SM Report Final3

STRATEGIC MANAGEMENT
SUGGEST THE STRATEGY TO THE

PAKISTANI INDUSTRIES IN THE
LIEU OF THE GLOBALIZATION
CHALLENGES?
Submitted to: Dr. Mustaghis
Submitted by: Ambreen Khalani
Bismeh Shafi
Muffadil Ali
Sandeep Kumar
MBA E I C
3
TABLE OF CONTENTS
1. INTRODUCTION.....................................................................................................................6
2. WORLD......................................................................................................................................7
2.1 OVERVIEW OF THE WORLD ECONOMY...............................................................7
2.2 NEW DYNAMICS OF WORLD MARKETS...............................................................8
3. GLOBALIZATION...................................................................................................................9
3.1 ORIGIN OF GLOBALIZATION.............................................................................11
3.2 CAUSES OF GLOBALIZATION............................................................................11
3.3 EFFECTS OF GLOBALISATION...........................................................................12
4. PAKISTAN...............................................................................................................................14
4.1 OVERVIEW OF THE DOMESTIC ENVIRONMENT.................................................14
4.2 THE CURRENT POLICY ENVIRONMENT FOR INDUSTRIES..................................15
4.3 ECONOMIC AND INDUSTRIAL BACKGROUND OF PAKISTAN.............................16
4.4 HISTORY OF INDUSTRIAL POLICY MAKING.......................................................17
4.5 CHALLENGES FOR PAKISTAN...........................................................................20
4.6 OPPORTUNITIES FOR PAKISTAN.......................................................................23
5. STRATEGY FORMULATION FOR PAKISTAN.............................................................25
5.1 MAJOR INDUSTRIES OF PAKISTAN....................................................................26
5.11 TEXTILE INDUSTRY:....................................................................................26
5.12 LEATHER INDUSTRY....................................................................................27
5.13 SURGICAL GOODS INDUSTRY.....................................................................28
5.14 SPORTS GOODS INDUSTRY.........................................................................28
5.15 SOFTWARE/IT INDUSTRY............................................................................29
5.2 MANUFACTURING SECTOR OF PAKISTAN.........................................................30
5.21 PRESENT SITUATION IN PAKISTAN..............................................................30
4
5.22 CAUSES...................................................................................................... 31
5.23 SOLUTIONS.................................................................................................32
5.3 AGRICULTURE SECTOR....................................................................................33
5.31 PRESENTATION SITUATION.........................................................................33
5.32 SOLUTIONS.................................................................................................34
5.4 INVESTMENT & SAVINGS.................................................................................35
5.41 PRESENT SITUATION...................................................................................35
5.5 FOREIGN DIRECT INVESTMENTS......................................................................36
5.52 CAUSES...................................................................................................... 37
5.6 ENERGY........................................................................................................... 37
5.62 CAUSES...................................................................................................... 39
5.63 SOLUTIONS.................................................................................................39
5.7 CREDIT TO PRIVATE SECTOR & CONSUMER FINANCING..................................39
5.72 CAUSES...................................................................................................... 40
5.73 SOLUTIONS.................................................................................................42
6. EXPORTS................................................................................................................................43
6.1 CONCENTRATION OF EXPORTS........................................................................43
6.2 COMPOSITION OF EXPORTS.............................................................................43
6.3 RESULTS..........................................................................................................44
7. IMPORTS.................................................................................................................................44
7.1 CONCENTRATION OF IMPORTS........................................................................45
7.2 COMPOSITION OF IMPORTS.............................................................................45
8. INDUSTRIAL STRATEGY FOR PAKISTAN....................................................................45
5
9. REFERENCES ...............................................................................48
1. INTRODUCTION
The acceleration in the global movement of capital and goods, termed 'globalization', carries both
immense opportunities and serious threats. Ultimately, it will be the international competitiveness of
firms that will determine how far opportunities are converted into lasting national benefits and how far
potential threats from heightened international competition result in serious cost. There is widespread
agreement that with important domestic policy changes and with the end of the international textile and
6
clothing quota regime, the economy of Pakistan is at an important crossroads. The competitiveness of the
industrial sector in the new, more liberal international and domestic environment has a critical bearing on
economic prospects for the foreseeable future.
Globalization carries both immense economic opportunities and potential threats for developing countries
such as Pakistan. The extent to which countries will benefit from globalization depends on the
international competitiveness of the private sector. From a policymaking-perspective, it must be kept in
mind that it is firms that compete and not nations. Thus, the government's role in promoting
competitiveness should be secondary to that of the private sector. However, due to the failure of markets
in critical areas and the lack of coordination amongst firms in certain sectors, government support for
firms is imperative in order to compete internationally.
This study examines the international competitiveness of Pakistan's industrial sector by 'benchmarking'
various indicators of national capability and performance against competitors and by highlighting key
lessons from the past.
2. WORLD
2.1 OVERVIEW OF THE WORLD ECONOMY

The collapse of the US sub-prime market and worst ever global financial crisis has had serious
repercussions not only for the developed world’s economy but for developing markets such as Pakistan as
well. The fallout has spread through an extensively interlinked global financial market and resulted in a
tightening of credit and general drying up pf liquidity. The impact of this crisis on the developing and
7
emerging economies is huge; the financial crisis backlash on the on the customer markets, the housing
markets, and more broadly on the process of investment in the production of goods and services.
The world economy is likely to shrink by 1.3% in 2009 with almost all developed countries likely to post
negative growth. Countries like Pakistan, which are relying on trade as a primary means of boosting
economic growth are likely and are already seeing trade volumes fall drastically. Growth in world trade
volumes fell to 3.3% in 2008 and is expected to contract substantially by 11% in 2009. Exports from
developing nations are likely to contract by 6.4% during the same period. The impact from the global
meltdown might be compensated to some extent through boosting local demand.
2.2 NEW DYNAMICS OF WORLD MARKETS

High technology activities have grown faster both in terms of production and trade than other
manufacturing activities (and trade has grown faster than production, indicating the increasing
internationalization of industry in all economies). Not only are technology-intensive industrial activities
more dynamic, they tend to offer greater potential for sustained learning and increased productivity, more
spillover benefits to other activities and more scope for foreign direct investment (FDI) in integrated
production systems that offer enormous export possibilities. All production and export structures are thus
not equal in terms of promoting industrial growth and competitiveness. This does not mean that low
technology and resource-based products should be neglected in competitiveness strategy. Rather, such
products are the starting point for building industrial competitiveness in developing countries. The
'bottom line' of competitiveness is to upgrade technologies in all activities, building new capabilities and
finding new markets and market niches. At the same time, the dynamics of world markets suggest that it
is necessary to promote structural change, and nearly all countries that have maintained high rates of
export growth have upgraded the technological composition of exports.
In manufactured exports, developing countries have grown faster than industrial ones in all categories and
periods since 1981. Their lead has been greatest in high technology followed by medium technology
products. The reasons for this lead are given below:
• Some developing countries, led by the mature Tiger economies of East Asia, Korea and Taipei,
China, have built domestic capabilities in high technology. This accelerated development of
capabilities was driven in the early stages by strong and pervasive industrial policy, with
restrictions on inward FDI, protection of infant industries, allocation of credit, and promotion of
local R&D and specialized skills.
8
• Several other countries without strong local capabilities have become major high technology
exporters by plugging into integrated production systems, starting by performing relatively
simple assembly. Over time, many countries have upgraded their role, moving into greater local
content, design and development, regional marketing and so on. Singapore, for instance, is one of
the world's leaders in advanced electronics, with impressive design capabilities and growing local
linkages.
• Trans-national company (TNC) systems have also spread in some medium technology products
like automobiles. The three large Latin American economies, Argentina, Brazil and Mexico, are
good examples of complex medium technology exports led by the auto industry. This value chain
is unlikely to spread to many other developing regions because of its enormous scale economies
and high skill requirements.
• In low technology categories, rates of export growth are limited by slow expansion of trade.
Within these products, it is difficult for developing countries to upgrade to the most advanced end
of the value chain because of very demanding skill, design and branding requirements. High
fashion exports, for instance, remain the preserve of rich countries, as do differentiated food
products.
• Growth of developing world exports of some resource-based and low technology products like
agricultural goods is held back by trade barriers, tariff escalation (higher tariffs being levied on
imports of processed products than on the raw materials) and subsidies in industrialized countries
Pakistan is a weak performer when it comes to competitiveness. Its world market shares remain small and
its export structure dominated by low technology and low sophistication products.
3. GLOBALIZATION
Globalization is a process of interaction and integration among the people, companies and governments of
different nations. This process is driven by international investment and aided by information technology.
This process has effects on the environment, culture, political systems, economic development and
prosperity, and on physical well-being in societies around the world.
Globalization is not a new concept. For thousands of years, people and later corporations have been
buying from and selling to each other in lands at great distances but policy and technological
developments of the past few decades have stimulated huge increases in cross border trade, investment
9
and migration. Many observers believe the world has entered a qualitatively new phase in economic
development. Since 1950, the volume of world trade has increased by 20 times, and from just 1997 to
1999 flows of foreign investment nearly doubled from the previous ones.
This current wave of globalization has been driven by policies that have opened economies domestically
and internationally. In the years since the Second World War, and especially during the past two decades,
many governments have adopted free market economic systems, vastly increasing their own productive
potential and creating countless new opportunities for international trade and investment. Governments
also have negotiated dramatic reductions in barriers to commerce and have established international
agreements to promote trade in goods, services and investment. Taking advantage of new opportunities in
foreign markets, corporations have built foreign factories and established production and marketing
arrangements with foreign partners. A defining feature of globalization, therefore, is an international
industrial and financial business structure.
Globalization has powerful economic, political, cultural and social dimensions. Earlier most of the
business related and other interactions took place face-to-face, and were much localized but now, these
interactions takes place across the globe and across great distances. There has been significant
delocalization. All sorts of businesses have adopted new technologies and reduced face-to-face interaction
to a great extent. The internet has facilitated globalization and has made it possible to access information
and resources across the world and to coordinate activities in real time. Banks have call centers; retailers
have online shopping options etc. People and systems operating miles away influence the local
neighborhood. For example, movement in the world commodity and money markets can have an effect on
people living across the globe. The speed of communication and exchange, the complexity and size of the
networks involved, and the sheer volume of trade, interaction and risk gives globalization a peculiar
force. Everything is interdependent.
Globalization has resulted in the decline of power of national governments to direct and influence their
economies. Shift in economic activities in USA and Japan are felt by many other countries all over the
globe. The role of government is still very essential in creating the conditions for effective international
governance, but it has to manage national politics in such a way as to adapt themselves with the pressures
of transnational market forces.
It has lead to the growth of multinational corporations (MNCs) which has completely changed the way
businesses work and has lead to the rising awareness of branding. The major reason for the multiplicative
growth of multinationals is successfully producing brands opposed to products. Thus, MNCs in tandem
10
with transnational organizations like the World Trade Organization (WTO), International Monetary Fund
(IMF) etc. have played a significant role in the growth of globalization.
3.1 ORIGIN OF GLOBALIZATION
The origin of globalization can be traced back to the 16 th century when the West started to explore new
continents. The East India Company was the first multinational. The process of global economic
integration was carried out after World War II and the first Great Depression when Britain and the US
floated the idea of reconstructing the war-torn world monetary system with a focus on freedom of capital
movement. This led to a more liberal, capitalistic world. The World Bank and International Monetary
Fund aided and promoted free flow capital through loans and reforms and steered the world toward
economic integration, eventually leading to the birth of the World Trade Organization. (WTO).
Loans and reforms by WB and IMF are aimed at liberalization of developing countries markets. These
loans reduce the state’s role in the economy, lower barriers of imports, remove restrictions on foreign
investment, eliminate subsidies for local industries, emphasize production for exports rather than local
consumption etc.
3.2 CAUSES OF GLOBALIZATION
There are various causes that have contributed to the rise of globalization. A large number of players
including nation states; private investors; NGOs and MNCs; Information and communication technology
and declining costs of transportation are some of the driving forces to expanding globalization.
• Decolonization: The policies of the colonial empires led to the rise of nationalistic sentiments. These
nationalistic movements weakened the hold of colonial powers over their colonies. The Second
World War added to these weaknesses which resulted in the decolonization process. Due to
decolonization many new nation states were born and free trade promoted and expanded.
• United Nations: World War II was so disastrous that to stop further wars and to resolve conflicts
more peacefully an organization was built of state nations. This organization increased cooperation
between countries and lead to a more global world.
• Collapse of the Soviet Union: The Collapse of the Soviet Union lead to more nations being born and
decreased polarity in the world thus making global trade easier.
11
• World Trade Organization: After World War II the demand for freer trade was strongly felt to rebuild
the economies damaged due to war and long colonization. In 1948 the General Agreement on Tariffs
and Trade (GATT) a treaty and International Trade Organization was signed by 23 nation states. The
purpose was to promote free trade. In 1995 GATT was replaced by the World Trade Organization
(WTO) which was the real step towards international globalization as it had 142 members in 2001.
• World Wide Web: The World Wide Web has probably been the biggest driving force behind
globalization as it provides a cheap and effective means of communication to individuals in all
corners of the world. A decentralized system, it allows individuals around the world to share and
exchange knowledge, information and provides commerce opportunities with lesser government
intervention.
3.3 EFFECTS OF GLOBALISATION
• Cultural Globalization:
Globalization has lead to a diffusion of cultures around the world. The increasing spread of
democratic governments, liberalization of trade, liberal neo-economic reforms, the rise of technology,
and the emergence of a truly global market for goods and services produced by modern industry have
resulted in a decline in the significance of national and other barriers to globalization. Along with
globalization has come a growing interdependence among nations. Globalization has now opened up
broader communication lines throughout the world. There are more employment opportunities for not
only working men but also women, who are becoming a larger part of the workforce. With new jobs
for women, there are opportunities for higher pay, which raises self-confidence and brings about
independence. There is more exchange of information between countries which do not have anything
in common between them. There is cultural intermingling which has lead to people adopting cultural
practices from around the world.
• Globalization of Communication:
Globalization has lead to information technology ad vice versa. The rapid decrease in the cost of
communication has altered the relationship between states and has lead to the formation of a global
civil society. There is not only economic exchange but there is also an exchange of ideas, and all
these new networks can create political and social groups and ailments. One of the positive
consequences of the opening up of borders and the development of the Internet and other
technologies is that it has become increasingly easier to travel from one country to another or to
12
communicate with people from all over the world. Also, with management information systems
integrating employees, products, markets and customers together businesses have a greater outreach
to world markets spread in different countries.
• Economic Globalization:
The interrelationships of markets, finances, goods and services, and the networks created by
transnational corporations are the most important signs of this. Economic globalization has been
accelerated by the ease in money transfer. The market's ability to shift money from one part of the
globe to another by the push of a button has changed the rules of policy-making, putting economic
decisions much more at the mercy of market forces than before. Since we share financial interests,
corporations and governments are trying to sort out each others problems. Openness to FDI can
contribute to economic growth by stimulating domestic capital formation and improving efficiency
and productivity, due to greater access to new technologies. Increased competition and access to
domestic financial systems by foreign banks may improve the effectiveness of banking, thereby
lowering markup rates in banking, as well as the cost of investment, and again raising growth rates.
The rate of labor in western countries is much higher than in developing countries. Therefore, a lot of
foreign manufacturing and services are being outsourced to developing countries. Along with the
positive aspects the more important negative aspect of globalization is giving multinationals greater
control and profits overshadowing smaller companies. Another major drawback is that some
countries cannot compete internationally and face economic problems and adversity, increasing the
difference between richer and poor countries.
• Political Globalization:
It consists of the institutionalization of international political structures. Traditionally politics has

been undertaken within national political systems. National governments have been ultimately
responsible for maintaining the security and economic welfare of their citizens, as well as the
protection of human rights and the environment within their borders. With globalization and a more
integrated global economy, political activity increasingly takes place at the global level. Under
globalization, politics can take place above the state through political integration schemes such as the
European Union and through intergovernmental organizations such as the International Monetary
Fund, the World Bank and the World Trade Organization. Political activity can also transcend
national borders through global movements and NGOs. Civil society organizations act globally by
forming alliances with organizations in other countries, using global communications systems, and
13
lobbying international organizations and other actors directly instead of working through their
national governments. Gradually a world power is being created instead of compartmentalized power
sectors. Politics is merging internationally.
4. PAKISTAN
4.1 OVERVIEW OF THE DOMESTIC ENVIRONMENT

Pakistan’s macroeconomic environment is affected by the intensification of the war on terror and
deepening of the global financial crisis which penetrated into the domestic market through the route of
substantial decline in Pakistan’s exports and a visible slowdown in foreign direct inflows. Although
contraction in export receipts in somewhat compensated by massive import compression emanating from
the global crash of crude oil and commodity prices, the external sector vulnerabilities remain a threat.
Despite support from the IMF and other bilateral and multilateral donors, Pakistan’s external account
remains exposed to a lot of uncertainties.
Pakistan’s economy has lost significant momentum in the last few years. One of the prime contributors to
this derailing is Pakistan’s proactive role in the war against terror. A conservative estimate has placed
economic cost of this war for Pakistan at around US$35 billion since 2001-02.
14
4.2 THE CURRENT POLICY ENVIRONMENT FOR INDUSTRIES
International competitiveness requires ready access to international inputs at close to world prices and a
domestic market subject to competitive pressure. Experience in Pakistan and elsewhere suggests that
highly protected domestic markets not only reduce incentive to export but also penalize the economy by
allowing inefficient domestic producers to extract policy induced rents from domestic consumers. While
infant industry support can be beneficial, experience suggests that if such a policy is to be pursued, it
should be time-bound and performance-linked.
Pakistan has liberalized its trade policies significantly over the last decade or so. At present it is one of the
more open trade regimes in South Asia, although South Asia itself remains relatively protectionist by
international standards. Pakistan has unilaterally reduced import tariffs so that its applied rates are often
below the bound rates to which it is committed by World Trade Organization (WTO) membership. The
maximum average import tariff for Pakistan was reduced from 30% to 25% in 2002. The simple average
applied tariff of around 10% in 2003 was 56% in 1995 and nearly 80% in 1985. Under the investment
policy introduced in 1997, policies towards inward FDI to Pakistan have also become liberal by regional
standards.
Foreign investors are guaranteed national treatment, face low import duties on plant and equipment, and
receive a first year profits tax allowance. Full foreign ownership is allowed (for all but a small number of
activities) as is full repatriation of capital, dividends and profits, and there is no restriction on the level of
royalty payments. Measures have also been taken to introduce an Intellectual Property Rights regime
compatible with the WTO. Pakistan is a low wage, labor surplus economy. However, firm-level
comparisons suggest that while wages in Pakistan are low by international standards, they are often
significantly higher than in Bangladesh and slightly higher than in India. Allowance for differences in
labor and capital productivity suggests that on average Pakistan is a higher cost location than the People's
Republic of China (PRC), India or Bangladesh. It is widely acknowledged that slow growth in private
investment, particularly in large-scale manufacturing, has been one of the key constraints on Pakistan's
economic growth. Part of the explanation lies in the uncertain political scene, but more narrowly
economic and institutional aspects of the general investment climate have also had a negative impact on
investment decisions.
Changes introduced in 2002 have decreased the time and cost required to start up a new business. High
cost and poorly functioning infrastructure can clearly impede the operation of enterprises which may be
efficient in terms of mastery of their own production processes. There is evidence that infrastructure, in
particular in the power sector, has been a key bottleneck in Pakistan. Problems with lack of a reliable
15
power supply are indicated by the relatively high proportion of power that firms in Pakistan estimate is
lost on average due to power outages. In addition, there can be a lengthy waiting time for connection to
the grid. In the telecom sector there is a shortage of fixed line connections. The time taken to get a
telephone connection is still high by international standards. Furthermore, waiting times for connections
have increased, not fallen, over recent years. Connection costs for phone lines are also high by
international standards. These constraints and high costs are a contributory factor to relatively low
internet usage among enterprises in Pakistan.
Transport has also been discussed as a potential bottleneck, particularly in relation to exports. In relation
to ports, for example, there are estimates which suggest that port handling costs in Karachi and Port
Qasim are higher than the regional average. These infrastructure deficiencies clearly need to be addressed
to strengthen competitiveness.
4.3 ECONOMIC AND INDUSTRIAL BACKGROUND OF PAKISTAN

Pakistan has historically been an agricultural country. At independence, the economy of the country was
agrarian. The country had a per capita income of roughly US $60 which was derived mostly from
agriculture and more than 75% of the labor force was directly involved in agriculture which provided
60% of the total GNP.
At that time, the country had no significant industrial sector. The only large industries were agricultural
processing industries like jute baling (which was lost to Bangladesh in 1971), cotton ginning, wheat
milling, rice husking and tea processing. There was only one small oil refinery in what is now current
day Pakistan, a few cotton textile mills, a few sugar mills and one or two cement factors. The cottage
industry although present was completely undeveloped and undocumented. In 1949-50, the first year
when GDP was properly documented, the GNP from industry was 5.9% with only 1.5 % coming from
large scale manufacturing. Since then, the industrial sector of the economy has been growing steadily.
The progression of industrial growth in the first few years after independence is shown in the table below
which shows the share of small and large scale manufacturing in the total GDP of the country.
Manufacturin 1949-50 (%) 1954-55 1959-60 1964-65 1969-70

g
Large scale 1.5 3.6 5.0 7.6 9.6
Small scale 4.4 4.4 4.3 3.8 3.3
16
This growth as can be seen came from mainly large scale manufacturing which is defined as a
manufacturing unit which employs more than 20 people and uses power. As can be seen from the table,
over this period, the share of small scale manufacturing in the GDP actually fell whereas large scale
manufacturing’s share grew. This growth came mainly from the cotton and jute sectors; textiles, leather
goods, matches, cigarettes and other consumer goods.
From 1949-50 to 1954-55, industrial production grew at a rate of 23.6% per year. Thereafter, it slowed
down and in the period from 1955-60, it grew at an average rate of 9.3%. Manufacturing employment
however, did not rise at the same rate as output.
Many reasons have been cited for this high growth in manufacturing in the early days of Pakistan’s
existence. Firstly, the industrial set-up at the time of independence was abysmal so therefore, the country
was bound to grow industrially. Secondly, the initial economic policies of the government were also
geared towards domestic manufacturing. There was relatively much higher duty on consumer goods
rather than capital goods which encouraged industrialists to import machinery and start manufacturing
locally. Export duties were subsidized and tax holidays were provided to industrialists. Pakistan also
possessed important raw materials that could be used in manufacturing like cotton, jute and hides and
skins and a large domestic market for the goods produced. In addition to this, another reason for the initial
growth in industry was due to the fact that there was a strong desire to limit dependence on India for
industrial goods.
4.4 HISTORY OF INDUSTRIAL POLICY MAKING

The making of industrial policy in Pakistan has a chequered history. Five industrial policies or distinct
approaches have left a lasting impression on the structure of industry in the country. The first was made in
1948, soon after Pakistan gained independence, and was developed further as a consequence of the Indian
decision in 1949 to place a trade embargo on Pakistan. The second was embedded in the Second (1960-
65) and Third (1965-70) Five-year Development Plans adopted by the government headed by President
Ayub Khan; the third was adopted by the administration of President (later Prime Minister) Zulfikar Ali
Bhutto, the fourth was formulated by the several democratic governments that held office in the eleven
year period between 1988-1999, and the fifth was adopted by the government of President Pervez
Musharraf..
The first generation of Pakistani leaders was extremely concerned with the Indian attitude towards the
country they had created. There was an impression that the Indian leadership would attempt to smother
Pakistan by using economic means. Pakistan at that point was dependent on India for the supply of basic
goods of consumption; a significant proportion of its imports came from India and a significant
17
proportion of its exports went to that country. The government hence, adopted a series of policies for the
development of the country’s industrial base. The country encouraged private leadership in the process of
industrialization, provided incentives to private entrepreneurs to invest in the production of consumption
goods, and gave the fledging private sector protection from external competition. All this resulted in the
rapid growth of the industrial sector and rapid increase in the rate of increase in industrial output.
The government of Ayub Khan continued with this approach but with two differences. It used the
industrial licensing policy to bring about a wider dispersal of industrial ownership; and it used
development finance companies such as the Pakistan Industrial and Commercial Investment Corporation
(the PICIC) and the Industrial Development Bank of Pakistan (the IDBP) to influence the scope of
industrialization. PICIC and IDBP received generous financial support from the World Bank.
Development thinking at that time was in favor of using publicly owned development finance
corporations to quicken the pace of industrialization. Textile spinning and weaving sectors were most
affected by this policy. Dozens of spinning mills were set up.
Around 1972 however, a major shift in industrial policy was seen regarding private sector industries.
Most heavy industries were nationalized and sectors like cement, fertilizer, oil refining, engineering and
chemicals were affected the most. Price controls were put into place, fiscal incentives and export
subsidies were removed and import duties on imported finished goods were reduced which reduced
incentives for local manufacture of products. Anti-monopoly measures were taken which further reduced
profits for industries. All this lead to a massive flight of capital which therefore reduced investments in
large scale manufacturing. Domestic and foreign demand for Pakistani products also started falling due to
poor quality and inefficient industrial processes. Most of the big industrial sectors were quite inefficient
as they were given a lot of protection and subsidies like the textile sector for instance. Later, when
globalization took place and WTO laws came into this place, this inefficiency and poor quality cost
Pakistan a large chunk of its foreign and domestic market as it had to suddenly compete with goods
coming from all over the world and in the international arena with countries like China and India. In the
1970’s, small scale manufacturing however gained impetus as the rupee was devalued and they were
finally at a level playing field with large scale industries. Small industries therefore started to grow faster
and exports from this sector increased.
The decision to set up a number of public sector corporations to undertake new investments in the
industrial sector and to provide financial support to them through a new development finance corporation
further strengthened the role of the state in the industrial sector. The result was the introduction of several
18
distortions into the management of the economy and widespread corruption that has continued to bedevil
the country to this day.
The table below shows the growth rate of large scale and small scale manufacturing in the first four
decades of Pakistan’s independence.
Period Small scale manufacturing Large scale manufacturing Total manufacturing
1950-60 2.3 15.4 7.7
1960-70 2.9 13.3 9.9
1970-80 7.9 3.9 4.8
1980-90 8.4 8.1 8.2
The democratic administrations that held office in the 1990s took some initiatives to bring back the private
sector as the leader in economic development by privatizing some of the state’s economic assets, in
particular large banks and large industries. But privatization did not lead to a bursting of industrial activity
on the parts of the large owners of assets in the sector. There was no attempt at product innovation, not
much attention given to technological improvement, and very little effort made at market penetration. The
old industrial families with their assets restored to them went about doing business in the old way. While the
government was stepping back from direct involvement in industrial management, large private sector
industrialists were not prepared to let go the hand of the government.
From our perspective, the most important policy initiative of this period was the establishment of the
Small and Medium Enterprise Development Authority, the SMEDA in 1998. The corporation’s mandate
was to facilitate the development of small and medium-sized enterprises by helping them to improve their
line of products, introducing the entrepreneurs to new technologies, introducing them also to new ways of
doing business and new management practices, helping them to do cost benefit analysis of the
investments they were contemplating to make, and making them aware of the opportunities available in
both internal and external markets.
Under the fifth approach to industrial policymaking the private sector acquired a very prominent role. The
pace of privatization quickened as did deregulation and the opening of the economy to the outside world.
Some significant adjustments were made in the tariff regime that provided incentives for the development
of such large scale industries as automobiles and consumer electronics. The government also gave
19
considerable room to the financial sector to participate in the process of industrialization by making
choices made on the basis of market considerations.
The amount of room for maneuver allowed to the private sector did not develop enough confidence
among the entrepreneurial class to stand on its own feet and deal with the changes occurring in the global
economic system without government intervention. The failure of the textile industry to make use of the
opportunities created by the end of the Multi-fiber Arrangement (MFA) on January 1, 2005 is the most
telling example of the lasting impact on entrepreneurial behavior of the policies and approaches towards
industrialization adopted in the past several decades.
While allowing considerable space to the private sector within the industrial domain, the government
should have also developed the regulatory system to provide protection to consumers, encouraging
competition in the private sector, and improving corporate efficiency. Several regulatory bodies were set
up in the sectors of finance, industry and public utilities but they were not allowed the autonomy without
which they could not effectively operate.
The frequent changes in industrial policy noted above have kept the industrial sector relatively backward
compared to the developments in other large Asian economies.
4.5 CHALLENGES FOR PAKISTAN
Globalization poses various challenges that will have to be addressed by government, civil society and
other policy actors. The key challenges of globalization in Pakistan are governance, energy and resources,
Infrastructure, equity and meritocracy, security and terrorism, ecology and discontinuity of policies. One
of the major challenges is to ensure that the benefits of globalization extend to all small and large
companies. Globalization has increased global competition which has lead to the decrease in labor wages,
poor employment practices, poor working environment and inappropriate labor laws. All these practices
are adopted due to the fear of staying in the global competition. Globalization and all of the complicated
problems related to it must not be used as excuses to avoid searching for new ways to cooperate in the
overall interest of countries and people.
20
Civil society organizations concerned with development have traditionally focused on aid and resource
transfers; they now are going to have to broaden their agenda to deal with the much more complex issues
of trade and investment, international financial flows, environment, and migration, among others.
As mentioned earlier globalization poses a competitive race between nations, to navigate the wave of
globalization, Pakistan needs to develop its local potential. This would require various reforms and
restructuring on the government and industrial level. These reforms need to be made on the political level,
by making special constitutions, taking administrative measures, etc. There are reforms to be made on the
economical level that are based on the principles of deregulation, liberalization and privatization. On the
social grounds more focus should be laid on better quality of education, improved healthcare etc. more
investments should be made on human resources for a better future. There will be fierce competition in
both domestic and external markets. The role of the multinationals and regional supply chains will also
expand, not only in industry but also in agriculture and services. Pakistan will face a challenge of putting
in place the infrastructure, and matching of skills with demand, within the country as well as those of
trans-national agents.
For enhancing the internal capacity to meet the challenges of globalization, there is a need for a secure
and stable external environment, at the regional and international level. Dialogues and treaties must be
signed between neighbors and countries around the world to promote peace and security. The
geographical location of Pakistan is very strategic; the policies should also complement that. Link roads,
rail, and air links, ports and sharing of the natural resources should be used to take advantage of
geographic location. Pakistan should try and solve its long standing issues such as Kashmir issue in order
to divert their resources towards socio-economic development, unleashing their tremendous potential for
growth and prosperity.
Another critical challenge that all nations are facing at the global level is terrorism. Terrorism has
damaged the image and stability of Pakistan. It needs to address the roots causes of this menace.
A critical element of the emerging international environment is the growing tendency towards regional
integration for shared economic benefits as well as to enhance the capacities for leveraging the process of
globalization. This requires Pakistan to actively play its role in various regional and international co
operations. The economy should be open and there should be no controls on investments, trade, joint
ventures or capital markets.
21
The ongoing massive economic globalization and dispersion of information and technology is changing
the scale and nature of human enterprise. An important likely consequence of the techno-economic-
knowledge revolution is the erosion of equity, in the world, at the same time as the tools for driving out
inequity and poverty will become available to mankind. This is likely to be an important challenge for
Pakistan. Economies are likely to diffuse across national boundaries into truly global supply chains,
whether in industry, services or ownership. This distribution of work and strategic linkages across
national boundaries, coupled with information integration, and a shift in the technological content of
world trade towards high technology, will be the most obvious features of the globalised economy of the
future. There will be continuing relocation of manufacturing and an increasing share of design and
services from the developed countries. Benefiting from relocation activities and investments, and
developing into regional or global hubs, would be major challenge for Pakistan.
Several factors are influencing work and employment in the emerging global economies of the 21st
century, but nearly all of them are technology related. Some key features are short product lifecycles,
global competition and supply chains, and processes with focus on the entire value chain and not just on
internal processes. All these factors have resulted in a continuously changing economy, with technology
and globalization influencing what we produce and serve, and how it is done. Pakistan will need to
address the challenges of a changing workplace, changing demand for skills, and a flexible gender
inclusive workforce.
Pakistan has so far focused its attention upon exports of merchandise goods only and neglected the most
dynamic element of world trade i.e. exports of services. The General Agreement on Trade in Services has
liberalized this sector and a number of developing countries have begun to derive benefits. Pakistan has
not been able to benefit substantially from the rapid growth of services exports. It is a challenge for
Pakistan to develop this sector.
Another major challenge faced by Pakistan is that it has 101 to 300 researchers per million people which
is far below Turkey, Tunisia, Azerbaijan and Lebanon’s 1001 or more researchers per million people and
Iran, Kazakhstan, Malaysia and Brunei’s 501 to 1000 researchers per million people. More resources need
to be allocated for research and development to strengthen the position on the global scale.
The political instability and the discontinuation of policies is another issue that poses great challenge to
Pakistan. It affects the proper functioning of the organization and governance and adversely affecting the
trade, social and economic development of the country.
22
4.6 OPPORTUNITIES FOR PAKISTAN
There are various opportunities for Pakistani industries in the midst of globalization. Pakistan is located at
the crossroads of three vital regions of the world i.e. South Asia, Central Asia and West Asia. It has
developed road, rail, and air links to improve the connection between the regions. This includes trade
routes, electricity grids, oil and gas pipelines, tourism and contact between people in different regions.
The cooperation with China for the transit of oil from the gulf regions towards western China can be a
good example.
Pakistan has close relations with major powers of the world like China, USA, Europe, Russia and Japan.
Similarly, it has been a founding member of regional and multilateral organizations such as South Asian
Association for Regional Cooperation (SAARC), the Economic Cooperation Organization (ECO)
between Pakistan, Afghanistan, Iran, Turkey and the Central Asia States, the Organization of Islamic
Countries (OIC) and the Asian Cooperation Dialogue (ACD). These regional integrations can benefit
Pakistan for leveraging the process of globalization.
Pakistan is also an active member of the World Trade Organization (WTO). As per the regulations of
WTO, Pakistan’s economy is open and there are no controls on investments, trade, joint ventures and
capital markets. Also various reforms are made to ensure efficient production so that industries can
compete internationally. Industries can benefit from these reforms as this opens up opportunities for them
to trade internationally.
There are various reforms made in various business sectors. The main reforms in the agricultural sector
have been the deregulation of prices and dismantling of the monopoly of the public sector in mandatory
procurement of major crops. Cotton, Rice and Sugarcane were already sold by farmers to the private
sector but recently it has been decided to allow the private traders to buy wheat directly from the growers
without the intervention of the Food Department. Imports and exports of agricultural commodities have
also been liberalized and private sector is allowed to trade in these commodities. Import tariffs and export
duties on these commodities have also been abolished and there are no quantitative restrictions in place.
Pakistani manufacturing sector was one of the highest protected sectors among developing countries
because of a high external tariff structure and quantitative restrictions. Reforms in recent years have
reduced the tariffs and restrictions. This is certainly an opportunity for the manufacturing sector to trade
freely.
23
Pakistan is a major producer of Cotton. Textiles are relatively more labor intensive which confers price
advantage upon its exports. During the last few years, textile industry has invested heavily in
modernization and replacement and imported new machinery worth $1 billion. This has certainly
improved the productivity, quality of products and capital efficiency. As the U.S. and European firms
become uncompetitive in textile and apparel business, Pakistani firms should enter into joint venture
agreements with them for technology transfer and marketing. This combination of natural comparative
advantage, renewal of capital equipment, investment in training and skill up-gradation and joint ventures
with Western firms should enable Pakistan to move up in the global market.
A serious difficulty in expanding Pakistani exports has been the continual problem of low, uneven and
inconsistent quality of products. National Accreditation Council has been formed by the government to
check the quality of products in order to bring these to internationally accepted standards. About 2000
companies have been given ISO 9000 certification. With this certification, the acceptability of products of
these companies has increased in foreign markets. In future, Pakistani companies will have to prepare
themselves for meeting the standards of social and environmental audits to be able to sell their goods in
global markets.
Pakistan should position itself for maximizing benefits from globalization in accelerating economic
growth and poverty alleviation.
24
5. STRATEGY FORMULATION FOR PAKISTAN
The development of a strategy involves five main steps.
• The first is a detailed assessment of the industrial sector and main sub-sectors. This involves
evaluating industrial performance in domestic and export markets and the main drivers of
performance (macroeconomic and policy framework, human resources, technology, FDI, finance,
physical infrastructure and supporting institutions). Where possible, evaluation should use
quantitative benchmarks against selected comparators (within the region, in other developing
regions that are likely to offer direct competition to Pakistan and in more advanced countries that
serve as role models). We hope to have made a start in this benchmarking exercise by drawing on
readily available international data and some recent work on the investment climate in Pakistan.
Naturally, informed qualitative judgments require a much more in-depth knowledge of the local
industrial sector than we possess.
• The second stage is the development of a national 'strategic vision'. The vision should reflect the
interests of all stakeholders, including the private sector, government institutions, employers'
organizations, trade unions and so on. In this step, the government needs to define short and long
term industrial goals and to start planning on how to strengthen or create capabilities to reach
these goals. The vision should inform priorities for public expenditure.
• The third stage is to design policies and programs.
• The fourth step is to implement these policies and programs.
• The fifth is to monitor the progress of the strategy, assessing its success and adjusting it as
necessary.
25
5.1 MAJOR INDUSTRIES OF PAKISTAN
Most of the development that has taken place is clustered in a few industries; the development and current
position of the major industries are discussed below
5.11 TEXTILE INDUSTRY:

Increase in the cotton production and expansion of textile industry has been impressive in Pakistan since
1947. Cotton bales increased from 1.1 million bales in 1947 to ten million bales by 2000.
The textile industry of Pakistan is currently the largest in the country. Pakistan ranks fourth among world
cotton producers and third among world cotton consumers. With the recent decline in textile exports and a
large trade deficit, Pakistan`s textile industry currently is confronting new economic challenges. In 2007,
the textile industry of Pakistan has a total established spinning capacity of 1550 million kgs of yarn,
weaving capacity of 4368 million square metres of fabric and finishing capacity of 4000 million square
metres. The industry has a production capacity of 670 million units of garments, 400 million units of
knitwear and 53 million kgs of towels.
Currently, In Asia, Pakistan is the 8th largest exporter of textile products. In 2007, the contribution of this
industry to the total GDP was 8.5%. The world demand for textiles is rising at around 2.5%, due to which
there is a greater opportunity for rise in exports from Pakistan. Pakistani textile exporters are facing steep
price competition from manufacturers in China, India and Bangladesh. During the six years between 1993
and 1998, production of yarn (in quantity terms) registered a steady annual growth rate of 302% in
Bangladesh and 405% in India. On the contrary, Pakistan registered a growth rate of 101% per annum in
yarn production although it ranked third after China and India in the global yarn production during the
same six years. In exports, while Taiwan, India and the republic of Korea registered an annual increase of
18.1%, 27.7% and 5.4% respectively during 1993-1998, Pakistan registered a negative growth of 4.8%
one important development was that till 1997, Pakistan was the world’s largest exporter yarn followed by
India. However, in 1998, India gained the number 1 position, leaving Pakistan at number 2. In the case of
cotton cloth production, a number of Asian countries have been emerging in the international market to
compete with Pakistan. These countries are Bangladesh, India, Taiwan, Indonesia, Thailand, Turkey, Sri
Lanka and Iran.
A total investment of about 7.5 billion US$ during the last 10 years has been made. The total investment
to be divided in various sub sector of textile industry, indicates that 50.2% in spinning sector followed by
17% in textile processing, 15% in weaving etc. textile machinery worth US$ 0.4 billion has been
imported during the current financial year. According to the Federal Bureau of Statistics, Imports of
26
textile machinery during the year 2004-05 to July March 2008-09 are as follows. Figures are in millions.
JULY-
MARCH
2004- 2005- 2006- 2007- 2007- 2008- %

05 06 07 08 08 09 change
928.6 817.24 502.8 438.2 318.1 171.5 -46.1

0 9 7
5.12 LEATHER INDUSTRY

At the time of independence, Pakistan only had a few leather tanneries. However, the abundance of raw
material for leather in the form of skins and hides has allowed the industry to expand and flourish over the
years. Currently, the leather industry is the second largest export-earning sector of Pakistan after textiles,
and this sector is contributing around $800 million a year but has the potential to increase the volume of
exports with the improvement of quality and diversification into a different range of products, specially
garments and footwear.
The major areas in leather include leather garments, leather gloves, leather footwear, handbags, Key
chains, wallets etc. the leather industry is mostly export oriented and about 80% of all manufactured
products are exported. Therefore, with improved quality, better marketing and more value addition, this
industry has the potential to grow even further. Major buyers of Pakistani leather and leather garments
include Italy, Spain, Portugal, South Korea, Germany, France, UK etc. the table below shows Pakistan’s
share in the global leather market in the year 2002-03
Country % share Export value ($US)
China 40 % 8 billion
India 10 % 2 billion
Turkey 8% 1.6 billion
Italy 8% 1.6 billion
Pakistan 3% 0.7 billion
27
Others 31 % 7.2 billion
These figures are before the WTO agreement came into full affect. Since then, the industry has been
affected negatively.
5.13 SURGICAL GOODS INDUSTRY

The global market for surgical goods and medical devices is worth around $30 billion. The majority of
this comes from heavy medical equipment like X ray machines etc. which Pakistan is not involved in.
Having exported stuff valued at $250.35 million in the last financial year; which was about 4% lower than
the year before, Pakistan’s share in the global market is less than 1%. This entire share comes from
disposable and reusable surgical equipment. In this subcategory, Pakistan is one of the world leaders with
Sialkot being the hub of this sector. The industry earns 60% of its exports revenue from disposable items
and the remaining 40% through reusable instruments. With Rs18 billion in capital investment, there are
more than 2000 small, medium and large units that together employ close to 200,000 workers and
manufacture about 100 million instruments annually.
However, the biggest problem with this sector is lack of brand development. Many surgical instruments
are sent to brands in USA and Europe where they are buffed and polished and sold for a far greater price.
Hence, often surgical instruments bought from other countries are originally made in Pakistan, but due to
lack of quality assurance and no brand name, Pakistani companies lose out on profits. The export earnings
from this sector can therefore be increased tremendously with some branding and marketing at the global
level. Another problem with the surgical goods industry is that raw material is often imported by
manufacturers and hence not always readily available at the right time.
5.14 SPORTS GOODS INDUSTRY

The sports goods industry in Pakistan for a very long time was just simply a cottage industry with women
and children sitting at homes and hand stitching footballs. However, in recent times, the industry has
developed into a large and growing industry. Till a few years back, Pakistan was the world’s largest
producer of footballs producing approximately 90 % of the footballs used in the world. However, a child
labor controversy has forced manufacturers to rethink their traditional methods and become more
centralized. Also, balls manufactured using thermal bonding have become more popular in the world as
well and are gaining more and more momentum as compared to the hand stitched ones that Pakistan has
traditionally been producing. Pakistani manufacturers are losing out to their Chinese counterparts in this
respect since we do not possess production facilities or the skills in terms of human resource to produce
the mechanized football. Manufacturers having realized this are now trying to move toward thermal
28
bonding and manufactured balls as well. However, this has lead to costs rising and therefore, the export of
sports goods from Pakistan in 2008-09 has declined by about 10% compared to the preceding year; from
$302.72 million in 2007-08 to $273.69. Despite this, Pakistan still produces about 85% of the world’s
hand-stitched footballs, which is about 40 million units per year. The global market for hand-stitched
footballs stands at around 45-50 million units per year, but the mechanized variety sells at least twice as
many. It is a growing market, while the traditional balls are a stagnant commodity which is bound to go
down further in the years ahead. Therefore, it is imperative that Pakistani manufacturers look toward the
future and focus more on the manufactured football rather than the handstitched one. By doing this,
Pakistan can substantially increase its global export earnings.
Some steps are being taken to improve this industry one of which is the establishment of the product
development centre (PDC). The PDC would facilitate the sports goods industry and enable it to cope with
the emerging technology of raw materials that, in turn, will give it a foothold in all sports goods; golf
clubs, squash and badminton rackets, cycles, water sports equipment, hockey sticks and much more. This
equipment worldwide is based on material like graphite that is fast replacing wood and metal. The PDC
will be the country’s first effort to move in that direction and should help take the sports goods exports to
an entirely new level.
5.15 SOFTWARE/IT INDUSTRY

The IT industry is a fast growing one internationally as well as locally. Pakistan is now trying to emulate
china and India and capitalize on the growing global need for IT. The total IT services export from
Pakistan in FY 2005 amounts to US$ 1.050 billion with the total industry size being approximately US$
2.8 billion according to the WTO formula. The growth rate of exports is quite high with a growth of 34%
in 2006-07. The Government of Pakistan has been developing the IT sector in Pakistan since the last few
years. A few of the incentives offered include tax exemption till 2016, establishment of IT Parks with low
rent, foreign ownership of equity invested in IT and 100% repatriation of profit allowed to IT companies.
Pakistan offers various competitive advantages over other outsourcing destinations, such as high quality
software development, swift and easy establishment of business, lowest cost basis and emerging and
state-of-the-art telecommunication and IT infrastructure. An average annual growth of 33% in the sector
is expected. This will result in the total IT export revenue crossing US$ 10 billion in the next five years.
The Pakistani software and IT industry has some major opportunities that it can capitalize on in order to
boost the industry and exports even further.
29
One of the emerging areas in the context of software is gaming which has now begun to gain significance
in Pakistan over the last few years.
Business process outsourcing (BPO) is an emerging concept that gives numerous cost advantages over the
usual in-house development. Already, many of the fortune 500 companies have established their offshore
development centers in Asia to reduce their costs and improve profits. The BPO industry is growing
rapidly in Pakistan, with exports up by 45% in the fiscal year 2003-4. Pakistan has a large untapped labor
pool of English-proficient graduates willing to work at wages 60% below their US counterparts.
Furthermore, consolidated operating costs are estimated roughly 30% lower in Pakistan as compared to
India or Philippines, two of Asia’s major BPO contenders. The Government has provided numerous
incentives and is willing to invest heavily in the infrastructure required to improve growth in the BPO
sector. A Harvard Business School analysis, entitled "Business Process Outsourcing (BPO) opportunities
in Pakistan” says that companies can save upto 30% in cost in Pakistan as opposed to India, along with
infrastructure advantages such as high-speed connectivity in all the major cities at competitive rates.
Enterprise Resource Planning (ERP) is perhaps one of the toughest and most demanding software
solutions to provide to any client, involving the complete automation of the customer’s company
processes. ERP comes in two basic forms: customized ERP (software made as per the demands and needs
of the client) or standard ERP (a solution such as SAP that can be bought ‘off the shelf’ to be
implemented).
5.2 MANUFACTURING SECTOR OF PAKISTAN
5.21 PRESENT SITUATION IN PAKISTAN

The manufacturing sector being the second largest sector of the economy bears significant importance
and contributes 18.4% to the GDP. Overall manufacturing sector posted a negative growth rate of 3.3%
during the current fiscal year against the target of 6.1% and 4.8% of the last year. The production of large
scale manufacturers during July-march 2008-09 witnessed a broad based decline of 7.7% against the
revised growth target of negative 5%, whereas in 2004-05, it was 19.9%. The sluggish growth rate impact
is mainly caused by severe energy crisis, deterioration of law and order, sharp depreciation of rupee vis-
vis dollar and most important weak external demand on the back of global recession coupled with slow
domestic demand.
Despite these problems it is noteworthy that almost all of the negative growth is attributed to industries
catering to domestic consumer demand for durable goods.
30
The group wise analysis in the above table indicates that most of groups in LSM experienced a negative
growth during the first 9 months of the current fiscal year. The groups exhibiting substantial decrease
include Automobile group (39%) followed by Electrical (31.1%), Petroleum (9.2%) an so on.
5.22 CAUSES
• Automobiles: The main reasons for negative growth were the imposition of additional taxes on
the industry, depreciation of Pak currency against major currencies, imposition of 35% cash
margin on import letter of credits, continued import of used vehicles, increase in the rate of sales
tax, high mark up rate for financing of vehicles, decline in disposable income of the customer due
to significant rise in inflation and rise in the costs of materials. This was stated by Mr……
working at………
• Electronic Industry: The main reasons for negative growth were due to severe shortages of
electricity, increased cost of financing and governmental revised upward duties on hundreds of
items.
• Tyres and Tubes: The main reason for this decline was due to fall in sales of Vehicles.
• Food, Beverage and Tobacco: The main reasons for the decline in production of beverages
(3.7% , weighted 0.28%) was due to a sharp increase in sugar prices.
31
• Petroleum Goods: The main reason for negative growth was due to circular debt which caused the
main constraint for refineries. PSO owes about Rs.38 billion to different refineries and it has
receivables about Rs.85 billion against IPP. In addition, due to the relatively high prices of POL
and overall slow down of the economic process, the sales of POL dropped during the current
fiscal year.
• Steel Products: The main reasons for negative growth as stated by Mr Abdul Karim who has
been in the business for 25 years are international commodity prices and sluggishness in the
domestic construction activity amid lower public spending under PSDP. Capital flight to the
Middle East real estate sector decreased as well and there was an increase in the cost of
construction due to high inflation.
• Textile Sector: The main reason for negative growth as stated by Mr Abbas Jaan who is GM
marketing at Naveena Exports, was due to recent global economic crisis. The steps taken on the
monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could not
improve the cost competitiveness of exportable products due to increase in prices of the local and
imported inputs of the local textile industry, and due to inelastic demand for Pakistan’s exports.
In addition to this, a narrow base of exportable items, concentrated markets and low value
addition also added to Pakistan’s woes when competing with other countries in the global market.
Domestically, the increase in cost and shortage of utilities has impacted the viability of the
industry
5.23 SOLUTIONS
• There must be a limited share of public sector involvement in the manufacturing sector. The
public sector should only focus on the development of the infrastructure of the economy
• The problem of smuggling, insecurity and increased lawlessness around business centers
needs to be carefully tackled. Industries should take matters into their own hands and form
their own force (such as community police).
• Industries should push the government towards privatization of national assets which have a
potential to go bankrupt in future.
• Direct or indirect collaborations with foreign players should be encouraged to extract the
benefits of foreign private investment.
32
• Small scale industries should take measures to create linkages between domestic and foreign
markets through export houses.
• Industries should focus on research and development as it plays an important role in the
development of new modern products and also to achieve efficient production of existing
ones.
• Industries should not rely on the government to provide sufficient utilities required to run
their industries. Backup and contingency plans need to be made before such an event is
anticipated so that losses can be reduced.
• In order to reduce the negative impact of recession, firms should try and focus more on
creating local demand through proper pricing and marketing techniques.
5.3 AGRICULTURE SECTOR
5.31 PRESENTATION SITUATION

The share of the agricultural sector in the GDP has been falling persistently. It accounted for 25.9% of
GDP in 1999-00; however, gradually its share shrank to 21.3% in 2007-08 but improved slightly to 21.8%
of the GDP in 2008-09. Notwithstanding its declining share, it remains the single largest sector of
Pakistan’s economy and an overwhelming majority of the population depends directly or indirectly on
income streams generated by it. It also gives a kick start to the aggregate demand for the industrial goods
and services as well.
The agriculture sector consists of crops (Major & Minor), livestock, fishing and forestry sub-sectors.
• Crops:
Major Crops: Almost all the major crops recorded double digit growth last year except sugarcane
where production is down by 21.7%. Wheat which accounts for 12.1% of agriculture and 37.1%
of major crops has witnessed a record crop of 23 million tons – higher by 11.7% over the
previous year’s crop size. The two other major crops, rice and gram also broke all previous
records of production. Rice accounts for 5.4% of overall agriculture and 16.6% of the major
crops. It witnessed an increase of 25% in production. Gram grew by 60%. The important cotton
crop with 7.4% stake in the agriculture sector and 22.7% in value in the major crops grew
33
modestly by 1.4% and its production at 11.8 million bales which is below par. Other major crops
include tobacco, barley, oil seeds, jawar and maize.
Minor Crops: Production of pulses has declined by 8.9%. Vegetables recorded a marginal growth
of 0.9%. The production of all fruits grew by 3.1%.
• Livestock: With rising incomes, globalization and changes in dietary patterns, the consumption of
livestock has increased significantly. The price of livestock items has remained a major
contributor to the inflationary pressures in Pakistan’s economy. The livestock sector grew by
3.7% in 2008-09 compared to 4.2% last year. Poultry and products grew by 11.2%, while milk
production grew by 3.2% only.
• Fisheries: The fisheries sector accounts for only 0.4% of GDP despite the presence of five major
rives with hundreds of lakes and a vast coastal area. A growth of 2.3% against the target of 3.4%
was witnessed last year.
5.32 SOLUTIONS
• The country’s resources should be rationalized through planning. This can be done by
formulation of different organizations within the industry such as the All Pakistan Cotton Farmers
Organization. By doing this a database on natural resources can be maintained which can further
help in up-gradation of local facilities.
• Farmers need support in terms of advice about the latest production technologies, supply of
inputs, utilization of their available resources of land and water and marketing of their products.
Agricultural extension services should be fully equipped with the information on most
appropriate land utilization systems for different areas and relevant production technologies and
should widely disseminate this information.
• The sale of seed, fertilizer, pesticides and agricultural machinery should be through private sector
cooperatives or individual entrepreneurs. The private sector should be encouraged to establish
seed production and adaptive research farms in different parts of the country.
• Establishment of large stores in farming areas would also help farmers.
• Suppliers of agricultural inputs should be required to engage qualified staff with training in the
proper use of inputs. Short term diploma courses can be organized in agricultural training
institutes.
34
• Private sector services for special operations such as rice nurseries, transplantation, crop
protection and mechanized harvesting are still not properly organized. Availability of such
services will bring about efficiency in production.
• The lack of basic amenities of life results in large migration from villages to cities. Therefore
social structure and infrastructure of villages needs to be improved.
• Absentee landlord system should be discouraged.
• Improvement in the management of irrigation and water distribution is imperative for

improvement in agriculture.
5.4 INVESTMENT & SAVINGS
5.41 PRESENT SITUATION

Investment is a key determinant of growth. Total investment has declined from 22.5% of GDP in 2006-07
to 19.7% of GDP in 2008-09. The below chart shows the structure of savings and investments as a
percentage of GDP
5.42 CAUSES
Public sector investment is crucial for catalyzing economic development and it has created a spillover
effect for private sector investments through massive increase in development spending particularly on
infrastructure in the past. However, this has decreased recently.
35
5.5 FOREIGN DIRECT INVESTMENTS

FDI has emerged as a major source of capital flow for developing countries around the world. Developing
countries like Pakistan are able to bridge their widening savings-investment gap due to FDI. During the
last two decades countries have liberalized their FDI regimes and pursued investment friendly economic
policies. In many developing countries, FDI has triggered technology spillovers, assisted human capital
formation, contributed to international trade integration, helped in creating a more competitive business
environment and promoted enterprise development.
The below table shows the Inflow of Net Foreign Private Investment and how different countries of the
world played their part in FDI.
The overall foreign investment during the first ten months (July-April) of the current fiscal year has
declined by 42.7% and stood at $2.2 billion as compared to $3.3 billion of the last year.
The table below shows the Net Inflow of FDI (Group Wise) over the past few years.
36
5.52 CAUSES
The main causes of the fall in FDI are
• Deteriorating security situation in the country
• The fallout of the global economic and financial crisis.
5.6 ENERGY

The world energy scenario during 2008-09 has been very eventful. International oil prices fluctuated
widely; leaving all vulnerable oil import countries like Pakistan under great stress. The volatile energy
picture not only made major dents in the macroeconomic variables but also eroded the purchasing power
of the poor.
37
Pakistan has experienced a slow down in all economic activities as a result of international financial crisis
and demand contraction polices of the government. The major impact has been experienced in the
industrial sector. Energy consumption being an integral part of all the economic activities has also
declined as a result of the economic slow down. Energy in all its form has declined or at least remained
somewhat stagnant during the fiscal year 2008-09. The most prominent has been the large scale
manufacturing sector which due to its negative growth of 7.7% experienced decline in energy
consumption and vice versa.
The energy consumption mix of Pakistan has changed over the past few years. The above pie charts show
the changes occurred.
Natural Gas: Government is making efforts towards enhancing gas production in order to meet the current
demand of the country. As of Jan 09, the recoverable reserves of natural gas have been estimated at
29.671 trillion cubit feet. Presently 26 private and public companies are engaged in oil and gas
exploration & production activities.
Electricity: after recording an average comnsumption growth rate of 6.1% per annum since 1999-00 to
2007-08 the consumption by different sectors increased merely 0.7% this year. This is mainly due to
shortage of electricity, its higher cost due to gradual phasing out of a subsidiary on electricity and circular
debt problem.
Coal: Pakistan has large coal resources estimated at over 185 billion tones, including 175 billion tones
identified in Thar, Sindh province. The production of coal has remained stagnant with no significant
market demand. The production of coal decreased by 28.8% during July-march 2008-09. About 60.4% of
total coal production in the country has been consumed by the brick kiln industry followed by cement and
then power.
38
5.62 CAUSES
• A major reason for negative growth in energy consumption has been due to the slow economic
activities in the country.
5.63 SOLUTIONS
• Aggressive Exploration activities needed in Gas and Coal sectors.
• To overcome the negative impact of the increasing prices of electricity, industries should
capitalize on solar energy and capacity utilization.
• Proper load management systems should be used.
• Alternative sources of energy should be kept side by side so that there are less production losses.
• Large Scale Manufacturers should be self dependant and generate their own electricity. If excess
power is produced, it can be provided to SME too or help the national grid.
5.7 CREDIT TO PRIVATE SECTOR & CONSUMER FINANCING

Credit to the private sector grew by Rs.21.8 billion during July-March 2008-09 as compared to
Rs.369.8 billion during the corresponding period last year which implies the sharpest deceleration in
almost one decade. The stock of private sector credit grew by 0.8% as compared to 16.5% in the last
year. Credit to private sector as % of GDP has declined to 22.2% in 2008-09.
Similarly, almost all categories of consumer financing declined substantially. Advances to consumer
loans contracted by Rs.54.9 billion during July-March 2008-09.
39
5.72 CAUSES
• The sharp decline in private sector credit was mainly due to exceptionally low demand for
working capital. The slow down in working capital requirement reflected the liquidity strains
in the banking industry which limited the lending ability of a few banks. Similarly, a sharp
decline in the raw material prices has also lowered working capital requirements.
40
• Consumer financing fell due to high inflation persisting in the economy which reduced the
purchasing power from the people. Also the interest rates have been increasing gradually to
tighten up the monetary structure to curb inflation by SBP.
41
5.73 SOLUTIONS
• Enter new geographical areas (like West Punjab).
• Provide customers with more value for money so that they get attracted and move towards a
spending mode rather than saving.
• Powerful marketing strategies with attractive pricing is required to capture more market share
and also tackle international competition.
• A focus on branding is very important.
• Banks should start new subsidiaries or build collaborative partnerships with micro finance
banks. This will help them overcome some of their financial burden as these banks reach far
areas.
42
6. EXPORTS
During the current fiscal year, Pakistan’s exports have declined from $15222.9 million to $14762.5
million. The major contributor to the decline in the export sector is the textile sector which has shown
almost a double digit decline. Petroleum sector has also declined by 27.3% .The food sector however, has
shown a massive growth with exports worth $510 million.
6.1 CONCENTRATION OF EXPORTS

Pakistan’s exports consist of the following sectors:
• Food group: During this fiscal year, the food sector has performed very well; almost all the sub
categories of food sector have shown a good performance. Rice is a cash crop for Pakistan and is
a major contributor to the food sector with a growth rate of 35%. Although the price of rice has
declined internationally, Pakistan has been putting up an impressive performance.
• Textile Manufacturers: Although this sector has shown a decline in exports, it still has the lion’s
share of exports, contributing more than 50% of total exports. During the period under review,
the global economic meltdown resulted in declining demand for textile manufactures. Other
contributory factors include energy supply constraint, political and law and order situation and
constricted credit availability.
• Petroleum sector: In absolute terms, the exports of petroleum products increased by $ 4.6 million
because of a 10.7% increase in its unit value. However, the main petroleum product, naptha
decreased by $276 million.
• Other Manufactures: Other manufactures include surgical goods, sports goods, leather industry,
Cement, Carpet and rugs. Some of these industries have been outlined earlier in this report. These
industries have also shown growth by standing at 19.9% in total exports. The major contributor in
this sector was cement sector that showed a growth of 8.02%
6.2 COMPOSITION OF EXPORTS

Pakistan’s exports have shown a drastic change in terms of composition of exports ranging from primary
goods to manufactured goods. The share of exports with high technological content is negligible. But the
trend has suggested that most exported goods are semi manufactured. However, the last three or four
years has seen an increase in the export of primary goods as well.
43
6.3 RESULTS
The global financial crisis has had an effect on Pakistan’s exports as well. So except the gulf market or to
be very specific Saudi Arabia, Pakistan’s exports to other countries has declined.
7. IMPORTS
Pakistan’s imports this year declined by 9.8% mainly due to a fall in International Oil prices that were
reflected in a lower oil import bill. The other reason for lower imports is depreciation of the rupee. In
44
addition to this, an increase in the supply of some crops like wheat, pulses and tea have also reduced the
import bill.
7.1 CONCENTRATION OF IMPORTS

More than three-fourth of Pakistan’s imports consist of just eight items with oil alone making up 28.4%
of imports; an increase from 26.4% over last year. Machinery imports accounted for 18.9%. This
machinery is mostly heavy machinery for the industrial sector. The third contributor is chemicals; the
imports of which have grown from 12.45 to 13.5%. Transport equipment and fertilizers have shown a
massive decline in imports. More than 10% of Pakistan’s imports come from Saudi Arabia, followed
second by Kuwait.
7.2 COMPOSITION OF IMPORTS

Imports are of two categories; consumer goods and capital goods. Since 1990, imports of raw materials
for consumer goods have been greater, but recent trends have shown a slight increase in the import of raw
material for capital goods. Import of manufactured capital goods however, are showing a continuous
decline while manufactured consumer goods imports are slightly increasing.
Imports have shown an increasing trend because of high demand for oil that leads to more imports from
Saudi Arabia and Kuwait. In addition to this, machinery is imported from Japan, Germany and China.
Despite being an agrarian economy, Pakistan also imports some food items like wheat from USA.
8. INDUSTRIAL STRATEGY FOR PAKISTAN

In this modern world of globalization and rapidly changing technology, there is a dire need to make and
develop a strategy that would help Pakistan compete internationally. The development strategy should be
45
based on the sectors and industries that have huge potential and growth opportunities and where Pakistan
has a comparative advantage.
Capital flows and trade needs to be given priority. Private capital flows to developing countries are now
far larger than official development assistance. Foreign direct investment in developing countries has
become a major determinant of successful economic performance. It has been the key to the East Asian
success story. FDI has not only provided capital, but it has been the means through which production in
these countries has become part of the international supply chains. FDI should be treated as a remedy for
Pakistani industrial growth. The result would be in technological exposure and markets will definitely
increase exports. FDI from industrialized countries, particularly Japan, played a crucial role in the success
of export-oriented growth policies of the East and Southeast Asian counties. However, now FDI from
developing countries such as China and India is gaining importance. Thus, Pakistan’s development
strategy must aim to take advantage of these trends and use FDI, particularly from China and India, to
hook Pakistani producers into international networks and supply chains.
Trade is also major factor of Globalization that could really help Pakistani industry increase exports.
Implementation of WTO resulted in reduced trade barriers and continuous reduction in transport and
communication costs. This has forced developed countries to transfer their industries to developing
countries. The rise of China as the industrial workshop of the world may be the culmination of this
process. Pakistan must go for greater market access through bilateral, preferential trade agreements and
free trade agreements with other countries and regional trade agreements both within and outside the
South Asian region. The ties in the form Free Trade Agreements with its neighbors like India could help
Pakistan in increasing its exports as there is a huge market there. Trade with China and technological
transfer will also help us in machinery up-gradation, technical knowhow. Diversifying the export base in
markets like the EU, US will help increase exports as well. Pakistan has no presence in many markets
including Africa; efforts in this direction, would go a long way in increasing Pakistani exports.
The up-gradation of machinery for production needs to be done on an immediate basis to reduce cost and
gain maximum efficiency. Bigger industrial units (whether as joint ventures with countries like China or
as Pakistani-owned enterprises), need to be set-up to produce more efficiently and in surplus. A
government supported fund should be set up for manufacturers to upgrade their technology and capacity.
Capacity Utilization is another method to achieve economies of scale and cost advantage; sectors like
cement and textile are under utilized and should increase their capacity utilization levels.
46
Image building always plays an important role in exports. Marketing reforms should be undertaken, and
extensive branding done to make Pakistani products and services more attractive in foreign markets.
Better quality standards like ISO 9000 and 14000 should also be strictly followed to attract foreign
buyers. Additional value addition will also help industries like leather and textiles.
Low productivity reduces any labor-cost advantage that a Pakistani manufacturer may have in terms of
lower wages. In order to achieve maximum cost advantage, the productivity of workers should be
increased through proper training and a skilled labor and workforce. Courses in a wide range of technical
skills, including the ability to read and comprehend technical drawings and technical manuals should be
provided to the workforce in order to improve their skill set.
The importance of services sector to Pakistan’s economy has substantially increased over the last three
and a half decades whereby the share of services in GDP has reached more than 50%. The exports of
Information Technology and IT Enabled Services (ITES) could play major a role in accelerating and
sustaining high growth in the export sector. The scope for accelerating export earnings for a country
which succeeds in building a competitive IT and ITES export sector is considerable. In India, the
expanding IT export sector has had a dynamic impact on the whole economy by improving management
capabilities and developing entrepreneurs with accumulated capital who eventually invest in other sectors
of the economy.
International experience suggests the value of setting up an industrial competitiveness agency headed at a
very senior political level which can mount a strategy to cut across competing interests and coordinate the
ministries concerned. For example, in Pakistan’s context this might involve combining the work of the
Trade Development Authority of Pakistan and the Board of Investment. Then comes the task of allocating
resources at various levels. At the highest level, it has to be decided which generic areas; education,
infrastructure, finance, science and technology, and so on have to be addressed. This needs a strategic
'vision' of what the main engines of industrial competitiveness are going to be.
At the sectoral and sub-sectoral levels, the government has to decide on which activities to support. These
activities have to be identified from clusters of inter-linked industrial activities that share strong
technological externalities, use the existing base of skills and capabilities, can develop good backward
linkages and face rising competition both locally and abroad. The best way to proceed is to examine
closely the experience of countries that have similar endowments but have been successful in developing
competitive bases.
47
9. REFERENCES
• Aziz, S. -F. (2006, May 15). Globalization: The Challenges and Opportunities and Role of
Pakistan.
• Doshi, G. (n.d.). The Pakistan Industry - An Overview. Retrieved from http://ezinearticles.com/?

The-Pakistan-Textile-Industry---An-Overview&id=708009
48
• Gardezi, H. N. (2005, February 6). Globalization and Pakistan's Dilemma of Development.
Retrieved from www.sacw.net
• Global Imperatives - Challenges and Opportunities. (n.d.). Retrieved from Vision 2003 -
Planning Commision: www.pakistan.gov.pk/.../Chapter%20Wise/Ch%202,%20Global
%20Imperatives,%205-8,.pdf
• Grieco, J. M., & Ikenberry, G. J. State Power and World Markets. In Economic Globalization
and Its Discontents.
• Husain, I. (n.d.). How Pakistan is positioning itself for challenges of globalization?
• Hussian, Y. (2006, August 31). Pakistan’s IT Revenue May be Grossly Understated. Retrieved
from http://www.pseb.org.pk/UserFiles/documents/IT_Revenue_Understated_V1.4.pdf
• Industrial Competitiveness - The Challenge for Pakistan. (2004, October 29). ADB Institute .
• Industry Overview. (n.d.). Retrieved from http://www.pseb.org.pk/item/industry_overview
• Ishtiaq, H. (2009, August 31). Price War in Surgical Goods. Retrieved from
http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-
magazine/economic-and-business/price-war-in-surgical-goods-189
• Ishtiaq, H. (2009, August 24). Upgrading Sports Goods Industry. Retrieved from
http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-
magazine/economic-and-business/upgrading-sports-goods-industry-489
• Kemal, A. (1998). Industrial Development of Pakistan. AERC Conference , (pp. A.R Kemal-
paper on “industrial Development in Pakistan” presented at the AERC conference in 1998.).
• Khan, H. I. (2007). Pakistan - Globalization and protection of foreign trademarks. Building and
enforcing intellectual property value , 285-287.
• Macdonald, D. (1997). Industrial Relations and Globalization: Challenges for Employers and
their Organization. Bangkok: Paper presented at the ILO Workshop on Employers'
Organizations.
• Mujahid, S. Y. (2002). WTO, Globalization & Pakistan - Dreaming for global living standards.
49
• Raychaudhuri, T., Kumar, D., & Meghnad. (n.d.). The Cambridge Economic History of India.
Retrieved from http://books.google.com.pk/books?
id=9ew8AAAAIAAJ&pg=PA996&lpg=PA996&dq=economy+of+pakistan+at+independance&s
ource=bl&ots=3-DrSslCCW&sig=6zThU9b-
0FYTzXTgPkBymO9jN7U&hl=en&ei=qmHlSoaLCoipkAXR4fydAQ&sa=X&oi=book_result&
ct=result&resnum=10&ved=0CCMQ6AEwCQ#v=o
• Sewell, J. W. (June 5,1998). Challenges of Globalization. Human Right Dialogue 1.11 - Towards
a Social Foreign Policy for Asia .
• Saeed, K. A. (n.d). The economy of Pakistan.
• Economic Survey of Pakistan-2008-09.
50

SM Report Final3

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SM Report Final3

Uploaded by

Copyright:

Available Formats

STRATEGIC MANAGEMENT

SUGGEST THE STRATEGY TO THE

Submitted by: Ambreen Khalani

2.1 OVERVIEW OF THE WORLD ECONOMY...............................................................7

2.2 NEW DYNAMICS OF WORLD MARKETS...............................................................8

3.1 ORIGIN OF GLOBALIZATION.............................................................................11

3.2 CAUSES OF GLOBALIZATION............................................................................11

3.3 EFFECTS OF GLOBALISATION...........................................................................12

4.1 OVERVIEW OF THE DOMESTIC ENVIRONMENT.................................................14

4.2 THE CURRENT POLICY ENVIRONMENT FOR INDUSTRIES..................................15

4.3 ECONOMIC AND INDUSTRIAL BACKGROUND OF PAKISTAN.............................16

4.4 HISTORY OF INDUSTRIAL POLICY MAKING.......................................................17

4.5 CHALLENGES FOR PAKISTAN...........................................................................20

4.6 OPPORTUNITIES FOR PAKISTAN.......................................................................23

5. STRATEGY FORMULATION FOR PAKISTAN.............................................................25

5.1 MAJOR INDUSTRIES OF PAKISTAN....................................................................26

5.11 TEXTILE INDUSTRY:....................................................................................26

5.12 LEATHER INDUSTRY....................................................................................27

5.13 SURGICAL GOODS INDUSTRY.....................................................................28

5.14 SPORTS GOODS INDUSTRY.........................................................................28

5.15 SOFTWARE/IT INDUSTRY............................................................................29

5.2 MANUFACTURING SECTOR OF PAKISTAN.........................................................30

5.21 PRESENT SITUATION IN PAKISTAN..............................................................30

5.3 AGRICULTURE SECTOR....................................................................................33

5.31 PRESENTATION SITUATION.........................................................................33

5.4 INVESTMENT & SAVINGS.................................................................................35

5.41 PRESENT SITUATION...................................................................................35

5.5 FOREIGN DIRECT INVESTMENTS......................................................................36

5.51 PRESENT SITUATION...................................................................................36

5.61 PRESENT SITUATION...................................................................................37

5.7 CREDIT TO PRIVATE SECTOR & CONSUMER FINANCING..................................39

5.71 PRESENT SITUATION...................................................................................39

6.1 CONCENTRATION OF EXPORTS........................................................................43

6.2 COMPOSITION OF EXPORTS.............................................................................43

7.1 CONCENTRATION OF IMPORTS........................................................................45

7.2 COMPOSITION OF IMPORTS.............................................................................45

8. INDUSTRIAL STRATEGY FOR PAKISTAN....................................................................45

2.1 OVERVIEW OF THE WORLD ECONOMY

2.2 NEW DYNAMICS OF WORLD MARKETS

3.1 ORIGIN OF GLOBALIZATION

3.2 CAUSES OF GLOBALIZATION

3.3 EFFECTS OF GLOBALISATION

It consists of the institutionalization of international political structures. Traditionally politics has

4.1 OVERVIEW OF THE DOMESTIC ENVIRONMENT

4.3 ECONOMIC AND INDUSTRIAL BACKGROUND OF PAKISTAN

Manufacturin 1949-50 (%) 1954-55 1959-60 1964-65 1969-70

Large scale 1.5 3.6 5.0 7.6 9.6

Small scale 4.4 4.4 4.3 3.8 3.3

4.4 HISTORY OF INDUSTRIAL POLICY MAKING

Period Small scale manufacturing Large scale manufacturing Total manufacturing

1950-60 2.3 15.4 7.7

1960-70 2.9 13.3 9.9

1970-80 7.9 3.9 4.8

1980-90 8.4 8.1 8.2

4.5 CHALLENGES FOR PAKISTAN

• The third stage is to design policies and programs.

• The fourth step is to implement these policies and programs.

5.11 TEXTILE INDUSTRY:

2004- 2005- 2006- 2007- 2007- 2008- %

928.6 817.24 502.8 438.2 318.1 171.5 -46.1

5.12 LEATHER INDUSTRY

Country % share Export value ($US)

Turkey 8% 1.6 billion

Italy 8% 1.6 billion