International Business Assignment

This assignment explores the concept of international business and the role of multinational enterprises (MNEs). It analyzes the potential for PayPal, an American multinational financial technology company, to enter the e-commerce market in Pakistan. The assignment discusses the growth of e-commerce in Pakistan, the challenges and benefits for PayPal, and suggests a strategic alliance with a local bank as an entry mode. Overall, it highlights the opportunities and considerations for PayPal in expanding its operations to Pakistan.

International Business Assignment
Introduction
The study of transactions that take place across national borders in order to meet the
requirements of persons and organisations is known as international business. Because
globalisation has made all business international to some level, the 'international' in
international business is excess. Today, it's nearly impossible to discover a product or
service that doesn't have an international client base or at least one component of its supply
chain. We refer to the supply chain as inputs from various sources, such as raw materials,
components, and equipment utilised to manufacture, store, and package the product or
service.
The chosen MNE is PayPal, is an American Multinational Financial Technology company. It is
an electronic commerce company that facilitates group payments via online transactions.
Customers can create an account on PayPal's App that is linked to their credit card or bank
account. Users can begin sending and receiving payments to and from other PayPal account
holders once their identification and proof of money have been verified. It was established
in 1998 by a software company Confinity, PayPal went public through an IPO in 2002. It
became a fully owned subsidiary of eBay. In 2015 PayPal was sold to eBay’s shareholders
and it became an independent company. PayPal ranked 134th in Fortune 500 in 2021. PayPal
is operating in many countries but not yet in Pakistan.
MNEs play an important role in International Business. Richard Caves defined the MNE as a
multi-plant firm that controls and cordinates operations in atleast two countries. Most of
the MNEs manage their foreign companies and these companies are subsidaries to their
parent firm, this means that these subsidaries are dependent on their parent firm for all
important and prime decisions. The foreign company will only do what it is told to do by the
parent firm. Until the 1990s, Foreign Direct Investment(FDI) and MNE were considered
identical becuase managing a subsidiary across borders and impose contracts across
distances was considered difficult to achieve.
There is a little doubt that we live in a world defined by globalization. Globalization has
cleared itself through certain very clear outcomes. There has been a greater
interdependence of locations and an interdependence of firm. The interdependence of
locations is an especially complex issue, and is associated with the growth of the
international firm. The growth of trade has reduced distances, and the simultaneous growth
of MNEs has highlighted this trend. In general, the early twentieth century saw a growing
economic interdependence between nations, as well as early cross-border interdependence
between enterprises, both inside and across countries. Although international trade is not
new, the emergence of FDI and the multinational corporation around the turn of the
twentieth century marked a significant shift in international business.
Description

The chosen country where MNE may want to move in is Pakistan. Pakistan recently made a
huge progress in e-commerce. The E-commerce sectors in Pakistan grew over 35% in value
in the first quarter of 2021 to 96 billion Pakistani rupees ($548.89 million dollar) compared
to 71 billion ($405.95 million dollar) over the same period of last year, according to
commerce ministry data (Anon., 2021). According to a report Pakistan could increase 25% in
the exportation of information technology in 2022 (Anon., 2021). E-Commerce would
provide the country with a sector that would assist individuals in achieving a national
concept of wealth, and with its development opportunities, it would be beneficial to the
people. Here are some reasons why Pakistan could be in line to become the next e-
commerce leader of the world. Pakistan is trying its best to empower the youth through its
education to help them become great successful future entrepreneurs. Pakistani buyers are
increasingly turning to social media and online shopping platforms that offer many options.
E commerce stores in Pakistan have seen a huge increase in traffic. The Government of
Pakistan has committed to introduce more friendly policies for online payment methods
such as PayPal, in order to encourage their use in the country’s e-commerce sectors.
According to this it would be really beneficial for PayPal to move in to Pakistan, because
recently Pakistan has been boosted a lot in e-commerce. Many people in Pakistan are
working on Amazon and now Pakistan has been officially added to Amazon sellers’ list. After
Pakistan being added into Amazon sellers’ list, working on amazon has increased a lot. Not
only working on amazon, but also working on daraz, eBay, etc.
Analysis
There has been a rapid increase in working online in Pakistan especially after the Pandemic.
After the Corona Virus many people worldwide have shifted their business from physical
stores to virtual online stores. In 2019, a Payoneer index reported that Pakistan
has the fourth largest freelancer community in the world and in 2020
Pakistan was the world’s eighth fastest growing freelancing economy.
There are already over one million freelancers in Pakistan, however they
do not have any secure payment methods. The coronavirus pandemic has
caused a lot of people to lose their jobs, which is one of the main reasons
for this increase. Around 20.6 million Pakistanis have lost their jobs as a
result of the Covid-19 outbreak. Many people have resorted to online
platforms to make money. People in undeveloped countries will have little
choice but to try their luck in the online market. As a result, PayPal will
play a significant role in the future. Once a company like PayPal joins the
market, the number of freelancers might increase even further. Pakistani
freelancing community’s biggest problem was the lack of PayPal. Almost
all online job platforms provide PayPal as a payment option. Some only
take PayPal. Payoneer, Wise, and UnionPay are some of the other PayPal
competitors, but PayPal provides the best service which make it remain
best out of all these. The fees charged by other payment methods are
high till 30% of transaction value whereas PayPal only charges 2.9% of
transaction value. It benefits the seller since they are able to receive the
most for their services or products. Many good international companies,
clients refuse to work with Pakistani sellers because they only trust PayPal
for international banking.

Pakistan requested PayPal's services in the country for the first time in
2015. The Ministry of Information Technology and Telecommunications
made another effort in 2019. However, the authorities have taken no
more steps to bring PayPal to Pakistan. In 2019, According to Sunny Ali,
the founder of Extreme Commerce, the Pakistani government has been
unable to meet PayPal's expectations about the country's banking system.
Customers in Pakistan do not have access to a common system or
platform through which they can send money to any bank in the country.
PayPal must acquire a license to work in Pakistan which itself is a hurdle
for a fintech company. The license fee for PayPal is $2 million dollar which
is opposed by the State Bank of Pakistan (SBP). In order to bring PayPal to
Pakistan the SBP should reduce its licensing fee for PayPal. If the
government of Pakistan continues to ignore need for digitalization,
potential businesses and individuals will begin to invest in other countries,
which will not benefit Pakistan financially and economically. But recently
Pakistan has been improving its banking system a lot, which makes a
better opportunity to help freelancers and online businesses by bringing
PayPal to Pakistan. If the banking system keeps improving PayPal would
not have any excuses on not starting its business in Pakistan.
PayPal can use an entry mode to enter Pakistan’s market. There are two
types of entry modes, non-equity and equity mode. Non equity mode
means that the MNE does not directly involves in the host country they
use a local agent of the host country and do business. Non-equity is
normally used by the export companies. Equity mode means that the MNE
directly involves in the country and also consider a Foreign Direct
Investment (FDI). There are two types of equity mode, shared ownership
and full ownership. Shred ownership means that the MNE decides to do
international joint venture. Full ownership means that the MNE will fully
involve in a foreign country on their own for their business by owing a
subsidiary. There will be no partners and no profit sharing in full
ownership. PayPal should do shared ownership. The suggestion for shared
ownership is because of the sharing of risks and costs PayPal can form a
strategic alliance with a bank in Pakistan. Strategic alliances are a
particular subset of cooperative agreements, which have a signifi-cant
strategic element to them (Rugman, 2020). Bank Alfalah, Meezan Bank
and Standard Chartered bank, these are some of the very famous and
biggest banks of Pakistan. These banks can also be approached through
their online platforms (websites) and their digital apps.
Bank Alfalah is one of the biggest banks in Pakistan, it has a network of
more than 700 bank branches in whole Pakistan. This Bank also has
international bank branches in Afghanistan, Bangladesh Bahrain and the
UAE. Meezan bank is also one of the biggest banks in Pakistan, it has
more than 900 bank branches whole over the Pakistan. Meezan bank also
won the “Best Bank of Pakistan” by Pakistan Banking Awards in 2020
(Anon., 2020). Other than this Meezan Bank has won many other awards.
Standard Chartered is the oldest and the biggest bank of Pakistan. In 2013
they celebrated their 150th anniversary in Pakistan. This bank has 43 bank
branches in 10 cities of Pakistan. Standard Chartered is also working with

Cambridge International. All of these banks are famous for their quick and
best services to their customers. PayPal can form a strategic alliance with
any of these.
Conclusion
PayPal is a MNE which is currently not operating in Pakistan. There are
some drawbacks and some benefits for PayPal if they move in Pakistan.
The drawbacks are that the PayPal cannot operate in Pakistan without a
license and getting a license is itself a struggle. The license fee is $2
million dollar which is a really high price. According to PayPal, Pakistan’s
banking system is not secure enough. The benefits are that Pakistan is a
growing country in e-commerce. Pakistan could be in line to become the
next e-commerce leader of the world. In 2019, a Payoneer index reported
that Pakistan has the fourth largest freelancer community in the world and
in 2020 Pakistan was the world’s eighth fastest growing freelancing
economy. This will help PayPal a lot in their business to grow as they will
generate a lot revenue from Pakistan.
Recently, Pakistan improved their banking system a lot by making them
more secure. So, there are some ways for PayPal to start doing business
in Pakistan. PayPal can partner up with a bank in Pakistan. By partnering
up PayPal will have to share the profit ratio but the benefit is that their
risks and costs will be shared. After sum up of all the above discussion it
shows that the PayPal should move in Pakistan because Pakistan is one of
those major countries who are on the top on freelancing and online
business. So, in this case this will be really beneficial for PayPal if they
start operating in Pakistan.
References
Bibliography
Anon., 2021. Reuters. [Online]
Available at: https://www.reuters.com/business/retail-consumer/pakistan-e-commerce-
platform-daraz-aims-beef-up-amazon-eyes-market-2021-11-25/#:~:text=The%20e
%2Dcommerce%20sector%20in,according%20to%20commerce%20ministry%20data.
[Accessed 25 November 2021].
Anon., 2021. MMN news. [Online]
Available at: https://mmnews.tv/the-future-of-e-commerce-in-pakistan/
[Accessed 30 April 2021].
Rugman, S. C. R. N. A. M., 2020. INTERNATIONAL BUSINESS. Eighth Edition ed. s.l.:Pearson.
Anon., 2020. Meezan Bank. [Online]
Available at: https://www.meezanbank.com/best-bank-of-pakistan-2020/#:~:text=Meezan
%20Bank%20has%20once%20again,Pakistan%20(IBP)%20and%20A.