Sunday April 21, 2024

The competitive edge

By Mian Salimuddin
April 18, 2018

As the old adage goes, “insanity is doing the same thing over and over again and expecting different results”. In Pakistan, this insanity appears in the form of bailout packages that are repeatedly doled out to our industries with dismal results.

By now, our industrial sector has become so heavily accustomed to these packages that it has lost sight of the ever-changing rules which dictate the race to cultivate a space for the country among global markets. The race involves competing for foreign investment and export sales through our businesses. Staying ahead in the race offers a means to raise our living standards; create jobs; and reduce poverty. However, we are not only facing the threat of losing the race, but are also being driven out of it completely.

Both the source and the solution to the problem lie in the same place: manufacturing. Manufacturing has been a major wealth-generator of the industrialised world. If we continue to lose our manufacturing base – and we are losing it rapidly – the consequences could be disastrous.

Quality is arguably the best aspect of the race that enables us to understand its impact on the marketplace. Until 1970, we used the word ‘yield’ as a measure of quality. Our focus was on how many quality items were produced. Markets were heavily protected with tariff and non-tariff barriers. Consumers had little choice as all the manufactured items were sold and limited attention was given to scraps.

Incidentally, we still continue to measure the ‘yield’ of our manufacturing industry through a Census of Manufacturing Industries (CMI) that is conducted every five years by the Pakistan Bureau of Statistics (PBS). The census was previously conducted in 2005-2006 and all statistics on manufacturing are merely estimates – a fact that was raised at the NA Standing Committee on Statistics on March 20. In the mean time, the rest of the world has moved ahead and left us far behind.

During the 1970s, the opening up of global markets and increased competition has resulted in a change in terminology. The term ‘scrap’ was adopted to denote a shift in focus from good items to defective ones. A series of improvements occurred and losses dropped below 10 percent. By the 1980s, it became evident that even an improvement in quality was insufficient. Tools and techniques were developed to reduce scrap below one percent.

In the 1990s, the terminology changed once again to reflect even higher standards of quality that the market was demanding. There was talk about ‘zero-defects’. This led to a new unit of measurement that was introduced by Japan to gauge progress towards the goal of zero-defects – defective parts per million parts manufactured.

Meanwhile, organisations in Pakistan that are specifically created to enable the industrial sector to keep pace with these developments and strengthen the manufacturing base are almost dormant. They are entirely oblivious of the changing competitive factors in the world markets. The National Productivity Organisation (NPO), the Pakistan Standards and Quality Control Authority (PSQCA) and the Engineering Development Board (EDB) have had a negligible impact in preparing the manufacturing industry to take a leading position in the race for a strong global market share.

So, where do we go from here? How do we plan to win the race – or at least remain a serious contender for the top positions? It is surprising that in all the cachaphony surrounding the diminishing exports, most areas that require immediate attention and improvement have not even been identified – with the exception of fiscal incentives.

We also do not have authentic manufacturing industry data. So, the first step would be to not only acquire the production data, but also collect details about scrap, rework and retesting. This will give us the sector-wise baseline and the gap from the international market averages will indicate the magnitude and direction for the improvement efforts required.

In order to remain relevant in international markets, subsequent improvement efforts should focus on better products; lower prices; and a faster response. Improvements in these areas are an absolute necessity if we want to remain competitive.

Oddly enough, each of these three categories can be separated into two distinct branches. A competitive edge can be gained through our products of both superb quality and excellent engineering. For example, if two companies are offering the same product at the same price and one of them manages to focus more on quality, it is inevitable that the company with superior quality will eventually capture the market.

It is difficult to accept the impression that we cannot manufacture high-quality products in Pakistan. The problem is that we are measuring quality in terms of percentages – a quality measurement scale that was valid in the 1970s. When measured on the current scale, even one percent of defectives can translate into 10,000 defective items per million manufactured. Any competitor can win over our customers – even with 9,000 defectives per million.

Leading companies now have defect rates below 1,000 defectives per million items manufactured. Quality is a relative term. With higher defect rates, we have simply become non-competitive. Unfortunately, only a few industrial managements in Pakistan have a clear understanding of this issue. This explains the dwindling level of exports. You can see these defective items being sold at throwaway prices in various markets across the country – particularly in the clothing markets in the case of textiles.

We can gain a competitive edge because our products are better engineered than the products manufactured by our competitors. If two competitors offer the same type of product at the same price and quality, then the company that offers more product features will certainly capture the market.

The same pattern holds true where the price is concerned. The company with the highest margins (ie, the least costs) will have more flexibility on pricing and can, therefore, capture the market. There is also tremendous advantage in lower investment per unit. This competitive edge also gives a company greater flexibility to compete because of its lower breakeven point.

Responsiveness has two categories. The first element involves the competitive advantage that stems from better due-date performance. We promise to deliver the stipulated quantity of a product by a specified date. How many times has our industrial sector succeeded in fulfilling this commitment? If we accomplish our target in 80 percent of cases while our competitor’s manages to deliver in 90 percent of instances, there is a strong likelihood that our competitor will eventually get our customers.

It is an endless race since customers are constantly increasing their expectation levels and always adjusting to high performers as the standard. Due-date performance differs from shorter-quoted lead times, which is the second responsiveness avenue. This advantage gives us the ability to commit to an earlier delivery than our competitors. During a heatwave in Europe a few years ago, our industrial sector failed on both the responsiveness criteria to deliver the required items. The industry quoted long lead-times and did not deliver the promised products by their due dates.

The elements discussed above comprise the competitive edge issues in the global markets of the present and the future. Incidentally, the effective implementation of these elements translates into enhanced productivity; a higher market share; and profitability.

In order to compete and remain relevant in international markets, our industry has to work on various competitive elements. It will require dedication and competence to climb out of the predicament that we find ourselves in today. Our trade chambers will have to come out of their stupor and change their orientation from pressure groups in search of bailout packages to groups that are seeking excellence in manufacturing to stay ahead in the quest for a sizeable share of international markets.