Competitiveness of Pakistan’s Micro and Small Enterprises Sector

Context

In the era of globalization and competitiveness, growth and development of Pakistan’s industrial sector is largely dependent on the availability of skilled human capital, advanced technologies and energy efficient methods of production. Several industrial sectors of Pakistan have been quite proactive in acquisition of state-of-the-art production technologies; however, the availability of trained and educated workforce for the optimal utilization of technology has been the major issue which has undermined the true potential of many Pakistani industries in developing their competitiveness in domestic as well as international markets. The role of trained and skilled workforce is pivotal in utilizing the advanced technology to develop efficient production management systems as competitiveness of any industry is based on the assimilation of both skills and technology instead of mere transfer of technology. Pakistani industries have been quite ignorant in understanding the synergetic integration of skills and technology due to which country’s economic growth, individual firms’ potential and competitiveness of different industrial sectors have been seriously hindered during the previous decades. This situation has led many industrial sectors in general, and MSEs in particular, towards the non-competitiveness in the face of globalized technology-led competition.

The course of industrial competitiveness in Pakistan, therefore, requires comprehension at the government level that this perennial problem necessitates incorporation of international expertise for training of human resources and inculcation of best practices for productivity improvement in different industrial actors. This precisely was the cogent reason behind MSEDO’s decision to establish a dedicated unit, which was later named as MSESC, for the transfer of foreign technical expertise and knowledge to local industry through involvement of international and local experts.

Leading economists and industry experts are suggesting government bodies and development agencies to develop a comprehensive and well-integrated industry development framework that should enhance effectiveness of MSEs development activities. One of the major reasons behind failure of many MSEs is poor management practices (Doole, Grimes & Demack, 2006; Terziovski, 2010) which highlight the paucity of effective managerial and technical skills among the people who handle strategic and operational aspects of their businesses (Khalique, Bontis, bin Shaari & Isa, 2015). Facts speak that there is an urgent need to management development plans in Pakistan to provide MSEs with state of the art production technologies and requisite knowledge and skills to run their businesses more effectively (Shahzad, 2015). Management development plans for MSEs have gained a good amount of attention among the industrial policymakers in many industrially developed countries such as the USA, the UK, Japan and Finland. The importance of management development plans could be proven with the evidence that these programmes have brought substantial cut in MSEs closure rate and increase in performance during the recent decade (Ates, Garengo, Cocca & Bititci, 2013). Although the role of government in supporting MSEs has been undoubtedly pivotal, however, it is pertinent to understand that government can only provide a competitive and conducive ‘market’ instead of replacing ‘market’ with government-governed enterprises. At part of government and development agencies, there is a need to galvanize MSEs to seek technological and management skills and then ensuring the timely and effective delivery of relevant management development programmes (Gray & Jones, 2016).

MSEs Development in Pakistan

The MSEs in Pakistan have significant contribution of output that is outside the exceedingly capital-intensive large-scale sector. The MSEs’ contribution to saving and investment, upgrading existing and developing new technology, generating jobs and above all, to nursing large firms is more significant in developing countries like Pakistan. However, irrational policies making approach towards MSEs is likely to influence the achievement of this objective. One such approach is addressing competitiveness issues through technological upgradation and vocational training of MSEs’ employees in order to exploit their full potential.

The overall scenario was bleak in those industrial hubs where transformation from home-based cottage industry to small scale manufacturing units was under go. Especially, Sialkot, Gunjranwala, Wazirabad, Gujrat, etc., in Punjab; Thatta, Mir Purkhas, Dadoo, Sanghar in Sindh; some specific industrial areas in Karachi as North Karachi Industrial Area and Federal B. Area Industrial Area; Khuzdar and Gawadar in Baluchistan; and Nowshehra, Mardan, Bannu in Khyber Pukhtun Khua were considerably adding to GDP but the cost of operation was much higher, since they lacked in drawing a swift combination of efficiency and effectiveness and it was the reason that their cost of production was not under control and high rate of rejection turned the table down. They were earning less and paying more in terms of reworks and rejection but strived to come up to the mark and become capable of keeping the fight on as their overheads were very less as they were far away from maintaining the corporate protocols.

Mujtba Akram, Head of the MSEs Industry Support Cell

Mujtaba, an MBA from one a leading foreign University, was working with MSEDO from last 12 years. He joined this organization as Assistant Manager in Training Department and was soon elevated to the position of Manager Industrial Training department, where he conceived the landmark initiative of engaging senior Japanese experts for providing on-job training for productivity improvement and energy efficiency enhancement to MSEs working in manufacturing sectors of the country. These experts were acquired through Japan International Cooperation Agency (JICA) for a period of 5 years.

JICA is a Japanese government-owned agency for providing technical and financial assistance to developing and underdeveloped countries for cross cutting industrial and social development projects. Senior Expert Service is one of the key programmes of JICA, whereby retired Japanese experts having diverse academic and professional backgrounds are sent to different developing countries where they work with the local industry to foster best practices for productivity improvement and energy utilization. JICA runs this programme in collaboration with its counterpart host organization, across the word.

Being the volunteer MSEs development agency, MSEDO approached JICA’s Pakistan chapter and requested for collaboration for the running Senior Expert Program in Pakistan. Mujtaba Akram was the person who developed initial concept note and Terms of References (TORs) for the collaboration and had been instrumental in setting up meetings with JICA officials to undertake this initiative. To coordinate the programme, MSESC was formed and Mujtaba was appointed as Head of the Cell.

Micro and Small Enterprises Support Program

Support Cell was established in 2003, initially as a joint project of MSEDO and JICA for productivity improvement of the textile sector of Pakistan. However, as the project received success over time, its portfolio extended to other important sectors such as auto parts, foundry, fan, furniture, jute, leather, chemical, dies and moulds and food processing. Support Cell also started providing technical foreign experts and outreach services to targeted MSEs. The Japanese experts engaged through JICA were sent to local MSEs for 6–12 weeks for imparting on-job training on process improvement. The experts worked in close collaboration with the concerned employees of host factories and provided them trainings, and developed best practices for enhancing productivity and bringing energy efficiency in the organizations.

Meeting between Mujtaba Akram and Newly Appointed Management Committee of MSEDO

Despite working under the aegis of development agencies, MSEDO is being run with a corporate outlook through professional staff members. As per the ordinance, promulgated for creation of MSEDO, GMs of all eight functional divisions and Chairman of the organization are appointed for a period of 5 years, and it is mandatory to appoint new GMs and Chairman after end of the term. These GMs and Chairman constitute the apex tier of the organization, called MC. The new MC assumed charge in 2008, precisely at the time Industry support cell, has completed its 5 years, and JICA was to send a delegation to MSEDO for initiation of Evaluation of the Project. The MC invited Mujtaba to for a briefing on the success of project.

At the start of the 5 hour-long meeting, Mujtaba was confident that his project execution will receive appreciation by the MC. Mujtaba told the MC that with 26 Japanese experts, MSESC has so far served to approximately 350 industrial units in areas of productivity improvement, cutting energy and overall production cost, and quality enhancement where MSESC recorded 15–20 per cent productivity improvement in 288 industrial units. Similarly, in the rest of 62 units, energy efficiency programmes attained net improvement ranging from 10 to 20 per cent, depending upon the sector. He further added that MSESC has arranged 70+ technical training workshops, seminars and awareness building sessions and has proposed five best practices manual for various industrial units. Mujtaba proudly told that after having the fantastic and unprecedented outcomes of this programme and the naked evidences of substantial productivity improvement and cost reduction, the industries have now become more welcoming and motivated towards dedicated efforts for productivity improvement, and now, he has a long cue of thousands of industrial units which are requesting MSEDO to avail this series.

However, to the dismay of Mujtaba, new MC had an entirely different approach to look at this project. The MC highlighted total cost of the project being shared by JICA (as remuneration to experts), Government of Pakistan (as travelling and office facilities to experts) and host organizations (as boarding and lodging of experts during the training period) and emphasized that with such a cost and 5 years’ time frame, improving mere 350 factories shows that project has been ill conceived and have just achieved fraction of its true potential.

Criticism on the Project

To MC, MSESC could have earned a success which might have rather wider implications. Instead of direct facilitation to the industrial units and quantitative delineation, it was essentially a project for transfer and proliferation of the foreign knowledge and skills of Japanese experts among local industry.

MC was of the view that queue of all companies waiting to avail this service was rather an indicator of failure of the project. Given the fact that MSEDO, having limited resources and small number of Japanese experts available, could never provide service to 3.2 million MSEs in Pakistan; the project should have adopted an entirely different approach to implement. The approach, as suggested by MC, was to take a pool of 500 local engineers and make them work as associates to the Japanese experts during the course of their stay in Pakistan and training to the factories, so that a pool of local experts could have been developed which could charge fee and provide such services to the wider clientele in local industry. The two-pronged benefit of this approach was to develop a pool of local expert, thereby reducing dependence on Japanese experts, on one hand, and ensuring availability of this service to wider client base, on the other hand.

MC gave successful examples of many of the MSEs development agencies of the world which have succeeded adopting this approach of developing a pool of private sector service providers to work as their agents in ensuring the availability of core business support services in the market. This approach is particularly useful for those countries where industry lacks accessibility of certain type of business development service and therefore their respective development agencies seek to develop and strengthen service providers for ensuring that such services do prevail and proliferate in the local industry. In expedition of industrial competitiveness, Pakistan is prone to the similar challenges. Our industries, especially of small and medium size, endure with paucity of several basic services, including production management, energy efficiency and cost reduction. It is therefore opportune for government agencies to adopt a similar strategy of developing consultants and private sector service providers who could further provide necessary support service to industry. To the MC, focus of MSESC has remained overwhelmingly centred towards direct facilitation to the individual clients and not capacity building. As a result, it has failed to develop a sizeable pool of local consultants and service providers which, if developed, could have produced multiplier effect to the rapid spread of this service.

The Dilemma

Mujtaba was perturbed, not because his project was rated very low by the MC but for the reason that he faced criticism of MC based on sane logic and international benchmarking. He had been delivering his best to make this project successful and to serve his country with a great motivation and dedication, but eventually he was made to realize that much better result could have been achieved if he could have adopted an alternate approach. He thought of his university professor who used to say, ‘Direction is key ingredient to success, because if your direction is wrong no matter how much hard work and dedication you put, you could never achieve the desired targets.’ He realized that while he was proud of his ability to conceive and implement such a landmark project for uplifting the trajectory of MSEs competitiveness, actually what he got was lack of direction.