Introduction

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.

1 Porters National Diamond Analysis

1.1 Factor Conditions
Factor Conditions are conditions referred as the position of nation in factors of
production, like infrastructure and skilled labour needed to compete in a given
industry (Dobbs, 2014), Porter emphasized the importance of human-made factors
compared to natural ones and emphasized that nations depending only on their
natural factor and resources would less likely last in the competitive advantage.
Factor conditions are further categorised by Porter as Basic and Advanced Factors.
Basic factors that provide initial advantages comprise of resources such as
endowed resources, location, demographics and national resources (Li, Chuanfu, &
Xiang, 2013) on the other hand advanced factors such as infrastructure,
communication, research facilities and sophisticated skills are created through
industries investment, individuals & governments all of which signifies precarious
role in enhancing the competitive advantage of a nation. Furthermore basic factors
extended and incorporated through advanced factors and basic factor conditions
that is unfavourable (e.g. surplus or deficiency of labour or raw materials) can
generate to develop advanced factors additionally making industries highly
competitive (Liu et al, 2011); therefore competitive advantage is gained from factors
constructed or specialized specifically for the industrys requirement. Pakistans
factor conditions can be analysed according to Porters criteria.
1.1.1 Physical Resources
The physical resources of a country include that of the abundance, accessibility,
quality and the cost of the nations land, water, minerals and other physical traits
available (Lin, 2011), the countrys size and location also plays a critical role of
determining proximity towards market varieties and transportation and supply
sources. For the investment of the new Pakistani Soft drinks Industry, the availability
and cost of land is a significant aspect in determining the decisions of entry and
location (Schiele, 2008). Whilst growing fast food outlets, food service restaurants &
diners operated are located mostly at Islamabad (the capital of Pakistan) Gujranwala
and Lahore (the capital of Punjab); renting or buying space early on in the
aforementioned cities would gain the industry an early movement advantage (Ehsan,
2012).

1.1.2 Human resources

The human resources of a country include that of the cost, quantity and skills of
personnel (Hussain, 2015). Pakistans population is estimated at 187million as of 1st
July 2014 (Muhammad, 2015), with a growing middle-class, the country topped 6 th as

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.

1.1.3 Infrastructure Resources

Infrastructure resources of a country include factors such as, transportation, banking
and communication systems (Zhang & London, 2013). Pakistan recently is facing
transportation problems such as lack of parking facilities, congestion and increasing
of fuel demands (Imran, 2007), the transportation industry is the foundation of
Pakistans economy, therefore, issues related to this industry needs resolving to
reduce hindrance of new industries entering the Pakistani market. The everincreasing demands of transportation in major countries of the world caused
countless problems worldwide, especially in developing countries such as Pakistan,
highlighted that due to an expensive option of expansion, infrastructure of
transportation cannot be expanded (Sharif, Khan, & Yousaf, 2012). Sharif, Khan and
Yousaf (2012, p. 223) stated that The alternative of expansion is Transportation
Demand Management (TDM) by which the infrastructure transportation availability is
optimized by shifting focus on the movement of people rather than the modes of
transportation. Most developing countries are following the Transportation Demand
Management to manage their transportation needs.
1.1.4 Knowledge Resources
The knowledge resources are referred to as the vocational and market related
knowledge available within the population (Shujun, Feifei, & Xiaohua, 2010). The
Pakistani middle class placed great emphasis on education, which is a significant
determinant that has increased the national competitiveness of Pakistan (Saeed,
Muffatto, & Yousafzai, 2014). Future industry such as Pakistani Soft drinks industry
has a competitive advantage as firms and industries specially those related to Food
and beverage industries are rapidly increasing, approximately a quarter of Pakistans
total population represents the potential market for such industries (Ehsan, 2012),
this result in the creation of job opportunities and the increased demand for trained
industry professionals.

1.2 Demand Conditions

Demand conditions refers to the demand of the market nature for a service or
product provided by certain industry (Yiche & Pi-Feng, 2008), Porter emphasized that
competitiveness of industries could be produced through sophisticated demands of
customers and such demands has more essential role than that of a market potential
or size (Juan & Lin, 2011). Demand conditions in the domestic market companies or
industries in Pakistan becomes more competitive when sophisticated local market
buyers constantly pushes companies in creating and innovating more advanced
products or services than their competitors (Smith, 2010). Moreover, diversified levels
of sophisticated demands of consumers lead to market segmentation in Pakistan,
and the growth and size of market pattern can also improve the competitiveness of
industries. Demand conditions in Pakistan can be further analysed by the
characteristics of demographic and geographic diversity in soft drinks demand and
the attributes of the increasing middle class market (Muhammad, 2015).
1.2.1 Home Demand Composition
constitution of home demand regulates in way companies understand, interpret and
respond to buyers needs, home demand characteristics plays an important role
particularly for the competitive advantage achievement in Pakistan (Cohen &
Radford, 2013), one pertains to the segment structure of demand, its beneficial for
the enhancement of Pakistans competitiveness when the pertinent segment of
market signifies an exceeding home demand share yet accounts for reduced notable
in other nations share (Asmussen, Torben, & Dhanaraj, 2009). Another notable asset
for the composition of home demand in Pakistan would be the level of buyers
sophistication; acquired advantage is sustained with the fact that demanding and
sophisticated buyers constantly push firms to be proficient in the product quality,
features & service (Garry & Harwood, 2009).
1.2.2 The size of demand and pattern of Growth
The establishment of a perceivable relationship between competitive advantage of
Pakistan and this attribute of home demand, certain characteristics should be put into
account, namely, the home demand size. The significance is conveyed actually that a
nations firm could be invigorated with the dependence on the home market with the
perspective of harvested scale of economies and to learn in aggressive investment
in extensive facilities as well as the improvement of productivity (Carayannis & Wang,
2011). Moreover, the growth rate of the home demand is a significant factor to the
industry to make changes for higher efficiency.
1.2.3 The Demand of Soft Drinks
Certain factors determine the demand of soft drinks in Pakistan, factors such as
price, the demand for soft drinks is price elastic; the demand decreases as the price
of soft drinks increases (Rhee, 2013). The tastes and lifestyle of consumers also
affect the demand of Soft drinks in Pakistan, as people become busier the increased
desire for convenience food takeaways also lead to spurring growth of soft drinks
demand (Sierra Services Inc., 2012).

1.2.4 The increasing middle class market

Pakistan has a population of more than 180 million, with an increasing middle class
market. Ehsan (2012) Suggests approximately a quarter of the overall population of
Pakistan represents potential market for fast food and beverage also due to the
increased affordability. Austrade (2009) claimed that the increased in desirability of
international fast food chains in Pakistan such as KFC and McDonalds have
contributed to the increased in demand of soft drinks purchased.

1.3 Related & Supporting Industries

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.

1.3.1 Bottling Company

Bottling Manufacturing Company refers to a commercial enterprise that produces an
output of bottling beverages for distribution (Jacobsen, 2013); several bottling
industries are franchisees of corporations like Coca-Cola and PepsiCo such as the
Naubahar Bottling Franchise in Pakistan (Wright , 2010), the company is recognised
as the largest manufacturer of Soft drinks in Pakistan. The availability of the bottling
manufacturing company as a supporting industry is expected to boost the
competitiveness of the Pakistani soft drinks industry through the perceived committed
value to all its stakeholders.

1.3.2 Information Technology Industry

The Pakistani software sector plays a significant role in modernizing the Pakistani
economy, with the favourable condition created by the availability of technology, the
industry of IT is considered as a successful asset of Pakistans economy (Ali &
Amina, 2005), govern and regulated by the Ministry of Information and Broadcasting
(Pakistan), it is a growing industry that has various potential (Kalia, 2000). Ranked
among the top five countries in the South Asian region for Information and
Communication Technology, further growth of the IT sector in Pakistan was due to the
government giving numerous incentives towards the countrys IT investors (Iqbal,
2013).

1.3.3 Sugar/Syrup Manufacturing Company

The sugar/syrup company accounts as the closely related and supporting industry to
the supply chain of Soft drinks industry, with its demand heavily dependent on the
demand of soft drinks consumption (Yaman & Ozgen, 2012). With the increasing
growth accounting for more than all other numerous sugar producing countries
except China, Brazil, Thailand, India and Cuba (Chullen, 2002), Pakistans

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).

1.4 Firm Strategy, Structure & Rivalry

This dimension of Porters model refers to the condition that governs on how certain
business industries are organized, managed & created and the principle of domestic
rivalry (Dobbs, 2014). Competitiveness is brought about by the concurrence of
Pakistans specified organisational models and favourable management practices (Li,
Chuanfu, & Xiang, 2013). The aspects of building companies, setting objectives as
well as its management are crucial for success. Rivalry existed in the home base is
also significant and crucial because this intensifies home country firms to innovate
and upgrade their competitive edge continually to meet demands of a higher
standard with regards to the product features, quality and service demands (Krugman
& Obstfeld, 2003). Strong local rivalry can also bring about competitiveness by
means of expanding firms markets and overseas selling contributes to growth
(Carayannis & Wang, 2011), the company of rivals reduces significance of created
advantages with the reduced investment & effort thereby forces a nations firms to
have sustainable sources of competitive advantage (Su, Xie, & Zhang, 2010).

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).

1.5.1 Tax on Soft Drinks Manufacturer

On the forecasted period retail value sales of Pakistani soft drinks are expected to
increase, certain companies are attempting practical medium in keeping control of
the unit prices and increasing the investment in the domestic market contribute to the
growth of volume consumption (Mental Health Weekly Digest, 2010), on the contrary
the soft drink industry will likely face significant issues regarding taxation, Pakistans
beverage industry sales increased 37% to 172 billion rupees in 2013 over the existing
year with the government collecting 20.4 billion rupees from the industry (Hasan,
2014). On year 2013, capacity tax was imposed by the government on soft drinks
industry which exerted pressure on the domestic producers (Euromonitor
International, 2015).

1.5.2 Infrastructure Development Schemes

The infrastructure of Pakistan signifies a crucial role in the development and growth
of the country (Javed & Khurram, 2006); a strong, affordable & efficient infrastructure
is crucial aspect of good investment. Increased growth in recent years adds pressure
on the prevailing Pakistani infrastructure. Though observed improvements were
sighted, transportation of Pakistan suffered from governmental neglect, foreigners
contented that the defective infrastructure inhibits potential of economic growth
(Nishtar, 2006). The government had recognized the importance of infrastructure
development in expansion and improvement in its (MDTF) Medium Term
Development Framework (Javed & Khurram, 2006).

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).

2 Market Entry Strategy

Foreign Direct Investment or FDI refers to the prolonged participation period of
country 1 into country 2, in this case Pakistan (Farhan, 2007). Types of FDI
include inward FDI & outward FDI that result in a negative/positive net FDI inflow.
It involves management participation, joint venture and the transfer of expertise &
technology (Chackochen & Ramalingam, 2012); FDI is an estimate of foreign
ownership of assets of produce such as land & factories and with its increase a
measure could be used to the growing economic globalisation.

Access to new market is a considerable reason to invest industry in Pakistan.

Product export reaches a crucial cost and amount massively where location and
foreign production started becoming cost effective (Lin, 2011). Numerous key
factors could influence the investment decision such as: the market analysis &
expectations, the competitiveness as well as the assessment of internal resources
(Hussain S. I., 2015).

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:

On a 100% equity basis, foreign investors are permitted to have an

investment in industrial project without the need of government permission
and it is not compulsory for a No Objection Certificate from the Provincial
Government (Chackochen & Ramalingam, 2012).

Franchise, technology and remittance of royalty fee is permitted to projects in

social, infrastructure, agriculture, service & international chains food
franchise (Chackochen & Ramalingam, 2012).

Foreign controlled non-manufacturing as well as semi-manufacturing matters

can access 50% and 70% respective loans of their paid up capital that
conclude reserves (Garry & Harwood, 2009).

According to their requirements foreign controlled concerns of manufacturing

are permitted in lending to the domestic market (Garry & Harwood, 2009).

Sector of manufacturing, additionally, foreign investment based on a

repatriate-ability is permeable in social sectors, infrastructure & services
(Javed & Khurram, 2006).

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).

Board of Investment (BOIs) permission is not needed for foreign companies

to open a bank account (Board of Investment, 2014)

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.

3 Contemporary Management Issues

3.1 Corruption
The corruption perception index of International Transparency (2012) ranked
Pakistan at 139th out of 176 countries with a 12% percentile rank in corruption
control. In major current surveys, barriers of doing business in Pakistan featured
with heavy corruption (Jackson et al, 2014); the enterprise survey of ICA identified it
as a significant constraint. With 56% of organisation ranking it as a considerable
extensive obstacle in 2007 (Manes, 2009), on the other hand the World Bank
Enterprise survey stated a decrease from 27% to 14% in over three years (Arup,
2014).
According to Hussain et al (2012), more than 3 rd of the firms surveyed pinpointed
corruption in the top 3 constraints. The common identified reported form of
corruption is the inconsistent application of rendition and application of policies
across the departments of the government pertinent to manufacturing (Arup, 2014);
licensing, tax & labor. Tax & labor inspections rendered as the most corrupt system,
with major firms having to make informal payments to the officials of the
government to get things done indicating the process of implementing regulations
as deliberately extractive & complicated (Javaid, 2010).

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).

3.2 Crime, Theft and Disorder

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.

According to The World Bank Survey (2007) percentage of organisations reporting

this issues as major obstacles to doing business have decreased from 8% on year
2007 to 3% in 2010, however the survey reveals not more than 20% of Pakistani
firms deduced the fairness function of the courts a proportion half that of lowincome countries and countries in the south asia as a whole (Shaiq & Leiby, 2012).

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

By analysis of the multi-determinants of Porters Diamond Model such as the

factor conditions, demand conditions, firm structure and strategy, related &
supporting industries and the role of government and chance, key challenges and
opportunities of the Pakistani Soft drink industry are identified.

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.