Macro-environmental factors and their impact on startups from the perspective of developing countries

ABSTRACT

In a global context, the development of new technologies and becomes an entrepreneurial challenge for the near future. One of the most promising phenomena of this new way are startups. This phenomenon is also emerging in developing countries like Pakistan. However, the success rate of startups is prone to several micro and macro environmental challenges and if these challenges not addressed properly, cause failure of startups. This study intends to contribute to research by proposing a methodological approach to find out the macro-environmental factors and their impact on startups from the perspective of developing countries. Firstly, the PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) analysis is conducted to identify macro-environmental factors displayed in the Cause and effect diagram. Secondly, the Fuzzy Failure Mode and Effect Analysis (FFMEA) is applied to prioritize the risks to devise strategies. Thirdly, to formulate a risk mitigation strategies and policies to support startup ecosystem. The results show that inflation rates, currency depreciation, and corruption are significant challenges for startups. Therefore, this paper aims to help policy makers, entrepreneurs and business schools to work in join collaboration to devise risk mitigation strategies for startups in emerging economies.

KEYWORDS:

• PESTEL
• FMEA
• startups
• political instability

1. Introduction

In today’s era of globalisation, disruptive innovation is proved to be a breakthrough in entrepreneurship (Akhavan, Sebt, and Ameli 2021; Thekkoote 2022). Thus, the ever-increasing globalisation and rise of technology in the last decade have opened ways for innovative and high-tech startups originating from Silicon Valley in America. The most successful organisations like Apple, Google, Uber, Airbnb, and Facebook took their first step as a startup from a garage (Bolat, Yaşlı, and Temur 2022; Parmentola et al. 2022). Startups have distinguishing features because they have dynamic market expansion and usually incorporate information communication technology (ICT). In terms of economy, startups contribute to the sustainable development of a region by creating employment opportunities, innovation, civilisation, and social development (Jonek-Kowalska and Wolniak 2021; Rodrigo and Lemos Azcue 2020). Although startups contribute a lot to a region’s sustainable development promoting new idea and innovation there are several socio-economic factors that can effect their success (De Felice, Petrillo, and Orrin 2013; Jonek-Kowalska and Wolniak 2021). Almost 92 per cent of the startups suffered from failure within three years of their operations due to internal reasons, including incompetency, business model, cash flows, and dynamic market (Pride 2018). According to a survey conducted by Oxford Economics, 90 per cent of Indian startups failed within five years, and venture capitalists believe it is due to a lack of technology and innovation (Sivathanu and Pillai 2020). In Pakistan, many startups failed due to inappropriate cash flow, lack of technology, and business model, and the global pandemic COVID-19 proved to be a final nail in the coffin (Desk 2021). The examples of startups that either had to face the failure or to change the entire business model include Airlift that changed its business model and Tazamart.pk, Sabzi.pk and Sukoon.com. The reasons behind the failure of aforementioned startups were inappropriate cash flows, inability to show traction, compromised quality and lack of sound business model. Many research studies have shown the external and internal factors that contribute to the success and failure of technology-related startups (Cantamessa et al. 2018). Starting from these premises the present research aims to propose an innovative framework to assess the macro-environmental factors that directly or indirectly impact the startup ecosystem in a developing country. In this regard, the use of the PESTEL and cause and effect diagram is proposed to identify the macro-environmental factors (American Society for Quality 2020). The PESTEL analysis, an analytical tool forwarded by Francis Aguilar in 1967 for strategic planning by analysing the macro-environmental factors (Akman 2020), is proposed as is one of the most valuable tools that helps to highlight the challenges of the macro-environment that a startup needs to face. The factors that the PESTLE analysis considers are Political; economic; Social; Technological; Environmental; and Legal. Then, strategies are developed accordingly to address those factors (Marinovic Matovic 2020). After identifying the significant causes from PESTEL analysis contributing to overall failure, the causes were prioritise by using FUZZY Failure Mode and Effect Analysis (FMEA), which help to devise strategies. FMEA is a proactive tool used to identify and prioritise possible risks; first used by the U.S. Army and published in 1949 as the FMEA method (Fattahi et al. 2021). The motivation behind the research is that in developing countries, the macro-environment factors have a strong influence on startups. In fact, the macro-environment factors including inflation rate, currency depreciation, corruption and political instability are the major problems in a developing country (Dash 2017; Hassan 2018; Naeem 2021). There are some more environmental factors like global pandemic COVID-19 that caused many businesses to suffer from closure, but thanks to the government of Pakistan, which pioneered the concept of a smart lockdown approach to avoid any further financial losses. Some political factors may directly or indirectly impact businesses and investments, like political unrest, regulatory constraints, and changing policies in Pakistan (Pervaiz 2015). Some other socio-economic factors pose risks to a startup in Pakistan, like connectivity barriers, digital literacy, and information barriers (Malik and Wahaj 2019). Thus, the main goal of this study is threefold. Firstly, to analyse the impact of macro-environmental factors in the overall failure of startups by PESTEL analysis in a cause and effect diagram. Secondly, to prioritise the risks from the macro-environment associated with the startups by using FUZZY FMEA to devise risk mitigation strategies. Thirdly, to formulate risk mitigation strategies and policies to support startup ecosystem. The final purpose of the research it to be a decision tool to help policy makers to devise the risk mitigation strategies for startups to support startup ecosystem in Pakistan. The findings of this study are not limited to Pakistan, but they will also help devise strategies as a proactive approach to any startup in developing countries. The rest of the manuscript is organised as follows: Section 2 analyses the potential and opportunities of startups, Section 3 describes Material and Methods; Section 4 examines the main results of the research and Section 5 discusses them. Then, Section 6 outlines business strategies and actions, as possible outputs of the model implementation. Finally, Section 7 summarises the main conclusions of the study, limitation and future work.

2. Background: overview of the potential and opportunities of startup

An increasing number of researchers have been attempting to catch and portray the attributes of the startup peculiarity (Genome 2020). As of late, there is still no broader agreement regarding what a startup is, both among researchers and business organisations and among entrepreneurs (Breschi, Lassébie, and Menon 2018). Initially, this idea referred to all the monetary entities entering the markets. This concept raised no conflicts until the term startup started firmly related to the specific class of ventures associated with ICT (Mat Dahan and Yusof 2020; Skala 2019). For a century, there have been many discussions and conflicts about startups and their contribution to the economic development motivated by Joseph Schumpeter, the father of modern entrepreneurship (Gielens and Steenkamp 2019). In the global economy, startups are viewed as vital participants in economic development. Startups contribute to creating employment opportunities, which eventually increases the region’s economic growth (Tripathi et al. 2019). The increase in the number of startups in both developed and developing countries implies that an exemplary growth of local entrepreneurship exists (Cockayne 2019). The growth of local entrepreneurship also contributes to more extensive advancement and recognition of a region. Startups are also considered a base for dynamic local development as they gain the attention of venture capitals and create employment opportunities (Bărbulescu et al. 2021; Skawińska and Zalewski 2020). In a developing country like Pakistan, the rise of technology-related startups is not hidden. The COVID-19 wave, due to which many businesses ceased, and the tech startups, on the other hand, saw investments rise from $65 million to $350 million (Alia Chughtai 2022). Technology-related startups play a crucial role in economic development by creating employment opportunities and boosting the IT industry (Lee 2021). The risks are always associated with the startups either in a developed country or a developing one but the factors are different in both contexts. In a developing country like Pakistan, the success rate of startups is only 3 per cent (Batada 2021).

2.1. Factors that determine the failure of startups

Many studies and researches indicated several reasons associated with startup failure like inappropriate pricing strategy, inefficient cash flows, lack of resources, incompetency, and lack of market need (Bednár and Tarišková 2018). Some studies show that lack of business development, business model, human capital, quality, and lack of traction also contribute to the failure of startups (Cantamessa et al. 2018). Literature also indicated that reasons like entry hurdles, insufficient market opportunities, lack of team development, and technology failure contribute to the failure of startups (Ademola 2013; Triebel et al. 2018). Some authors concluded that ineffective management, inadequate business plans and lack of entrepreneurial education contribute to the failure of startups (Antunes et al. 2021; Saputra, Indradewa, and Rahmat Syah 2021). The literature review shows that there are several studies in the literature relating startup failure due to internal factors. However, the studies relating to macro-environmental factors that can pose potential risks to startups are scarce. Thus, the aim of the present research is to cover this gap. The goal of this study is to assess the macro-environment of Pakistan however, the scope is not limited to Pakistan only, and the approach used in this study can be implemented in developing countries.

2.2. Proposed methods highlights from the literature

Many researchers have used PESTEL analysis to identify macro-environment factors on initiatives. Christodoulou et al. used PESTEL analysis to identify the main opportunities and challenges of implementing the port energy management system (Christodoulou and Cullinane 2019). Li et al. used PESTEL analysis for the cryptocurrency industry (Li 2018). Anderson et al. used PESTEL analysis in their study to analyse the ups and downs of the cannabis industry (Anderson, Hughes, and Nguyen 2020). Marinovic Matovic used PESTEL analysis to assess the external environment as a success factor for startups (Marinovic Matovic 2020). The overall PESTEL analysis shows that it is an effective tool for assessing the external environment that directly or indirectly impacts a new or existing business (Sigcha et al. 2021). In addition, it should be noted that many researchers have extensively used the cause and effect diagram with FUZZY FMEA to visualise the impeding causes contributing to an overall effect as suggested by Adar et al. (2017); Biały and Ruzbarský (2018) and Fukuda et al., 2007; Fukuda (2007); Li (2018). An interesting study is proposed by Arvanitoyannis and Varzakas (2007)) that applied the FMEA model for the risk assessment in order to analyse control points that are then presented in cause and effect diagram. More recently, Coccia and Niversity (2017) suggested a fishbone diagram for technology analysis by applying a fishbone diagram in the evolution of general-purpose technologies. The effectiveness of using the cause and effect diagram is proven by many other studies (Ikwan et al. 2021; Mykhailenko et al. 2022; Torrecilhas et al. 2022). It is important to note that in the present research the cause and effect diagram is not used in a conventional way, using the four M’s (Man, Material, Method, and Machine). In this study, the four M’s are replacause and effect diagram with PESTEL factors to show the causes of the macro-environmental failure of a startup. After examining the causes from PESTEL factors, we aim to prioritise these causes or risks using the FUZZY FMEA technique so that risk mitigation strategies and policies can be formulated accordingly. To improve the traditional FMEA, many researchers have integrated other techniques like Artificial intelligence (AI), Bayesian belief network, fuzzy theory, application of experts system etc. (Bell et al. 1992; Gu, Cheng, and Qiu 2019; He et al. 2021; Lee 2001; Russomanno, Bonnell, and Bowles 1992; Tay and Lim 2006). Interesting studies are proposed by many academics (Chanamool and Naenna 2016; Haider et al. 2021; Khodadadi-Karimvand and Shirouyehzad 2021; Ribas et al. 2021). However, researchers have criticised the traditional FMEA for having several drawbacks in risk assessment applications (Dağsuyu et al. 2016; Yang et al. 2021; Zhou et al. 2016). Therefore, FUZZY logic has been integrated to consider the influence of individual variables (Bolat, Yaşlı, and Temur 2022; Ivančan and Lisjak 2021). According to the previous considerations, the aim of this study is to identify the possible causes of startup failure using an integrated approach through PESTEL analysis and FUZZY FMEA method to identify and prioritise the macro-environmental risks to help policy makers in devising risk mitigation strategies. The novelty of the research consists in proposing a rigorous framework from a scientific point of view by combining three existing tools which are generally not used integratively but alternatively: PESTEL, cause and effect diagram and FFMEA. In integrating methods, the weaknesses of each of them are overcome in favour of their strengths. Table 1 summarises the main strengths and weaknesses of each method.

Table 1. Method comparison (strengths and weaknesses).

Method	Strengths	Weakness
PESTEL	Simple and easy to apply. Can be applied simultaneously with other strategic analysis tools. Can be applied by any business, small, medium or large.	The process must be conducted regularly to be effective and often organisations. Assumptions often form the basis for most of the data used, making any decisions made based on that data subjective.
Cause effect diagram	Simple and easy to apply. Describe the complexity of the problem in its entirety. Simplify the problem.	It is not possible to represent complex connections. It does not provide solutions, it only displays the causes.
FFMEA	Identify potential risks early. Establish intervention priorities. Identify appropriate corrective actions.	Subjectivity in the calculation of the Risk Priority index. Huge resources in terms of personnel and time for its implementation

A simplified scheme for integrating the three methods is shown in Figure 1.

Figure 1. Simplified scheme of integrating the three methods (Author’s elaboration).

The practical implications of this study will allow the business schools and governmental bodies to jointly assess the macro-environment and make policies that will lead to the sustainable growth of startup ecosystem in Pakistan. This study will not only contribute to devising risk mitigation strategies for startups in Pakistan, but the findings of this study will be beneficial in developing countries as well.

3. Material and methods

3.1 Data collection

In this research, the technology-related startups have been addressed, keeping in view that all the startups relate to technology in some way. Referring to your comment, each startup in one way or another incorporates ICT. Thus, it can be said that every business or a startup is technology or ICT based in some way. In order to develop the framework, two sources of data are used: primary data and secondary data. The primary data includes the survey that was conducted in May 2022. The responses from the experts in Academia and Industry domains were collected and analysed. The survey was conducted from the startup owners of Pakistan and experts from the academia domain. The targeted audience in this paper was intentionally restricted to 35 participants that are experts in their respective domains. Among these 35 participants, 15 were Researchers from various educational institutes in Pakistan, and 20 were the owners of relevant startups that have a cause and effect diagram the said risks during the operations of their respective startups. The names and other details had to be kept confidential due to privacy concerns. The details of participants are given in Table 2.

Table 2. Characteristic of the selected experts.

Domain	No. of participants	Category	Experience
Startup/Business	6	Online ride hailing	More than 5 years
Startup/Business	4	Online grocery	More than 3 years
Startup/Business	8	IT	More than 7 years
Startup/Business	2	Online food delivery	More than 2 years
Academia	15	Business School	More than 7 years
Total	35

The scope of secondary data covers the PESTEL analysis, which includes the reports of institutions and regulatory authorities. The risk elements are selected from PESTEL analysis with the help of secondary data. The resources of secondary data include:

• World Bank’s surveys;

• Invest2Innovate (i2i) organisation;

• Pakistan Software Exchange Board (PSEB);

• Ministry of Information Technology and Telecommunication (MoITT);

• International Telecommunication Union (ITU);

• United Nations Development Program (UNDP);

• Overseas Investors Chamber of Commerce and Industry (OICCI).

3.2 The PESTEL analysis

In this study, PESTEL analysis is conducted to identify the risks which are posing potential threats to startup ecosystem in Pakistan. The factors of PESTEL analysis are discussed below in detail. To develop the PESTEL analysis the team of experts answered the following questions:

• What is the political situation in the country and how can it affect the company?

• What are the prevailing economic factors?

• How does culture affect the purchase and use of products?

• What innovations threaten our market structure?

• What legislation must our company comply with?

• What is the degree of attention to the environment in the country in which we operate?

Figure 2 shows the factors characterising the PESTEL analysis.

Figure 2. PESTEL Analysis (Author’s elaboration).

3.2.1. Political scope

Since its creation, Pakistan has a cause and effect diagram political unrest, which has severely hampered the sustainable and political growth of the country (Siyal 2021). The economy of Pakistan, despite backing by enormous resources, remained under the dark shadows due to rapidly changing political regimes (Nawaz, Anwar, and Aquil 2021). The new government tends to bring its reforms and policies and terminate the policies, schemes and plans that the previous government initiated. Aslam et al. in their study concluded that political unrest and changing government policies impact the entrepreneurial ecosystem in Pakistan (Aslam and Hasnu 2016). The government of Pakistan undoubtedly has taken measures to support entrepreneurial activities by establishing institutes like Ignite, Pakistan information technology board (PITB), Small and Medium Enterprises Development Authority (SMEDA), and Pakistan Software Exchange Board (PSEB). Besides these, there are also university-level incubators providing opportunities for students to bring innovative ideas (Thomas 2019). According to a report on Pakistan’s IT industry, PITB has been taking steps to create technology parks across the country and promote entrepreneurial activities; the government of Pakistan has also implemented a zero income tax policy on IT exports until June 2025 (PSEB 2020). Even though the government of Pakistan is taking responsible steps to enhance the entrepreneurial ecosystem in the country, it is a fact that every new government tends to implement its policies. The political unrest and rapidly changing political regimes are the significant causes behind changing policies. According to the survey conducted by World Bank on World Governance Indicators (2010–2020), it can be seen that Pakistan’s percentile rank among all other countries is considerably lower in the context of political stability and no violence. The Political stability and absence of violence in Pakistan from 2010 to 2020 are given in Figure 3.

Figure 3. Political stability & N° violence percentile rank of Pakistan (2010–2020) (Author’s elaboration).

Political stability is considered an essential factor for investors and venture capital firms in making investment decisions in a country (Deseatnicov and Akiba 2016). Political instability causes interventions in economic affairs, corruption, and red tape. Corruption in Pakistan is also increasing over the last several years despite taking measures to eradicate it. According to World Bank’s Country Policy and Institutional Assessment (CPIA) survey, the rank of Pakistan in the corruption perceptions index was 140 out of 180, and the score was 28 out of 100 (Transparency International organzation 2021). The trend of the last 15 years shows that the corruption rating in public sectors has been increasing according to World Bank Group, CPIA database as shown in Figure 4.

Figure 4. CPIA transparency, accountability, and corruption in the public sector rating (1=low to 6=high) - Pakistan (Author’s elaboration).

Corruption adversely affects the institutes responsible for innovation and R&D endeavours by increasing the cost of initiatives (Alam, Uddin, and Yazdifar 2019). The impact of corruption was worse than that of terrorism, and the lack of education in innovation-related initiatives in Pakistan’s research was conducted by Nadeem et al. (2021). The government of Pakistan has also allowed 100 per cent equity for foreign investors (PSEB 2020). However, political unrest can threaten investment decisions in a country. A recent study conducted by Selmi et al. concluded that political unrest causes discouragement and negatively impacts investment decisions (Selmi and Bouoiyour 2020). In Pakistan, the condition is even worse as it has a long history of political strikes, which hurt the economy of Pakistan and also on investment decisions (Nawaz, Anwar, and Aquil 2021). Political unrest also causes riots, strikes, and road blockages, and many researchers indicated that it discourages foreign investors from investing (Bano et al. 2019). Thus, it can be concluded that risks from political instability may pose severe threats to startups. We categorise these risks as: R1 ‘Political instability’, R2 ‘Changing policies’ and R3 ‘Corruption’.

3.2.2. Economical scope

Pakistan is the second biggest economy in South Asia. It records about 9.3 per cent of regional gross value having a GDP of approximately US $2.6 billion as per World Bank national accounts data and OECD National Accounts data files (World Bank 2020). The agriculture sector accounts for 21.12 per cent, the Industrial sector for 17.72 per cent, and the services sector 53.84 per cent contribution to GDP as of 2020 (Economic Survey of Pakistan 2021). There are several macro-economic challenges Pakistan is currently facing, like shallow financial markets and the presence of a large informal economy. The macro-economic risks are relatively higher in Pakistan due to various factors like the depreciation of the Pakistani rupee and ever increasing inflation rate. The growth rate has fallen from 5.83 per cent to −0.93 per cent in the fiscal year 2020/2021, according to World Bank national accounts data and OECD National Accounts data files (World Bank 2020). The current macroeconomic environment in Pakistan has possible repercussions for investment decisions and risk insights of markets, significantly as business gains, customers, and return investments are adversely impacted (Invest2Innovate 2019). The FDI plays an essential role in economic development by enhancing human capital, R&D, innovation, and completion, boosting overall productivity (Shafiq et al. 2021). The government of Pakistan has taken effective initiatives to support Pakistan’s entrepreneurial ecosystem and attract foreign investors to enhance Foreign Direct Investment (FDI). The government of Pakistan has initiated a startup Tax holiday policy which is three years tax holiday for IT-related startups with zero withholding tax (Export Board, 2020). The most significant investment contribution comes from the U.S., followed by the UK. However, after the initiative of CPEC in Pakistan, the investment from China has also been increasing, and it is also a signal to potential investors to invest in Pakistan (Sadiq et al. 2021). According to the survey conducted by Invest2Innovate (i2i), an organisation supporting startup communities, the current tax policy is unfavourable for investors despite reforms. The survey conducted by i2i ‘Rating of taxes as a possible obstacle’ from 120 stakeholders in Pakistan is given in the Figure 5.

Figure 5. Rating of taxes as a barrier in Pakistan (Author’s elaboration).

According to Pakistan Startup Ecosystem Report 2019 conducted by i2i, the startups which do not fall under the category of IT are liable to pay an income tax of 23 per cent as the government has given an exemption to IT startups only. The tax exemption on IT startups is only at the federal level, which means startups operating in other provinces still have to pay GST, provincial sales tax, and property tax. Another problem is that the tax is revenue-based, not profit-based, which means startups that are not profitable are not qualified for corporate income tax (Thomas 2019). Therefore, we conclude that the economic factors that pose probable threats to startups are: R4 ‘Money depreciation’; R5 ‘Inflation Rate’ and R6 ‘Tax system and policies’.

3.2.3. Social scope

The domain of social factors incorporates numerous characteristics that are often difficult to contextualise, and their impact on socio-economic development also varies from one region to another (Sigcha et al. 2021). The impact of social factors is significantly different in developed and developing countries; the developed countries have high literacy rates, technology awareness, and facilities while developing countries have lower literacy rates and lower technology awareness (Frederiksen, Bean, and Nance 2012). The definition of social factors on a broader level typically includes societal factors, cultural factors, religious ethnicity, traditions, languages, gender, language and dialect, literacy, income, and well-being along with social classes (Betts 2016, MSG Experts, 2017; sunymarketingspring 2016; Woolf and Aron 2013). Pakistan is the only country created in the name of Islam (Board of Investment 2021). Religion is an imperative factor of culture and is considered one of the crucial pillars of society’s foundation (Bukhari et al. 2019). Radicalism and resulting violence have been climbing throughout the previous few decades in Pakistan. The pattern has mainly been ascending in the prior ten years of the 21st century, highlighted by Intra-Muslim and religious brutality. For the most part, the previously incorporated Sunni-Shia clashes, while the last option has been described as a vice against minorities like Christians, Ahmadis, and Hindus (Hanif, Khan, and Rasool 2020). Recently, a vigilante attack on a factory located in Sialkot that resulted in the horrible death of a Sri Lankan manager by a radical group was a day of shame for Pakistan (Sadiq 2021). These types of horrific and barbarian incidents by radical and extremist groups are damaging the image of Pakistan on a global level and against the Islamic laws as Islam is the religion of peace (YAZDANI 2020). Radicalism and extremism are problematic for Pakistan and are a significant problem for the world as extremist groups arise from various religious or atheist communities. Another social factor that is worth considering is the literacy rate. The current literacy rate of Pakistan is 62.3 per cent which indicates that 60 million population is illiterate (NCC 2020). The government of Pakistan is taking measures to increase the literacy rate; many platforms like Digiskills and E-Rozgar provide free training and IT programs. The Higher Education Commission (HEC) has also initiated the Office of Research, Innovation, and Commercialization (ORCIs) in institutes that provide entrepreneurial support (Higher Education Commission 2020). However, most business owners in Pakistan do not possess the entrepreneurial education needed for business plans and strategic planning. Most of the youth that have applied for new youth finance scheme loans had to face failure due to a lack of proper business plan. Entrepreneurs need proper training and education to make organisations and creative thinking and bring innovation to their ideas (Hyder and Lussier 2016). University education is imperative for sustaining the entrepreneurial ecosystem in Pakistan (Colombo and Piva 2020). There is a strong influence of financial literacy and education on the entrepreneurial intent of youth in Pakistan (Bilal et al. 2021). Entrepreneurial-related education influences taking entrepreneurial initiatives; education boosts confidence and develops business-oriented skills (Tunio et al. 2021). Secondary and tertiary education is positively associated with entrepreneurship and entrepreneurial activities. Therefore, it can be inferred that education and literacy rates play a crucial role in a region’s entrepreneurial ecosystem. In contrast, a lack of education may lower the chances of attracting investors and jeopardise the continuity of a startup. The two social factors that pose a potential threat to startup and entrepreneurial ecosystem in Pakistan are R7 ‘Radicalism and extremism’

R8: Lack of education and illiteracy

3.2.4. Technological scope

The advancements in the domain of ICT are imperative for any country’s economic and social development. The Technology or Science Parks help build academia and industry linkage and serve as sources of innovation and capacity building in a society (Ullah et al. 2022). The government of Pakistan has been taking initiatives to upgrade IT sector; there are currently 22 Technology Parks, 40 are in the construction phase, and 60 more are to be built by the year 2023 (Ali 2021). According to the report by the Pakistan Software Export Board and the Ministry of Information Technology & Telecommunication, the status of Pakistan’s IT sectors is given in Figure 6.

Figure 6. Pakistan’s IT and ITES sector overview (Author’s elaboration).

The international companies have also established BPO services centres and support offices. In year 2020, 2826 IT companies registered with the Security of Exchange Commission Pakistan (SECP) (PSEB 2020). The general IT and ITES sectors are good indicators of Pakistan’s progress in the IT industry. There are also risks associated that can pose potential threats to startups, such as cyber-crime and hacking. These days, businesses are getting digitised, and interconnectivity is also increasing. Activities like cyber-crime and hacking are also increasing, including illegal money transfers, privacy leakages, and state secrets (Malik et al. 2022). According to the Global Cyber-security Index report, the overall score of Pakistan is 64.88 as of the year 2020 (ITU 2020). The cyber-attacks are not only limited to businesses but also include malware in smartphones to steal information, terrorist activities, and the banking sector (Baloch 2020). In 2021 a new spyware was detected in Android phones of Pakistan that was stealing sensitive information (Pankaj Kohli 2021). The banks in Pakistan have digitised their services to facilitate users with online banking applications. Microfinance banks like Telenor, jazz cash, and U-paisa have been used widely by most people in Pakistan. Cyber-attacks on these online banking applications have been rising over the last few years, including threat messages to access users’ sensitive information and steal money (Fatima et al. 2020; Malik and Wahaj 2019). Various online companies like zameen.com, Pakwheels.com, Uber, and Careem have a cause and effect diagram Cyber-attacks in which massive databases were hacked (Farooq 2018). In 2016, Uber’s database was hacked, and in 2018 the ride-hailing application Careem suffered a massive data breach, and the data of 14 million users was compromised (Kamran et al. 2019). The cyber-attacks are not the only problem for online businesses in Pakistan. The problem of internet shutdown is also of significant concern. Pakistan has been facing increasing internet shutdowns over the last decade due to several underlying factors like political rallies, protocols, elections, public assemblies, security measures, and technical errors. Due to governmental or political influence or technical errors, the internet outage has caused financial losses to online businesses in Pakistan (Maria and Perez 2018). The Internet and Social media blackouts are hurting the businesses in Pakistan and creating a bottle-neck situation which has severe implications on the economic growth (Khan 2021). According to Global Network Initiatives (GNI), the network shutdown in a country with low levels of connectivity costs half a million U.S. dollars per day. It hurts tourism and foreign investments (GNI Report 2016). The COVID-19 times showed that lack of internet impacts the online businesses and impacted educational activities as hybrid learning in Pakistan could not implement in areas lacking internet availability (Usama 2020). The slow internet and connectivity issues are like daily rituals in Pakistan; the submarine cable cuts repeatedly occur, which also cause internet outage problems creating severe problems for businesses (Frooq 2017; Hanif 2022; NetBlocks 2021). Therefore we infer two primary causes that may hinder the success of a startup: R9 ‘Cyber-attacks’ and R10 ‘Internet outage and connectivity issues’.

3.2.5. Environmental scope

Pakistan is a low-middle-income country and largely agrarian. Climate change poses severe threats to Pakistan’s sustainable development as this country relies on climate-sensitive land, water, and forest for food security (Climate Center, & IFRC 2021). Pakistan has suffered several floods, droughts, and cyclones that proved to be disastrous for livelihood and infrastructure. According to the Global Climate Risk Index, Pakistan is ranked eighth among the most vulnerable countries to climate change (Harmeling and Eckstein 2021). The government of Pakistan is taking initiatives to improve the environment like the ‘Ten Billion Tree Tsunami’, ‘Protected Areas initiative’ and ‘Recharge Pakistan’ (UNDP 2021). The ‘ten billion trees’ initiative is about the plantation of ten billion trees by 2023 (MOCC 2020). The protected areas initiative is about to increase the protected areas like national parks, wildlife reserves, and wetlands up to 15 per cent by 2023 (UNEP 2021). Recharge Pakistan aims to adopt integrated flood risk management (WWF 2019). If appropriately implemented with effective check and balance, these initiatives can bring environmental sustainability to Pakistan and encourage stakeholders, especially environmentally conscious ones, to invest more. A recent Global Pandemic COVID-19 that proved to be a disaster for the whole world is considered the worst crisis since World War 2 (ILO 2021). COVID-19 adversely impacted the global economy and Pakistan’s economy. The significant impact of COVID-19 was on small enterprises and startups due to a lack of resources, and a large number of people had to suffer from unemployment (Shafi, Liu, and Ren 2020). Where the COVID-19 proved to be a curse for many businesses, it also proved to be an opportunity for clothing, cosmetics, and pharmaceutical companies that made significant markups (Boland 2021; Muhammad et al. 2021). COVID-19 had adverse impacts on entrepreneurs, especially from developing countries, due to a lack of resources (Nasar et al. 2021). The lockdowns, social distancing, and limited operating hours adversely impacted the entrepreneurial activities in Pakistan (Hussain et al. 2021). The MSMEs in Pakistan have a cause and effect diagram several issues due to lockdowns like financial problems, supply chain disruptions, demand reduction, and declined sales and profits (Shafi, Liu, and Ren 2020). The COVID-19 in Pakistan brought many firms to their knees, and startups like Airlift had to change their business model from application bases mass transit to online grocery. The Global Pandemic resulted in the unemployment of about 5 million people in Pakistan. However, the government of Pakistan implemented a smart lockdown to avoid economic losses and resume economic cycles (Wang et al. 2021). Despite the government of Pakistan’s measures, most of the population is reluctant to get vaccinated against coronavirus due to various misconceptions and perceived risks. According to a survey, 55.8 per cent of the population of Pakistan was vaccinated against coronavirus (Mathieu et al. 2021). In Pakistan, several populations are reluctant to immunise, and still, there are even reluctant to get their children vaccinated against polio (Butt et al. 2020). The irresponsible behaviour of non-compliance with the immunisation standards and governmental steps can make the situation even worse for the economic development of Pakistan if any other Global Pandemic may arise in the future. So we conclude two environmental risks that adversely impact Pakistan’s entrepreneurial ecosystem and are a possible threat to startups: R11 ‘Climate change and calamities’ and R12 ‘Global or local Pandemic’.

3.2.6. Legal scope

Pakistan’s legal system has its roots in English common law and is derivative of British Indian law and order structures based on 19^th-century English law. A significant aspect of a standard set of laws is adaptable and transformative to changing conditions while maintaining the required degree. The regulatory bodies in Pakistan that are proximate to startups are:

• Security of Exchange Commission Pakistan (SECP);

• Smart and Medium Enterprise Development Authority (SMEDA);

• Pakistan Software Exchange Board (PSEB):

• Pakistan Software Houses Association for IT and ITES (P@SHA);

• Ministry of Information Technology and Telecommunication (MoITT);

• Pakistan Telecommunication Authority (PTA).

Pakistan is ranked 108^th on ease of doing business according to the report of Doing business 2019 (SBP, 2020). The entrepreneurial activities in Pakistan have been prevailing, yet there are many problems relating to legal and regulatory issues that have to be facause and effect diagram by entrepreneurs. To launch a business in Pakistan, the business owners have to pass through six steps in four different governmental bodies. The solutions like ‘One Stop shop’ to facilitate ease of doing business that includes transparency and simplified cause and effect diagrams have been widely implemented by 83 economies and resulted in an improved entrepreneurial environment (Syed and Bokhari 2019). However, Pakistan still lacks such initiatives, and many entrepreneurs reported dissatisfaction with Pakistan’s current regulatory environment and lack of guidance in dealing with legal processes (Thomas 2019). Pakistan also lacks a Regulatory Impact Assessment (RIA) system to assess regulatory burdens on startups. The tax laws and the costs of compliance, advisory fee, and other administrative and psychological costs are significant problems for SMEs in Pakistan (Akhtar and Shah 2018). Another major issue creating a troublesome situation is the long duration of court proceedings in Pakistan. Many investors have shown concerns relating to the issues of facing delayed court proceedings in the event of resolving disputes. According to the Perception and Investment survey by Overseas Investors Chamber of Commerce and Industry (OICCI) Pakistan, the average time for dispute settlement in Pakistan is from 3 to 5 years (OICCI 2020). The current regulatory environment and delayed court proceedings for contract-enforcement dispute resolution can hamper the attractiveness of Pakistan-based startups to potential investors and venture capitals. Therefore the two risks emerging from the current legal environment in Pakistan are: R13 ‘Current regulatory environment’ and R14 ‘Delayed court proceedings’.

3.3 FUZZY FMEA methodology

The FUZZY FMEA technique determines the most severe risks that jeopardise the startups for the primary data analysis (Bolat, Yaşlı, and Temur 2022). The method includes the identification of risks and their effects on the overall failure by specifying the occurrence (O) of a particular risk event, Severity (S) of the event and detectability (D). The risk events are termed differently by authors in the literature; some cause and effect diagram detectability with controllability (Ahmadi et al. 2017; Singh, Singh, and Singh 2020). The risk priority number is calculated by multiplying Occurrence (O), Severity (S) and Controllability (C), as shown in Equation 1:

(1) $RPN=O\ast S\ast C$(1)

The FUZZY theory put forward by Zadeh is an effective tool to counter the uncertainty present in experts’ quantitative judgements (Zadeh 1975). A fuzzy set ‘F’ contains elements ‘e’ membership functions characterised by‘µ_F (e)’, and the value of each membership function lies in-between 0 to 1. The Fuzzy set is represented as:

(2) $F=\{e,\mu F\left(\mathrm{e}\right)|\mathrm{e}\in \mathrm{F},\mu F\left(\mathrm{e}\right)\in \left[0,1\right]\}$(2)

The Fuzzy set ‘F’ represents the degree to which an object ‘e’ is present in it. The more the value of the membership function ‘µ_F (e)’, the more will be the degree of membership (Bash 2015).

In this study, the triangular fuzzy logic is implemented for convenience and ease of calculations. The triangular fuzzy number incorporates three estimates; least likely, most likely and most pessimistic values of membership functions. The membership functions of fuzzy triangular numbers (a, b and c) are represented as:

(3) $\mu \mathrm{F}\left(\mathrm{x}\right)=\left\{\begin{array}{c}\frac{x-1}{b-a}fora\le x\le b,\\ \frac{c-x}{c-b}forb\le x\le c,\\ 0otherwise\end{array}\right\}$(3)

The linguistic expressions and rating criteria used by authors also vary in the literature. In this study, we used severity, occurrence and controllability and defined their criteria adapted by the literature. For the risk event having very high severity and very high chances of occurrence, the controllability and monitoring of such risk event will be the least and vice versa (Tay and Lim 2006; Zaman et al. 2014). The rating is assigned on the scale of 0 to 1 with the fuzzy sets ranging from 0.1 to 0.9. The criteria for prioritisation and linguistic expressions for severity are given in Table 3.

Table 3. Linguistic expressions and ratings for Severity (S).

Severity (S)	Rating	Criteria
1. Least severe	0.1	Least impact on startups
2. Less severe	0.3	Impact is less but not negligible
3. Moderate	0.5	Impact is somewhat harmful
4. Severe	0.7	Impact is serious
5. Very severe	0.9	Impact is very serious

The criteria for prioritisation and linguistic expressions for occurrence are given in Table 4.

Table 4. Linguistic expressions and ratings for Occurrence (O).

Occurrence (O)	Rating	Criteria
1. Least often	0.1	Occurrence of event is unlikely
2. Less often	0.3	Occurrence of event is less
3. Sometimes	0.5	Occurrence of event is occasionally
4. Often	0.7	Occurrence of event is repeated
5. Most often	0.9	Occurrence of event is inevitable

The criteria for prioritisation and linguistic expressions for controllability are given in Table 5.

Table 5. Linguistic expressions and ratings for Controllability (C).

Controllability (C)	Ratings	Criteria
1. Strongly agree	0.1	Absolutely controllable
2. Agree	0.3	High chances of controlling
3. Somewhat agree	0.5	Can be controlled
4. Disagree	0.7	Low chances of control
5. Strongly disagree	0.9	Remote chances of control

After gathering the data from experts, the analysis is done by transforming their linguistic expressions into fuzzy triangular numbers, and an average of fuzzy numbers is calculated for each risk element. The fuzzy arithmetic operation for calculating the averages of fuzzy numbers is given as (Bolat, Yaşlı, and Temur 2022):

(4) $F1\oplus F2\oplus F3\oplus \dots Fn=\left(a1,b1,c1\right)\oplus \left(\mathrm{a}2,\mathrm{b}2,\mathrm{c}2\right)\oplus \dots \left(\mathrm{a}\mathrm{n}+\oplus \mathrm{b}\mathrm{n}\oplus \mathrm{c}\mathrm{n}\right)$(4)

Where:

(5) $\left(a1,\mathrm{b}1,\mathrm{c}1\right)\oplus \left(\mathrm{a}2,\mathrm{b}2,\mathrm{c}2\right)=\left(\mathrm{a}1+\mathrm{a}2,\mathrm{b}1+\mathrm{b}2,\mathrm{c}1+\mathrm{c}2\right)$(5)

(6) $\frac{Fn}{k}=\frac{\left(an,bn,cn\right)}{k}=\left(\frac{an}{k},\frac{bn}{k},\frac{cn}{k}\right)$(6)

After calculating the averages of fuzzy numbers, the defuzzification is done by ‘mean area’ to generate crisp values for risk elements. The equation for defuzzification is given as:

(7) $D=\frac{an+2bn+cn}{4}$(7)

Finally, the values obtained are multiplied using equation no.1 to get the risk priority numbers (RPN) values.

4. Results

After identifying the risks from the macro-environment by PESTEL analysis the visual representation of these risks as a macro-map is shown in Figure 7.

Figure 7. Cause and effect diagram (Author’s elaboration).

The causal relation of these risks is shown in cause and effect. After gathering responses from academia and the industrial domain experts, the analysis is performed using FFMEA to prioritise the risks from the most crucial to the least. The results are shown in Table 6. FRPN is indicating Fuzzy Risk priority numbers.

Table 6. Risks and FFMEA ranking.

Risks	FRPN	Rank
Political instability	2.178	6
Changing govt. Policies	2.1875	5
Corruption	2.4915	3
Money depreciation	2.816	2
Inflation rate	2.83	1
Tax system and policies	2.0525	8
Radicalism and Extremism	1.518	13
Lack of education	2.102	7
Cyber-attacks	1.5205	12
Internet outage	1.785	10
Climate change	.997	14
Global or local Pandemic	1.598	11
Regulatory environment	1.960	9
Delayed court proceedings	2.1915	4

4.1 First priority: inflation rate

Results show that the highest risk priority rank is ‘Inflation rate’, which creates the most problems for startups. Due to increased prices, the startups also have to increase the prices of their products and services, which creates problems for them as it becomes so difficult to attract customers. Pakistan is suffering the problem of higher inflation rates since its creation. The higher inflation rate has a potential repercussion for investment decisions in Pakistan as it has adverse impact on investment returns (Thomas 2019). The higher inflation rates also negatively affect the financial sector development (Batayneh et al. 2021). The higher inflation rate makes investment decisions harder at the broader level and may encourage companies to increase stock of goods to sell them at higher prices in the future. The smaller or newly established companies cannot survive the impacts of higher inflation rates due to lack of resources and lower price margins (Adrian 2022). In developing countries, the inflation rate remains a major problem, with its increase, the required rate of return also increases which creates a troublesome situation for new companies (Carter, MacDonald, and Cheng 2009). Although the higher inflation rates in Pakistan tend to create problems for almost every public and private sector and people alike, the nature of impact is different. For startups, due to entry barriers and immature products and services along with agreed upon return on investments, higher inflation rates make the survival of startups very difficult and eventually cause their collapse. There are several factors which are directly or indirectly associated with higher inflation rates like lack of stringent monetary policy, coordination of monetary and fiscal policies, account deficit and currency depreciation. The State Bank of Pakistan has set the monetary policy rate to 12.25 percent with the hope to stabilise the prices (SBP 2022). The inflation control should not be limited to only making stringent policies, there is a need to calibrate the policies so that they can dampen the aggregate demand and reforms in the fiscal policies (Khaqan Hassan 2022). With the increase in inflation, the purchasing power of money decreases and the lender has to be compensated accordingly. The inflation although is a problem for all but the government must need to take effective steps to control inflation rates for the sustainability of startup ecosystem as startups are imperative for the socio-economic development in a country.

4.2 Second priority: money depreciation

The second rank is ‘Money depreciation’, which poses potential threats to startups. The Pakistani currency continues to fall against US dollar owing to current emergency situation in the country. The higher exchange rates remain a major problem for startups as the output demand along with return on investments becomes transit. The startups due to uncertainty of exchange rates find it difficult to make adjustments which eventually leads to dissatisfaction of foreign investors. The major contributors to the decline of Pakistani currency are, the uncertainty of International Monetary Fund (IMF) loan program and reduction in the foreign exchange reserves (Web Desk 2022b). Since June 2020, the foreign exchange reserves of State Bank of Pakistan hit the lowest value of 10.3 billion US dollars (Trading Economics 2022). The FDI has been considered as a remedy for the economic development of both developed and developing countries subject to various constraints (Idrees and Bakar 2019; R 2021; Ramesh 2018; Sebastian 2020). The FDI tends to enhance the manufacturing and services sector by bringing technology and innovation along with the job creation for the guest country. The exchange rate stability and increase in exports are major benefits of FDI however, if not managed properly there are also disadvantages like exchange rate crisis, discouragement of local investments and dependence on the host countries. Almost all the startups in Pakistan seek for foreign investments and according to the CEO of Zayn Capital, the venture capital fund in Pakistan would be around 50 billion US dollars by the year 2030 (Alia Chughtai 2022). There is a need for policy makers to make such policies that not only confined to seek for FDIs for the fund raising of startups, but also maintain a balance to avoid the negative impacts of FDIs.

4.3 Third priority: corruption

The rank of ‘corruption’ is at third place. Corruption remains a significant impediment for Pakistan, as seen from PESTEL analysis, the rank of Pakistan on corruption perceptions Index is 140 out of 180. Corruption harms the integrity and sustainability of every sector and one of the major cause of it is lack of accountability. The problem of corruption for new business is not confined to developed countries. Chen et al. in their study found that poor governance and excessive bureaucratic regulations magnify the impact of corruption on entrepreneurial activities in the states of America (Chen and Cheng 2019). In the context of developing countries, inappropriate reporting of corruption, discretionary power of institutions and regulatory bodies on businesses and political interference suffocates the startups (Bawole and Langnel 2021). The countries having lower levels of corruption are more likely to have enhanced and effect diagram entrepreneurial activities that foster economic development (Harraf et al. 2021). To overcome the problem of corruption in Pakistan the policy makers and administrators need to make policies to strengthen the transparency and accountability as it is crucial for sustaining the economic growth. The current bureaucratic regulations must be administered and their impacts on entrepreneurial ecosystem must assess to overcome the problem of corruption in Pakistan. Delayed court proceedings ranked at number 4 are becoming severe issue in Pakistan, as of now around 1.3 million cases are pending and most of these cases are pending for more than a decade (Web Desk, 2022a). The judicial inefficiency and prolonged dispute settlements hamper the growth of businesses (Wasia, Ullah, and Shahid 2021). The current situation of judicial system with backlog of millions of cases is not favourable for enforcing contracts between investors and startups (Syed and Bokhari 2019). Some other major problems like legal issues, copyright claims and breach of contracts become more severe for firms due to ineffectiveness of courts and law enforcement agencies in Pakistan (Afraz, Turab Hussain, and Khan 2014). Firms often have to face the legal issues like suspension of operations in a region, in 2018, Egypt suspended Uber’s licence owing to law suit filed by taxi drivers (Staff 2018). The research on the judicial system of Pakistan and its impacts on startup-ecosystem in the context of delayed court proceedings is scarce. Therefore, more research is needed to explore the impacts of delayed court proceedings on startups from which policies can be made to foster startup-ecosystem in Pakistan. Unfortunately, the problem of political instability remains persistent in Pakistan and only one political party has completed its tenure so far. The percentile score of Pakistan is very low on political stability and no violence as seen from PESTEL analysis. The quality of governmental institutions, political stability, regulatory quality and stringent policies foster the entrepreneurial ecosystem of a country and are more attractive to investors. The political state of any nation essentially affects the investment decisions. The political instability and corruption in emerging economies have adverse impacts on R&D and investment decisions. The quality governmental institutions, stringent policies and political stability attract the foreign investors and enhance their confidence (Alam, Uddin, and Yazdifar 2019). Thus, there is a need to devise such strategies to lessen the impacts of political instability on startups. Although political instability cannot be controlled, more autonomy must be given to the policy and planning division to make effective policies for startups that are not prone to political instability. There are a lot of arguments regarding whether education and literacy are necessary to become a successful entrepreneur or not. In Pakistan there are a number of business tycoons who are running successful businesses like cloth merchants, property dealers and gold smiths without having any formal education. But when it comes to startups, the ever increasing globalisation, digitisation, advancements in technology and increased market competition, the entrepreneurial education and financial literacy are imperative for the success of startups. Financial literacy is important for entrepreneurs to better understand business operations and is also imperative for the success of startups (Albastiki and Hamdan 2019). The entrepreneurial education and skills have a significant impact on business performance and it helps business owners to better communicate and cooperate with the key stakeholders (Dana et al. 2021). The entrepreneurial education also increases the chances of getting attention of Venture capitals and secure investments because it serves as trust and credibility (Nigam, Mbarek, and Boughanmi 2021). Entrepreneurial education foster startup ecosystem by enhancing the confidence level and business-oriented skills of entrepreneurs (Tunio et al. 2021). Therefore, the entrepreneurial education should be confined to a single course in universities, it must be integrated with other courses and also, the level of financial and digital literacy must be enhancause and effect diagram. The case studies of both successful and unsuccessful entrepreneurs along with interactive sessions with entrepreneurs must be implemented at educational institutes to foster entrepreneurial intentions.

5. Discussion

As discussed in the PESTEL analysis, the report of invest2inovate indicates the current tax system and policies are not favourable for startups in Pakistan. According to the annual report of State Bank of Pakistan, the complex nature of tax system, cumbersome document processes and perception of corruption are major hurdles (SBP 2019). The current regulatory environment is also not favourable due to discrepancies between investment and law policies and prolonged court proceedings. There are six hectic steps involved in the establishment of new business in Pakistan and it is required to go through several regulatory authorities. The propositions like one stop shop that can offer a transparent and simplified set of processes to business owners must be taken into account as almost 83 countries have adopted this model (Syed and Bokhari 2019). The events of cyber-security like hacking, spam emails and phishing are creating severe issues for businesses by stealing sensitive information. The new firms owing to limited resources found it very difficult to survive such kind of cyber-attacks (Chandna and Tiwari 2021). The emergence of new technologies like cloud computing, big data and social media also bring the risks of cyber-attacks and these attacks are of major concerns for business owners (Pisoni 2021). As discussed in the PESTEL analysis, the cyber-attacks are also prevalent in Pakistan and many firms including Uber, Careem and Zameen.com along with banks are the victims. In order to prevent cyber-attacks, several solutions like awareness programs, cyber risk insurance and inclusion of Artificial Intelligence and machine learning have been proposed and implemented (Hijji and Alam 2021; Pisoni 2021). In Pakistan, the cyber-security is not so effective and there is only Cyber Security Incident Response Team (CSIRT) operational at national level. There is a need to improve the institutional frameworks and legislations along with awareness campaigns relating cyber-security (National Cyber security Policy, 2021). The internet shutdowns due to various reasons like deep sea cable cuts, political rallies and protests also create problems for startups. The internet outage creates detrimental impacts on the economic activities and significant losses, a day of internet shutdown costs half a million US Dollars in a country (Report 2016; West 2016). The IT sector of Pakistan have to take effective steps in order to deal with internet outage problem. The China Pakistan Fiber Optic Project (CPFOP) is an appreciative project to enhance the digital connectivity which will be the first ever land-based telecommunication project in Pakistan. The CFOP is however in its initial phase (CPEC 2022; News Desk 2022). The other macro-environmental risks like radicalism, extremism and terrorism are the biggest security challenges for Pakistan. These incidents impact the integrity of a country and also harm the foreign relationships and make a country less attractive (Muzaffar 2018). Extremism also greatly affects the economic growth and political and social image of a country. The problems of radicalism and extremism need to be addressed by making strategies and policies in order to eradicate violent activities in Pakistan. The impact of climate change on startups is the least as show in the Table 4, however for the sustainable development goals, the adverse impacts of climate change should not be neglected, and environment protection initiatives should be taken on broader level.

The issues pertaining to the startup ecosystem have been discussed in the literature in various contexts. Conducted a study on a strategic model for digital startups and concluded macro-environmental factors as the second most influential factor to digital startups. The constituents of the ecosystem for technology-based startups, like finance, educational awareness and policy framework, have also been discussed that impact the startup ecosystem. The impact of micro and macro environments on the entrepreneurial success of small and medium enterprises has also been analysed by (Rabinder et al., 2022), and the findings state that macro-environmental factors positively impact the growth of startups. The challenges to startups and entrepreneurs relating to macro-environmental aspects have also been analysed and discussed by (Albort-Morant and Ribeiro-Soriano 2016) to contribute to the startup ecosystem. While analysis of these studies, as shown in the literature, indicates that macro-environmental factors, among others, significantly impact the growth of startups, our study backs up the literature by providing a holistic view. The macro-environmental factors in this study have been thoroughly analysed by PESTEL analysis, visualisation of these factors is shown in the fishbone diagram, and finally, their prioritisation has been done using FUZZY FMEA. This study intends to bring policymakers, entrepreneurs and business institutes on the same page to devise risk mitigation strategies to foster the entrepreneurial ecosystem, especially in developing countries.

6. Business strategies and actions

Once the model analysis has been completed, the result is an overall view of the entire ‘macro-environmental’ factors that could influence the company’s performance. A panoramic view that will allow the company to make more informed decisions. This approach is useful to anticipate any problems and better deal with everything that could occur on the market. It should be noted that the model proposed in this research requires a careful analysis of the factors considered. The most challenging part of the proposed model is the factor analysis. The model is scalable in different industrial sectors but changes according to the industrial sector or the strategy that the company intends to pursue. For this reason, when developing the model, it is good to keep in mind the company in which you work and for which the analysis is being made.

7. Conclusion

In this paper, an innovative framework is proposed to assess the macro-environmental risks that directly or indirectly impact the startups in developing country like Pakistan. The case of Pakistan has been discussed and the results cannot be generalised. However, the research provides a novel approach to mitigate the macro-environmental risks by proposed methodology along with close coordination of business schools and Policy Institutes. When discussing the macro-environmental factors in the context of emerging risks and their impacts on startups, having done one research can never be sufficient. There is a need to widen the scope of this study countrywide. The implication is for the business schools of Pakistan to initiate the research and surveys in this category by lining up the governmental bodies, regulatory authorities and policy and planning departments. The universities and educational institutes are present in every major city of Pakistan. Future research developments are expected to extend the scope of this study across the country to dig deeper into the macro-environment of Pakistan. Identifying and prioritising these risks will enable policymakers and strategic thinkers to devise risk mitigation strategies. The linkage of business schools and governmental bodies will remove the gap between the academia and business domain. The risks, as mentioned earlier, if appropriately addressed, will not only help startups perform effectively but also encourage the venture capital to invest more in developing countries.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Ubaid Ullah Khan

Ubaid Ullah Khan is Engineering Management (Ghulam Ishaq Khan Institute Of Engineering &Technology, Pakistan). His research is focus on innovation and business strategy.

Yousaf Ali

Dr. Yousaf Ali has completed his PhD degree in (Economic & Management) from the University of Macerata (Italy). Dr. Yousaf has research interests in quantitative modelling practices in economics and management, Operational research, and in environmental economics. Dr. Yousaf is associated with School of Management sciences GIK Institute of engineering sciences and technology, Pakistan, where he is serving as an Associate Professor. He has more than ten years of research and teaching experience. His teaching and research areas of interest are Operations Management/Research, Production & Logistics Management, Supply Chain Management, Energy Management, Input-Output Analysis, Policy Modelling and Environmental economics. Currently, He has taught courses in the areas of Production & Operations Management, Operations Research and Quality Management for graduate and undergraduate students. Dr. Yousaf has vast experience of conducting research and has published more than 60 articles in International Journals and Conferences. He was awarded 7th HEC outstanding research award (in 2019).

Antonella Petrillo

Antonella Petrillo is Associate Professor at the Department of Engineering of the University of Naples “Parthenope”, Italy. She received her PhD in Mechanical Engineering from University of Cassino. Her research interests include sustainability, multi-criteria decision analysis, industrial plant, smart manufacturing and safety. She serves as International Reviewer for over 50 International Journals and she is member of Scientific Committee for PhD Programs, International Conferences and Proposal Evaluations.

Fabio De Felice

Fabio De Felice, is a Professor at the Department of Engineering of the University of Naples “Parthenope”, Italy. He is a board member of several international organisations and responsible for scientific research and training in industrial plants. The scientific activity concerns quality management, simulation, multicriteria techniques, RAMS analysis and human reliability analysis. He is a General Secretary of the Analytic Hierarchy Process – AHP Academy – international association for the promotion of multi-criteria decision making methods. He published more than 150 research paper on international scientific journals indexed on Scopus and Web of Science.