Businesses frequently are quick to blame the government for most of their problems; crying foul on their inefficiency and burdens of bureaucracy. Pointing at cronyism and corruption within government institutions, holding government responsible for not giving them the best business and investment climate to work with; for not providing the right set of circumstances, the right policies, the right incentives and for not facilitating and helping them to expand and grow. This is all even true.
But Pakistan also has a complacency problem. Too often, firms are set in their ways. They are not ready to innovate or grow. They are not ready to do the homework that requires them to become competitive. Today despite having signed several free trade deals, trade patterns are sluggish. Pakistans exports are concentrated on few products, with little value addition targeting select markets like the EU that have offered incentives to Pakistan in the form of tariff cuts. Why can Pakistan not find market access in other locations and why arent large firms subcontracting parts of their processes to firms in Pakistan, when such has contributed to the growth of Sri Lanka, Bangladesh and many East Asian economies?
There is no disputing that the government must provide a conducive environment for businesses to work efficiently and not get bogged down by excessive paperwork while spending energies on innovating and implementing great ideas instead of dealing with the bureaucracy. However, more than ever, there is one interesting viewpoint that has emerged from our conversations with experts who talk to investors everydaywhich is that firms and the private sector must now take the initiative to establish long term linkages with prospective investors and learn to keep them around.
World over, firms are becoming transnational and reaching to firms, especially SMEs in other countries to best manage their supply and production chains hoping to use an optimal mix of cost, quality, speed, flexibility, strategic advantage and trust. Major global textile brands have shifted part of their operations to East Asian economies that they managed to establish linkages with and where hosting firms were ready to meet the needs of suppliers.
Recent studies of FDIs suggest that cost advantage is no longer the primary concern for investors but how adaptive, consistent and trustworthy firms, their processes and their workforce are. In order to create long-term investment partnerships, firms have to reach out more and constantly seek new linkages. The government can facilitate it, sure (through policy and by becoming a bridge) but firms have to sell themselves. Some macro-level problems simply need to be looked at from a micro firm-level perspective.
It is a simple concept which has not caught on in Pakistan where the way of doing business is still old fashioned. Despite the potential spillover effect of CPEC, how many foreign brands are touring Pakistani factories to vertically integrate their production networks? How many domestic and foreign collaborations and partnerships are we seeing? If the government must wake up to its challenges, of which there are many, the private sector must wake up to its own too.
Next time in this column, we will talk about business linkage programs and their potential efficacies.
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