This document summarizes the franchising industry in Pakistan. It finds that franchising has grown significantly in recent years, especially in the food sector. U.S. franchises dominate the market due to their early entry and long term commitment. The best prospects for future growth are in education, courier services, retailing, and hotels. While regulations are minimal, foreign investors must notify authorities.

1. SUMMARY
Franchising is a relatively new phenomenon in Pakistan, but
this
concept has gained tremendous acceptance in this market
as can be
seen from the recent growth trends in the market. Most of
the
growth in the past few years has taken place in the food
business, where the present market size for internationally
franchised outlets is estimated in excess of Pak Rupees 1.2
billion (USD approximately 24 million) in terms of annual
sales.
U.S. food outlets such as Pizza Hut, Kentucky Fried Chicken
(KFC), McDonald's, TGI Friday's, Subway, Taco Maker, and
Nacho
Nana's are already present in Karachi. Pizza Hut,
McDonald's and
KFC are also present in Lahore.
The non-food sectors such as retailing, convenience stores,
hotels & motels, courier service, security services, and
educational training centers are going to be the growth
areas of
the future.
U.S. companies dominate the franchise market in Pakistan
in large
part due to the fact that U.S. firms were the pioneers in this
sector and the first to set up their outlets in Pakistan. In
addition, the U.S. firms entered the market with a long-term
commitment and provided full support to their local
partners.
Also, U.S. firms and their products are internationally known
for
their quality products and superior service. Many U.S.
products
such as McDonald's and Kentucky Fried Chicken were well-
known and

2. recognized in the urban areas of Pakistan even before
starting
their operations in the country.
There are no local firms offering indigenous franchise
opportunities, although several Pakistani entrepreneurs have
acquired master franchise for this region with the objective
to
re-sell the franchise to interested parties in the country.
The Government of Pakistan does not impose any
restrictions on
investors who wish to establish a franchise in the country,
but
foreign investors are required to inform the Board of
Investment
and the State Bank of Pakistan, primarily for the purpose of
repatriation of franchise fee or any profits accrued.
STATISTICAL DATA:
This report attempts to briefly describe the franchising
industry
in Pakistan, which is still in a nascent stage. Few statistics
are available for this market so an outline of franchise
operations in Pakistan is given as follows:
U.S. FRANCHISE OPERATIONS IN PAKISTAN:
1. Restaurant: McDonald's, Kentucky Fried
Chicken, Pizza Hut, TGI Friday's, Subway,
Taco Maker, Nacho Nana's, Sno Biz
2. Hotel/Motel: Sheraton, Marriott, Best Western,
Ramada
Renaissance
3. Security: Brinks, Wackenhut
4. Car Rental: Avis
5. Printing: Alphagraphics
6. Mineral Water: Culligan
7. Soft Drinks: Pepsi-Cola, Coca-Cola, Seven-up, RC
Cola
8. Courier Service: DHL, TNT Skypak, United Parcel,

3. Federal Express
9. Apparel: Walt Disney, Jockey, Hang Ten
10. Footwear: Hush Puppies, Caterpillar
11.Entertainment: Time Warner
12. Consulting Services: Dunn & Bradstreet
NON-U.S. FRANCHISE OPERATIONS IN PAKISTAN:
1. Apparel: Benetton (Italy), Schieser (Germany)
2. Hotels/Motels: Serena Group
3. Restaurant: Pizza Express (U.K.)
4. Education: Asia Pacific Institute of
Information Technology (APIIT) of Malaysia
A. MARKET HIGHLIGHTS AND BEST PROSPECTS:
Pakistan is the world's ninth most populous country with a
population of more than 130 million and growing at a steady
pace
of 2.6 percent per annum. The official per capita income of
Pakistan is estimated at US$480; however, this figure can
be
quite misleading. Pakistan has a very strong and resilient
parallel economy (or the so-called informal sector), which is
not
accounted for when calculating the income per capita. In
addition, Pakistan has a population of more than 3.5 million
expatriate workers. These are the people who work abroad
(primarily in the Middle-East, Europe and North America)
and
remit their earnings back home. The "expatriate" Pakistani
household has a very large disposable income as compared
to an
average citizen of Pakistan.
In view of the aforementioned data, it can safely be
assumed that
Pakistan has a viable middle-class with ample purchasing
power.
Based on this profile, Pakistan offers good opportunity
international firms seeking to establish franchise operations
in
the country.

4. In Pakistan the concept of franchising was introduced as far
back
as in early 1950's when soft drinks, such as Coca-Cola, were
introduced by local bottlers who manufactured under a
license
from their foreign principals. But since then, barring a few
areas like residential hotels, franchising remained dormant
up
until very recently. It was only in the 1990's when, as a
result
of globalization and greater development of the international
corporate culture, did franchising get a boost in Pakistan.
With the gradual saturation of franchise opportunities
worldwide,
investors started looking at other under developed markets,
and
Pakistan with a population of 130 million people was seen as
the
"world's largest untapped market" for franchising. In
Pakistan,
like many other developing countries, the food retailing
business
is not organized in a modern and sophisticated way. This
sector
lacks in terms of quality, packaging, nutrition, hygiene and
presentation.
In 1993, Pizza Hut surveyed the market and established its
first
restaurant in Karachi. Since then, it has opened six outlets
and
employs more than 500 people. Kentucky Fried Chicken
(KFC) has
been another success story. It was introduced in the
market by
the Artal Group of Belgium, and although a late entrant, it
already has eight outlets in Karachi and Lahore combined

5. and
several more in the pipeline.
McDonald's entered the Pakistan market in 1997 with two
separate
partnerships--with Siza Foods (Southern region) and Akber
Enterprises (Northern region). Also, McDonald's has come
into
the market as an equal partner with its local affiliates.
The Artal Group (sponsors of KFC) has now diversified into
other
sectors, including poultry business and mineral water.
Other franchises which have done well in Pakistan include
the
hotel business. In this sector, the first entrant in the market
was the Intercontinental Hotel chain. Intercontinental
entered
the market in the 1960s and established hotels in Karachi,
Lahore, Rawalpindi and Peshawar in partnership with
Pakistan
Services Limited. This arrangement came to an end in the
1980s
when Pakistan Services was bought over by the Hashwani
Group, the
then owners and operators of the Holiday Inn hotels in
Pakistan.
Later, the Hashwanis discontinued their arrangement with
Holiday
Inn in favor of the Marriott.
In security services, Brinks has a strong presence and it
ranks
among the three leading security services firms in Pakistan.
Wackenhut, another U.S. security firm entered the market in
1995
and has maintained a steady growth.
The Pakistan franchise market has shown tremendous
growth during
the last four years. The number of active franchise

6. operations
have increased from 15 to more than 37 during this period.
In
all likelihood this trend will continue for the next few years,
however, it is anticipated that the growth will not be very
substantial in the food-related sector, rather other sectors
such
as educational/training institutions, consulting services,
amusement parks/arcades etc. will be the growth areas.
BEST SALES PROSPECTS
According to trade sources the best prospect opportunities
are to
be found in the following sectors:
1. Education:
- Computer Science and Information Technology
- Business Administration and Management
2. Courier Service
3. Retailing:
- Food and convenience stores (e.g. 7-Eleven concept)
- Consumer retailing
4. Financial Services
- Credit cards
5. Hotels and motels
6. Amusement parts and arcades
7. Food products:
- Bakery products
- Dairy products
- Baby foods
8. Personal Care Products
9. Home/Office Furniture
10. Toys
B. COMPETITIVE ANALYSIS
Out of the thirty-seven plus franchising systems operational
in
Pakistan, thirty-two are of U.S. origin. The U.S. firms have
a
substantially larger market share primarily due to their
strong

7. background in the franchising business, and also due to the
fact
that the American brands have a worldwide recognition.
Since the franchise market in Pakistan is still in an
embryonic
stage, it is very difficult to generalize the competitive
situation. However, one observation that ca be made is that
a
newcomer in the food business will be expected to face
fierce
competition from the established outlets, both local and
foreign.
Not only has the number of franchised outlets reached a
saturation point, the competition from the local restaurants
is
also posing a serious challenge to the international chains.
The
local outlets, with lower overhead costs, have the pricing
advantage; in addition, some of the well-known local
restaurants
have developed new "themes' for their restaurants as a
strategy
to differentiate their product. This strategy seems to be
working given the brisk business these restaurants are
doing.
In the hotel business, at this time most of the international
chains in Pakistan are running much below the desired
occupancy
rate. Given this scenario, several upcoming hotels may not
want
to go for a franchise option as a cost-cutting measure.
However,
within the next few years this situation may change and
several
new hotels may see the benefits of going for a franchise.
In the car rental business, Avis has been the lone
international
operator for a very long time. Hertz, Thrifty and Budget

8. have
explored the market but have yet to make a commitment.
In this
segment, Avis does not have any real competition since it
caters
mainly to corporate clients. There are several local car
rental
firms, but they are generally small outfits with a fairly old
fleet of vehicles.
Another area where competition will intensify in the coming
years
is the education/training sector. Presently, the Asia Pacific
Institute of Information Technology (APIIT), a Malaysian
firm,
operates a center in Karachi in collaboration with a local
partner. However, there are several local institutions
offering
similar service under dubious international (including
American)
names. These mushrooming institutions, which abound all
urban
communities, have little or no credibility, but pose a serious
threat to international franchises from entering the market,
especially because of their very low fee structure.
C. END-USER ANALYSIS
Pakistan has a population of more than 130 million with a
trend
toward urbanization. Karachi (population: 9.3 million),
Lahore
(5.9 million), Faisalabad (2.0 million) and
Rawalpindi/Islamabad
(1.9 million) offer some of the best prospects for franchise
companies. At this time, most of the international firms
have
confined their operations to Karachi and Lahore, but they
may
gain a greater market share by expanding into other
growing urban

9. areas.
All the aforementioned cities have a sizeable middle-class
that
has a disposable income to spend on restaurants, apparel,
entertainment, etc. Interested firms wishing to enter this
market are strongly recommended to focus on these urban
areas
which are inhabited by most of the target end-users.
In general, franchise outlets in Pakistan have been well-
received
and most of the firms entering this market have reaped the
dividends. The success rate for the investors has been fairly
high and only three food-related outlets (Wimpy's, Shakey's
Pizza
and Carvell Ice Cream) closed down during their first year of
operation.
D. MARKET ACCESS AND TRADE PROMOTION
The Government of Pakistan encourages foreign investment,
therefore, establishment of a franchise presents no major
problem
for an investor. In general, an investor is required to inform
the State Bank of Pakistan, Board of Investment, and the
Ministry
of Industries in case if certain exemptions are required or
funds
need to be repatriated overseas.
A. Import Climate: There are few barriers to imports in
Pakistan
(with the exception of certain food items which are
prohibited on
religious grounds). Imports are well accepted by traders
and
end-users alike. Foreign exchange may be repatriated by
the

10. investors, but getting permission to repatriate funds from
the
State Bank of Pakistan can at times pose problems.
However,
foreign exchange is freely available in the open market at a
slight premium. On the whole the economy is heading
toward
greater liberalization and the duty rates are gradually
declining.
B. Duty Rates: Duty rates vary from product to product.
Most
products fall under the category where duty rates are less
than
45 percent. The Government of Pakistan provides certain
concessions to imports which are considered beneficial to
Pakistan's tourism industry.
C. Value Added Tax: Most services in Pakistan are charged a
"Central Excise Duty (CED)" Tax of 12.5 percent. In some
cases,
the CED and other local taxes amount to approximately 25
percent,
especially in Punjab province where restaurants are required
to
charge a 25 percent tax on all food items.
TRADE PROMOTION
There are no trade events scheduled in Pakistan which cater
exclusively to the franchise sector; however, the U.S.
Commercial
Service organizes the "Exhibit USA" trade events twice a
year.
The next exhibitions are scheduled as follows:
1. Exhibit USA'99 August 24-25, 1999 Karachi
2. Exhibit USA'2000 April 2000 Islamabad
3. Exhibit USA'2000 August 2000 Karachi
These exhibitions will be organized by a turnkey contractor
appointed by the U.S. Commercial Service.

11. Franchise firms interested in exploring the Pakistan market
can
also place an advertisement in any of the following national
English-language daily newspapers:
1. Dawn
2. The News International
3. Business Recorder
Other possibilities include single company promotion and
other
services offered by the U.S. Commercial service. Please
contact
the nearest U.S. Department of Commerce office for more
The U.S. Department of Commerce would appreciate input
from U.S.
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_______________________________
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________________________________________________
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