Business Environment For SMEs In Pakistan Commerce Essay

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In this chapter the analysis of the data gathered is through semi-structured interviews. The findings are discussed using business analytical models and tools. These findings reveal an insight to company's brand positioning and recognition followed by a model which shows potential brand building for SMEs in Pakistan.

The model proposed in this chapter is based on the conceptual model already mentioned in the last chapter. Incorporating the findings of the case study provide us with a model which is more practical and suites the SME structure and brand importance in the region.

4.2 Company's Introduction

First Choice Electronics is a SME which has been providing services to other businesses in the electronics sector of the Pakistani Market. The company was established in the early 1970's providing kit bodies for consumer electronic items to other manufacturers. Since then the company has been importing many other electronics good including pre-owned computer equipment. Currently, the company's deals in Copper Clad laminate an item which is in high demand in the present electronic market of the country. Similarly, the company deals in with different kind of chemical and inks which are used in the manufacturing of Printed Circuit Board (PCB) used in the making of electronic circuit/mother boards for commonly used consumer and commercial electronic items. Being an SME the company have employed around 55 employees of which 60 percent have been with the company for more than 10 years showing the level of satisfaction the have received by their employers. On the same grounds the company have long term relations with their clients as well showing us the sense of satisfaction and trust the company enjoy in the market.

4.3 Business Environment for SMEs in Pakistan

The instability and lack of institutionalisation of newly emerging economies often make many SMEs more vulnerable to external forces than larger firms (Man et al. 2002). Therefore, these external forces particularly influence the competitiveness of an SME. And the country where our subject company lies have a lot of issues relating to such external forces in addition to the current state of peace and stability which not have just affected the larger businesses but have made it much difficult for the smaller businesses to survive. Horne et al. (1992), explains such external characteristics of competitiveness in their framework, which directs us towards the accessibility of prospects to generate better long term profitability built-in in the external environment.

To understand the external environment of the Pakistan which are affecting the small and medium business in the country it is important to look at the key Political, economic, social, technological, environmental and legal factors of the country.

4.4 PESTEL Analysis

4.4.1 Political

The Gvernments in the country have changed back and forth between the democratically elected and dictatorial military leadership, coupled with an unsteady relationship with India and Bangladesh (Robert and Belfer, 2008)

High taxes i.e. Sales tax and import tax (SMEDA Pakistan, 2011).

New Trade Agreement with China, India and U.S.A. (www.fbr.gov.pk)

4.4.2 Economic

High Threat of terrorism and unstable political system (Chossudovsky, 2008).

According to a report from the Civil Service of Pakistan (2009), the foreign investment in Pakistan in 2007 was $ 700, 63.5 million which reduces to $329 million in 2008.

High inflation rate and low GDP growth (EDC Economics, 2010).

Devaluation of Pakistani Rupee (Zaidi, 2011).

Low credit rating on World Bank (2011) economic index.

High corruption (World Bank, 2011).

4.3.4 Social

Pakistan has a strong cultural and social environment whose basis depends upon extended family system and religion (Hofstede, 2011).

The country has a hierarchical society where people are respected according to their age and position (www.britannica.co.uk).

In business perspective, the social business environment of the country depends upon building trust, relationships and communications (Hollensen, 2007).

Negotiation is another important element of Pakistan's social business environment (Hollensen, 2007). It is an understood custom in both B2C and B2B sector.

4.4.5 Technological

Most of the public sectors and SME's still not use Computer Integrated Manufacturing (CIM) system (Shaikh et al. 2008).

SME's still uses old machineries for manufacturing and operational purposes.

In 2003 the Small Medium Enterprise Development Authority (SMEDA) of Pakistan proposed the development of an online 'Industrial Information Network (IIN) which was sanctioned by the Ministry of Information Technology and Telecom (MOITT) in 06 June 2003 to help B2B SME's in Pakistan to meet the challenges of sustaining their international market competiveness.

The greatest obstacle that most of the organisations are facing in the country is the issue of electricity (World Bank, 2011).

4.4.6 Environmental

The natural resources and the environment of the country are under huge stress and increasingly polluted and the green and brown issues are increasingly pertaining to the probable vulnerabilities to climate change and natural hazards (Asian Development Bank 2008).

The country has 1.573% population growth rates, which could lead to a great burden in the future by the changing needs of people, infrastructure, resources and jobs (CIA World Factbook, 2011).

4.4.7 Legal

Pakistan has a comprehensive corporate restructuring, debt recovery and insolvency legislative framework (Rizvi et al. 2001).

The country has a poor scoring of controlling corruption and rule of laws on the World Bank (2007) corruption index.

4.5 SWOT Analysis of First Choice Electronics

According to CEO of First Choice Electronics Mr. Khan, following are the key Strength, Weaknesses, Opportunities and Threats for the company.

4.5.1 Strengths

The company has been working in the electronics industry of Pakistan since 1970.(reputation)(brand name).

The company is considered as the pioneer for many electronics goods and products in Pakistan such as Video games (1976), T.V. Kit Body (2000) and different forms of Copper Clad Laminate i.e. Fr-4 and Fr-1.

Most of the clients are loyal and having business with the company for more than two decades.

The key strength of the company is the reputation of the owner in the market (Customer).

A high staff retention rate.

4.5.2 Weaknesses

There is no practice of price strategies in the company. Prices are merely set up the owner according to his own analyses.

Currently, no professional researches are carried out in the company regarding the market demands.

All the decisions carried out in the company are according to the owner with no or little involvement of any other member of the organisation.

Branding strategies are not implemented in the entity. The company hardly has its brand identity with no company logo/slogan.

The organisation does not have a website despite the fact that First Choice electronics has key supplier from all over the world. Moreover, the Information Technology (IT) system in the company is outdated as compare to its competitors.

4.5.3 Opportunities

Pakistan- China Free Trade Agreement (FTA) in which import duties on certain items including Copper clad laminate are as low as zero percent, starting from this year. (www.fbr.gov.pk).

Huge demand for copper clad sheet in the market as the industrial sector in Pakistan is growing.

Most of the importing items are raw materials of electronic manufacturing industries, which are according to (Yee, 2000) manufacturing sector is considered as backbone of any economy.

4.5.4 Threats

Increase taxes such as Sales Tax and Income tax on importing goods and unfriendly economic management system in Pakistan.(www.commerce.gov.pk).

Devaluation of Pakistani currency i.e. Rupees due to economic factors such huge gap between import and export bill in Pakistan , downgraded credit rating by International Rating Agency and Inflation rate more than 25 percent (Baloch, 2010).

Political and financial instability in the country.

Lack of management and unavailability in energy sector of Pakistan affects its commercial and industrial usage(SMEDA Pakistan, 2010)

Lack of financial resources in the entity which restricts them from a rapid growth.

4.6 Meaning of Brand to Owner

The owner believes that the brand Fisrt Choice Electronics stands more than just a company. It reflects the reputation, image, quality service of the company and most importantly establishing long term relationship with the clients is the key element of the success for First Choice Electronics.

4.7 Current Brand Activities

According to the owner following are the current branding activities occurring in the company.

Key focus on building relationship with the customers and to ensure customer satisfaction and to create trust and reputation of the brand amongst the customers.

Organising monthly or quarterly dinners with the clients to have a good favourable experience. This allows the brand to get better involve with the clients.

Undertaking significant Corporate Social Responsibility (CSR) to promote positive brand image. The company was involved in gathering charity for the Earthquake victims in Pakistan in 2005. Similarly, in (2010), the company organised an event to gather charity for Flood Victims in Pakistan. According to Ahmed and Baharun (2007), CSR contributes a lot to the brand personality of a company which is crucial for SME's.

4.8 Current Brand Position

According to the owner, the brand is perceived as a market driven firm in the market as it keeps on introducing new products line to the printed circuit board industry. The company has two major competitors and three new entrants in the market. According to a customer, the brand is considered as number one in the market in terms of trust, relationship and customer orientations. Similarly, according to the Purchase manager of the company, the most significant strengths of the brands are "influence of the entrepreneur, networking and leadership".

4.9 Current Brand Strategies

Current brand strategies are the company's focus on market development and human resource development (HRD). According to the owner, "the company focuses mainly on the market demand, product lines increases according to the customer demand. The owner explains market development with an example that for the production of the Printed Circuit Board through copper clad laminate, the customer requires certain inks for the production process. The company started importing those inks from China to fill the market gap".

4.10 Human Resource Development (HRD)

The company does not possess a recognised human resource department. Most of the recruitment is conducted by the owner himself or sometimes by the upper management. According to the owner, "Our business does not require a proper human resource system as there are only two things we require while recruiting an employee i.e. the qualification and a good reference so that we can have a faith and trust in him/her".

Moreover, the company does not have a formal training system for the employees. Most of the trainings given to the employees by the owner are informal. According to the Sales Manager of the company, "the management team gets informal training from the employer regarding the product knowledge and customer services and then it is the duty of the managers to pass it on to the sub ordinates".

According to Shaikh et al. (2008), the implementation and practice of human resource management in most the Pakistani SME's are inadequate and most of them rarely provide training and development to their employees. Similarly, according to a small sample survey conducted by Khan (2011) in the industrial zone of Karachi which is the biggest business city of the country, reveals that most of the human resources management functions are practiced informally. Most of the organisations do not offer a HRM policy manual and are hesitant to establish an autonomous, functional and separate human resource department.

4.11 Customer Relationship Management (CRM)

Establishing long term relationship with the customer is a key to success in any business (Kevin and Peterson, 2004). Similarly, the importance of relationship building in business to business sectors is even more important (Ahmad and Baharun, 2007). First Choice Electronics has been conducted business in the market for last 40 years and establishing relationship with its clients is one of the major rudiments of its success. According to the owner, "We have been working with some clients now for almost three decades and we have a relationship of trust and faith with each other". Moreover, the owner added that "we even had business with the grandfathers and fathers of some of our current customers". According to Kevin and Peterson (2004), the owner of a small business plays a critical role in most business to business dealings. furthermore, the owner believes that "the best way of establishing a long term relationship with the customer is "to be friends with them and listen to their business needs, this would benefit the company in two ways one is obviously establishing relationship and the other important aspect would be the knowledge of market demand which helps the company in terms of importing new product lines to the stock list." According to Jevon (2005), a brand is about building relationship with the customers and it is beyond the name of the offering. Similarly, all of the customers of First Choice Electronics believes that they would prefer to do business with the company they have strong relationship. According to a customer, "We have a very strong bond of relationship with the brand and it is very embarrassing for us to go to the company's competitors when the stock is unavailable at First Choice Electronics".

4.12 Quality, Cost and Convenience

Kevin and Peterson (2004), describe the process of branding as an activity to create company's goodwill in the mind of the customers by building emotional relationship. However, the importance of building emotional relationship is more prominent in business to consumer sector where consumer buying decision strongly depends on impulse and emotion (Ahmad and Baharun, 2007). Whereas, the element of emotion in business to business branding is translated into relationship and trust where buying decisions are more rational and based on factors like cost, quality and convenience (Ahmad and Baharun, 2007). In terms of cost, First Choice Electronics have a low pricing strategy. All the product ranges supply by the company is cheaper than the competitors.

According to owner, "we have always adopted low pricing strategy and our company is customer orientated therefore, we do not charge customer higher prices like our competitors".

According to a customer, "the prices charged by First Choice Electronics are attractive than the market but when the company stock finished and next shipment is due for some day, all the prices of the copper clad sheet rises in the market".

This phenomenon was explained by another customer "that the major competitors of First Choice Electronics usually stock their products till all the stock of the company is sold out, and after that they play their monopoly and charged premium prices to customers".

The reason for this fact was given by the Purchase manager of First Choice Electronics, "he said that the demand for copper clad laminate in Pakistani market is increasing day by day and the company lacks in completing the customer demand due to financial and government constraints so sometimes we have to wait one or two weeks for our shipments and in them one or two weeks the competitors take the advantages and raise the prices to sky".

According to the owner "First Choice Electronics has the most excellent quality and a wide range of copper clad laminate unlike its competitors which gives the brand a dominant recognition in the market".

Similarly, in terms of convenience the company warehouse is located in the heart of the city unlike its major competitors who are based in the heavy traffic areas. According to a customer, "the best thing about First Choice Electronics is the location, we can come here anytime of the day and park our car for as long as we want".

4.13 Market Orientation

SME's with higher level of competitors and customer orientation are expected to have greater understanding of the vital elements along the competitors and customers value chain moves over time (Day and Wensley, 1988). According to the owner" I am doing this business for past 30 years or so and I have had always adopted the principle of caring about my customers in terms of price and convenience and never took my competitors very easy". According to Gaur et al., (2009), such orientations allows the SME's to establish and deliver better customer value and improve the distribution performance. Moreover, according to the sales manager of First Choice Electronics, "Our company have had always been known for taking care of the customer and even employees, even some our competitors and market considered this activity as one of the key element of our success". Morash and Clinton (1998), argues that customers orientation allows in establishing the delivery expectation of the customers while competitor's orientation allows in benchmarking against the competitors to attain the customer in a more inter functional and efficient manner

4.14 Brand Report Card

Based on Keller (2003) Brand Report Card, following 10 branding practices was questioned to the owner of the company. The scale is based from 1 (strongly disagree) to 7 (strongly agree).

Practice Items

Score

I understand what the brand means to customers

7

My brand is properly positioned

6

My brand delivers benefits customers value most

7

Use full range of marketing activities to build brand equity,

6

Integrated marketing and communications for brand consistency

5

My pricing strategies are based on perceptions of value

6

My brand uses appropriate imagery to support its personality.

6

My brand is innovative and relevant

6

My brand portfolios are strategically sound

4

I have a system to monitor my brand equity and performance.

3

Table 4.1

According to the brand report card, the owners opinion is stronger for branding practice 1 to 8, reasonable in brand portfolios management (item 9) and fragile in performance monitoring (item 10).

4.15 Influences

Following are the influence that affects an SME's branding practices.

Influence of the entrepreneur

Score

I am very passionate with my brand

7

Good entrepreneurs personality is crucial for the brand success

7

I am my own brand's ambassador

7

Influence of the market environment

The state of Pakistan's economy s favourable to my business

4

My marketing program matches the main competitors

5

Technology change affects my brand significantly

5

Influence of the company structure

Brand building agenda is clearly emphasis in the strategic planning of the company

5

There is an appropriate team within the company responsible for brand building activities

4

Branding missions or objectives are well shared among employees

6

Table 4.2

From the above influences it was concluded that the personality of the owner plays a crucial and stronger role in order to establish a brand management system in an SME, followed by market environment which is considered weaker according to the owner the current businesses policies are killing the businesses in Pakistan. Similarly, company structure is crucial and considered as moderate by the owner.

4.16 Brand Challenges

Following are the internal and external brand challenges faced by the company.

4.16.1 Internal Factors

Limited resources

SMEs in Pakistan are normally with limited financial resources. According to Appendix (2) the turnover of First Choice Electronics for year ending 2010 was PKR 9 million (£70 thousand approx). The CEO explains this as a major problem in company's growth as it restricts them to explore and capture wider markets. The high borrowing rates of Pakistan around up to 20% which are not favourable for business community especially for SMEs (SMEDA Pakistan, 2010).CEO and upper management believe if easy financing is available the entity can grow rapidly around the country ,even across the border. This factor also affects the marketing activities in the entity, as there is no special department of marketing in First Choice Electronics. With no website and less E-commerce activity the company faces challenges with other market competitors. According to manager "I am quite aware of E-commerce and website importance in business but there is no special budget or system for such activities in the entity".

Training and Development

All recruiting staffs in First Choice Electronics are trained in a casual manner. There is no Human resource department or manager in the entity which is a normal practice in SMEs in Pakistan. Development and special training programs are normally in large entities in wider activities and resources so for SME's human resource, it is a challenge to compete with them (Khan, 2011).

Brand Equity and Performance

First Choice Electronics does not have any brand equity performance and monitoring system. This means that the company does not measure the rational and emotional perceptions of its products and service. According to Keller (2003), a brand equity monitor system allows a company to accurately reflect its brand competitive environment and product or service category. Similarly, the company does not conduct any satisfaction measure e.g. sales, customer service, technical support and products.

4.16.2 External Factors

Pakistan is a developing country with an uncertain geo-political situation (World Bank, 2010). The political instability for the last two decades has deeply affected the business environment specially SMEs in the country (Khan, 2011). First Choice electronics 90% purchases are from different countries and government economic policies plays a vital role on it. This also includes government relationship especially on trade and economic relational with other countries.

According to the purchase manager, "our product line is a raw material of industrial goods yet we do not enjoy any incentives from the government i.e. import duty relaxation, easy financing and less sales tax, which are almost 0% in other developing countries".

Pakistan is facing great energy crises for the last decade which have resulted in shutting down of 350 industrial units in various industries zone in last 3 years (Khan, 2011).Price of electricity and gas has increased rapidly so as its Load Shedding as the demand is far more than its supply. First Choice Electronics are supplier to an industry which is also facing these energy crises which creates uncertain environment and concerns the CEO. According to a customer "Electricity Load shedding reduces our productivity as we have to stop our production unit when there is no electricity available". Most of the companies in printed circuit board industry are moving to self-generation of electricity with a Electronic generator but the bill is three time expensive than normal line electricity which cost this industry millions in a year.

4.17 Core Issue of Branding in First Choice Electronics

According to the Appendix (2), the income statement reflects the growth of the company. Similarly, according to the semi structured interview it was concluded that the market for Copper Clad Laminates is increasing highly in Pakistan. According to a customer, The demand for Copper Clad Laminates is increasing day by day despite the economic crisis's in Pakistan.. According to Appendix (3), the company is spending low budget on branding and marketing activities whereas, its competitors are more sound in marketing, branding and technology wise. Similarly, according to a customer, the competitors of the company send us emails and text messages regularly to update us with their promotional and marketing activities while this phenomenon is less obvious with First Choice Electronics. Hence there is a need for implementing potential branding strategies in the company so that the company should be recognise highly in the Printed Circuit Laminates industry of Pakistan.

4.18 Summary

According to a study by Napoli et al (2005), SMEs with high performance have greater level of branding practices. This finding is consistent, as the research focus on brand report card for branding practices. However in Napoli's study; the comparison is made between low performing SME's with high performance counterparts, which is not a part of this case study. Successful companies emphasis more on monitoring practices which is also not shown in Napoli's study.

The entrepreneur of First Choice Electronics agrees that leadership is required for SMSs branding practices and the entrepreneur personalities is the key to B2B brand success. He mentioned "When someone buys a consumer good, he does not really care who is creating or selling this product, but in B2B trading one would want to know the person who he is dealing with. The seller's personality is a part of the product". This statement reflects the study by Beverland and Lockshin (2002), which suggests that leader's constant actions with a strong set of positioning values diffused in an organizational culture benefits SME's. His statement is also supported by Boyle (2003) that suggests "personality association" is more important than "abstract concept" for a successful brand building. In B2B the personalities of entrepreneur are not difficult to understand and relate given their "tangible" nature, as compare to "abstract" or "intangibility" nature of service such as "super service" and "customer satisfaction"

The study reveals the fact that in Pakistan, lack of capital and weak marketing strategies by SME's comparing to large corporate entities affect the survival of brand as well as the entrepreneur's sustainability. Other factors that affects SME's in developing countries like Pakistan is the fast change in environment, political instability, unfair trade practices, energy crisis and corrupt institutions. These study leads us to a new practical model for brand building which in future could be tested for research in entrepreneurial brand building. A conceptual model was illustrated in chapter 2 which was concluded on the basis of the literature. A new potential brand building model for Pakistani SME's in B2B environment is proposed based on the analysis which supports the conceptual model in chapter 2. The new model is illustrated in figure 5. The (PBBM) is includes quality, control and cost as an important element for building a brand in B2B environment unlike the conceptual model derived in chapter 2. The importance of quality, control and cost was derived from the analysis.

The (PBBM) model in figure 5 is an adjustment to Krake's "funnel" after considering entrepreneurship approaches for multidimensional model. It also considers the discussion with FIRST CHOICE Electronics entrepreneur on SME's venture under "intrapreneurship" category in B2B application. This model incorporates on organization of venture capital and its elements which influence brand development activity. It may not be in the line with other entrepreneurial systems that are not venture capitalist and are not reliable on external funding. However in Pakistan, SME venture are reliable on external funding and investor's consideration and opinions have influence in decision making, it is shown as funder influence category in the model.

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