Pakistani Entrepreneurs in Search for a Firm Footing

Entrepreneurship is considered essential for a competitive economy as it provides the spark of innovation and creativity needed to avoid stagnation in the market. It also provides grounds to generate innovative products and services that can open up new sectors for businesses to expand into. As a result people now believe in the power of ideas more than ever. In addition, the internet with all its knowledge riches continues to make each day easier then yesterday for entrepreneurs and small businesses alike.

Entrepreneurship, though susceptible to risk, is inherently an encouraging factor for economics of any country. Pakistan ranks high when it comes to entrepreneurs and freelancers and is quite an eye-catcher for foreign investors. Recently, the trend has been that several startups poised to go big eventually became foreign owned. Though it may seem like a much coveted milestone, it is by no means as promising as imagined. There are negative consequences for young Pakistani entrepreneurs in the short run and question marks over the impact of continued foreign entrepreneurial presence in the long run.

Foreign interest and acquisitions in the Pakistani startup sector might not be as great as they are drummed up to be

In line with the global trend, most of Pakistani entrepreneurs are emerging from the IT industry as they seek to take advantage of the gradual shift of consumers and buyers from offline to online. Our country is ripe with such business opportunities for investors as new age media expands its reach among the population. With almost no support from local businessmen, investors and the government, it left ample room for foreign investors to come and take control of the market. This, in turn, created lack of competition especially from within the local market.

The likes of Rocket Internet for instance are taking advantage of this vacuum to set up new startups based on pre-established and tested business models in other parts of the world. Daraz.pk is a key example. Modeled after Amazon, it was launched through Rocket Internet and made use of that company’s infrastructure to establish itself as the premier online shopping portal for Pakistanis.

Another important aspect is that the foreign investors are not only setting up new startups, but also acquiring local competitors to reduce competition for their own services. Foodpanda’s acquisition of EatOye! this past February is one such example.

daraz

The lack of competition has allowed the likes of Daraz.pk to enter the market and effectively establish a monopoly

What Pakistani entrepreneurs do not possess are the vast resources available to such corporations and thus cannot effectively compete with them. They need capital and resources to fight off these big multinationals. The responsibility lies on each of the stake holders.

Our government needs to do more in order to nurture the country’s entrepreneurial sector and safeguard it from such foreign investors. This can be done by introducing new policies and by the establishment of more venture capital firms and business incubators in the country so that entrepreneurs can get the necessary capital and guidance they need in order to have a fair chance at success.

If we take a view of the flip side, it may be easy to assume that with the abundance of foreign control, the domestic businesses will suffer due to acquisition. However, effect of foreign ownership on host country is a subject that has undergone extensive research and results to show that foreign owned firms display more productivity in developing countries than their domestic counterparts due to their ability to reap economies of scale.

remittance

Government is focusing on attracting foreign interest but that can not be the sole strategy. Local entrepreneurs have to be protected as well.

According to the ‘Journal of Economic cooperation and development’, a study conducted on three major sectors accounting for 67% of foreign investment in Pakistan, foreign ownership in local firms enhances TFP (total factor productivity) in all researched sectors. Foreign owned firms utilize advantages of drawing modern technology, managerial experience and credit availability from their parent companies. These positive externalities, far from discouraging young Pakistani entrepreneurs, offer competition and diffuse to the domestic businesses through interaction.

According to a study conducted in universities all over Pakistan by Ali, Topping and Tariq in 2011, titled ‘Entrepreneurial attitudes among potential entrepreneurs’, 65% of the students had a positive attitude towards adopting entrepreneurship as profession while 58% aimed to adopt it a career.

There are various local startups which have made a name for themselves worldwide. Enterprise social network “Convo” and online car portal called “PakWheels”,  both of which were initiated by Pakistani high-flyers are two such examples. That is not to say that these ventures didn’t attract foreign investment. In fact PakWheels recently attracted US$3.5 million from Malaysia based VC Frontier Digital Ventures which served as a secure footing against competition like Carmudi, enabling stronger business structures.

Steps need to be taken to ensure that the most promising local entrepreneurs don’t go abroad to seek greener pastures

The fact remains that foreign owned businesses don’t hinder Pakistani entrepreneurship but can, in fact, encourage their growth. The question to ponder though is that if this is a good strategy in the long run? Will this impact the local businesses to a point that they will have to start acquiring or supporting Pakistani startups? Will the government end up a victim of the foreign owned entrepreneurship industry just like the automobile industry?

We need to trust our entrepreneurs to have a larger contribution in our country’s economy so that they do not get discouraged by competition and take their ideas to another country or market with policies that suit their needs. Steps should be taken to grow entrepreneurship through local investors and institutions rather than foreign investors, as otherwise we risk losing our economy to these foreign firms who will hold all the power while Pakistanis themselves are reduced to just consumers and workers. We need to be the owners as well as the consumers.

Talal is the Director of Content and Strategy at ProPakistani. Reach out at [email protected]


  • That there is no eco-system for startups is hardly news. And government and private businesses are risk averse, given the fact that they already face a lot of risk in their main businesses. For comparison, I read somewhere that ICICI made their first private equity investment, (a superset of VC investment) in 1980s.
    But perhaps the dearth of capital at the early stage is better for the startup in the long run. That’s not my assertion, that’s Mark Suster on his blog this week.

    Also, acquisition by majors isn’t all negative. It frees up the entrepreneur to devote energies to the next venture. The inflow of capital acts as a proof of concept for the next wave of potential entrepreneurs. Once a history of acquisitions is established, prices will rise, along with the interest of VCs.
    Guys, it took a foreign study to point out to Pakistani decision makers that they had the 6th largest herd of milk producing animals in this country! My bet is that there will be much more foreign interest before there will be any local interest.

    • That’s the whole point actually. Local interest is not only crucial for entrepreneurs but it can also gear better ROI for investors than conventional markets that are prone to equal amount of risks if not more (reference recent stock crash).

      And hence, its gonna be a win-win situation for both and will fetch more interest from investors with time, but unfortunately local investor is still not been able to comprehend the potential, or maybe he isn’t even aware of the tech scene and returns associated with web companies.

      Local investor still thinks that conventional stocks, hospitals and schools and real estate offer more return than a web company and this mindset is the hurdle that is blocking our ways to the success.

  • There are two type of local investors I came across.
    1. Those who think that your plan/idea is not good (they NEVER seek long term benefit/money) and they think that they’ll earn more via their own ‘X’ method.
    2. Those who are ‘Jatt Jahil’ but they’re millionaire and they are willing to invest. The problem with them is they ONLY believe in numbers.

    I am seeking investment and some days ago I came across a multi-millionaire guy (through reference) who said ‘Mujhe nahi pata kay Android kia hai na ye samajh aaya kay tum kia karoge, mujhe sirf issay matlab hai kay mujhe kitne paisay milenge aur kab’.

    IMO there should be a local investment group (like Angel Group) for small entrepreneurs in Pakistan.

    • These Moula Jutt kind of investors are pain. I have seen few startups getting the funds from such individuals, but then their days and nights are all ruined coz investors keep poking their noses into micro details of operations and keep bugging the team with unnecessary pressure as if they are their employees.

      • These type of investors also love visiting the workplace and whenever they visit they want VIP protocol, their favourite food, chai and drinks and someone to waste their time on them.

        They believe that investing in a company ‘make them owner of the company’.

      • NetSol starting it’s own incubator should be good step for startups. Might even lead other leading corporations to jump on the bandwagon if Netsol’s incubator is a success.


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