During the 30 years of my working experience in Pakistan at various responsible senior management positions and having grown with the industry and business in a very competitive market, I have been fielding the uncertainties throughout this period and confronting continuous and prolonged external threats and shocks.
IT IS FROM THIS PERSPECTIVE I SEE WHY PAKISTAN HAS FALLEN BEHIND IN INVESTMENT AND PRODUCTIVITY:
Because productivity-enhancing is too expensive and unrewarding for our businesses, the value of our rupees makes capital investments in plant and machinery exorbitant and our tax and regulatory environment makes such investments unrewarding.
The very investments in productivity gains required to boost the value of the rupee have gotten too expensive.
OUR RUPEE IS LOW BECAUSE OF THREE FACTORS:
-- A secular decline in global commodity and low value added products
-- Comparatively large national debt
-- Comparatively low growth in productivity
The artifices employed to circumvent the tax law and uneven tax regime across industrial sectors in Pakistan favours the commodity and low value added products. It retards the diversification of our economy away from these, which still represent almost 70% of our exports. As prices of our export goods have collapsed, so has our rupee.
Simply we are under-taxing our commodity and low value added sectors and over-taxing sector which would diversify our economy and lessen our dependency on rupee-weakening commodities. A higher rupee would make productivity-enhancing investments more affordable.
While there are macro-economic levers to pull and boost productivity and innovation, there is also a lot that individual companies can do to improve their performance.
What can we learn from the best innovators? We can learn benchmarking, how leaders such as IBM, Sony, Ge, Intel, Motorola and others innovate. Here are their innovation strategies:
-- Focus innovation investment on a few core strengths
-- Mobilise resources to outpace the market through speed and ingenuity.
-- Prototype early and often, allow failures
-- Track and grow share of new markets and revenue from new products.
-- Balance both short-term and long-terms R&D.
-- Pursue aggressive external venturing and win-win partnering
Companies that generate 80% of their revenue from new products have doubled their market capitalisation within 5 years period... High performing companies generate in excess of 40-60% of their turnover comes from new products and services. To be one of the innovative in the next few years, you need to generate a rich portfolio of varied and unusual ideas and encourage the mindset and to put them into action. For many, the greatest challenge remains creating a new open style of innovation that encompasses the practices of the top performers.
As a result, this innovation can charge a 20% price premium over their competitors, offer a greater variety of products, at a lower cost, and in less time than their competitors, and outperform their industry in growth, profit, and market share.
IN CONTRAST, WHAT WE DO:
-- Milk the cash cow to death and don't invest in productivity and innovation
-- Discourage risk and punish failures
-- Track only share of current markets and products
-- Think too big and ignore beached opportunities
-- Start few new projects and never kill old projects.
-- Partner poorly, seeking to vertically integrate and own every aspect of their value chain.
These practices have led us to under-perform the industry and suffer declining market share and margins.
To make productivity-enhancing investments in equipment and machinery more rewarding, we need to strengthen the rupee by lessening our export dependency on commodities, by equalising taxation levels across our industrial sectors. With almost 70% of our exports in commodities and low value added products, we have much farther to go in becoming a knowledge economy. Pakistan businessmen don't need crutches; they need the right economic weapons.
We need to transform the economies of developed countries and that is convergence of high-tech industries. Convergence is the turbulent collision of high-tech industry, commerce and media industries.
For businesses, convergence means web-based collaborative working, true electronic commerce and customer management, and up to the minute applications on demand. There is no blueprint for success in this unprecedented convergence collision chamber, yet leaders are starting to emerge, and Pakistan should not sit back as audience.
Now, how do we put all this together into an action plan to strengthen the Pakistani prosperity chain? Much is being said about developing National Innovative Strategies to reach a broad consensus on what is needed and to co-ordinate the efforts of Businesses, government, research institutions, academia, the financial sector and business associations.
Achieving such a broad consensus and holistic coordination among all these stakeholders may take a long time. Let me take this opportunity to suggest a few basic fundamentals which will help to expedite.
-- A hunger for growth.
-- An insight vision of the future.
-- A tactical plan to translate the vision and the mission into practical steps.
-- An infrastructure well suited to success in an ever-changing business environment.
-- An ability to optimise new products and willingness to abandon that has diluted their effectiveness.
-- Faster execution than the competitor.
-- A customer focused innovation
What we need are a few clear goals and actions around which we can rally resources.
LET ME SUGGEST THREE INITIATIVES AROUND:
Innovation, Taxation and Globalisation.
INNOVATION:
Whatever our challenges are today, we can be certain they will be even greater tomorrow. The only way to overcome these challenges is to overflow with new ideas and imaginative way to foster and embrace innovation.....
-- Rebuild our innovation leadership by focusing it in a few areas like convergence where we have the ingredients and we have a lead.
-- Triple our R & D spending in select sectors.
-- Double the number of scientists and engineers in teaching faculties and in the work force and pay them at par with any other developed country
-- Attract researcher in the fields of science, technology and agriculture by installing research facilities which are well equipped and provide excellent opportunities for research work.
-- Make Pakistan the preferred choice for innovative centers of expertise in global companies regardless of their ownership structure or the location of their headquarters. Instead of emptying out head office, let's fortify them as centers of innovative excellence, where new products and services are developed and commercialised around the world.
-- Increase our venture capital markets to cultivate and retain our innovators. Let our financial institutions merge with each other to achieve the domestic and international scale they need, in exchange for their dramatically increasing venture capital spending in Pakistan
-- Increase the investment in talent, encourage private sector training in innovation and entrepreneurial management and improve our educational infrastructure in engineering and development.
-- Invest actively in a sense of national identity and national 'brand'
TAXATION:
-- Further lower the corporate and income tax rates. Lower and equalise taxation levels across industrial sectors to reverse the current under-taxation on commodities and over-taxation of higher-value added sectors, a lower rate on import substitution and an accelerating tax credit on higher the value addition.
Extra tax credits are given to produce development as well as to investments in new technology.
Make productivity-enhancement in training, R&D, and machinery more rewarding by introducing equivalent additional investment allowance in addition to depreciation.
Shift personal taxation more towards consumption and less on direct income. Talent that gets to keep more of its wealth and feels more prosperous will stay here. Also lower the personal income tax rate.
Allow an allowance as earned income relief. Give tax credit at par with the capital allowance applicable to new plant and machinery, on purchase of house and automobile. All the expenses on local and foreign education of children should be deductible from the assessable income. Repayment of local and foreign education loan including the principal should be allowed as a deduction from the assessable income of the recent graduates.
Investment and competition will drive innovation, not subsidies and protection.
GLOBALIZATION:
We are faced with the challenge of exploiting global efficiencies and reacting to local realities. Most of us change the product and services to suit the local tastes yet few have a strategy for innovation that is globally applicable. We must start to interact with the global population rather than focusing on the local market. We have the size of the global market that would be enormous, vast economies of scale could be realised and the industrial base would accelerate rapidly.
At first glance this would appear to pose a competitive challenge but for an innovative it is an opportunity to reach new global markets. As E-Business transforms the landscape, successful growth will come from that harness all of their people in the elusive pursuit of future market needs.
Now we recognise the importance of R&D in involving all levels of management in innovation and those would be the ones anticipating and even setting future trends. They view ideas and innovation as seed material of future growth and value and will be the most successful. Together these actions around innovation, Taxation, and Globalisation can boost our innovation, productivity and prosperity and make Pakistan a talent Magnet.
These would ascend our confidence, and loosen our paralysis of self-criticism and smugness. I certainly don't have all the answers, but let's create here some attractive conditions which are non-existent and that caused some of us to leave their home land in the first place.
Let us replace self-criticism with action, and complacency with renewed national ambition and pride.
(The writer is Chairman and Chief Executive, RNack Management Consultants.)