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April 23, 2019

Framing business strategies amid uncertain policies not an easy task


April 23, 2019

LAHORE: It is not an easy task for entrepreneurs to plan their business strategies in uncertainty and downturn, but many in Pakistan continue to slowly move ahead even during uncertain periods.

Such companies grow in leaps and bounds once stability returns. All entrepreneurs and businesses are in the dark about the central bank’s monetary policy or inflation, but they all certainly know that needs for goods and services is always there among the growing young population of Pakistan.

The real entrepreneurs are always on the move, planning both for recession and boom. Pakistan’s economic history is plagued with inconsistencies. The reasons for every up or down turn are different too.

Sometimes the gloom may be because of global recession, at others it may be due to abrupt increase in crude oil rates. Economic troubles may sometimes be due to frequent changes in policy. Sometimes only a few sectors of the economy get hit.

Government incompetence can also cause trouble, whereas ineffectiveness of the private sector can create problems and uncertainties too for the businesses in Pakistan. Many of the major uncertainties for the businesses arise out of the changes in the bribe rate and the ever increasing corruption.

Despite all these conditions and problems, one can still see some groups continuing to grow. Nishat, Lucky, Sapphires, Gul Ahmad, Atlas, Indus group and food and beverage companies post growth under all circumstances.

One thing common in all of them is that they are in versatile businesses. But what is surprising is that they excel in almost all the sectors they operate in compared with their peers, during recession and boom, both.

When the textile exports came under pressure five years ago, most of these groups decided to exploit the potential of the domestic market. All of them introduced their brands and established hundreds of outlets throughout the country. The revenues added through this policy were more than the decline in exports. Because of their prudent planning they were able to cut their export margins to retain the market. Those depending solely on exports suffered more and many had to close down their units.

At the same time, these groups realised that lower margins in exports were due to the inefficient technologies they were operating with. They had the muscle to invest in modern technology.

They will be in the driving seat in exports once these technologies are installed. These groups are also part of the cement, power, and automobiles sectors, where each of their entities is growing higher than average. These entities operate on the principle of efficiency, but do not pass on the benefit of that efficiency in competition. They operate on the sentiments of the market forces.

When the going is good, their margins are much higher than their inefficient competitors. They make sure that the extra fat is retained as buffer for bad times. In recession, the margins of the inefficient wipe out, but the prudent manufacturers are able to operate on thin margins. This is the reason that revenue profiles of the resilient and non-resilient companies look alike.

The difference is in margins, which are high for resilient companies in booms, and decent for the non-resilient ones, while the laggards vanish during downturns. Many small enterprises have emerged as a force in their respective field due to their ability to take prudent decisions according to the given situation. They do not cut cost during recession only, but they are on a look out to reduce expenses without compromising on quality and productivity. In fact, their first preference is always to enhance productivity that automatically cuts cost.

Successful entrepreneurs continue to invest both in good and bad times. At the same time, the companies that continue to move ahead also take bold decisions to disinvest in spheres that might give profits for a while but are likely be replaced by better technologies.

They are also very vigilant to snatch lucrative assets and human resource from incompetent operators to add value to their business. Crisis in fact acts as an incentive for these entrepreneurs.

They will never go for redundant technology even if offered at throwaway prices. Since sooner or later, these assets become a liability for the owner. Their moves are calculated, as they know that the economy will rebound after every recession.