Political and legal structures

The type of government prevailing in Pakistan is federal republic and its system has varied from
parliamentary to presidential to semi-presidential.

Political and legal Alliances

The changing of ruling party has led to different influences in way businesses are conducted or
even made to start up in a certain sector

Political and legal stability

Now a day’s Pakistani environment is instable due to political clashes among political parties,
inside country war and drown attacks in north frontier areas. This political instability has led to
uncertain environment in the country, which is a threat for any business including Haroon’s.

The following image reflects all cumulative changes in a country’s business regulation as
measured by the indicators such as a reduction in the time to start a business to a one-stop shop
or an increase in the cost or procedures to new stock exchange rules that tighten disclosure
requirements for related-party transactions.
As seen by the graph, Pakistan seems to become difficult for conducting a business and if any
further retail outlet is to open it would have a fair share of profit.

Taxation policies

Due to huge budget deficit and low growth of economy government has increased the taxes.
Customers were charged 15 per cent sales tax on imported goods. However, the present
government has increased the sales tax from 15 per cent to 17 per cent for customers by
declaring such gift items as a luxury item.

The custom tariff on imported goods ranging from shoe wear to crockery to handbags has more
or less remained the same, ranging between 25 to 30%.

Federal excise duty on goods imported in Pakistan also has been reduced from 21% to 19.5%.

The changes in taxation policies have led to an increase in official cost of registering the property
according to the standards. The following table shows the change in cost only which includes the
advertisement, lawyer fee and payment of town tax, capital value tax, and stamp duty and
registration fee; where capital value tax has doubled to 4% making it expensive to register
property.

Year Procedures Time Cost (% of

(number) (days) property value)
2010 6 50 7.2
2011 6 50 9.2

Foreign trade regulations

Time to Cost to import

Documents to
YEAR import (US$ per
import (number)
(days) container)
2010 8 18 680
2011 8 18 680

The ease of trade regulations across borders has resulted in an unvarying amount of time and cost
for importing goods for the retail outlet as thus.

Pakistan's national culture is having high level of power distance; this can be also witnessed
through existence of different social classes in Pakistan's society. There is very much unequal
distribution of wealth in Pakistan. Different types of lifestyles, education, medical, residential
facilities are enjoyed by different classes in the society. There is low level of individualism and
high level of collectivism because people are generally recognized on the basis of their social
class, religion and especially cast in Pakistan. High level of masculinity prevails in the society,
and also higher levels of uncertainty avoidance. This can also be verified from the INSEAD,
Europe's newly published the recent edition of its Global Innovation Index 2008-2009, which
benchmarks the world's most innovative economies states that Pakistan has been ranked at 93 out
of 130 countries of the world. The culture of Pakistan contains short-term orientation, which can
also be seen in the ad hoc type of policies implemented by the government of Pakistan. There is
a lack of long-term orientation and planning in Pakistan, which has resulted in sugar crises, flour
crises, water crises, gas crises and so on. The government's arrangement of rental power projects
is one of the examples of short-term orientations in Pakistan.
The higher scores of power distance index and uncertainty avoidance index in figure I show that
culture of Pakistan is highly rule leaning with laws, rules, regulations, and controls to reduce
uncertainty, while imbalances caused by power and wealth have been encouraged to prosper
within the society. The culture of Pakistan is very expected to follow a caste system that does not
allow upward movement of its citizens. The objective of this study is twofold, firstly to
determine the nature of culture exists in Pakistan and secondly to examine the effects of culture
dimensions developed by Hofstede on organizational performance for the case of Pakistan.

Social cultural factors include the cultural aspects and include health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors
affect the demand for a company's products and how that company operates. Pakistan's culture is
very diverse. This stems from the fact that what is now Pakistan has in the past been invaded and
occupied by many different peoples, including White Huns, Persians, Arabs, Turks, Mongols and
various Eurasian groups. There are differences in culture among the different ethnic groups in
matters such as dress, food, and religion, especially where indigenous pre-Islamic customs differ
from Islamic practices.

Increasing globalization has increased the influence of Western culture in Pakistan, especially
among the affluent, who have easy access to Western products, television, media, and food.
Many Western food chains have established themselves in Pakistan, and are found in the major
cities. At the same time, there is also a reactionary movement within Pakistan that wants to turn
away from Western influences, and this has manifested itself in a return to more traditional roots,
often conflated with Islam. A large Pakistani diaspora exists, especially in the United Kingdom,
United States, Canada and Australia as well as in the Scandinavian nations. A large number of
Pakistanis are also living in the Middle east. These emigrants and their children influence
Pakistan culturally and economically, by travelling to Pakistan, and especially by returning or
investing there.

Demography. The population of Pakistan is estimated to be 135 million. An estimated 40 million

live in urban areas, with the balance in rural areas. In addition to the residents of the major cities
of Islamabad, Karachi, Lahore, and Peshawar, which is the city at the edge of the Kybher Pass
gateway, a number of tribal residents live in valleys. These include Chitral Valley, at an
elevation of 3,800 feet (1,158 meters), where the majority of the people are Muslims but that also
is home to the Kafir-Kalash (wearers of the black robe), a primitive pagan tribe. In Swat Valley,
which was once the cradle of Buddhism, Muslim conquerors fought battles and residents claim
to be descendants of soldiers of Alexander the Great. In the Hunza Valley, people are noted for
longevity, which they claim is because of diet and way of life. The people of Hunza Valley are
Muslims and also are believed to be descendants of soldiers of Alexander the Great. In North-
West Frontier Province is Kaghan Valley, which is bounded on the west by Swat Valley, on the
north by Gilgit, and on the east by Azad Kashmir. The people of Kaghan Valley are Muslim-
Pathans as well as Kohistanis and Gujars. Shardu Valley is the capital of the district of Baltistan
and is known as "Little Tibet" because the lifestyle there is similar to that in Tibet itself. The
people of each of these valley areas are well known for their tribal cultures, handicrafts, and for
fascinating clothing, most of which is woven and handmade there and unique to their particular
area.

Linguistic Affiliation. The official language of Pakistan is Urdu, but most public officials,
people, and others in Pakistan also speak English; English is referred to as the informal official
language of Pakistan. Urdu was created by combining the languages of early invaders and
settlers, including Arabic, Persian, and Turkish. The spoken form of Urdu is the same as that of
Hindi but it is written in a different script than Hindi.

While Urdu and English are prevalent throughout Pakistan, a number of other languages are
spoken in different valleys and areas. These include the Punjaki, Sindhi, Pushto, Balochi, Brahvi,
Saraiki, and Hindko dialects, among others.

Classes and Castes. There is no caste system in Pakistan. There are high-income, middle-income
and a large number of low-income persons throughout the country. Locale makes an important
difference in the quality of life.
Etiquette & Customs in Pakistan

Gift Giving Etiquette, Dining Etiquette, Meeting and Greeting

Information technology has very real impact in most of industries and in all aspects of economy,
while businesses and enterprises continue to undergo considerable changes. Usage of these
technologies is revolutionizing the rules of business, resulting in structural transformation of
enterprises. Modern businesses are not possible without help of information technology, which is
having a significant impact on the operations of Small and Medium Sized Enterprises (SME) and
it is claimed to be essential for the survival and growth of economies in general. Adoption of
new technological innovations is necessary for small and medium sized businesses in order to
remain competitive in business market because of the increasing competition due to globalization
and reach of many foreign firms to local market who use technology for effective operations.

Similarly majority of the small businesses now have technology integrated into their functions.
Haroon’s uses an inventory management software to check the items not in stock at different
outlets, their prices, discount offers, amount of discount. It helps them to determine demand
consumer preferences and choices.

ECONOMIC FACTOR:
The economy of Pakistan is the 27th largest in the world (in absolute dollar terms). Pakistan has
a semi-industrialized economy,which mainly encompasses textiles, chemicals, food processing,
agriculture and other industries. Pakistan, an impoverished and underdeveloped country, has
suffered from decades of internal political disputes and low levels of foreign investment.
Between 2001-07, however, poverty levels decreased by 10%, as Islamabad steadily raised
development spending. Between 2004-07, GDP growth in the 5-8% range was spurred by gains
in the industrial and service sectors - despite severe electricity shortfalls - but growth slowed in
2008-09 and unemployment rose. Inflation remains the top concern among the public, climbing
from 7.7% in 2007 to more than 13% in 2010. In addition, the Pakistani rupee has depreciated
since 2007 as a result of political and economic instability. The government agreed to an
International Monetary Fund Standby Arrangement in November 2008 in response to a balance
of payments crisis, but during 2009-10 its current account strengthened and foreign exchange
reserves stabilized - largely because of lower oil prices and record remittances from workers
abroad. Record floods in July-August 2010 lowered agricultural output and contributed to a jump
in inflation, and reconstruction costs will strain the limited resources of the government. Textiles
account for most of Pakistan's export earnings, but Pakistan's failure to expand a viable export
base for other manufactures has left the country vulnerable to shifts in world demand. Other long
term challenges include expanding investment in education, healthcare, and electricity
production, and reducing dependence on foreign donors.

•
Economic System of Pakistan:
Pakistan had to face many economic challenges since its creation and with changes in ruling
parties and civilian and military governments economic polices had been changed many times.
Although Pakistan’s economic system had never been to any extreme end of planed economy or
market economy but at some points one system had influenced the country more.
Some characteristics of Pakistan’s current economic system fallows:

• In the economy both public sector and the private sector function together. In one part are
those industries which are responsible for the development they are owned and managed
by the state. Other industries are left under the authority and control of the private
entrepreneurs. The private sector is free to develop them and start new enterprises in this
sector.
• In public sectors all decisions are made by government or authorities appointed by
government but in private sector decisions are made by owners which base in market
situations although sometimes government set price ceiling or price floor to protect
consumers or producers.
• The government adopts necessary measures to regulate and influence the private sector,
so that it may function in the interests of the nation rather than exclusively in the interests
of the private entrepreneurs.
• Sometimes government ration the commodities available in short supply so that they are
equally distributed to all.
• Government stops exploitation of labor by enforcing labor laws.
• Monopolies are closely monitored by government to protect interests of public, some
time it sets price ceiling to keep prices under control.
The economic system of Pakistan is favorable for the private ownership so Haroon’s being the
sole proprietorship is feasible in this economic system.

Growing middle class:

Measured by purchasing power, Pakistan has a 30 million strong middle class, according to Dr.
Ishrat Husain, Ex-Governor (2 December 1999 - 1 December 2005) of the State Bank of
Pakistan. It is a figure that correlates with research by Standard Chartered Bank which estimates
that Pakistan possesses a "a middle class of 30 million people that Standard Chartered estimates
now earn an average of about $10,000 a year." Latest figures put Pakistan's Middle Class at 35
million strong. In addition, Pakistan has a growing upper & upper middle class, which was
estimated at 6.8 million in 2002 and has now grown to 17 million people as of 2010, with
relatively high per capita incomes.
On measures of income inequality, the country ranks slightly better than the median. In late
2006, the Central Board of Revenue estimated that there were almost 2.8 million income-tax
payers in the country.
Poverty levels have decreased by 10% since 2001 Foreign Companies which provide for
Pakistani middle classes have been very successful.
As Haroon’s offer seasonal sales on regular basis which are availed by most of the middle
class,it will get benefit from this factor also.Moreover many of the upper class families are also
included in their regular customers.

Employment:
The high population growth in the past few decades has ensured that a very large number of
young people are now entering the labor market. Even though it is among the seven most
populous Asian nations, Pakistan has a lower population density than Bangladesh, Japan, India,
and the Philippines. In the past, excessive red tape made firing from jobs, and consequently
hiring, difficult. Significant progress in taxation and business reforms has ensured that many
firms now are not compelled to operate in the underground economy. In late 2006, the
government launched an ambitious nationwide service employment scheme aimed at disbursing
almost $2 billion over five years.

Mean wages were $0.98 per manhour in 2009.

High inflation and limited wage growth have drawn more women into the workforce to feed their
families, in spite of cultural resistance and domestic abuse over the issue.

Unemployement rate in Pakistan:

15% (2010 est.)

country comparison to the world: 151
14% (2009 est.)
note: substantial underemployment exists

The unemployment rate in Pakistan can effect Haroon’s in two ways.It helps in providing
employess or labor force at cheap cost.It can also cause a little decrease in the purchase of their
products because their major market is the upper class which have still a high concentration of
money and have high purchasing power.

Money Supply:

The State Bank of Pakistan (SBP), the central bank, controls the money supply and credit,
supervises the operations of banks, administers the country's international reserves, and acts as
banker to the federal and provincial governments. The government of Pakistan has followed a
liberal monetary policy from 1999 to 2000 in order to provide cheap credit to the industrial
sector. The demand for credit, however, has not come forth from the private sector. Although
domestic credit expansion was higher this year due to large borrowing by the government sector,
conversion of non-resident foreign currency accounts into rupees, and an increase in liquid
reserves, actual growth in money supply has remained stagnant due to low credit demand from
the private sector

Inflation:

Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before
easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan
reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to
preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a
growing current account deficit - driven by a widening trade gap as import growth outstrips
export expansion - could draw down reserves and dampen GDP growth in the medium terms.
Inflation results in the inappropriate distribution of money, the poor become poorer where as the
rich become richer. As Haroon’s cater the upper or elite class,they still have money and in a
position to purchase from their outlets so it’s business will not effect in the future.