Tuesday, November 29, 2022

Creating demand for survival

LAHORE: Now that the enterprises have adjusted themselves to operate in Covid-19 with truncated human resources, they are still uncertain about going full gear despite demand. They now prefer not to hire new hands, which in the long run might relegate them to non-entities.

Cost has reached its limits in Pakistan and companies now need prudent and sustainable transformation to stay afloat both globally and domestically as they enter a new normal in 2021 which is a year of both opportunities and threats. There is also need to get rid of the mindset where costs are cut in spheres that need the most investment.

Cutting cost is the easiest way to survive in recession, but this measure is not a sustainable option as these measures do not cover contingencies. You cannot cut your way to greatness.

Successful enterprises do go for higher efficiencies, but never go defensive. Currently, the situation has reached a stage where most of the companies are out of step with market realities.

Efficiencies could be improved by improving processes, whereas streamlining human resources to eradicate duplication are prudent cost cutting measures. During the pre-Covid recession that deepened further during the pandemic, most of the companies curtailed even their research and development and marketing budgets. As the economy started moving they still considered these expenses waste and managed with truncated staff.

In fact most of the companies have even stopped implementing innovative ideas, thus becoming more vulnerable to competition. With growth picking up and global markets opening for Pakistani products, the going for companies that failed to transform will not be easy in 2021.

Transformation means restoring the vitality, growth and competitiveness of the company.

The first need to transform comes when the performance of the industry shifts and it either starts losing money or its profit declines. At this stage the company takes measures for operational turn around to arrest the decline and move towards recovery.

Almost all manufacturers in Pakistan have already passed this stage, and the recovery they achieved is now progressively declining. The companies must realise that in the new normal they need to develop a new strategy or business model.

Failure to innovate timely will lead to absolute failure. Only the innovation-driven growth will take the company to new heights.

In order to ensure successful transformation companies must make a conscious decision that besides efficiency, growth and innovation are equally important. The sponsors should articulate a clear shift in strategic direction, coupled with room for experimentation.

Each enterprise should innovate across multiple dimensions of the business model. Limiting innovation to process and products is not enough.

Business leaders should persist with innovation, which might not work; they should also ignore internal resistance in this regard. Those companies will succeed where there is a willingness to shift from the historical core business model.

Transformation is rarely smooth and success comes through trial and error. Flexibility in the plan leaves room for ongoing refinement.

Companies planning long stays deploy a portfolio of moves to drive growth. We have seen that many textile manufacturers, taking advantage of their stitching expertise, started exporting quality face masks during Covid-19, fetching much needed foreign exchange.

The pharmaceutical companies came up with different varieties of sanitizers and the competition did bring the cost down. Some companies produced plastic based protective equipment for the paramedical staff and succeeded in exporting these gadgets to other countries.

It was made possible because they did not panic, and continued innovating in accordance with the needs of the market. These companies tolerated the severest recession after Covid-19.

These companies are in the driving seat compared with their competitors that panicked and lost fortunes along with their human resource.

Immediate future promises better prospects for the better prepared Pakistani companies. Domestic demand for goods and services are increasingly depicting signs of growth in the economy.

On the global front, Pakistan may add $4 billion exports out of which $3 billion would come from textiles. Transformation for Pakistani companies actually means change in mindset from submission to aggression. Companies that fail to transform due to traps they fell in while going for transformation would be the worst of. Most of the companies after improving efficiencies and cutting costs during recession became complacent and ignored innovation. They still continue to look for ways of cutting costs and improving efficiencies. They make promising moves—such as a series of new business pilots—that are not proportionate to the scale of the challenge.

Companies would have to operate efficiently in line with the global best. By doing so they would be able to offset many negatives in our economic system.

The power costs would remain higher in Pakistan in the medium-term and the bank mark-up would also be higher than regional average. Pakistan however, enjoys the advantage of low cost skilled labour over its competitors.

Labour cost is currently lower than even Bangladesh. Our water rates and land rates are the lowest among competitors. Our engineering sector is operating at low capacities as it has looked towards the domestic market ignoring the global markets where demands could be created.

Source: The News

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