Introduction: As Pakistan is a developing country but it has enormous potential and opportunities for businesses to invest here.

The potential investors do not want to come over Pakistan because of certain reasons especially the attitudes and behaviors of past governments. As the trade rule says that "investment in any business, any area and any country calls for careful judgment". Fact Sheet
2011 US$ 1.232 B 25.19 B 34.87 B

FDI
Export Import

Workers Remittance FOREX Reserves

9.05 B
17.067 B

KSE

100

Index

12,198.12

Nowadays the situation of Pakistan is becoming so sad that no investor wants to invest in Pakistan. Foreign investors who are doing businesses in Pakistan are they view the environment of Pakistan for businesses in various angles. Their major thought is that Pakistan is having unfriendly attitude of government officials, corruption, and frequent change of policies and the entire law and order situation. Impact of Globalization: A fundamental shift is occurring in the world economy. We are moving away from a world in which national economies were relatively self contained entities, isolated from each other by barriers to cross border trade and investment; by distance, time zones, and languages; and by national differences in government regulation, culture and business systems. And we are moving

toward a world in which barriers to cross border trade and investment are declining ; perceived distance is shrinking due to advancement in transportation and telecommunications technology; material culture is starting to look similar the world over; and national economies are merging into an interdependent , integrated global system. The process by which this is occurring is commonly referred to as globalization. Modes of Entry in International Business: Once a firm decides to entre in a foreign market, the question arises as to the best mode of entry. Firms can use six different modes to enter foreign markets. 1. Exporting: Many manufacturing firms begin their global expansion as exporters and only later switch to another mode for serving a foreign market. It has two advantages: It avoids the often substantial costs of establishing manufacturing operations in the host country. Exporting may help a firm achieve experience. Disadvantage can be Exporting from the firm`s home base may not be appropriate if lower cost locations for manufacturing the product can be found abroad. 2. Turnkey projects: In a turnkey projects the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel. At completion of project foreign, the foreign client is handed the key to a plant that is ready to full operation. This is a means of exporting process technology to other countries. Turnkey projects are a way of earning great economic returns from the asset. The firm that enters into a turnkey deal will have no long term interest in the foreign country. 3. Licensing: A licensing agreement is an agreement whereby a licensor grants the rights to intangible property to another entity for a specific period and in return the licensor receives the royalty fee from the licensee. A primary advantage of licensing is that the firm does not have to bear the development costs and risks associated with opening a foreign market. But It does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. 4. Franchising: Franchising is similar to licensing. Franchising is basically tends to involve long term commitment than licensing it also includes that the franchisee agree to abide by all the strict rules as to how does business. The firm is relieved of many of the costs and

risks of opening a foreign market on its own. A more significant disadvantage of franchising is quality control. 5. Joint ventures: A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. A firm benefits from a local partner`s knowledge of host country`s culture, economic conditions etc. A joint venture does not give a tight control over subsidiaries. 6. Wholly owned subsidiaries: In wholly owned subsidiaries the firm owns 100% of the stock. It can be done in two ways the firm can setup a new operation in that country, often referred to green field venture or acquire an established firm in host country and use that firm to promote its products. A wholly owned subsidiary gives firm tight controls over operations in different countries. But It is the most costly method of serving a foreign market.

Investment opportunities in Pakistan: There are good investment opportunities in the following sectors of Pakistan economy. Oil & Gas Energy and Power

IT Projects Telecommunication Agriculture & Agro-based Projects Housing and Construction Textile Infrastructure Health Projects

Five reasons to invest in Pakistan:  Abundant land and natural resources y y y y  Extensive agricultural land Crop production (wheat, cotton, rice, fruits and vegetables) Mineral reserves (coal, crude oil, natural gas, copper, iron ore, gypsum, etc.) Fisheries and livestock production

Strong human resources y y English speaking work force Cost-effective managers and technical workers

Large and growing domestic market   150 million consumers with growing incomes A growing middle-class moving to more consumption habits

Well-established infrastructure and legal system y y y y Comprehensive road, rail and sea links Good quality telecommunications and IT services Modern company law Long-standing corporate culture

Strategic location as a regional hub y y y Principal gateway to the Central Asia Republics Strong and long-standing links with the Middle East and South Asia Comprehensive duty-free facilities for investors

Legal Environment of Pakistan for International business:

Child labour Laws and policies

Legal Environment

Enforcement

Corruption

Cultural shocks

If companies want to invest or start business in Pakistan there are several legal laws which affect international businesses. 1: Laws and policies: If a company wants to invest in Pakistan under the current investment policy or laws are Pakistan, business and service sector is divided into two categories:   Manufacturing or Industrial sector Non-Manufacturing Sector

Manufacturing or Industrial sector:

If foreign investors want to invest in Pakistan in manufacturing and industrial sector the law is that they are allowed to hold 100% equity for the industrial projects. No permission of government is required. Non-Manufacturing Sector: If a foreign investor wants to invest in Pakistan on non manufacturing sector on any of its category such as
y y y

Service Sector Infrastructure Sector, and Social Sector

Foreign investors are allowed to have 100% equity of non manufacturing project. For investment in non manufacturing sector registration is required. Laws for joint ventures: For a joint venture agreement there is no need of registration of such agreements but the entities which create a joint venture may need to register under the law. Laws for franchising: In Pakistan, no specific law governs all issues relating to franchising. Therefore, the relationship between the parties and their respective rights and liabilities are principally governed by contractual arrangements that, by law, are subject to strict interpretation of the terms of the contract. 2: Child Labour: In Pakistan child labour laws are not enforced properly. Pakistan is under developed country and a large portion of population live under poverty line. Thats why the head of the family cannot manage the expenses solely so the children of the family are forced to earn. In exportable sector the demand for child labour has increased but in case of FDI it seems to be lower because of low

standard labour and a high rate of child labour Pakistan is fail to attract the inflow of FDI and foreign investment. (Uzma Iram, Ambreen Fatima, (2008) "International trade, foreign direct investment and the phenomenon of child labor: The case of Pakistan", International Journal of Social Economics, Vol. 35 Iss: 11, pp.809 822) 3: Corruption: Pakistans each department of services is badly influenced by the octopus of corruption. You have to pay bribe on each step. Corruption and law and order problems are the biggest hurdles in the way of foreign investment and foreign trade. A World Bank (WB) latest report enlists corruption as one of the core reasons that hinders the development drive in Pakistan (Lack of transparency and corruption, delays in procurement ) , which is also suffering from dearth of infrastructure in the water, irrigation, power and transport sectors. This corruption weakens the interest of investors in Pakistan. 4: Cultural shocks: International business is also affected through cultural shocks because people of Pakistan are having different culture and companies which invest in Pakistan are having different cultures when a company comes in Pakistan for investment and production of certain items then they do each and every thing according to Pakistani culture otherwise they would suffer and at last the dissolution of business. 5: Enforceability of contract: Pakistans legal framework and economic strategy do not discriminate against potential foreign investors, but enforcement of contracts can be difficult given the inefficiency of the court system. Foreign investment is generally subject to the same rules as domestic investment, with the I; exception of certain sensitive areas such as defense production, banking, Investment Agreement: Pakistan has entered into a bilateral agreement with 47 countries for the protection of investment. Points in this agreement are as follows,

Countries which are in agreement are required to encourage investment in their respective territories by investors of other countries.

y y

There should be no discrimination between local investors and foreign investors. There should be no discrimination in case of compensation of losses wars, other arm conflicts.

A dispute settlement mechanism to settle any dispute between the countries.

Bilateral agreement member countries:

S. No. Name of Country 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Australia Azerbaijan Bangladesh Belarus Belgo-Luxemburg Economic Union Bosnia Bulgeria Cambodia China Czech Republic Denmark Egypt France Germany Indonesia Iran Italy Japan Kazakhstan Kuwait Kyrgyz Republic Lebanon Loas 27.04..2004 12.02.1989 07.05.1999 18.7.1996 16.04.2000 01.06.1983 01.12.2009 08.03.1996 08.11.1995 19.07.1997 10.03.1998 08.12.2003 14-02-2011 17.03.1983 23.08.1995 09.01.2001 23.04.2004 Signing Date 07.02.1998 09.10.1995 24.10.1995 22.01.1997 23.04.1998 04.09.2001 S. No. Name of Country 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Malaysia Mauritius Morocco Netherlands Oman Philippines Portugal Qatar Romania Singapore South Korea Spain Sri Lanka Sweden Switzerland Syria Tajikistan Tunisia Turkey Turkmenistan U.A.E. United Kingdom Uzbekistan Yemen Signing Date 07.07.1995 03.04.1997 16.04.2001 04.10.1988 09.11.1997 11.05.1999 17.04.1995 06.04.1999 10.07.1995 08.03.1995 25.05.1988 15.09.1994 20.12.1997 12.03.1981 11.07.1995 25.04.1996 13.05.2004 18.04.1996 15.03.1995 26.10.1994 05.11.1995 30.11.1994 13.08.1992 11.05.1999

Political factors: Transfer risk Political instability

operating risk

Political Factors

Economic policy Ownership risk

Trade policy

Political instability: Political instability is one of the major factor which affect international businesses because Pakistan`s government changes rapidly due to which foreign investors have fear so they do not want to invest in Pakistan. Due to political instability country`s whole economy disturbs so it is also affects international business. Ownership risk: It is a risk in which property of a firm is threatened through confiscation. Due to political factors in Pakistan ownership risk increases for international business. Operating risk: Operating risk arises when the ongoing operations of a business is threatened through changes in law, changes in tax rates etc so in Pakistan it also affects international business. Trade policy:

Trade policy of Pakistan may include all the export, import policies, tariffs, inspection etc the purpose of trade policies is to help nation`s international trade and make suck type of policies which can help to smoothly running the trade and the policies should be clear so that each investor could understand easily but if some policies are such which are not clear and which do not protect the interest of foreign investors then they would not like to trade in Pakistan which affect international business. Economic policy: President Zardari forced that economic policies would not change in my government. He also encouraged the entrepreneurs to enter in both public and private partnership to run various state enterprises with full effort and management control. As the policies of president zardari the inflation rate has decreased from 25 percent in 2008 and 13 percent by 2009. These policies also helped in declining of fiscal deficit by 4.3 percent so recent policies of government encourage the foreign investors or international business. Transfer risk: Transfer risks are such in which government interferes with a firm`s ability to shift funds into and out of a country so because in Pakistan there is a lot of political risk arises so transfer risk is also there so it can affect international business. Conclusion: So we can conclude that Pakistan has political instability, continuous military coups, lack of political culture, energy crisis, child labor, high growth of population, illiteracy, corruption. Nepotism and ineffective legal framework, foreign policy, communication resources, trade deficit is affecting international business. Legal and political system shapes the countries so due to instability and incredibility Pakistan is facing crises in terms of foreign investment.

References: http://www.emeraldinsight.com/journals.htm?articleid=1747069&show=pdf http://investinpakistan.pk/intl-agree.htm http://www.tahseenbutt.com/investment_in_pakistan.html