Billabong is a leading name in the apparel industry of Australia. The company specializes in casual wear, wet suits and accessories. This report is intended to analyze the feasibility of setting up a manufacturing facility in Karachi, Pakistan. It is also intended that this manufacturing plant will be used as a regional office and will be used to introduce the products of Billabong in the Asian market.
During this feasibility study, the methodology used was PESTLE analysis. This method enabled the management to analyze this business proposal from political, economic, social, technological, legal and environmental point-of-view. While analyzing Pakistani market as a future prospective, it was established that this business venture can be subjected to higher risks by political, social, and environmental forces. On the other hand, the legal structure of Pakistan offers medium risk to the business operations of Billabong. Whereas, technological and economic factors can cause no or less harm to this business venture. As a matter of fact, they both actually support the establishment a manufacturing facility in Karachi, Pakistan.
After thorough analysis, it is concluded that instead of setting up a manufacturing facility, it is better to outsource Billabong's manufacturing to a local firm and sales operations should be conducted from the Head Office, Australia.
Billabong is a leading brand in Australia and specializes in surfware and sports apparel. Another major product line is accessories for the surf, skate and snowboard markets. It has extended its presence in more than sixty countries. BBG's strategy is to differentiate its products through quality, novel designs and branding. Management aims to initially build up a core niche brand then slowly differentiate products to appeal to a broader market without diluting this core.
Billabong International Limited (BBG) produces surfwear and sports apparel and accessories for the surf, skate and snowboard markets. BBG now has a presence in more than 60 countries. The Billabong brand is targeted to both active participants in surf and extreme sports and people who desire to be identified with its image. BBG supports the promotion of the Billabong brand through the sponsorship of athletes and events. Where Billabong serves the clients in all around the world, it is planning to penetrate in to Asian market by opening a production facility in Pakistan and establishing a corporate office which can explore Asian market by staying in the region.
The report is intended to provide an outlook to the management of Billabong regarding extending their operations in Pakistan. The report is an effort to assess the risks and other feasibilities related to this venture from PESTLE point-of-view. This approach will be helpful in evaluating viability of investment in Pakistan from political, economic, social, technological, legal and environmental aspects.
Pakistan is a major part of South Asia and has an undeniable importance in world's politics and trade. It has been one of the key players in a global textile industry. However, because of high degree of volatility in Pakistan's economic, social and political scenario, this industry has now shifted to other Asian countries. The reason for selecting Pakistan for opening new manufacturing facility is its low production costs. Secondly, other overheads in terms of taxes and duties also reduce other manufacturing overheads greatly.
However, in order to consider this country for this investment, we need to understand the profile of it in the initial phase. This profile is based on the description provided by the Central Intelligence Agency which is updated till June, 2012. During last sixty five years of its separation from India, it has seen a great deal of variation in its political, social and cultural landscape. Its location gives it an extraordinary importance in World trade and politics as it is centrally situated between huge economic powers like China and also closely located to countries like Afghanistan, Iran etc. which have a substantial status in War against terrorism and other global political turmoil.
Furthermore, its ideal location as a major port near the coastline of Arabian Sea, further establishes its importance in world trade. The region has a rather dry deserted weather which does not hamper overall production and other marketing activities. Pakistan is rather self-sufficient in terms of natural resources however poor attention has been on their extraction paid so far. The country although, has a profile of agricultural land but most of its perishable goods are still imported because of lack of attention from public and private investors in this sector.
Considering natural calamities and hazards, earthquakes and heavy floods have been reported in past few years. However, our intention is to build a production facility in Karachi which is a main metropolitan city of Pakistan, carrying out seventy percent of its trade activities. And, research shows that this city has shown signs of minor earthquakes which have proved to possess no major threat.
As per the statistics provided by CIA, the country has a gross population of over 190 million with an annual growth rate of 1.551%, which makes it 6th most populated country worldwide. There are six major ethnic groups in Pakistan which have many extensions themselves. Its state religion is Islam and other non-Muslim minorities form around 5% of the total population. Major metropolitan cities where main trade activities and practically the whole business of a country (be it economic or political) is being run are Karachi, Lahore, Islamabad (Capital), Rawalpindi and Faisalabad (which is a major city related to the textile industry).
The country has a turbulent political history. It has a democratic government right now; however it has been under martial law four times since its independence. Even the democratic governments have been operating under substantial pressure of military, clergy, landlords, bureaucrats and industrialists.
Pakistan has a turbulent political history. After four martial laws and several failed democratic governments, the country has been a Warfield among many political parties. Law and order situation of Pakistan becomes a headline in international politics every now and then. Clergy and religious fundamentalists have been a major force in the political landscape. This intensity has arisen greatly after Pakistan's partnership with U.S. In war against terrorism. During this period, Pakistan did play a major role in this war however; its internal stability has been placed at stake. As per the statistics of South Asia Terrorism Portal, minimum 6142 individuals have been killed in multiple riots and attacks. This number includes militants, security forces personnel as well as innocent civilians (2012).
On top of that, the law and order state of the metropolitan cities is also highly volatile. Around 70 factories including few major garment factories were burnt when the former Prime Minister, Benazir Bhutto was assassinated in 2007. Property worth billions was demolished. Judiciary, democracy, military and clergy are few major forces in Pakistan. As of recently, Pakistan is going through a tough period as their prime minister, Syed Yousuf Raza Gillani has been removed by the Supreme Court on June 19, 2012. Such major events have been taking place in the political history of Pakistan quite frequently and they have instigated the general public as well which usually results in hampering overall economic activities.
Riots in the metropolitan cities are rather seen as part of everyday life which is a major risk for the on-going business of the manufacturing plant if set there. Therefore, even after getting our assets insured, the safety of our staff there will be at jeopardy at all times. A country which such frequent and turbulent political fluctuations not only affects the overall situation for the going concern of the business but also has a potential of adversely affecting the business by poor policy management. Highly volatile political system is a major risk which has a potential of affecting the business management in Pakistan.
From environmental perspective, Pakistan has been a member of various international agreements. These agreements include treaties related to Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, and Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Wetlands, and Marine Life Conservation (CIA, 2012).
As of now, Pakistan and especially its metropolitan cities where main manufacturing plants are situated, have a highly insufficient infrastructure. Industrial wastes have been dumped into Arabian Sea in the name of disposal. Similarly, water pollution and poor sewerage system are few examples of its incapable infrastructure. Water and fuel supply have been a major hurdle for industries in Pakistan as it has been facing a catastrophic shortage of electricity as well as natural gas. Therefore, industrial sustainability is incomplete danger.
In order use the fertile lands, deforestation is being used as a tool for using these lands for other purposes and in turn, they are causing an undeniable damage to the eco-life. On the other hand, due to floods in the northern areas, soil erosion and desertification are also major environmental hazards that Pakistan is facing.