Global International Finance Context

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Being one of the most populous countries in the world, we do know demand for basic services like the F&B will be huge and will definitely increase as the country progress.

Since life expectancy also suggest that on the rate of people having access to proper food, safe potable water, clean sanitation, proper healthcare and education. This will indirectly contribute to a longer healthy life of the people. Therefore with Pakistan life expectancy improvement and scoring much better than than the other developing countries, we know life of Pakistanis are improving gradually year on year.

- Huge market size for the soft drink industry in Pakistan (Laura Wood, Senior Manager, 2010)

With the constant increase of population in Pakistan, the total market size for Soft Drinks in Pakistan is expected to increase to USD $233million in 2014. The market is currently dominated by the 2 Giant soft drink manufacturers, with Coca Cola and PepsiCo taking the majority market. According to Business Monitor International, the per capita soft drinks consumption in Pakistan is only estimated to be at 20 litres per annum therefore there is a significant room for volume growth. Even in such a highly price sensitive environment, there are many other factors that contributes to this market size and potential growth.

These factors are:-

- Growing middle income class in Pakistan

Middle income class group in Pakistan soar in the past decade. In the period from 2001- 2011, Pakistan experiences the biggest social class shift from the lower class to middle class income. 6 million people joined the middle income class and at the same time, this increase is compensated by a drop of 2 million people in their lower income class and a 2 million people increase in the upper middle income class. With this shift, there are now a total of 84 million people in the middle income class, which is 55%, more than half of the full Pakistan population. (Jawawid, 2014)

With the promising increase of middle-income class present in the nation, it does also means there is an increase in the countries disposable income. Consumer needs for more sophisticated product will increase, for example, preference for soft drinks over plain drinking water.

- Absences of Alcoholic Drinks

Just like any Islamic country, not surprising, Pakistan has a set of restriction on the sales of alcoholic drinks. Muslims are prohibited to consume alcohol and Non-Muslim has to apply for special permit in order to consume and purchase alcohol from the open market. (1979, 1979)

According to report from Reuters, Pakistan's soft drinks industry benefits from key demand triggers such as the absence of a notable alcoholic drinks industry, consumers will have to take soft drinks as their next closest choice in the absence of alcoholic drinks. (Wood, 2010)

- Warm Climate promotes hydration

About 700 people were killed during a 3-day severe heatwave attack in Pakistan. The temperature in country reaches to 45 Degree Celsius on some days. In this extreme consistent hot climate, it is a blessing in disguise to any drink industry in Pakistan whereby demand for de-hydration is increased.

- High export movement of soft drinks to other region

Apart from catering to the needs of soft drinks to the Pakistanis. Pakistan also exports soft drinks to the other parts of the world. In 2012, Pakistan export a total of estimated USD $22.5 million worth of soft drinks (Refer to Fig 1.2). Afghanistan took up 80% of the total soft drinks exports following next is United States 5.33%. With this existing trading relationship to the export destinations, it gives any new soft drink company a great opportunity to reach the untapped markets by riding on the country existing trading relationship.

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Figure 1.3 Export Destination for soft drinks in Pakistan (Simoes, 2012)

- Pakistan has low importation soft drinks, as they mostly manufactured locally

On the other hand, Pakistan import very small amount of soft drinks. In 2012, Pakistan only imports USD 7.18 million of soft drinks; this is slightly below one third of their total export. With this simple piece of information, the advantage to the local soft drink manufacturers is they can focus on their strategy against the limited few competitors in the market. However this also means soft drinks that are available in the country are mainly locally manufactured. Thus, we can expect soft drinks pricing to be very competitive, chance to yield high profit margin are slimmer.

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Figure 1.4 Import Destination for soft drinks for Pakistan (Simoes, 2012)

- Related & Supporting Industries

- Main exporter of raw sugar regionally

Being the world 8th largest sugar producer and with the world 6th largest sugarcane plantation. Sugar remains to be the 2nd most important industry in Pakistan, after textile. (Rehman, 2015)

As we know, sugar is one of the main ingredients required for the production of soft drinks, with this huge availability of resources in the country, cost of buying sugar is greatly reduce because of the availability of it.

- Numerous bottling plant in Pakistan

Bottled drinks production are not a new to Pakistan, Multinational competitors like PepsiCo, Coca Cola, are long present in Pakistan. In order to support the world demand from these MNEs, numerous bottling plants are set up through the course. At present, there are a total of 109 licensed water bottlers in Punjab and some of these bottling plants are fully owned subsidiary of Coca- Cola and PepsiCo. (Memon, 2014)

With the present of this related industry to soft drinks, it could be of great help to a new soft drink company that is entering the country. There will be a pool of experience worker available; And the availability on the required basic raw materials for bottling a drink, locally produced or imported.

- Context for Firm Strategy & Rivalry

- Friends of Pakistan unveils investment plan in Pakistan

The President of China, Mr. Xi Jin Ping, recently visited Pakistan in April 2015 and unveils their investment