Using an Agent to Sell U.S. Products and ServicesMany 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. 

Probably the most common arrangement is the 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 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 assist in locating potential agents and representatives abroad 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). 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. Those working to establish a 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 receiving approvals, firms that are opening a new office or facility 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 Offering) 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 comply 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:

• Securities & Exchange Commission of Pakistan (SECP) 
• Pakistan Board of Investment
• Central Depository Company Limited

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 State’s Investment Climate Statements website.

Franchising

The concept of franchising is not new in Pakistan, especially in the hospitality, retail, and food service sectors. U.S. companies dominate the franchise market in Pakistan in large part because 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 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. 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 the 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 following Islamic ritual). The Government of Pakistan (in 2019) enacted a Special Regulatory Order – SRO 237(1)2019, which proclaims that all products imported into Pakistan must have their labeling details printed in Urdu along with halal certification from the designated certifying authorities.   

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.

Certain exchange regulations of the State Bank of Pakistan (SBP) also pose a challenge to the growth of this sector. One major impediment is the Central Bank’s guidelines on commercial remittances, which limits the initial franchise fee to a maximum of $100,000 (regardless of the number of outlets) for the duration of the franchise. Similarly, the SBP also limits the continuing franchise/royalty fee to five percent of their monthly net sales, which may suppresses franchisor profits. Furthermore, Pakistan’s energy crisis and less developed processed food market (meat, chicken, seafood) 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, Dickey’s BBQ Pit, Nike Retail, UPS, FedEx, Princeton Review, Berlitz, Gymboree, Baskin-Robbins, Cold Stone Creamery, Texas Chicken, Crocs, 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. 

Direct Marketing

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 the 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.

Joint Ventures/Licensing

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 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 products, 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.

Distribution and Sales Channels

Pakistan’s retail industry is still developing, with most of this segment fragmented and underdeveloped. There are over 2.5 million shops in Pakistan, most of which offer only basic products. Consequently, clothing, food, beverages, and tobacco account for as much as 75 percent of retail sales. There are few shopping malls in operation, and they are generally limited to the larger cities like Karachi, Lahore, and Islamabad. Large supermarkets or chain stores for general consumer items are not widely available in Pakistan, though a few multinational chains have started operations. The European cash and carry retailer Metro, in joint collaboration with Pakistan’s Habib Group, has opened several self-service wholesale outlets in Karachi, Lahore, and Islamabad. Carrefour Hypermarkets (Pakistan), with outlets in Karachi, Lahore, and Islamabad, is the latest player in the hypermarket segment, along with the UK’s Greenvalley. The concept of chain stores for fashion apparel has also lately begun to emerge in the larger cities, where several such chains, stocking predominantly locally-manufactured merchandise, are currently operating. In addition, hundreds of government-owned Utility Stores sell food and household items and serve as a mechanism for restraining inflationary prices by following the government line on pricing. The military-owned Canteen Stores Department (CSD), a discount retail network, has also expanded to all major cities. 

The general perception among Pakistani consumers is that the prices in the larger and more upscale stores are higher due to higher overhead and capital investment costs. Many consumer retail stores stock general merchandise for everyday use. Also, many stores sell a single commodity, for example, tires, cooking utensils, clothing brands, textiles, or jewelry. Such stores are generally located in bazaar areas and tend to be located near other shops carrying similar goods.

Foreign companies considering marketing their products in Pakistan may choose to use the services of local distributors or may develop their own distribution chain. Distributors in the urban areas generally deal on an exclusive basis. As a matter of policy, most companies do not provide credit to distributors, and they, in turn, generally sell on a cash basis to small retailers, but do supply on short-term credit to large retailers that offer a heavy turnover. 

Pakistan’s wholesale market is fairly well developed, with about 3,000-4,500 big wholesalers. Karachi is the major distribution center for wholesale goods. Approximately one-fifth of the wholesalers in Karachi sell on a consignment basis. Less than one-third of wholesalers allow discounts to their customers, but the granting of 30- to 90-day credit is common. Because of limited financial resources, retailers generally sell on a cash-only basis. Consumer credit in Pakistan remains an insignificant portion of the total commercial credit. Foreign companies selling industrial or capital goods often sell directly to the end-user or, if the market is fairly large, they appoint one major distributor who then sells either to sub-distributors or directly to end-users.