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International Business Project

Mobile Handset Production In Pakistan

Compiled by:
Jasveen kaur
Roll no: 823
Infinity business school
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Executive Summary

This report gives useful insight to the complete strategy that includes marketing,
financial and human resource and other dimensions of the production of mobile phone
handsets in Pakistan. Business protocol is different in Pakistan, as compared to business
protocol in the other countries. Pakistan has significantly improved the lives of many of its
people and has achieved steady economic growth. However, a third of Pakistan’s population
remains entrenched in poverty. According to World Bank report in 2006, women are at a
particular disadvantage, with lower literacy and school enrollment rates than men, and less
access to health care. It should also be noted that most of Pakistanis are Muslims, and
Pakistan is a male-dominated society.
Additionally, the Islamic extremism in Pakistan, growing in power and influence, has
found a new target: western countries. The extremists in Pakistan and their leaders are
targeting the U.S government and other developed countries, its citizens as well as members
of minority indigenous and religious groups.

Mobile manufacturing industry in Pakistan:

During 2005-06 the total value of handsets imported in the country crossed US$1 billion The
mobile handset market is projected to grow by 25 percent annually About 800,000 handsets
are imported every month There are about 15000 cell phone retailers Four major players
dominate Mobile Phone Handsets market: Nokia leading with 55 percent, Sony Ericsson 22
percent, Samsung 17 percent and Motorola 5 percent.

Government is negotiating with Chinese companies to set up manufacturing plants for cell-
phone sets in Pakistan. Also a telecom research and development center and a plant is
proposed to be set up to manufacture and assemble mobile handsets in the country.

Pakistan is a strategic location as a regional hub. It is a principal gateway to the Central Asia
Republics and has strong and long-standing links with the Middle East and South Asia.
Pakistan has on average been among the faster growing economies in the developing world,
and has great potential for long term investment.
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Pakistan is a resource-rich country, and has strong human resources. It also has abundant
land and natural resources that include extensive agricultural land crop production, mineral
reserves (coal, crude oil, natural gas, copper, iron ore, gypsum, etc.), fisheries and livestock
production. English is an official language, and is widely used in government. An English
speaking work force, cost-effective managers and technical workers are good advantages to
do business in Pakistan.

All the handset companies are earning millions of dollars from Pakistani market but no one is
ready to set up a manufacturing plant in Pakistan. They are just opening sale points to push
Pakistan towards a consumer market. But the PTA and the government of Pakistan made a
strategic mistake by not encouraging mobile phone manufacturers for investments in this
country.

Pakistani government in the past few years has tried - unsuccessfully - to get a foreign
manufacturer to come to Pakistan to build handsets. The discouraging factors include the
chronic dismal conditions of energy, infrastructure and security. The only hope for this time
is that Chinese companies such as China Mobile and Huawei have a big stake in Pakistan.
The investment for these large companies is not that big and they can earn a lot of goodwill
and PR from setting up a phone manufacturing facility. A cheap phone and SIM combination
could be too much to resist for some!
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BACKGROUND TO PARTITION

The concept of a separate Muslim "nation" or "people," qaum, is inherent in Islam, but this
concept bears no resemblance to a territorial entity. The proposal for a Muslim state in India
was first enunciated in 1930 by the poet-philosopher Muhammad Iqbal, who suggested that
the four northwestern provinces (Sindh, Balochistan, Punjab, and the North-West Frontier
Province) should be joined in such a state.

BIRTH OF A NEW STATE

Pakistan came into existence as a dominion within the Commonwealth in August 1947, with
Jinnah as governor-general and Liaquat Ali Khan as prime minister. With West and East
Pakistan separated by more than 1,000 miles of Indian territory and with the major portion of
the wealth and resources of the British heritage passing to India. Of all the well-organized
provinces of British India, only the comparatively backward areas of Sindh, Balochistan, and
the North-West Frontier came to Pakistan intact. The Punjab and Bengal were divided, and
Kashmir became disputed territory.

Economically, the situation seemed almost hopeless; the new frontier cut off Pakistani raw
materials from the Indian factories, disrupting industry, commerce, and agriculture. The
partition and the movement of refugees were accompanied by terrible massacres for which
both communities were responsible. India remained openly unfriendly; its economic
superiority expressed itself in a virtual blockade. The dispute over Kashmir brought the two
countries to the verge of war; and India's command of the headworks controlling the water
supplies to Pakistan's eastern canal colonies gave it an additional economic weapon. The
resulting friction, by obstructing the process of sharing the assets inherited from the British
raj, further handicapped Pakistan.

ISLAMIC REPUBLIC OF PAKISTAN

Mohammed Ali Jinnah died in September 1948, within 13 months of independence. The
leaders of the new Pakistan were mainly lawyers with a strong commitment to parliamentary
government. They had supported Jinnah in his struggle against the Congress not so much
because they desired an Islamic state but because they had come to regard the Congress as
synonymous with Hindu domination. They had various degrees of personal commitment to
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Islam. To some it represented an ethic that might (or might not) be the basis of personal
behaviour within a modern, democratic state. To others it represented a tradition, the
framework within which their forefathers had ruled India. But there were also groups that
subscribed to Islam as a total way of life, and these people were said to wish to establish
Pakistan as a theocracy (a term they repudiated).

CURRENT ECONOMY OVERVIEW

Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal
political disputes, low levels of foreign investment, and declining exports of manufactures.
Faced with untenable budgetary deficits, high inflation, and hemorrhaging foreign exchange
reserves, the government agreed to an International Monetary Fund Standby Arrangement in
November 2008. Between 2004-07, GDP growth in the 6-8% range was spurred by gains in
the industrial and service sectors, despite severe electricity shortfalls. Poverty levels
decreased by 10% since 2001, and Islamabad steadily raised development spending in recent
years. In 2008 the fiscal deficit - a result of chronically low tax collection and increased
spending - exceeded Islamabad's target of 4% of GDP. Inflation remains the top concern
among the public, jumping from 7.7% in 2007 to 20.8% in 2008, primarily because of rising
world fuel and commodity prices. In addition, the Pakistani rupee has depreciated
significantly as a result of political and economic instability.

The economy of Pakistan is the 27th largest economy in the world in terms of purchasing
power, and the 48th largest in absolute dollar terms. Pakistan's economy mainly encompasses
textiles, chemicals, food processing, agriculture and other industries. The economy has
suffered in the past from decades of internal political disputes, a fast growing population,
mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring
India. However, IMF-approved government policies, bolstered by foreign investment and
renewed access to global markets, have generated solid macroeconomic recovery the last
decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the
banking sector have helped the economy.

GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8%
range in 2004-06. In 2005, the World Bank named Pakistan the top reformer in its region and
in the top 10 reformers globally. Pakistan's then Prime Minister Shaukat Aziz stated Pakistan
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grew at a rate of 8.4% making it the 2nd Fastest Growing Economy in the World, after China,
in the same year.

Islamabad has steadily raised development spending in recent years, including a 52% real
increase in the budget allocation for development in FY07, a necessary step toward reversing
the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically
low tax collection and increased spending, including reconstruction costs from the
devastating Kashmir earthquake in 2005 was manageable.

Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before
easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in
Pakistan has reached as high as 25.0%. The central bank is pursuing tighter monetary policy
while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker
remittances, but a growing current account deficit - driven by a widening trade gap as import
growth outstrips export expansion - could draw down reserves and dampen GDP growth in
the medium term.

Since the beginning of 2008, Pakistan's economic outlook has taken stagnation. Security
concerns stemming from the nation's role in the War on Terror have created great instability
and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current
fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to
the Gulf. Combined with high global commodity prices,

CULTURAL ENVIRONMENT

Every nation is known by its culture the Japanese, the French, the British and the Chinese.
When Pakistan was created there was no culture to which we could call Pakistani culture. By
the name of Pakistani culture we can only describe separate habits, customs, art and craft,
way of thinking and acting and labeled these regional cultures as Pakistani culture. After 60
years of independence Pakistan culture is still in making.

FACTORS CONTRIBUTING TO THE EVOLUTION OF PAKISTAN'S CULTURE:

RELIGION: Religion is not only a base of the social system of Pakistan but it is also an
effective force that can provide the meeting ground for all the regional cultures of
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Pakistan.
LANGUAGE: A common language could create natural understanding to such on extent
that speaker and listener comes together at one cultural level. Among the other regional
languages and dialects Urdu is the language which is spoken and understood throughout
the country. But English is the official language.
HISTORY: Common History creates a sense of belonging to one nation. Pakistan has a
common historical background of almost 1000 years (712-1857 AD) of Muslim rule and
Indus valley civilization (2500 BC).
GEOGRAPHY: Variety of physical contours; it has green fertile plains, hot deserts,
beautiful valleys, snow clad mountains and magnificent coast line. Having a diverse range
of physical features, customs, traditions and habits of the people living in different
regions has provided a rich cultural heritage to Pakistan.

CHARACTERISTICS OF PAKISTANI CULTURE:

ETHNIC DIVERSITY: Immigration from central Asia, Afghanistan, Middle East, Turkey
and Persia over the countries complicated the racial mixture of the country. Pathan,
Balochi, Sindhi and Punjabi are the four major groups of people who are living in
Pakistan. A proportion of the population belongs to Urdu speaking who arrived in
Pakistan at the time of partition from different part of India. There is a unifying sense
of being Pakistani too but regional loyalty is more powerful then the sense of being
Pakistani.

LINGUISTIC DIVERSITY: Over 300 languages and dialects are spoken across Pakistan.
Variety of languages is the main factor dividing the various cultural groups. Main
languages of Pakistan are Sindhi, Punjabi, Balochi, Pashto and Urdu. Urdu is the language,
which is spoken and understood throughout the country. The people of sub-continent
develop it under 1000 years of Muslim rule.

EQUAL EMPLOYMENT OPPORTUNITY AND AFFIRMATIVE ACTION

Equal Employment Opportunity (EEO) prohibits discrimination against anyone on any

pretext. EEO speaks of the equality of every human being (irrespective of gender, religion,
caste, ethnicity, color, age, physical disability etc) while considering a candidate before,
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during and after employment. EEO anti-discrimination protections apply to all of the terms
and conditions of employment, including, but not limited to recruitment and selection,
promotions, testing, training and development opportunities, hiring, transfers, work
assignments, discipline, compensation, discharge, performance evaluation, working
environment and other conditions of service. Affirmative action (AA) is an effort to undo the
unfair practices of the past in the organizations. AA is a means to level the playing field for
females, individuals with disabilities, underprivileged classes and minorities as a logical step
towards equal employment. Pakistani law makes it obligatory for employers to follow EEO
principles. Affirmative Action however is expected to be implemented as a voluntary
component of EEO Policy. EEO does not, in any circumstance, mean that the managers
should hire unqualified candidates in breach of merit. This is only a mechanism to avoid
unfair practices and biases during employment process

IN LAW

Pakistan constitution puts a ban on discrimination on the basis of sex in appointment in "the
service in Pakistan", provided that the performance and functions of the job can be carried
out by, and is deemed suitable for, both sexes. It also provides that "steps shall be taken to
ensure full participation of women in all spheres of national life". The constitution commits
the State to secure the well-being of the people, irrespective of, inter-alia, their sex by raising
their standard of living, by preventing the concentration of wealth and means of production
and distribution in the hands of a few to the detriment of general interest and by ensuring
equitable adjustment of rights between employers and employees, and landlords and tenants.

Pakistan is a signatory of various international instrument.

On 30 April 2000, the federal government announced its Labor Welfare Package for Workers
making it obligatory for the organizations to offer gender equality and affirmative action. In
summary, it warrants:

• Equal remuneration for men and women for work of equal value through appropriate
legislation.
• Enhancement of maternity benefits for female mine workers.
• Safeguards against sexual harassment through appropriate actions.
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• Recruitment of female labor inspectors for enforcement of labor laws on female

workers.
• Increase in percentage of reserved seats of workers and peasants at Union Councils,
Tehsil Councils and District Councils in the Devolution of Power Plan.
• Extension of coverage of laws to agriculture and other informal sectors of economy.

The Federal Government introduced new labor policy in 2002 empowering labor courts to
order re-instatement of illegally dismissed workers or award reasonable compensation in lieu
of re-instatement. This policy also calls for extension and upgradation of vocational and
industrial training programs to meet the changes of globalization and avoidance of
redundancies. If implemented in true spirit, this is expected to be a right step towards
affirmative action and equal employment opportunity. A significant characteristic of new
labor policy is strengthening bilateralism with least legislative and state intervention. This is
expected to result in good employer-employee relationship through the strategy of
interdependence by employers and employees and their mutual trust. New laws also promise
protection of contractual labor by redefining temporary jobs in accordance with international
standards. The policy pledges equal opportunities for all and categorically bans child and
bonded labor, and discrimination on the basis of gender, sex, race etc.

There are other recent steps taken by the Pakistan Government that have improved the
recruitment environment in Pakistan, like: National Policy and Plan of Action for Elimination
of Child Labor (2000); National Policy and Plan of Action for the Abolition of Bonded Labor
(2001); and endorsement of ILO Conventions 100 and 182.

Federal and provincial governments have also made legislations about the provision of 2%
quota for special (disabled) people in the employment in all departments. This was enacted
by the Disabled Persons (Employment and Rehabilitation) Ordinance 1981.

IN PRACTICE

Contrary to the federal laws, Pakistani organizations in practice do not offer equal
employment opportunities to the candidates and there are instances of discrimination against
candidates on the basis of gender, religion, ethnic origin etc. Since the literacy rate in females
is less than males, there is only a limited female presence in the organizations and it is not
deemed viable or safe for a female to be employed in a predominantly male set-up. This
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situation is nonetheless on the change in the organizations in the big cities where females can
in general work better than males, for example in the education sector, textile designing and
interior decorations industry.

Even if the EO principles are observed in an organization, the so-called jargons of

''circumstances'' and ''acceptability'' are used as a cover for inappropriate discrimination. This
unfairness is practiced during short listing of applications as well as in interviews. The short
listing prejudices have also been observed in the federal and provincial government jobs to be
filled through Public Service Commission.

EO in Pakistan is not a mere implementation issue, but is also faced with the challenge of
better understanding and education at the institutional level. The decision makers need to be
educated that EO is just not a human rights issue, and the relationship between organization
procedures and the individual cognitive is bilateral. Current EO crisis in the country has its
implication both for the employers and the recruits and at a wider scale the whole economic
level. With financial and productivity targets as the top most priority, a typical Pakistani
employer fails to understand that EO implementation can be to his own advantage as it will
improve the quality of recruitment and selection in his organization that will contribute to
cost effective decision making.

The management´s refusal to follow EO principles is incurring extensive cost, as it is also

rending organizations inadequate to compete in an increasingly global market. This has
resulted in the absence of a proactive response to the need for a quality staff that will promise
competitiveness through quality production. HR is a complex field and ambiguity and
ambivalence persist at each stage of evolution and progress towards an equitable and
effective management of human resources. Our study of HR evolution in Pakistani
organizations suggest that, ironically and precariously, the promotion of objective recruitment
and selection on merit is resorting, for credibility, to being implemented within the traditional
recruiter’s agenda of conceptualization. This is more like eyewash than a sincere effort to
practice EO.

The whole system of performance management or appraisal is missing in the majority of

organizations. Even in the public sector where it is a legal requirement, superior officers try
to avoid or delay writing ACRs (Annual Confidential Reports) of their subordinates as far as
possible. This deprives the eligible employees to be considered for promotion or increment
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and leaves decisions on discretion instead of systems thus causing a violation of EEO
principles.

In some organizations, workers are not allowed to complete their consecutive three months in
service, and are replaced with the new workers; or they are re-employed after a break of a
few days or weeks. This is done in order to avert legally automatic confirmation of a worker
in service after three months of continuous employment. Job security is a far cry for
employees at the lower echelons. The legal mechanism has not proven effective for the
individual pleas in the past and more than 95% of the cases of violation of employees´ rights
by the employers are not reported in a court of law. Apart from being unable to afford the
court and lawyer fee and to sacrifice one´s breadwinning time, this is also due to lack of
general awareness in the recruits about their rights and privileges under law. This is a
practical dilemma that HR in Pakistan faces in the absence of a merit based recruitment
policy, and the recruitment made on gut and objectivity based discretion.

DISCRETION IN SELECTION

Merit, unfortunately, does not come at the top while considering a candidate for employment.
Most of the jobs are filled through personal connections of the candidates within the
organization (Sifarish) thus compromising the quality of recruitment. Pakistan is a high
context society and tribal and ethnic fraternities among people are influential enough to
weaken the system of merit in recruitment. Another interesting factor to secure a job is the
Alumni network of certain institutes. For example, in Karachi, an informal but very
influential network of graduates of IBA (Institute of Business Administration) is in operation
that tends to prioritize graduates of this institute for employment. Similarly alumni networks
of LUMS and the Punjab University are operating in Lahore.

There is a tendency in the line managers requesting for an employee is to use a mix of gut
and objectivity to select a suitable employee. Interestingly both of these terms are self-
contradictory. Conventionally the line managers are not ready to accept the idea that a
systematic and scientific procedure is more reliable to help them find a suitable staff member.
They normally act in order to judge a candidate by evaluating his fitness in the so-called
organizational culture and the corporate strategy. They term the formal and standard HR
selection and recruitment practices as bureaucratic, clerical and a waste of paper and time.
Subsequently EO is not one of their priorities. Line managers tend to outsource or recruit
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people with the informal sources of recruitment; for example: word of mouth, or through
direct contact and ´bargaining´ with the recruit working somewhere else. This results in
autonomy and unaccountability of their choice over a more eligible candidate. Ironically
these line managers are apple of the chief executive´s eyes because of their core production
services for the organization. Their opinion is prioritized by the decision makers to that of the
´welfare oriented human resource department´. This relegates the HR advisors and staff to a
peripheral position in the organization and their role is contained to little or no authority. This
would not be out of place to mention here (as has been the experience in some major
organizations in the West) if the line managers assume the responsibility of equal
employment principles in letter and spirit, then the devolution of hiring authority from HR to
the line departments can be acceptable. But this is not the current situation in Pakistan where
even the staff working in Personnel or HR is not suitably educated or trained about EEO
issues, and to expect this from line managers would be unrealistic.

Another major EEO issue in Pakistan is the recruitment of a huge workforce on political basis
in violation of merit. Instead of creating jobs, successive governments have been acting as
employment exchanges to provide jobs to their political activists and supporters.

We would like to cite a few examples in this regard. In 2002, the provincial government in
Punjab announced to put five thousand posts in education and health sectors at the disposal of
the members of provincial assemblies to be filled on their recommendations. This decision
was termed as the last nail in the coffin of recruitment through merit. This has been feared
that such practice will ratify political recruitment as a norm rather than an exception. Another
challenge is the need to provide a better compensation packages to public sector employees in
the form of fixed package and not discretionary funds or privileges that are often misused.

MOBILE HANDSET PRODUCTION IN PAKISTAN

Pakistan mobile phone handset market is expanding with every passing year and during
2005-06 the total value of handsets imported in the country crossed US$1 billion and
forecasted growth in this import is 25 percent annually.

Sources in the Pakistan Telecommunication Authority (PTA) said that there are 12 to 15
thousands mobile phone shops across the country and they generate huge employment
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opportunities. According to them about 60,000 people directly and indirectly are employing
in this sector.

According to estimates provided by local resellers of the mobile phone handsets, the number
of handsets imported currently at around 750,000 and 800,000 per month. Advanced
technology and sophisticated sets are now commonly available in the local market and
handsets with camera and music are now becoming very popular and this trend looks to grow
in the next two years as these features will become standard in the future, they said.

Four major players dominate Mobile Phone Handsets market, Nokia leading with 55 percent,
Sony Ericsson 22 percent, Samsung 17 percent and Motorola 5 percent.

Also, due to the increasing trend of import of handsets through proper channel, the reduction
is observed in availability of smuggled sets. The price of handsets is one of the most
important factors for mobile growth. This is especially true for rural markets which are the
next stage of competition. It is also an important factor for 3G and next generation
technologies to take hold in emerging markets. If people can afford phones with more than
voice capabilities they are more likely to try out these value-added services.

The drastic change in the telecom industry and entry of five active cellular companies in the
country has helped in continuous increase in cellular subscribers in the last few years.
At present, cellular phone subscribers are above 90 million in the country and with increasing
demand of cellular phones a huge quantity is imported, which includes Nokia, Samsung, LG,
Sony Ericsson and a variety of Chinese mobile sets.

With increasing mobile phone demand in the country, The News talked to two leading mobile
phone manufacturers which have the highest market share in Pakistan ie Nokia and Samsung
and asked if the companies are interested in locally manufacturing mobile handsets.
However, both the companies have no plans to set up a manufacturing plant in the country as
they say their already existing plants are fulfilling the demand. According to the Samsung
head in Pakistan, Samsung being the most proactive and innovative company on a global
scale has swiftly progressed in Pakistan. Samsung mobiles enjoy a 23 per cent market share
in the cellular phone industry of Pakistan.

On the other hand Nokia said that Nokia’s global market share stands around 40 per cent.
Nokia phones are imported into Pakistan through partners United Mobile, Advance Telecom
and I2. We do not import many accessories in Pakistan yet. Samsung has 23 production
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bases, spread all over the world with over 42 sales subsidiaries strategically located in various
countries. Moreover, Samsung operates 26 R&D Centres, located in developed and advanced
surroundings, where newer and better technologies, processes and products are sought
constantly.

Currently, the manufacturing plants of Samsung located across the continent of Asia have
been fulfilling the Pakistan’s fast growing market very conveniently, efficiently, and cost-
effectively.

The day is not far when Samsung begins to consider a progressive production process within
Pakistan, ensuring world-class quality production and innovations within the country. Owing
to the rapid development of the Pakistan market over the past two decades, Samsung may be
prompted to establish domestic production plants.

However, it would depend upon further market growth, abundant availability of specialized
human resources and facilitation from the Government in terms of securing the local
production. Further enhancements in technological infrastructure along with frequent
exchange & training of specialized cellular engineers, in a safe and secured industrial
environment is needed. The export potential and market volume also needs to be evaluated
before such an advanced industrial undertaking is initiated by Samsung.

Nokia Head in Pakistan said that Nokia has its Headquartered in Finland, Nokia is a truly
global company with strong strategic presence at key locations. Nokia has an established
global production base, which comprises of nine mobile devices and technology production
units in: Brazil, China, Finland, Great Britain, Hungary, India, Mexico, Romania and South
Korea.

He added: “we work on an optimized capacity model rather than a country to country model,
the 9 plants that we have are already fulfilling the global demand. For this reason, at the
moment we feel no need to establish a new plant.”
Currently, we have no such plans. Our investments in Pakistan are in the form of care centre
networks, marketing, brand building activities, CSR activities, offices and people. There are
no hurdles in establishing a manufacturing site. Just that, there’s no need to set up a new
production unit at the moment as per our global strategy.
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Government is negotiating with Chinese companies to set up manufacturing plants for cell
phone sets in Pakistan said Federal Secretary for Information and Technology Hifz-ur-
Rehman. He said that government is negotiating Chinese cell-phone companies including
Zong, China Mobile and Hawavay to set up manufacturing plants of handset in Pakistan.

He said that President Asif Ali Zardari during his visit to China had taken up the issue of
setting up manufacturing plants of cell-phone handsets in Pakistan. He said that Pakistan was
spending $500 million to $800 million annually on the import of mobile sets and
manufacturing plants in Pakistan could result in saving valuable foreign exchange. He said
that duties on mobile sets had been imposed to enhance revenues.

Mazhar Hussain, Country Manager, SAS Pakistan delivering a keynote address said that SAS
had the programmes that could help identify the terrorists and patrolling borders of the
country. He said that its programmes could also help forecast the requirements of country
regarding oil, gas and electricity based upon past data. He said that SAS has also developed
software that could enable the banks to prevent robberies. Achieving these goals requires
faster and improved decision-making ability across the entire organization, he said. He noted
that unfortunately in many organizations, departments continue to operate in information
isolation. Existing enterprise systems are often not linked and software packages are not
integrated. Decision-makers have difficulty getting consistent and accurate information that
they need to make informed decisions quickly”, said Mazhar Hussain

President Asif Ali Zardari called for the setting up of a Telecom University, a telecom
research and development center and a plant to manufacture and assemble mobile handsets in
the country.

He said that the government will provide land for the Telecom Varsity in Haripur where the
nucleus of telecom training facilities already existed and also offer facilities for establishing
an R&D Center in Islamabad and the mobile handsets manufacturing plant.

Spokesperson to the President former Senator Farhatullah Babar said that the call was made
when a delegation of Chinese Telecom conglomerate ZTE called on the President in the
Presidency. He said that the President appreciated the ZTE’s role in the development of
Pakistan’s Telecommunication sector and said that Chinese companies had made significant
contributions to Pakistan’s economy through direct investment.
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The President called upon ZTE to develop technical skills of the local labor force.

The five member delegation that called on the President was led by Luo Pingfan, Dy
Chairman ZTE and also included Luo Zhaohui, Ambassador of China.M. Salman Faruqi,
Secretary General to the President, Kamal Majidullah, Special Assistant to PM on Water
Resources, Khalil Ahmad, Ambassador at Large and senior official of the foreign office also
attended the meeting. The President said that Chinese investment and cooperation could help
develop Pakistan as regional hub for manufacturing for which low cost labour force was
available in Pakistan. He also called upon the ZTE to develop a research and development
center in telecommunication and a plant for manufacture of mobile handsets in Pakistan.

President Zardari said that he was keenly awaiting his visit to China later this month to
further consolidate the relations between the two countries which he said was ‘an important
factor for peace and stability in the region and the world’ .

The President underscored the importance of closer collaboration and coordination between
Pakistan and China in view of complexities of regional and global situation. He said that
Pakistan would continue to support China on all issues of national importance to it.

The Chinese delegation thanked the President of Pakistan and the government for providing it
necessary back up and support to carry out its investment plan in Pakistan.

MAJOR COMPETITOR:

According to a report issued by Pakistan Telecommunication Authority (PTA), the

teledensity in Pakistan till November 2009 was observed 62.9%. The statistics show that the
growth in the telecommunication sector is making a notable contribution in the country’s
economy. The current Gross Domestic Product (GDP) of Pakistan is worth US$168 billion
and 0.27 % of the world’s economy1. The telecom sector’s share in the GDP growth on an
average is about 2 % 2 that means the growth of telecommunication industry promises of the
constant economic development.

There are many mobile phone manufacturing companies and telecommunication service
providers operating nationwide. Nokia, Samsung, LG, Motorola are amongst some of the
multinational cellular phone manufacturing companies that are leading in the local market as
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well. They have made numerous investments in multiple aspects in Pakistan’s

telecommunication sector.

The Foreign Direct Investment (FDI) in Pakistan was declined by 31.2 % in the year 2008-
2009. The Foreign Direct Investment in the telecommunication sector in this year is declined
by 43.3% and reached to US$ 815 million. If we examine the track record of the foreign
investments in the sector, we would come to know that there was a continuous decline in
numbers as the overall FDI fell from US$ 5,410 million in the year 2007-2008 to US$ 3,720
million in 2008-20093. This unremitting decline in the foreign investment particularly in the
telecom sector has given rise to some serious concerns for the economists of the country.

Amongst various factors responsible for the constant decline in the foreign investments of the
country, a mounting trend of Chinese knockoffs of the branded phones could be a cause of
deteriorated situation. As these Chinese knockoffs offer somewhat similar appearances as that
of original branded phones in cheapest price, people are more fascinated in keeping a Chinese
copy of high-end phone with them. The availability of China mobile phones in cheap prices is
a consequence of an organized smuggling which is supported by the various local bodies.

If we look at the bigger picture of ‘Smuggling Mafia’ of mobile phones that is involved in the
whole activity, we would come across with some more interesting faces of crime. The old
smuggled mobile phones are being sold at the prices equal to that of new ones in the market.
According to the sources the old mobile phones are being sold to the innocent customers
openly in various electronics market in the city. The casing and keypad of such phones are
changed and the phone battery is replaced by a china battery after proper servicing in such a
way that a common person can not be able to distinguish the old phone among different
mobile phones. There is software available to change the talk timer of the phone to ‘zero’ in
order to remove every possible clue of the crime.

The illegal smuggling of mobile phones is not only threatening for the law enforcement
bodies but also imposing a great challenge for the country’s economy as this attempt is
discouraging the legal import of the original mobile phones.

Furthermore cheap Chinese cell phones may be a great hurdle for the law enforcement
agencies as these phones facilitate the criminals and terrorists because they lack an
identification number to trace calls. International Mobile Equipment Identity (IMEI) number
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is a unique code that is allotted to every mobile device which is used to trace or block the
device as and when required. On the other hand, more than 100 Chinese mobile phones
possess a same IMEI number and blocking of one such device may result in the blockage of
several mobile phones at the same time. That means it is impossible to trace or block the
mobile phone.

As Pakistan is one of the most targeted and vulnerable regions for the terrorist and criminal
activities it is extremely important to ensure all the measures to minimize the security risks
and threats. Chinese counterfeit phones could be a safe haven for criminals as the calls made
by these phones cannot be traced.

According to the statistics, approximately 50-80 cell phones on an average are snatched or
stolen every day in Karachi. Due to the same IMEI number of several China mobile phones,
the theft or snatched mobile phones cannot be blocked by CPLC and PTA. Thus, China
mobile phones pose a great threat to the security and law enforcement system.

The Chinese knockoffs may offer the similar appearance that of the branded phones but
several questions are being raised on the quality and reliability of the cell phones. People may
find these cell phones affordable for their pockets but they start complaining about the
phone’s performance just after a few months of their purchase. The few repeatedly
complaints regarding the Chinese phones are about the weak battery, low standard camera,
poor sound quality and internet connectivity. As no legal industry standards are followed
while manufacturing fake Chinese mobile phones, these mobile phones pose a serious health
threat. They give off excessive radiation and their low-grade batteries can explode anytime.

People face extreme inconvenience at the time of warranty claim of the China phones. Fake
mobile phones do not carry authentic warranty. If the fake phone’s hardware malfunctions,
there’s no other choice but to dispose off the phone because the parts are not available in the
market.

In one aspect when the business of Chinese mobile phones does not make any healthy
contribution to the country’s economy, on the other hand their business in disturbing foreign
investments. According to a report issued by PTA, the share of telecom sector in total tax
revenue is 6-7% per annum. During the year 2008-2009, the sector continued to contribute
handsome amount in national kitty through various taxes and regulatory charges. Telecom
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sector’s contribution to national exchequer rose to Rs. 112 billion in 2008-2009 compared to
Rs. 111 billion in the year 2007-2008.

If we analyze the tax contribution made by the China mobile business, it is surprising to
know that there is no proper procedure being followed to ensure the payment of sales tax on
single Chinese mobile phone’s sale. The facts point out that the Chinese mobile phone
business is not making any significant contribution to the economy. On contrary the legal
import of the branded mobile phones facilitates the economy and their expanding business in
making a distinctive contribution in increasing the country’s GDP.

Due to their adverse affects on the economic development, our neighbouring country India
has already banned the sale of Chinese phones. The government of Pakistan particularly the
concerned authorities like PTA and CPLC should take a serious notice to ban the sale of
Chinese mobile phones in the country. The unremitting decline in the foreign investments in
telecom sector is an alarming economic indicator for the country’s economy. This is a high
time when the government and non government bodies should endeavor to eliminate the
factors being responsible for the demise of economy.

SWOT ANALYSIS OF THE TELECOM INDUSTRY OF PAKISTAN

Strengths

• Exponential growth.
• Skilled Human Resource at low-cost.
• Access to Infrastructure - optical network and satellite links.
• Favorable policies (to some extent) and regulator.
• Strong international brand names.

Weaknesses

• Quality of Service.
• Low revenue per user (ARPU).
• Customer retention.
• No clear strategic direction.
• Poor organizational structure.
• No research and development programs.
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• Employee skill inconsistency.

• Very low employee morale.

Opportunities

• Huge market size.

• Local handset manufacturing.
• Making technology accessible to all (e.g. broadband).
• Adopt latest technologies.
• Removal of international trade barriers.
• Adopting MVNO.

Threats

• Recession in economy.
• Inconsistent and adhoc decisions from regulatory authorities.
• Political Instability - Security issues.
• Adverse shifts in trade policies of government.
• Churn in OPEX.
• Revenue leakage
• Grey traffic
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CONCLUSIONS:

By exploring the country of Pakistan and working conditions in Pakistan five major
conclusions were drawn that are especially relevant to the company’s executives, managers,
employees and their families who will be relocating from other countries to Pakistan for the
purpose of setting up business in Pakistan. The conclusions so drawn from the study are the
following:

PAKISTAN IS A RESOURCE-RICH COUNTRY, AND HAS STRONG HUMAN

RESOURCES.

Pakistan has abundant land and natural resources that include extensive agricultural land crop
production, mineral reserves fisheries and livestock production. English is an official
language, and is widely used in government, the officer ranks of the military, and in many
institutions of higher learning. An English speaking work force, cost-effective managers and
technical workers are good advantages to do business in Pakistan.

PAKISTAN HAS LARGE AND GROWING DOMESTIC MARKET.

Pakistan has 165 million consumers with growing incomes and a growing middle-class
moving to sophisticated consumption habits. The population is estimated to grow to over 325
million by 2050 making it the third most populous country in the world. Therefore, it is a
good opportunity to introduce new products and expand the market shares. Pakistan also has
well-established legal systems and infrastructure. That will allow doing business more
effectively.

It is suggested that companies should offer training programs to employees. The first program
should inform employees on how to conduct business transactions and how to interact with
people in Pakistan. A second training program should be set up for executives, managers,
employees and their families to help them adjust to living in Pakistan. Executives and all
employees should be briefed about the religious sensitivity of the people in Pakistan.

Finally, they will learn how to do business in Pakistan and how to develop relationships with
their business partners. They will also find out what is the appropriate protocol and business
customs in Pakistan, how to negotiate, what are the proper business
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PAKISTAN IS A STRATEGIC LOCATION AS A REGIONAL HUB.

Pakistan is a principal gateway to the Central Asia Republics and has strong and long-
standing links with the Middle East and South Asia. Pakistan has on average been among the
faster growing economies in the developing world, and has great potential for long term
investment.

PAKISTAN HAS INCENTIVES FOR FOREIGN INVESTORS.

1
Pakistan has the most liberal investment policy in the South Asia region. New incentives and
further liberalization measures include:

 Reducing minimum foreign equity from US$ 0.5 million to US$ 0.3 million,
 Zero import duties on capital goods, plant and machinery and equipment not mad
locally.
 Zero import duties on raw materials used in the production of exports

Also though the results drawn from the study we see revenues coming from cellular
companies have poised, Government of Pakistan should un-turn new possibilities to bring in
the investment into country. Obviously these landmarks can’t be achieved in days or weeks,
but the regulator and the government need to follow a strategy that might attract mobile
phone manufacturers to come into Pakistan. For the purpose, they need to

• cut import duties and corporate tax rates,

• new highways, rail lines, and airports,
• and most importantly the sense of security for investors
• Free land for mobile manufacturing plants

BIBLIOGRAPHY
1
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Search engines:

1. www.Wikipedia.com

2. www.britannica.com

3. www.google.com
Links:

4. http://telecompk.wordpress.com/2006/11/28/mobile-handset-market-
in-pakistan/

5. http://telecompk.net/2007/11/22/pakistan-lucrative-market-for-mobile-
handset-makers/

6. http://zumbeel.net/blog/telecomhype/2009/08/20/pakistan.html

7. http://en.wikipedia.org/wiki/Telecommunications_in_Pakistan

8. WTO website

9.