Grappling with the challenging Pakistani economy

English: PepsiCo world headquarters

English: PepsiCo world headquarters (Photo credit: Wikipedia)

KARACHI - Pakistan, despite being an “impressive great country” for foreign investors from the multinational companies (MNCs) like PepsiCo International, has a “tough” business environment owing to the lingering problems ranging from energy crises to the absence of effective laws on intellectual property rights (IPRs) and a sky-high interest rate regime currently standing at 12 percent.

PepsiCo is one such international brand which, since its arrival in Pakistan in 1967, has turned to be the biggest food and beverage retailer in Pakistan having invested over a billion dollars to set up 14 bottling plants, a concentrate plant and a snacks manufacturing plant across the country where over 20,000 Pakistanis are earning their livelihood in a respectable manner. In a recently-conducted detailed interview with Pakistan Today (PT), Qasim Khan, a US-educated Pakistani who is PepsiCo’sgeneral manager and president for the North and South Asia Business Unit that, in its scope, ranges from Japan to Mongolia, talked at length about the immense potential as well as challenges the MNCs like his own are presently facing in Pakistan.
What is the current size
and scope of your business in Pakistan?

Qasim Khan: PepsiCo International is intricately linked towards the development of the corporate sector in Pakistan as we were one of the first multinationals to start operations in Pakistan in 1967. Now we are the biggest Food and Beverage Company in terms of the retail turnover in Pakistan having seven beverages franchises across the country. We also brought in Foreign Direct Investment in the shape of a concentrate plant set up in Hattar. Today, Pakistan is the 6th largest market for PI worldwide and we have three brands; Pepsi, Dew and 7-UP which are bigger than our rivals in terms of volume contribution. Pepsi is ingrained as a household brand while our contributions towards the development of sport, specifically cricket and music industry is unparalleled. We have been the pioneers of developing both these industries while strengthening our beverages brands over the past many decades. Since 2006 we also introduced the famous Lay’s potato chips brand in Pakistan by investing in a state-of-the-art plant which employs over a 1000 people. We have made strong investments in the agricultural sector of Punjab by introducing latest technologies for potato growers and are looking to expand potato growing into the country’s northern areas. We also plan to export potatoes to other countries around the world. Our snacks portfolio consists of leading global brands like Lays, Cheetos, Kurkure and Wavy.

How do you see the current business
climate in Pakistan?

Qasim Khan: The business environment is tough. The energy shortage, high inflation and high interest rates for local partners are the biggest roadblock towards any company evaluating putting up a manufacturing facility in Pakistan. However in the same breath the potential that Pakistan presents is immense and multinationals who have been in Pakistan for some time understand this very well. An improvement in the investment environment will only make our job easier to convince investors to come to Pakistan.

The current challenges you are facing in Pakistan?

Qasim Khan: Like any industry, we have some food and beverage specific challenges and some general macroeconomic challenges.
Absence of IPR laws: We have a lot of potential in Pakistan around agro based industries. However, Pakistan currently does not have any law around the IPR protection of seed varieties. This limits our ability to expand our agro program on the foods side as it has become difficult to introduce our own potato seed varieties.
Taxation: Pakistan has one of the highest taxes on beverages in the world. We are the only food category product to have an excise tax on it. In a high inflationary environment, this seriously inhibits our ability to invest and expand employment.
Need for Level Playing Field: Ensure that all companies pay the required taxes. In addition to discouraging further investments, this acts as a major public revenue loss for Pakistan. We recommend that Government of Pakistan form a task force to ensure all players comply with the quality and taxation laws in our industry.
Energy Shortage: This impacts our business significantly and limits further investments.
PT: OK, now tell us what made PepsiCo invest in Pakistan?
Qasim Khan: Pakistan’s opportunity is driven from the following facts:
Large Market: It’s the 6th most populace country in the world with approximately 70 percent population under the age of 30.
Trained Workforce: A large trained and productive population represents a big opportunity to Pakistan to benefit from its demographic dividends.
Investment Policies: Pakistan’s policy trends have been consistent with liberalization, de-regulation, privatization and facilitation being the cornerstones of its policy.
Large Agro Base: The strong agriculture base presents a great opportunity for our food business to expand in the future. We realize that Pakistan is the 11th largest wheat producer, 12th largest rice producer and the 5th largest milk producer in the world.
Geo-Strategic Location: It can be a gateway between the energy rich Central Asian states, the financially-liquid Gulf states and technologically-advanced Far Eastern countries. This alone makes Pakistan a market teeming with possibilities.
Incomes on F&B: A significant amount of individual incomes (as high as 40 percent) are spent on food and beverage representing a huge opportunity for the industry.
Financial Markets: The capital markets are being modernized, and reforms have resulted in development of improved infrastructure in the stock exchanges of the country. The Securities and Exchange Commission of Pakistan has improved the regulatory environment of the stock exchanges, corporate bond market and the leasing sector.

How PepsiCo succeeded in Pakistan?

Qasim Khan: Our success in Pakistan is a combination of multiple things like strong global brands, great brand building and execution. A product portfolio advantaged towards growing further in the future. Very strong, focused and competitive bottling partners and an extremely robust distribution network developed by the latter. Further, in Pakistan, people are extremely optimistic, extremely resilient, extremely ambitious, extremely hard working and strongly entrepreneurial in nature.
Elaborate on the concept of Performance
with Purpose and its implementation in Pakistan?

Qasim Khan: The Performance with Purpose means delivering sustainable growth by investing in a healthier future for people and our planet. As a global food and beverage company with brands that stand for quality and are respected household names—Quaker Oats, Tropicana, Gatorade, Lay’s and Pepsi-Cola, to name a few—we will continue to build a portfolio of enjoyable and wholesome foods and beverages, find innovative ways to reduce the use of energy, water and packaging, and provide a great workplace for our associates. In Pakistan, we have taken innumerable initiatives which not only demonstrate our ideas around corporate citizenship but also how we can integrate performance with purpose in our daily operations:
1. We ran an extensive flood relief and rehabilitation program focusing on education, livestock provision and development of water infrastructure in the flood affected areas. Some of the key achievements have been:
a. A total of 17 schools have been reconstructed in the most impoverished of areas. 40 percent of the 700 children that will be impacted will be girls.
b. Provision of Livestock is an important source of livelihood in rural Pakistan and our program has benefitted more than 650 poor households.
c. Drinking water and irrigation systems that we put up in Swat are providing much needed relief to the people and have not only helped in managing water related diseases but have also developed irrigation infrastructure for farmers.
2. We have added juices, water and Quaker oats to our portfolio to give consumers a choice of healthy and wholesome products.
3. We have reduced our packaging weight which has eliminated 80 million plastic bottles from the system. An interesting fact on this is that these bottles put together would form a chain longer than the earth’s diameter. The amount of bottles saved could contain the entire Exxon Valdez oil spill in 1989. This has also prevented a significant amount of CO2 emissions (12,000MT).
4. We have been able to eliminate all waste to landfill from our snacks facility. This was achieved by partnering with feed manufacturers and developing processes that allowed Nutritional Waste from Sundar to be used as a key ingredient for high quality cattle feed. The Bio-degradable waste was developed into organic fertilizer through composting.
5. Year on Year reduction of over 20 percent in energy and water consumption by more efficient usage.
6. Launch of a massive volunteer program named “Helping Hands” where we have been running regular volunteer programs with The Citizens Foundation. Over 100 of our employees are regularly volunteering in good causes to make this program a success.

What’s your advice for the firms seeking to invest
internationally or Pakistan specifically?

Qasim Khan: I advise them to do two things: First, visit Pakistan yourself to see the passion of the workforce and the potential of this great country. Secondly, get the experiences of other MNCs operating here. I am sure you will be impressed.

Source: http://www.pakistantoday.com.pk/2012/07/16/news/profit/grappling-with-the-challenging-pakistani-economy/