out to their existing subscribers of magazines and publications for repeat business and banks used this tool to market their consumer banking products. However, the inception of telemarketing and the increased usage of courier services along with internet and mobile phones have recently broadened the scope of direct marketing.
The concept of direct marketing is gradually gaining acceptance in the Pakistani marketplace, driven by several multinational companies. The low cost of domestic mail, email campaigns, and local cell phone calls makes this a potentially cost-effective sales medium. The major drawbacks to direct marketing in Pakistan are the lack of readily available mailing lists with up-to-date contact information, and the paucity of reports on consumer preferences. These limitations make it difficult to target and reach the intended audience. Efficient mail and courier services are now available in all major urban and semi-urban areas of the country.
U.S. companies considering direct marketing in Pakistan should take local customs and cultural values into consideration before launching a campaign. The use of a local advertising agency is advisable in implementing the direct marketing option. A few advertising agencies have separate direct marketing departments.
The three principal routes to entering the Pakistan market are: (1) formation of a wholly-owned private company; (2) formation of a public limited company (foreign firm retains majority control, but seeks public participation through stock flotation); and (3) establishment of a company in cooperation with joint venture partners who supply local expertise, management and capital.
Joint ventures may be either private or a public companies. Joint ventures are an attractive option because many local entrepreneurs have built a substantial market base and seek to combine their knowledge of local markets with foreign capital and technological know-how. The foreign joint venture partner limits its initial country exposure while enjoying the support of a local partner in a new market. Prominent joint ventures have been established in the automobile, fertilizer, electronics and home appliances, financial services, food and consumer product, and energy sectors.
Firms wanting to delay direct entry into the Pakistan market should consider licensing arrangements with Pakistani firms, an option that permits them to enter the market in stages if the initial response is promising.
U.S. companies seeking to do business in Pakistan are strongly advised to conduct a background check on the local company. It is always advisable to check the ownership of the company and its business track record.
U.S. companies are strong encouraged to carry out due diligence on prospective partners or opportunities using the U.S. Commercial Service International Company profile (ICP) service. Please contact the U.S. Commercial Service, Pakistan for more information on this service.