Environmental Scanning Essay

Everyone in Pakistan well as many sitting thousands of miles away, the business community too is waiting to exhale. And so, all that’s visible in the run up to the precise moment – General Elections 2013 – are lots of breathlessly red faces. Generally, election year produces diametrically opposing reactions within the public and private sectors. While the incumbent seeks to woo fickle voters through last ditch spending (think: poverty alleviation, development projects, etc.), the private sector often buries its head and its wallet in the sand until the storm of unpredictability has passed. Consequently, the business outlook for 2013 will remain depressingly unexciting until the new government settles down. The global recession isn’t going away anytime soon and the IMF recently cut global growth forecasts for 2013 to 3.6%, down from its earlier estimate of 3.9%. Although the Pakistani Government is doing its best to convince anyone who will listen that it i s going to manage ‘four’ percent growth in the coming year, nobody is really convinced. The Government doesn’t really have the money to spend. Public revenues – proposed tax amnesty schemes notwithstanding – are low; the fiscal deficit is 8.2% and, to make ends meet, the Government is borrowing heavily from the banking sector. For decent growth, the Government needs a tax-to-GDP ratio in the vicinity of 16%; all it can muster at present is 9.1%. While inflation has finally been brought into the single digit realm, few are deluded enough to imagine it will last. First, global commodity prices (particularly oil) are still heading upwards. Second, with just enough forex reserves left for three months of imports and no bilateral or multilateral donor rushing to save Pakistan from Islamabad, the rupee is poised to come under serious pressure. (In November alone, Pakistan had to repay a staggering $616 million to the IMF.) Third, the Government has the State Bank printing Rs 1.5 billion a day. All inflationary enough on their own, the combined effect of these three will make for a very painful and prolonged hangover . Further, savings are low and the cash flush banks are too busy throwing rupees at the Government to bother with the few businesses that would be willing to invest in Pakistan prior to elections. Simply put, banks would much rather bolster their profits by lending to an insatiable but dependable Government than lend to the brilliant but risky private sector. Significantly, while the  Central Bank has now cut its policy rate by a cumulative 200 basis points since August, its critics are still unhappy with the decision. Their first bone of contention is that the temporarily low inflation numbers do not merit monetary easing and the State Bank is just making it cheaper for the Government to borrow more rather than hauling it up for doing so. Further, they cite data on private sector credit off take that shows that the same actually declined after the deep cut in August (150 basis points) while Government borrowing increased. Businesses, on the other hand, say that interest rates are st ill too high to consider investing. (Foreign investment, of course, requires a climate unavailable in a frontline state in the war against terrorism.) While the specific merits of this allegation can be argued over, the business environment in the country presents a series of uncontroverted and inescapable realities that dilute the impact of the high cost of borrowing. There are obviously those who cry about energy shortages, the unpredictability of supply and the fear that the dollar-rupee exchange rates will cross Rs 100 by June 2013. There are others who moan about the law and order situation and the fact that extortion levels jump up dramatically in the run-up to an election as political parties gather funds for electioneering. But first and foremost is the fact that the entire country is in a state of political flux and the economy is teetering on the brink of a full blown crisis. Typically, investment – be it the setting up of large projects or just the import of new machines for spinning – has a significant gestation period. An investor, who can’t predict whether his deals with the current Government will be honored by the next or what the duty structure will look like by the time his machines come in, is generally wary and prefers to sit on the sidelines until he gets more clarity. Take the example of the energy sector. The long, sizzling summer of 2012 and the frequency of power riots across the country clearly showed that Pakistan has graduated from being energy insecure to an energy crisis state. Throughout this period, the Government and its ministers frequently spoke of the need for more energy related projects, alternative energy and what not at much touted ‘energy conferences’. At various points during the year, the import of energy from even Iran and India were discussed. Clearly, there is significant unmet demand and correspondingly, great returns in the business. Theoretically then, given that energy infrastructure projects take ages to  mobilise, investors should be queuing up to begin these before the summer of 2013. But while a few canny, deep pocketed investors are making ambitious plans, even they are not committing money to these projects just yet. Clearly, the top priority, for even those investors who are mostly immune to political persecution because of their wealth and/or influence, is political stability. This stability, however, refers not only to the political parties that form governments but also the nature of the economic policies they pursue. If an investor raises $200 million to set up an LNG import business, for example, he needs to know what the returns will be and how long the government intends to buy the product for and in the absence of this certainty; no one will cough up the cash. Key External Factors Business, now-a-days is vitally affected by the economic, social, legal, technological and political factors. These factors collectively form business environment. Business environment, as such, is the total of all external forces, which affect the organization and operations of business. The environment of an organization has got internal, operational and general lives managers must be aware of these three environmental levels and their relationship and importance. The term ‘business environment implies those external forces, factors and institutions that are beyond the control of individual business organizations and their management and affect the business enterprise. Business environment influence the functioning of the business system. Thus, business environment may be defined as all those conditions and forces which are external to the business and are beyond the individual business unit, but it operates within it. These forces are customer, creditors, competitors, government, socio-cultural organizations, political parties national and international organizations etc. some of those forces affect the business directly which some others have indirect effect on the business. 5 Key External Factors: * Economic Forces * Social, Cultural, Demographic and Environmental Forces * Political, Governmental and Legal Forces * Technological Forces * Competitive Forces Economic Forces: Economic environment refers to the aggregate of the nature of economic system of the country, the structural anatomy of the economy to economic policies of the government the organization of the capital market, the nature of factor endowment, business cycles, the socio-economic infrastructure etc. The successful businessman visualizes the external factors affecting the business, anticipating the prospective market situations and makes suitable to get the maximum with minimize cost. Social, Cultural, Demographic and Environmental Forces: The social dimension or environment of a nation determines the value system of the society which, in turn affects the functioning of the business. Sociological factors such as costs structure, customs and conventions, cultural heritage, view toward wealth and income and scientific methods, respect for seniority, mobility of labor etc. have far-reaching impact on the business. These factors determine the work culture and mobility of labor, work groups etc. For instance, the nature of goods and services to be produced depends upon the demand of the people which in turn is affected by their attitudes, customs, so as cultural values fashion etc. Socio-cultural environment determines the code of conduct the business should follow. The social groups such as trade unions or consumer forum will intervene if the business follows the unethical practices. Political, Governmental and Legal Forces: The political environment of a country is influenced by the political organizations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. political stability in the country, foreign policy, Defense and military policy, image of the country and its leaders in and outside the country. The political environment of the country influences the business to a great extent. Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It may include the exact rulings and decision of the courts. These affect the business and its managers to a great extent. Technological Forces: The business in a country is greatly influenced by the technological development. The technology adopted by the industries determines the type and quality of goods and services to be produced and the type and quality of plant and equipment to be used. Technological environment influences the business in terms of investment in technology, consistent application of technology and the effects of technology on markets. Competitive Forces: * Globalization of corporations, knowledge, products, consumers, and communication. * Growing competition within and across countries, amongst domestic companies, and between domestic and transnational companies. * Link between international trade and international labor standards and parallel efforts to secure labor market flexibility through relaxation of labor laws and standards for stimulating investment, both domestic and foreign * Speedy flow of information, capital, and innovation throughout the world. * Rising expectations of all stakeholders. * Easy access to the best and the least expensive products and services, worldwide. * Rapid pace of change ( £If the rate of change in our organization/society is slower than the rate of change outside the organization/society, we will be led by others.’) * Faster response time (As Smajda of the World Economic Forum avers, the days of big fish eating small fish are over. It is the fast fish which swallows the small fish.’) * Growing socio-economic inequity. Now, we are going to discuss about different sectors which are affected by these key external factors and take opportunities to it but threats are also exists. * Service Sector * Agriculture Sector * Telecom Industry * Cement Industry Service Sector Services sector is largest and fastest growing sector in the world economy, accounting largest share in total output and employment in most developed countries. In case of Pakistan, the shares of services are increasing in all sectors of economy over the period. In fact, the growth rate of services sector is higher than the growth rate of agriculture and industrial sector. The Services sector has registered a growth rate of 4.0 percent during July-March of the fiscal year 2011 12 against 4.4 percent last year. It is dominated by Finance and Insurance at 6.5 percent, Social and Community Services 6.8 percent and Wholesale and Retail Trade 3.6 percent. I. Distributive Services: Transport, Storage and Communications * Railways * Water Transport * Air Transport * Pipeline Transport * Road Transport * Mechanized * Non- Mechanized * Communications * Storage * Water Transport Wholesale, Retail Trade and Hotels and Restaurants * Wholesale and Retail Trade including * Imports * Purchase and Sale Agents and Brokers * Auctioning II. Producer Services: Financial Institution * State Bank of Pakistan * Commercial Bank * Other Financial Intermediaries * Insurance Corporations and Pension Funds III. Social Services: Public Administration and Defense Social Community and Private Services * Education * Medical and Health Services Environmental Scanning: Economic Forces The Services sector contributes 53.8% to Pakistan’s GDP. Its major sub sectors are Finance and Insurance, Transport and Storage, Wholesale and Retail Trade, Public Administration and Defense. Services contribution to our GDP is gradually increasing. During the current period of financial downturn, the services sector has been a major contributor to growth. Pakistan’s GDP grew at the rate of 2.4%in 2010-11. The services sector grew at the rate of 4.1% as against 2.9% last year. The main contributors to this growth are public admin and defense (13.2%) and social services sector (7.1%) A cursory look on the composition of subsectors that contribute most to the services sector shows that retail trade, wholesale trade, research and educational consultancy services, restaurants and hotels, financial, construction, and some business services, such as computer and information technology (IT) services, and professional services, such as engineering, legal and accounting services, IT and related services have been most significant. Banks, DFIs and insurance companies, account for 98 percent of value added in this sector. The finance and insurance sector comprises State Bank of Pakistan, all scheduled (domestic and foreign banks) development financial institutions (DFIs), all insurance (life and general) companies, Modaraba/leasing companies, moneychangers and stock exchange brokers. The financial sub-sector consists of all resident corporations principally engaged in financial intermediations or in auxiliary financial activities related to finance. Social, Cultural and Demographic Forces Demography and lifestyle changes have the major contribution to increase in the growth of consumer demand of services. Pakistan’s consumption data shows that the demand of services is increasing over the time. During the 1985-86 people spent more of their income on goods then services. A number of factors such as income growth, changing demographic profile due to more urbanization, and the socio-economic environment are having its impact on retail scene. Pakistan retail is currently a virgin territory. This is more important in view of the large number of middle class population and available high-disposable income in the age group 25-35 years. Successful Retail Chains like Hyper star, Metro & Makro has opened the avenues for the upcoming retailers. In Lahore, large numbers of households do the grocery shopping at Hyper star, Jalal sons, Alfatah, HKB, Metro, Makro and CSD. This shows the changing lifestyle and shopping preferences of the urban population of Pakistan. This retail growth is also supported by the increasing literacy rate in Pakistan; current urban population is more educated than their ancestors and has a better understanding of retailer influences on shopping as the larger retailer give quality assurances to consumers. Political, Governmental and Legal Forces Governments around the globe are gradually coming online using processes in which Information and Communications Technology (ICT) play an active and significant role, beyond simple digitalization, or automation of governance  services, or provision of LANs, since it is ultimately a tool for good governance and human development. The main objectives of e-Governance are to increase transparency of government working, increase and diversify public information and its value, and increase the quality of products and services being currently offered. This helps reduce high transaction costs (in terms of time, efforts and opportunities lost) by timely and relevant access to government information, especially for those who are disadvantaged or marginalized or living in remote rural areas. Services are still identified with line ministries and government departments; there is increasing recognition amongst policymakers for improvements in skill levels in many sectors and for a departure from inward-looking policies. In view of the dramatic changes in the services sector, regulatory and policy issues have continued to gain importance in policy-making circles for the last 15 years. Technological Forces Technology allows businesses to do everything faster. Many processes that once required ledgers, checkbooks and journal notations have now moved onto computer systems. Logging in and out, updating inventory information and communicating can now are happening much more swiftly. Technology moves very quickly, constantly evolving and creating new devices and faster systems. Businesses note these changes and attempt to move with technology, adapting it to their present and future needs. Pakistan has seen an explosive growth in the ICT sector in the last few years with deregulation and ending of the monopolies of the state sector. The number of mobile phones achieved their 2007 target two years earlier, and the recent deregulation of long distance (LDI) wireless local loops (WLL), other sections have served to provide faster, better and wide coverage, all at lower costs. Competitive Forces Of the non-factors input used by the services sectors, 61.1 percent were  purchased from commodity producing sectors, suggesting strong backward linkages of services with commodity producing sectors. Of the total purchases from the commodity sectors, 73.9 percent were purchased from manufacturing sector, followed by 14.6 percent from construction, and 7.7 percent from electricity and gas sectors. The service sectors purchases from agriculture sector account for 3.3 percent of total purchases from commodity sectors. About 76.5 percent of services sector (public administration and defiance, 40.6 percent and transport and communications 35.9 percent) made purchases from the commodity producing sectors respectively. Forward linkages the shares of individual service sectors in total purchases from commodity producing sectors are agriculture 28.1 percent, mining and manufacturing 70.2 percent, electricity and gas distribution 1.0 percent, and construction 0.7 percent. Technology also increases the possibility of crime. A tech-savvy employee can embezzle funds and make it difficult for the company to trace. Hackers can access personal and financial data of customers who trust the company to keep their information safe. Agriculture Sector Agriculture: Agriculture, also called farming or husbandry, is the cultivation of animals, plants, fungi, and other life forms for food, fiber, biofuel and other products used to sustain life. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the development of civilization. The study of agriculture is known as agricultural science. Agriculture generally speaking refers to human activities, although it is also observed in certain species of ant and termite. The word agriculture is the English adaptation of Latin agricultÃ… «ra, from ager, â€Å"a field†, and  cultÃ… «ra, â€Å"cultivation† in the strict sense of â€Å"tillage of the soil†. Thus, a literal reading of the word yields â€Å"tillage of fields†. Agriculture Sector in Pakistan: Pakistan has a rich and vast natural resource base, covering various ecological and climatic zones; due to which the country has great potential for producing all types of food produce. Agriculture has an important role in generating economic growth. Agriculture affects the economy in three ways namely, first, it provides food to consumers and fibers for domestic industry; second, it is a source of scarce foreign exchange earnings; and third, it provides a market for industrial goods. Agriculture Sector is a key sector of the economy and accounts for 21 percent of GDP. The supportive policies of the government resulted in a growth of 3.1 percent against 2.4 percent last year. Major Crops registered an accelerating growth of 3.2 percent compared to a negative growth of 0.2 percent last year. The major crops including Cotton, Sugarcane and Rice witnessed growth in production of 18.6 percent, 4.9 percent and 27.7 percent respectively. However, preliminary estimates of wheat production showed a negative growth due to late receding of flood waters in lower Sindh which hampered the timely cultivation of the wheat crop. Livestock has witnessed a marginally higher growth of 4.0 percent against the growth of 3.97 percent last year. Fisheries sector showed a growth of 1.8 percent. Forestry recorded a growth of 0.95 percent as compared to the contraction of 0.40 percent last year. The total geographical area of Pakistan is 79.6 million hectares. About 27percent of the area is currently under cultivation. Of this area, 80 percent is irrigated and Pakistan has one of the highest proportions of irrigated cropped area in the world. Most of Pakistan is classified as arid to semi-arid because rainfall is not sufficient to grow agricultural crops, forest and fruit plants and pastures. About 68 percent of the geographical area has annual rainfall of 250 mm, whereas about 24 percent has annual rainfall of251 to 500 mm. Only 8 percent of the geographical area has annual rainfall exceeding 500 mm. Hence supplemental water is required for profitable agricultural production, either from irrigation or through water harvesting. Agriculture is largely dependent on artificial means of  irrigation. Of the total cultivated area, about 82 percent or around 17.58 million hectares is irrigated, while crop production in the remaining 3.96 million hectares depends mainly upon rainfall. The Irrigation Canal Command Area (CCA) has been grouped into classes on the basis of the nature and severity of its limitations water logging, salinity, sodality and texture. At present about one-fifth of the cultivated land in CCA is affected by water logging and salinity to varying degrees. An additional area of 2.8 million hectares suffers from sodality. Notwithstanding huge investments, the water table was 0 to 1.5 m under 2.2 million hectares of irrigated land, 1.5 to 3 m under6 million hectares and 0to 3 m under 8 million hectares. Thus Pakistan needs to overhaul its entire drainage and reclamation strategy reduces its cost and makes it efficient. Environmental Scanning: Economic Forces Flooding in 2011, affected crops like rice, cotton and sugarcane, although in the current year, 2011-12, they performed well and provided support and continued to support food security objectives this year. The agriculture sector recorded a growth of 3.1 percent in 2011-12. The profitability of agriculture sector during 2011-12, remained high because the farmers received good prices for rice, cotton and sugarcane, which allowed for greater financial resources passed on to the rural economy. During 2011-12, the overall performance of agriculture sector exhibited a growth of 3.1 percent mainly due to positive growth in agriculture related subsectors, except minor crops. Major crops accounted for 31.9 percent of agricultural value added and experienced a growth of 3.2 percent in fiscal year 2011-12 with negative growth of 0.2 percent in 2011. The role of credit is instrumental in the agriculture sector where Pakistani farmers often lack finances necessary for carrying out vital farming activities. This issue, if not addressed, can cause a multitude of problems, ranging from the exploitation of poor farmers at the hands of informal sources of credit, to a slowdown in the adoption of modern farming techniques and inputs, resulting in slow development of this chief sector of our economy. Social, Cultural and Demographic Forces Agriculture generates productive employment opportunities for 45 percent of the country’s labor force and 60 percent of the rural population depends upon this sector for its livelihood. * Established 40 surveillance and 66 rapid response units (RRUs). * Processed 0.4 million samples of blood, tissues and swabs for screening against Avian Influenza * Establishment of the Bio security Laboratory-3 is under process * Disbursed Rs. 23.5 million as compensation to Avian Influenza affected farmers Pakistan is maintaining Avian Influenza (bird flu) free status since June 2008 million tons was from marine production and the remaining came from inland waters. In July-March, 2010-11 the production was estimated to be 937,082 million tons, where 672,652 million tons was marine and the remaining was produced by inland fishery sector. Recognizing the vital role the sector plays in ensuring food security, generating overall economic growth, reducing poverty and the transforming towards industrialization. Political, Legal and Governmental Forces The present government is determined to improve the quality of life of the people and to banish hunger and malnutrition from the country by making agriculture an efficient, productive and profitable sector of the economy. In order to improve governance in the public sector the government took bold steps and brought in the 18th Amendment to the Constitution of 1973. Accordingly, Ministries performing tasks which were provincial subjects were devolved from the Federal level, including the Ministry of Food and agriculture. Two major steps in order to solve the food security issues on a permanent basis; The first step is the establishment of the National Food Security Council representing Federal, Provincial and local level Governments. Secondly, through a Letter of Intent the Ministry, in collaboration with World Food Program, is launching the Zero Hunger Program  worth US $ 1.6 billion to address the food security objective. A total of 290 veterinary clinics have been established providing veterinary services at 70 percent reduced costs to rural farmers at their door steps i.e. 100 percent achievement. Technological Forces The Federal Seed Certification and Registration Department (FSC&RD) is engaged in providing seed certification coverage to public and private sector seed companies of the country. It provides seed quality control services through its 28 seed testing laboratories as well as monitoring of seed quality in the market. The activities and achievements of the department during 2011-12 are described below: * During the year 2011-12, forty-five (45) new seed companies were registered, making the total number of registered seed companies in the country 774, which includes four public sector and five multinational companies. * Twenty-two (22) new crop varieties were approved {(5) wheat, (11) cotton, (3) oilseeds, (2) pulses and (1) fodder}. * During 2011-12, different crops offered by the various seed agencies, totaling 502.6 thousand acres, were inspected for certification purposes. * During 2011-12, a total of 13.7 MT of imported seed of various crops and hybrids, with a total value of Rs. 3287.6 million, was tested under the Seed (Truth in Labeling) Rules. 1991 at the port of entries i.e. Lahore and Karachi. * Almost 718 samples of seed and propagating material of various vegetable and fruit crops were tested at the Central Seed Testing Laboratory, Islamabad for detection of fungal and viral disease using latest diagnosis techniques and protocols. The Federal Seed Certification and Registration Department (FSC&RD) is engaged in providing seed certification coverage to public and private sector seed companies of the country. It provides seed quality control services through its 28 seed testing laboratories as well as monitoring of seed quality in the market. Competitive Forces Pakistan is member of the Cairns Group (an alliance of 18 countries looking for ambitious outcome in the Market Access areas), G-20 (group for safeguarding interest of developing countries in agriculture negotiations) and the G-33 (group of developing countries and LDCs aiming to get preferential terms in Market Access and Special and Differential treatment). In negotiations on market access, domestic support and export competition, Pakistan’s stance is supportive of the G-20 collective position. Pakistan strongly supports improvement in market access by reducing tariffs, reducing tariff escalation, and eliminating tariff peaks. Pakistan also works closely with the Cairns Group on tropical products issues. Pakistan has entered into Free Trade Agreements (FTA) with China, Malaysia and Sri Lanka and has exchanged a draft FTA with Singapore which includes an investment protection clause. In addition to WTO membership, Pakistan is party to two agreements for regional trade liberalization. The Economic Cooperation Organization (ECO) comprised of Turkey, Iran, Afghanistan, Azerbaijan, Kazakhstan, Kyrgyz, Tajikistan and Turkmenistan; and the South Asian Association for Regional Cooperation (SAARC) with India, Bangladesh, Sri Lanka, Bhutan, Nepal and the Maldives. A Trade and Investment Framework Agreement (TIFA) have been in place between Pakistan and the United States since July 2003. Both countries are now negotiating a Bilateral Investment Treaty (BIT). Telecom Industry Telecommunication: Word Telecommunication has two parts. One is Tele and other is Communication. Communication means conveying or disseminating the information. Word Tele is a Latin word which means far off. Telecommunication is the dissemination of signals to a far palace for the purpose of sharing some message or idea. In ancient time codes, smokes, drums or other components were used for conveying information but now a day telephones, fax, emails etc is used. So now the new definition of Telecommunication states sharing of data over a distance, through electric means. Telecom Sector in the World: In this fastest growing world information flows through the signals and cables in form voice or text. Telecommunication is not just bringing the people together but it is also bringing different economies, cultures and countries together. Now we can see the whole world as a Global Village. Now Telecommunication is an essential part of our lives. With the Expansion of this sector, the world has gained about $3.85 trillion in year 2008. And the service revenues have reached about $2 Trillion and Expected to reach the level of $3 Trillion in 2013. And this revenue is about 3% of the World GDP. The major part of telecom sector is internet and Telephones. Telecom Sector in Pakistan: Pakistan is on the verge of Telecom revolution Pakistan continues to be one of the fastest growing telecom markets in the world. Reforms introduced by successive Pakistani governments over the last decade have dramatically changed the nature of telecommunications in the country. The Pakistani telecom sector has attracted more than $9 billion in foreign investments. During 2007-08, the Pakistani Communication sector alone received $ 1.62 billion in Foreign Direct Investment (FDI) – about 30% of the country’s total foreign direct investment. By March 2009, Pakistan had 91 million mobile subscribers – 25 million more subscribers than reported in the same period 2008. In addition to 3.1 million fixed lines, while as many as 2.4 million are using Wireless Local Loop connections Pakistan is ranked 4th in terms of broadband Internet growth in the world, as the subscriber base of broadband Internet has been increasing rapidly with the total base crossing 170,000 in the country. The rankings are released by Point Topic Global broadband analysis, a global research centre. Pakistan according to PC World was amongst those top five countries with the highest SMS traffic processed with 763 million SMS during 2008-09. In terms of year-on-year growth, Pakistan traffic volume grew by 253 percent compared to last year during the same period. The contribution of telecom sector to the national exchequer increased to Rs 110 billion in the year 2007-08 on account of general sales tax, activation charges and other steps as compared to Rs 100 billion in the year 2006-07.Pakistan telecom industry is handling the telecom companies  which are operating at this time like Mobilink, Ufone, Warid, Telenor, Zong etc†¦