welcome
FUEL PRICE POPULISM There is absolutely no subject over which the Pakistani media collectively loses its mind over more than fuel prices. No matter how miniscule the change, every newspaper and every single television news channel will include breathless commentary on how much of a burden the socalled ‘massive’ hike is and how it is ‘crushing’ the common man. Never mind the fact that the overwhelming burden of whatever price hikes there may be falls largely on the affluent and the upper middle class, with the working class paying bus fares that tend to rise much more slowly than the monthly fluctuation in fuel prices. In short, these journalists are not complaining on behalf of the working everyman. They are complaining about the costs they have to pay themselves at the pump every few days. There is perhaps nothing more loathsome than the screeching faux-populism of the press when it comes to energy policy. Not a single reporter, editor, anchor, or cartoonist who puts out content raging against these price hikes has bothered to do any research on what constitutes a sound energy or fiscal policy for the country, nor have they bothered learn about the cost structures and pressures facing the energy industry. All these middle class mandarins care about are their own monthly fuel bills, poorly disguised as a concern for the poor and the working class. If they bothered to dig into the numbers, they would realise that the incidence of taxation for fuel taxes falls exactly where it should: mostly on the affluent and the upper middle class, with some impact on the working class and the poor. And they would recognise that in the absence of businesses like their employers paying their fair share of taxes, the government has no choice but to tax consumption, which it does by ensuring that it minimizes the impact on the most vulnerable sections of the population. And
FROM THE MANAGING EDITOR
it is those taxes that allow the government to pay for essential services such as schools and hospitals, which – while far from being at the desirable level of quality – are often the only option available to the very working class and poor citizens that these journalists pretend to care about. The government, for its part, could help its case by changing the way it regulates energy prices. Instead of having the Oil and Gas Regulatory Authority (OGRA) announce prices every month – which makes it look like it is a government decision to change energy prices – it could keep the tax rates ad valorem and constant, and only regulate the margins that oil companies are allowed to earn on fuel. An even better policy would be to break up the stateowned Pakistan State Oil’s near-monopoly and then sell off the company in 10 or 12 pieces, each of the smaller companies forced to compete, and thus keep prices as low as economically possible. That policy would not prevent Pakistan’s journalists from screaming about fuel prices. But at least their misdirected anger would not be aimed at the government. And maybe then we could have sane conversations about energy policy.
Farooq Tirmizi Managing Editor
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12 News in Numbers 15 How Musaddiq Zulqarnain became a billionaire by selling socks
22 22 Warning Seth Sahib: The startups are coming for you 28 Facing stiff competition, D. Watson expands from pharmacy into groceries
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34 This 18-year-old wants to put your own personal safety in the palm of your hands 38 Lobbying and philanthropy: how Pakistan’s largest businesses seek structural reform
Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Arshad Hussain l Muhammad Faran Bukhari l Taimoor Hassan l Ghulam Abbass l Ahmad Ahmadani Shehzad Paracha l Haniya Javed l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Illustrator: ZEB l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
CONTENTS
News IN NUMBERS
For the first three years of its existence, Android barely made a dent in the Pakistani market for mobile phone operating systems. Indeed, by the end of its first year of availability in Pakistan – 2010 – there were nearly seven times as many iPhone users in Pakistan as there were Android users. Back then, the market was dominated by SymbianOS, a mobile operating system that was used by many manufacturers but was the dominant system for Nokia, which at the time practically owned the market for mobile phones in the country. But then came 2012, when the first truly low-cost Android phones started hitting the market, and the market just completely took off and has not looked back since. The market grew massively during that time, and Android grew at Nokia’s expense. Nokia, meanwhile, completely failed to adapt and saw its dominant share completely collapse. And for BlackBerry fans, that black line you see briefly appearing in 2010 and fading out almost completely by 2013? Yes, that was BlackBerry’s fifteen minutes of fame in Pakistan.
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News IN NUMBERS
Once Android phones became dominant in Pakistan, the largest manufacturer of Android mobile phones became the dominant brand in Pakistan: Samsung. The South Korea-based company currently commands a nearly 41% share in the market, which is a dramatic increase over the past decade. Nokia, meanwhile, which at one point commanded a greater than 80% market share in the country, now does not even make the list of top mobile brands in Pakistan, its currently miniscule share so small that it has to be lumped into the “Other� category. Huawei, meanwhile, has seen its share grow over the past five years and is now an increasingly stronger contender for the title of Pakistan’s mobile phone of choice, though it is still relatively far behind Samsung. Newcomers Oppo and QMobile also have a respectable share, with Motorola and Apple being among the smallest brands in Pakistan, even though the absolute number of users of iPhones in Pakistan has gone up substantially
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HOW
MUSADDIQ ZULQARNAIN
BECAME A BILLIONAIRE BY SELLING SOCKS Interloops focus on human resource and efficiency is what sets it apart from the rest of the pack
I
By Muhammad Faran Bukhari
n 1992, two brothers Musaddiq Zulqarnain and Naveed Fazil along with their friend Tariq Iqbal Khan, set out to establish a company producing hosiery products in Faisalabad. Musaddiq Zulqarnain, an engineer by profession was at that time employed at Sui Northern and Naveed Fazil, who had recently graduated from Oxford University in England, was having a hard time finding a suitable job back in Pakistan. It was at that time that their friend Tariq Iqbal, informed them regarding a new technology in textile
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manufacturing and suggested that they bring it to Pakistan and set up a hosiery manufacturing company. “At that time, we had a big property in the city which became commercial. We sold a small portion of it and we invested the money into the company,” says Musaddiq Zulqarnain, Chairman at Interloop Ltd, while talking to Profit. Hence Interloop was established with an investment of Rs9.35 million having 10 computerised sock knitting machines imported from Italy. “Today the market capitalization of the company is at least 4,300 times more than what we started with 26 years ago,” he says. For those of you keeping track, that means an average
rate of return of 36.7% per year for the past 26 years, in Pakistan rupees, or 28.5% per year in US dollars.
Moving up the ladder
T
he company currently has a market value of more than $270 million and earned a revenue of Rs31.1 billion for the financial year ending June 30, 2018. It supplies hosiery products to global brands like Nike, Adidas, H&M and Puma to name a few. However, in the initial period when most businesses implement aggressive marketing and customer acquisition strategies, Interloop was
“We bought the best machines. We did not do wasteful expenditure. And we planned to make processes efficient. The first four to five years were difficult, but we have tried from the first day to induct well-educated youngsters and to train them and let them do what they want.” Musaddiq Zulqarnain, Chairman at Interloop Ltd
the Avari Hotel to meet the customer. I opened up my laptop to show the costing and samples. At that time the textile industry worked like a cottage industry and computers were not used. So, this guy was impressed.” With time the French customer brought two new customers to Interloop, one from Korea and the other from France. “Till about 10 to 12 years back, we did not know how to market, because we had never done marketing. The main marketing effort we had to make was when we moved to the United States (US) and started selling to bigger retailers,” says Musaddiq. In the US, Interloop partnered with a New Jersey-based importer which helped it increase its footprint there. In 2009, the company joined hands with a Netherlands-based firm, called Eurosox Plus, to provide marketing intelligence, design, sales and distribution services to clients in Europe. In recent years, the company has set up manufacturing facilities in Bangladesh and Srilanka to cater to its growing export market and has diversified into the dairy and the printing industry in Pakistan. Today Interloop owns more than 5,000 Italian knitting machines, employs 15,000 people with an organizational network spread over three continents. “However, even today most of the investments that we make are in Pakistan. In Sri Lanka we only have 200 to 300 machines. In Pakistan we are planning 1,200 new machines. So that shows our faith here,” says Musaddiq. In March 2019, Interloop went public in Pakistan by listing 12.5% of its shares on the Pakistan Stock Exchange (PSX), raising a whopping Rs5.02 billion in what was the largest private sector initial public offering (IPO) in the country.
A people centric approach
W lucky enough to have customers knocking on its doors. Some of the companies first customers were literally handed to it on a plate. In the 1990’s the Italian companies which had manufactured the machines bought by Interloop had sales agents in Pakistan, who were responsible for marketing the machines and bringing customers to companies who had already bought the machines. Hence, through these agents, Musaddiq was introduced to a French customer. At the time, desktops and laptops were just being introduced and were a novelty in Pakistan’s textile industry and Musaddiq’s passion for the machines helped set Interloop apart. “I went to
hen then-US President John F. Kennedy visited the NASA space center in 1962, he noticed a janitor carrying a broom. The president walked over to the man, introduced himself and said, “What are you doing?” For most people, the janitor was just carrying out his daily cleaning duties. However, the janitors response shows, that even behind the menial of tasks, there can be a much larger objective. “I’m helping to put a man on the moon,” the janitor responded. According to Musaddiq Zulqarnain, this is the philosophy Interloop follows as well. “We were going through a dictionary and found out that the literal meaning of knitting is the interlooping of yarn, hence we decided to name the company Interloop.” However, there was another reason for choosing this specific name as well, one that had more to do with the people who would
REVENUE
$283.6 million
The company’s total revenue in the financial year ending June 30, 2018
PROFITS
$35.4 million
The company’s net income for the financial year ending June 30, 2018
SALES GROWTH
6.5%
The average annualised growth rate at which the company’s revenues have grown between 2014 and 2018 in US dollars
PROFITABILITY GROWTH
13.8%
The average annualised growth rate at which the company’s net income have grown between 2014 and 2018 in US dollars
TEXTILES
work for the company. “At that time there was a trend that people used to name their companies after their families. But decided that we are not going to do that. We wanted everybody who works for the company, to be able to associate with the company,” he says. That is how interloop has been able to transform into company worth Rs40.4 billion ($288 million) from a humble start with Rs9.35 million ($348,000). Increasing efficiency and a special focus on people was the core of the strategy. “We bought the best machines. We did not do wasteful expenditure. And we planned to make processes efficient. The first four to five years were difficult, but we have tried from the first day to induct well-educated youngsters and to train them and let them do what they want,” says Musaddiq. The company recently went public on the PSX, but Musaddiq had converted Interloop into an unlisted public limited company some time ago. “We changed from a private limited company, just to impose more restrictions and become a better-governed company. In our board at one time, except me and my brother there was no one from my family in the executive board. Most of the people were professionals. And lots of people on the board were homegrown, who started fresh and reached the executive board level.” In 2011, Interloop established teams to implement lean culture at the plant level and all plant managers were trained at Apparel Innovation and Training Centre (AITC), Sri Lanka. In 2014, the Toyota Production System (TPS) was deployed to improve machine efficiency and reduce wastage. As a result, waste and work in progress was reduced, inventory turnover and quality index was improved and approximately 200,000 square feet of floor space was vacated and utilised for other functions. In 2017, the company has came up with what it calls the ‘Interloop Way’ focusing on lean manufacturing and people components consisting of standard-
Samoona Hasnain took a 3 year break due to family commitments, and rejoined Interloop through the Reconnect Program
ized good practices. Former employees of Toyota hired by Interloop work to make the company more sustainable. “In our culture people think sustainability has to do with financials or the environment. It’s not like that. Sustainability is a wide concept,” he says. Musaddiq recalls his visit to Toyota’s plant in Georgetown, Kentucky in the United States a couple of years ago, where he found out that the Vice President of Manufacturing at the plant started off as an assembler on the production line. “What Toyota does it that it trains its people from a junior level and then promotes them. That is how they plan their succession.” “At Interloop we are also doing the same and we have a pipeline of leadership which we are training and grooming. For any position that we want to fill, we have possible several options. And whoever is best among them, whether they are from the family or not will get the position. And anyone can eventually become the chief executive officer (CEO).”
In Faisalabad, where a large proportion of the businesses have a seth culture, Interloop stands out as one of the very few companies with a corporate culture. “The things that we are doing are not big, it’s just that others are not doing them,” says Musaddiq. Hence, the company is the go-to choice for young graduates in Faisalabad. “Every year, we recruit about 40-50 fresh candidates,” he says. What’s interesting to note is that the salaries offered to employees at the company are at best market competitive and the shareholders have refrained from taking excessive dividends, a large sum of which has been reinvested into the company over the years. “They know that the retained earnings have been invested back into the company. They know that they will grow here and that their jobs are secure. When conditions in the country were bad and textile industry was laying off people, interloop never laid anyone off,” says Musaddiq. However, while salaries offered at the company may not be at the higher end of the
Inspired by Toyota Way Interloop Way focuses on lean manufacturing and people components consisting of standardized good practices
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spectrum, a host of exemplary non monetary policies have been put in place. Samoona Hasnain, Manager Sales and Merchandising at Interloop, had been working at the company for 11 years when she had to quit due to her family engagements. She took a break of three years and was able to rejoin the company at the same position due to the company’s Reconnect Program that enables women to resume their careers after a break. Women with children younger than one year in age also have the facility to choose their own work days and working hours. Musaddiq believes that women are usually more productive compared to men. “Very few of them would go out to smoke, gossip lessens with women, they mostly just want to work, go home and look after their kids,” he says. Interloop’s People Targets 2020, aim to increase representation of women across all levels of the workforce to 10%. Similarly, employees even get a day on their wedding anniversary and the company pays for a dinner for two. The company also offers accommodation and transportation facility and subsidised meals for the employees. “We have hostels in Lahore. For female executives we also have a colony in Faisalabad. However, only employees working out of station get accommodation. For the rest we provide transportation inside a big radius,” says Musaddiq. “Interloop’s mess offers subsidised meals for the employees. It is mandatory for the presidents and the vice presidents to eat from the ordinary mess at least twice a week. They stand in line like everyone else. The labour also eats from there. Everyone eats together.” Women and men coming to work at Interloop have access to international standard child care rooms with qualified kindergarten teacher. “They are not just child care room, they are pre kindergarten where kids from 6
months to 6 years old can come,” he says. “It’s not that we pay our employees more. But we provide them with complete benefits, give them respect and job security.” Interloop conducted its first employee engagement survey in 2013, followed by a second survey in 2015, that showed the employee engagement index at 64%, an overall increase of 3% in two years. According to the survey conducted in 2018, overall satisfaction of employees stood at 83%. However, Musaddiq says that while it is the employer’s duty to provide a good working environment and facilities to the employees, the employees also have to fulfill their end of the deal. “Both the employer and the employees have needs and responsibilities. One has to create a balance which is beneficial for both.” The company has adopted what can be called a stick and carrot approach. “The disadvantages of an employee being unproductive
RETURN ON INVESTED CAPITAL
36.7%
28.5%
The average annual rate of return for the owners of the company since its inception in 1992, in Pakistani rupees
The average annual rate of return for the owners of the company since its inception in 1992, in US dollars
should be a lot. What we do is we create groups of people, and tell them that if they work together and achieve a specific task they will get a bonus. Hence, the peer pressure also acts as a stick, because employees know that if they are unproductive, everyone else in the group will get affected too.” “We have a policy, according to which anyone who leaves for a commercial reason, cannot join back, unless an exception is granted by the CEO. So people know if they leave once they cannot come back.”
Whats next?
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he company currently has net sales of $283.6 million and produces 600 million pairs of socks and tights, 26 million kilograms of yarn and 4.5 million kilograms of dyed yarn/filament annually. With the IPO proceeds the company plans to expand its existing hosiery business and set up a denim manufacturing plant in the country. By 2020, it plans to increase net sales to $450 million and increase annual production to 750 million pairs of socks and tights, 10 million garments of denim, 15 million pieces of active wear, 30 million kilograms of yarn, 6.5 million kgs of dyed yarn/filament. “Pakistan is one of the major countries of origin for denim. We are also expanding in hosiery (socks and leggings) while already being one of the top manufacturers of this category in the world. Denim has a huge potential and will complement our overall sales,” says Musaddiq. “China is getting expensive and China’s domestic denim consumption is increasing. People want to move out from China. Pakistan’s share of the denim market is only 3-3.5%. Why can’t we increase it to 10%,” he says. n
TEXTILES
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Careem’s acquisition will galvanize the Pakistani startup ecosystem, and imbue it with something it has lacked so far: serious financial power
PAKISTANI CAPITALISM
By Farooq Tirmizi Arey abhi to party shuru hui hai.
U
ber’s acquisition of Careem is being talked about as a fairytale ending for a story about Pakistani entrepreneurship: smart young Pakistani entrepreneurs and executives – along with people from many other nationalities – built an amazing juggernaut of a company that was ultimately acquired by a much larger global competitor for a cool $3.1 billion, in the process creating 75 dollar millionaires and another 200 dirham millionaires. There is certainly truth to that narrative, but in reality, it misses another, much more important, feature of the Careem story: it is the beginning of a transformation of the Pakistani startup ecosystem, the wider Pakistani business community, and – quite possibly – the structure of the Pakistani political economy itself. What will happen over the next five years will lay the foundations for a fundamental transformation of how young Pakistanis see themselves, and what is considered possible in the Pakistani economy. And it will happen because, flush with the cash they have made from the sale of their shares in Careem, the founders and senior executives of Careem will become the first generation of Pakistan’s entrepreneurs-turned-venture-capitalists, marking the first time in history that Pakistani entrepreneurs will be seeking capital and advice from people who started off from middle class households and made it big in the startup world. And that, in turn, will have significant
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consequences for the way business is conducted in Pakistan, particularly for the incumbents who have thus far chosen not to adapt to modern ways of doing business. Consider this a fair warning, seth sahib: the startups are coming for you. How and why do we think this will happen? Because this is what happens every time a major startup has a successful exit. And the story, like many things in the technology business, starts in Silicon Valley.
The making of Sand Hill Road
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he beginnings of the cycle of what we now know as the venture-backed tech industry came about in 1956, in Northern California, when William Shockley launched Shockley Semiconductor Laboratory as a division of Beckman Instruments in Mountain View, California and recruited talented engineers with PhDs from America’s leading engineering schools to help him run it. However, Shockley was not a particularly good manager of a business, and in 1957, eight of the employees of the new company – who became known as the ‘traitorous eight’ – left and sought financing for their own semiconductor company, seeking financing from bankers and other finance professionals from New York. Arthur Rock, then a banker arranged for $1.5 million in financing for them from Sherman Fairchild, the owner of a camera manufacturing company. Thus began Fairchild Semiconductor, arguably the first venture-backed technology company in the world. And Arthur Rock, completely by accident, became the first bank-
er-turned-venture capitalist. Among the ‘traitorous eight’ were legendary names, including Gordon Moore (yes, that Moore of “Moore’s Law”), and Eugene Kleiner. In 1968, Kleiner would go on to invest in Moore’s then-startup called Intel. And in 1972, he went into partnership with a former executive at Hewlett Packard named Tom Perkins and start the firm Kleiner Perkins, the first dedicated venture capital firm that would go on to have its headquarters on Sand Hill Road, in Palo Alto, California, birthing the institutionalized venture capital industry, and creating a firm that would become one of the earliest investors in companies like Amazon, Google, Electronic Arts, Compaq, and Twitter. This is a cycle that repeats itself several times over in the history of Silicon Valley: smart, talented employees of major companies feel stifled by their jobs and want to create their own companies and do something interesting in the world, but because they are not born rich, they have to go seek financing from somebody else. Once they raise the venture capital, if they are truly talented, their business prospers and they are able to sell their shares in it for a massive profit within a few years. But because they are still relatively young, they do not just take the money and retire: they create venture capital funds that plow that money right back into the startup world to fund the next kid with no money, but good brains, a big idea, and a drive to succeed. And then the cycle repeats. In Silicon Valley, some of the biggest names in venture capital were originally some of the biggest names among startup founders. Vinod Khosla was a co-founder of Sun Microsystems before going on to create his own venture capital fund, Khosla Ventures. Marc Andreessen
was the founder and creator of Netscape before going on to become a founding partner in Andreessen Horowitz, another major venture capital fund. And of course, Peter Thiel, one of the founders of PayPal, went on to become the first institutional investor in Facebook through his venture capital firm Founders Fund. Indeed, according to research compiled by Endeavour Insight, a technology and entrepreneurship focused research firm, the single biggest factor that distinguishes the top 30 venture capital firms in terms of assets under management and fund performance from their peers is the fact that they tend to have a far greater proportion of entrepreneurs and former early startup employees among their general partners. Endeavour estimates that the top 30 firms, on average, have 40% of their general partners who were previously entrepreneurs, compared to less than 19% for other venture capital firms.
The VCs who backed Careem
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n fact, among Careem’s original investors is a venture capitalist who started out just this way. On the board of directors of Careem sits a man who can be considered the original gangster of successful entrepreneurs-turned-venture capitalists of the Middle East: Fadi Ghandour. Ghandour is a Jordanian-Lebanese entrepreneur born in Beirut and educated at the George Washington University in Washington, DC. In 1982, just one year after graduating from college, Ghandour started Aramex, a logistics and package delivery company. Over the next 15 years, Aramex grew to become one of the largest companies in the Middle East and North Africa (MENA) region, and in 1997, became the first
company from the Arab world to become listed on the NASDAQ. Ghandour has been investing in startups in the MENA region for a decade now, and formalized his venture capital investments by creating Wamda Capital in 2014. Wamda Capital is one of the investors in Careem, and Ghandour is on its board. While Wamda is by no means the largest investor in Careem (they joined in the Series C round), the existence of investors like Wamda – founded by entrepreneurs looking to find the spark in others that they had in themselves when they were starting out – is a powerful force in a startup ecosystem and a necessary one for it to thrive. And with the Careem acquisition, that is what Pakistan is about to get: founders who invest in other founders. Sources tell Profit that this may have already begun: Mudassir Sheikha is rumoured to have already invested $200,000 of his own money in 2018 into Pakwheels.com, an automobile classifieds website that has already changed how Pakistanis buy and sell cars. The investment is reportedly in the form of a debt instrument but is convertible to stock in Pakwheels.com. And to understand why exactly that is so transformative for the Pakistani economy, it is first necessary to understand the current structure of how the Pakistani economy works, and whom it is designed to work best for.
40%
The proportion of general partners at the top 30 venture capital funds by assets under management and performance who were previously entrepreneurs themselves
19%
The proportion of general partners at all other venture capital funds who were previously entrepreneurs themselves
The ‘contacts’ economy
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ince its founding, the Pakistani economy has largely been dominated by a few wealthy families who all run businesses in conventional industries, and all of whom have extensive personal contacts and relationships with the country’s political, military, and bureaucratic elite. To be wealthy in Pakistan means having contacts within the government, either to seek
PAKISTANI CAPITALISM
favours from the government for one’s business, or to have enough clout within the government to prevent it from blocking or slowing down one’s business plans. There is nothing inherently wrong with having government contacts, or even lobbying the government for policies that one would like to see enacted. However, too often in Pakistan, it has meant seeking unfair advantages for the largest businesses while allowing the smallest businesses to fend for themselves, or worse, to suffer the consequences of the government’s favours for larger companies. Careem’s founder Mudassir Sheikha, and its Pakistani executives like Junaid Iqbal, will likely become venture capital investors at some point, if not professional venture capital managers. If and when that happens, it will be the first time in Pakistani history that serious amounts of equity capital will be allocated not by those who were born into wealth and power, but by those who earned it on their own way to the top. Most importantly, it will be allocated by people who do not owe their wealth to political connections. Of course, Pakistan has had many successful entrepreneurs from middle class
backgrounds who went on to become very wealthy themselves. But some – like Malik Riaz – got there by currying favour with influential politicians and generals, and others – like Jahangir Siddiqui – challenged the order of the businesses they were in, but did not then return the favour and back others who would also be disruptors. And Pakistan has had venture capital for some time now, and has at least a handful of professionally managed venture capital funds, such as Rabeel Warraich’s Saramacar Ventures. People like that will certainly continue to play a role in the evolution of the Pakistani economy, including nudging it in the right direction. But the Careem founders are still different. They got to where they are without government favours or contacts, and they made their money by disrupting traditional businesses. And, crucially, they know how to see possibility where others see only risk and well-entrenched incumbents. That makes it highly likely that when they look to invest their newly-earned wealth, it will be in industries that do not require government contacts to succeed, and in companies that disrupt the order of established businesses.
Flush with the cash they have made from the sale of their shares in Careem, the founders and senior executives of Careem will become the first generation of Pakistan’s entrepreneursturned-venture-capitalists, marking the first time in history that Pakistani entrepreneurs will be seeking capital and advice from people who started off from middle class households and made it big in the startup world 26
And that is what makes this acquisition potentially dangerous for the traditional business powerhouses in Pakistan: for the first time, the disruptors will have serious cash to back them, and will be backed by people who did not come up through the system and do not feel beholden to it. And yes, while the current system is highly profitable for those who partake in it (rent-seeking exists for a reason, after all), people like Sheikha and Iqbal know that truly big profits come from unleashing the economic energy currently being suppressed by the sclerotic structure dominated by old-line companies. Some older businesses will likely adjust and continue to thrive as they always have, particularly those who are smart enough to modernize their companies and give more autonomy to managers rather than retaining all control within the majority shareholding family. But others, particularly those who continue to think “This is Pakistan, this is how things are done here” will die off. And good riddance. It is for this reason that the Careem acquisition, far from being the end of a great story, is likely the beginning of something new, something bigger, something potentially much better than what Careem itself built. This could be become – should we choose to make it so – the start of the kind of Pakistan that we want to live in: one where the circumstances of your birth matter less than the scope of your talents, one that is not dependent on conservative old firms that do not invest in their business or their people, and one where we accept change as opportunity rather than reject it out of fear. It could get very, very interesting in Pakistan over the coming few years. As we stated at the outset of this story, arey abhi to party shuru hui hai… n
PAKISTANI CAPITALISM
FACING STIFF COMPETITION,
D. WATSON
EXPANDS FROM PHARMACY INTO GROCERIES
The Islamabad-based family-owned retail pharmacy chain is under pressure from large national supermarket chains like Carrefour’s Hyperstar, as well as online competitors By Syeda Masooma
T
he pharmacy business in Pakistan is not easy these days. In days past, all one needed to do in order to do well was create a well-run organisation that was not cheating its customers and it could expect to see its sales thriving. Now, however, with stiff competition from national retail supermarket chains like Carrefour’s Hyperstar, that offer a one-stop-shop experience for consumers, as well as newer online startups like sehat.pk, life for a standalone pharmacy chain is getting difficult to say the least.
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The reaction of D. Watson, an Islamabad-based retail pharmacy chain, is to expand into the grocery business, a decision that comes with its own challenges in a family-owned business with ownership split between cousins and each of its outlets operating independently.
Origins of the name
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he D. Watson chain was established as a single, small pharmacy shop in 1975 on Murree Road in Islamabad by two brothers, Zahid Bakhtawari and Zafar Iqbal Bakhtawari. Zafar Iqbal, the elder brother, was in the final year of his Bachelor of Dental Surgery
degree program when he caught an eye ailment that almost took away his sight. He went to England to seek treatment, and the doctor who saved him from losing his eyesight forever was named Dr Watson. Upon his return to Pakistan, Zafar Iqbal decided to pay a tribute to his benefactor by establishing a chemist shop under his name. It is not clear whether that Dr Watson ever found out that there was a pharmacy established with his name in Islamabad, Pakistan, but four decades down the line, D. Watson shop has now morphed into D. Watson Group of Pharmacies and boasts of ten pharmacies in Islamabad and Rawalpindi and a few more in
other parts of Pakistan, including one branch each in Lahore, Peshawar, and Murree. Bilal Zahid Bakhtawari is one of the six second-generation owners of the D. Watson group in Islamabad. He controls two outlets in Islamabad, since the D. Watson shops are divided among the family members who then run them as independent businesses. Among his plans is to go online in the next two years, not just as a pharmacy but as a one-shop store for grocery, glasses, other household items. And the second one involves setting up an aesthetic clinic under his dermatologist wife. Bilal’s office, which is currently under renovation, is an austere room on the first floor of the D. Watson G-9 outlet, containing only an ancient computer and a couple of plastic chairs. Some folded cardboard boxes placed in front of the door are squeezing the entrance to the room. There are high cupboards on three walls of the room, probably containing medicines, with stickers all over them bearing the words “to be returned” and “close to expiry,” and other versions of these phrases. On the fourth wall, up and behind the computer a gaping hole opens to a lift area, showing the giant grill door of the lift giving an eerie feel of being trapped in a prison. This is where, in a few minutes, some suppliers will drop their shipments and wait for Bilal to be done with the interview and make their payments. Right outside this room that, for now, seems to be a part of an abandoned dilapidated building, the sales area is a complete contrast. Bustling with sales staff and customers, this part of the D. Watson showroom has everything a woman might want to have in her dressing room. There is a plethora of makeup, a large collection of perfumes, hand bags, toiletries, lingerie, equipment like hair dryers and straighteners and so much more. There are products for men and children as well displayed on all shelves and walls. A small space between these heavily loaded shelves expose the narrow staircase that goes to the ground floor, which is even more congested and crowded. On the left side of the stairs are the pharmacy products and on the right mirrors and glass cover the entire area with sunglasses and spectacles peeking out of them. Small hangers and shelves are also blocking movement from the right side of the shop to the left, with some of the products that are available upstairs in much larger number and variety.
The family-owned structure
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. Watson pharmacies has kept on opening outlets within and outside the Islamabad metropolitan area, but they have kept the ownership strictly inside the family. Their Lahore branch is perhaps the only one so far not under direct control
of the Bakhtawaris, but that is also managed and looked after by Bilal’s maternal uncle. “Where D.Watson is today, it is because of my uncle’s [Zafar Iqbal] hard work and I believe that he does not want to share the results with anyone outside the family,” said Bilal. He also said that they had the example of Shaheen Chemist & Grocers, another popular chain of pharmacies, who did experiment with a franchise model but then backed out because it did not work. “The amount of effort and dedication that an owner puts in a business is not found in a franchise owner. So, we would rather keep it in the family and maintain
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“Customers today are extremely aware of prices, products, details of several products, manufacturing dates and so on. We believe in maintaining quality on our end, so when we see the newer generation being more quality conscious than anything else, they choose us and stay with us” Bilal Zahid Bakhtawari, one of the six second-generation owners of D. Watson the standard that D. Watson has instead of franchising it out to outsiders,” he said. Bilal and his cousins appear to agree with their uncle’s choice of not franchising out the business, but when it comes to running the operations, they have changed the way things used to work at the pharmacy with their fathers’ generation, starting with record keeping. “Technology is perhaps the biggest difference in the ways my father worked and the way I work. Being an accounting graduate, I am more inclined towards accounting for everything that enters and leaves my shop.” He has an automated system of medicine records that keeps updating the time left for different shelves before the expiry date, and when a medicine either needs to be on the shelves or returned to the manufacturer. “Secondly, now there is a lot of focus on training of employees which was almost non-existent in the days of my father. It could be because back then it was about survival and now it’s about growth,” Bilal said. The third thing that is different now from how things used to be, according to Bilal, is the division of work introduced by his elder cousin Ahsan Bakhtawari. “Now there is a separate IT team, a separate HR team, and the work is divided according to departments. Previously everyone did everything and the division of jobs was not that clear.” It is not just the inside operations of D. Watson that have undergone transformation,
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but the market and competition landscape have also changed. According to Bilal the biggest change has perhaps come from customers. “Customers today are extremely aware of prices, products, details of several products, manufacturing dates and so on,” he said. To him this goes in his favor, “We believe in maintaining quality on our end, so when we see the newer generation being more quality conscious than anything else, they choose us and stay with us.” Another conspicuous change is the popularity of online stores for medicines, among other things. While Fazal Din & Sons from Lahore had realized this and capitalized on the momentum by creating Sehat.pk, Bilal says it will take him two more years until when he is able to launch his online store. However, he has some newer plans to introduce as well. “I saw something in Canada with regards to glasses. There was an online platform where you upload your picture, try out different frames and choose the one you like, and then add your eyesight details and place the order,” he shared.
The supermarket expansion plans
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. Watson as a group is also contemplating on some changes to stay relevant. Bilal said, “The general perception might be that Shaheen
and Medi Plus are our competitors, but we have been operating for ages now and have found the room to co-exist. It has been more of an oligopoly for a long time. The actual challenge is coming from the likes of Punjab Cash and Carry, Green Valley, MCC, and Hyperstar. The places that have everything available at the same place and now medicines too. They not only buy in bulk but also operate on a large scale. We have also been thinking that we need a large supermarket too. To compete with them in the future, we also need a store along the lines of a large supermarket.” Grocery items have already become the biggest source of revenue for the D. Watson Group. While the pharmacy remains the identity of the company, many stores in Islamabad now also sell groceries. This decision did not come without its fair share of criticism from the founders of the pharmacy chain. “My uncle actually said rather scornfully to my cousin, Ahsan, who brought grocery into the mix that now you will be selling bread and eggs. But he went through with it and now some of our biggest D. Watson shops are the ones that are selling grocery items along with other products,” said Bilal.
Source of growth
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s of now, Bilal claims to not be aware of his own market share or growth rate. Like most businesses in Pakistan, chemists also remain a primarily privately owned business which means determining market share, sales growth, and profitability is difficult. For his own growth rate and the confusion surrounding it, he had an elaborate explanation. “My growth rate is average 20% right now, but it is very difficult to ascertain whether it is actual growth or mere inflation. Since we operate on margins, so when the price of medicines, for instance, goes up, even though our cost is going up but at the same time so is the nominal amount of our margin.” Let’s say D. Watson makes a 20% gross margin on its products. If a product’s price increases from Rs1,000 to Rs1,500, at the same 20% margin, the gross margins of D. Watson grow from Rs200 to Rs300. “On the flipside, the demand also goes down for some products when there is inflation, so to tell you exactly how much I am growing is almost impossible.” It is not actually impossible, and Bilal is confusing gross margins and revenue, and even without that confusion, if one has good documentation of what their volumetric sales are, it should be relatively straightforward to calculate what proportion of one’s growth came from price increases, what proportion came from increases in volumes, and what proportion came from the changes in the product mix sold. Perhaps Bilal simply did not want to share the details and pretended it was more confusing than it actually is.
The regulatory challenges
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perating in retail pharmacy has its regulatory complications as well, the biggest of which remains the choice of selling or not selling without a proper prescription, especially when it comes to
medicines that can be used as narcotics. “The environment is changing slowly, and the culture of prescriptions is also rising, but the legal details still remain our biggest drawback,” he said. “This cannot be solved by a single company or single pharmacy, and not even just from the chemists side. There are more stakeholders involved. If doctors are not particular about their prescriptions, because I frequently get the excuse that doctor’s next appointment is three months away so what is a patient supposed to do until then. Then there is also no standardized method of prescriptions, to verify the prescription and so on.” Under current circumstances, it is also unfair to customers. They are not prepared to be asked for a prescription, and what if there is a patient who really needs the medicine and some pharmacy refuses to serve them in the absence of a prescription. In the best-case scenario, the patient will go somewhere else and the worst case scenario is that the patient will not get the medicine, and not because it’s the pharmacy’s fault rather than the doctors, said Bilal. “When it comes to Xanax and other such medicines, in that case, of course we do not give those medicines unless we can see that there is a prescription and it looks legitimate. And in the rare cases we do give out such medicines without prescription, it is not more than one or two tablets, and that too if our pharmacists see that there is a genuine requirement.” “Under the law, I am supposed to have only one qualified pharmacist, and they are expensive resources, but I have three just for one shop. That is the exact reason, that we have to navigate the space between keeping the customers satisfied and also making sure that we are not selling to a drug abuser,” he said.
Compliance costs
“V
ery recently there was a case when Xanax [a medicine commonly used for anxiety] was being abused by some people. The drug inspectors came to us and required details
of every single tablet we have sold, the date they were sold, the numbers they were sold in and the copy of the prescription for each of those. It was a year’s data, and our record was off by just four pills. We had details of every other single pill, and these four were also the times when the pharmacist perhaps adds a pill when he can see that a patient is clearly in pain. Otherwise doctors and pharmacists need to be on the same page. I am not blaming the doctors, but this is something that has to be accepted and changed across all platforms at the same time.” There is also a monetary cost to adding more and more products, and that constitutes approximately 2-3 percent of the revenues of each of their shops. “The medicines that get expired or are close to expiry are returned to the producers, but other products have to be thrown away or burnt. We cannot trust that the manufacturer wouldn’t resell the same products to us or to someone else, so instead of returning them, we dispose them.” There are some products like perfumes or creams and lotions, that according to Bilal are not entirely the producers’ responsibility to take back either. “And if they do, it shows it’s fishy.” Bilal doesn’t have enough space, as of now, to add grocery items in the G-9 Markaz shop, but otherwise this outlet also has everything that D. Watson has on its portfolio, makeup, perfumes, cosmetics, clothes, hand bags, optical, optometrist consultant, toiletries, electrical items and pet products. Bilal Bakhtawari isn’t currently planning on expanding to grocery himself, rather he has plans to add an aesthetic clinic to go with his pharmaceutical business. He said, “My wife, Dr. Saniyah Wajahat, is a dermatologist and has just finished her Masters in aesthetics from Queen Mary University of London. And I believe that aesthetic clinics are the future. So that is what I want to add to my particular outlets, I am already in the process of doing that. That will include laser machines, whitening, weight loss, Botox etc. and I am already adding these to my plans.” n
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Faizaullah Arain has created Crighter, an app that allows a person to instantly report unsafe situations when they encounter them, and seek help from people they trust
By Ahmed Jamil
W
hat would you do if you are walking down the street and saw a fight break out? For 18-year-old high school student Faizullah Arain, as he witnessed the fight on a street in Multan just over a year ago, the reaction that came to him was not to fight or flee. It was to create an app that would allow people to report an unsafe situation instantly to people whom they trust, along with their location, to help keep them safe, as well as inform others of an unsafe situation so that they can
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“So what the app does is that it categorises safe and unsafe areas based on the alerts it receives from app users. Then a ratio is calculated according to alerts received from different areas and the app automatically updates the map” Faizullah Arain, creater of Crighter avoid such an area, if possible. Crighter is an Android application available for free on the Google Play Store, and it allows people to report unsafe circumstances they are encountering to people who they trust. The app calls this trusted person an “authority”, whom the users themselves designate and enter the contact information for. After the initial, relatively simple, set up process, use of the app itself is relatively straightforward. All a user of the app needs to do is press their device’s power button three times to activate the emergency function of the app. Once that function is activated, the app immediately sends a text alert with the location of the user to the designated trusted “authority”. In addition, the app also activates the back camera of the phone and takes five photographs and records audio for five seconds, and sends those pictures in an e-mail to the trusted “authority” as well. The goal is to create a visual and audio record of the incident, as well as record its location, so that a person’s family or loved ones are at least informed of any potential dangers, which in turn may be information they can pass on to law enforcement should matters escalate. “When I was researching for similar apps, I found tracking apps but there was no app that included pictures and audio too,” said Faizu-
llah, in an interview with Profit. “It was then that I decided to include pictures and audio and make this a first of its kind app in the market.” Why not have those pictures and audio sent directly to the police or other law enforcement agencies? After all, it is their job to keep people safe, and data from this app could be useful to law enforcement departments in allocating scarce resources and cracking down on crime. The concern, Faizullah says, is false alarms and overwhelming the police with too many reports for them to be able to handle and prioritise. “If an alert is sent directly to the police, there’s a chance it could be a false alert. When the designated [trusted] ‘authority’ gets an alert, he or she can call the user and then if required, call the police,” explained Faizullah. He also added that the police’s job will be made more cumbersome in the future if every alert is sent directly to the police. “It will only make the police’s job harder if every alert is sent directly to the police, especially if the app’s usage increases and daily alerts could be in the thousands,” he said. Crighter isn’t Faizullah’s first mobile application project. Calling himself Pakistan’s youngest game developer, Faizullah made JumpNCatch, an Android game for children, in 2017, when he was just 16 years old.
”As a kid, I was never interested in playing sports, preferring instead to spend time on computers,” said Faizullah. That interest manifested into something concrete when he was motivated by his school teacher in eighth grade. “My teacher told me that information technology is the only field in which you can start working and earning before officially getting a qualification or a degree,” said Faizullah. It was then that he started attending a computer learning institute and started to hone his skills for more professional work. As his second product, Crighter appears to be a relatively well-thought out product. One potential user concern that Faizullah wanted to address directly is data privacy and security, particularly given the fact that the app can record audio and take pictures through the user’s phone. The solution for Crighter is end-to-end encryption that does not allow anyone but the sender and recipient to access the data. “The data that the app records is shared in an encrypted conversation between the user of the app and the [trusted] ‘authority’ set by the user. At no point is the user’s data shared
Dominant market share
92.7% 3.5%
The proportion of Pakistani smartphones that run on Google’s Android operating system as of March 2019, a share that has grown from 86.9% just one year ago
The proportion of Pakistani smartphones that run on Apple’s iOS operating system as of March 2019, a share that has remained largely stagnant over the past year STARTUPS
with the developer of the app,” explained Faizullah. The 18-year old’s creation has another feature that was unheard of before. It shows safe and unsafe areas on the map, and the user can search for a specific area and check whether it’s safe or unsafe. Crighter is able to determine this distinction between safe and unsafe areas using alerts that the app receives from users. “So what the app does is that it categorises safe and unsafe areas based on the alerts it receives from app users. Then a ratio is calculated according to alerts received from different areas and the app automatically updates the map,” explained Faizullah. What this means is that a safe area is designated safe either because there have been no alerts from that area or there are no users of the app in the area. Faizullah says the map will improve and upgrade automatically as users of the app increase over time. The app certainly appears to be gaining in popularity. Since launching in January 2019 has already garnered over 5,000 downloads from the Google Play store. “The app currently has around 5000 downloads and it keeps grow-
ing on a daily basis. It was launched for testing in December 2018, but came in the market in January this year,” said Faizullah. Crighter is currently available only on Android phones through the Google Play store and not on the Apple app store for iPhones. This, however, is not an oversight on the part of Faizullah: according to data from StatCounter, a global data company on internet and communications data, the proportion of Pakistani cellphone users who have an Android-based phone is just under 93% as of March 2019. By contrast, iPhone users account for just 3.5% of Pakistan’s mobile phone market. The app’s launch comes at a time when the use of mobile broadband internet in Pakistan is rising rapidly, with an estimated 65 million users as of February 2019 who have access to such connections, according to the Pakistan Telecommunications Authority (PTA). And Crighter views all of those tens of millions of people as its prospective market. Even with the huge potential market available for the app, Faizullah’s focus right now is not on making money through it. But
The 18-year old’s creation has another feature that was unheard of before. It shows safe and unsafe areas on the map, and the user can search for a specific area and check whether it’s safe or unsafe. Crighter is able to determine this distinction between safe and unsafe areas using alerts that the app receives from users 36
that does not mean he is not aware of the ways his app can generate revenue. “The app can be paid, or it can have optional paid features inside it, or the app can make money through advertisements. But I have no plan of doing any of that,” said Faizullah. Instead, he’s looking for an investor that’ll help him promote the app to a bigger market. “My focus right now is not on making money, but to get an investment in order to market the app. Currently I’m marketing the app using Facebook and Google ads, and that too only in Pakistan. If I can find the right investor, I’ll use the money to market the app globally, especially in the Middle East and the rest of Asia. Faizullah’s costs in developing the app were relatively low, paying for a few freelancer developers to help with the coding of the app, which took just over a year to complete. Faizullah does however have a plan of making money using the app itself but he does not want it to share with the app’s users at this time. “There will come a time when we will implement the plan in the app and start earning. The app will be free even then but we’ll also be earning,” he said. Faizullah sees a bright future for the app. But he says his biggest challenge right now is to find the right investor that isn’t look for short-term gains but focuses on long-term returns. He thinks that with the help of the right investor, his creation can soar to great heights. Having said that, Faizullah also emphasized that the app will never be restricted for anyone, as it was made for the people and will remain for the people. n
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LOBBYING AND PHILANTHROPY:
HOW PAKISTAN’S LARGEST BUSINESSES SEEK STRUCTURAL REFORM How the country’s most sophisticated businesses realise that they need to be involved with the affairs of the country beyond just their narrow business interests
By Ahmed Jamil and Junaid Hanif
I 38
t is no secret that the economy of Pakistan needs structural reforms in order to begin functioning adequately. And while many look to the government to fix most of Pakistan’s economic challenges, there are things that the private sector can and should be doing to help
get the country’s economy back on track. In this story, we cover two ways that Pakistan’s largest business are seeking to transform the nature of the Pakistani economy: lobbying, and philanthropy. The lobbying part of the story concerns the efforts of the Pakistan Business Council (PBC), a lobbying group that represents the interests of the largest companies in Pakistan, including the largest multinational
companies operating in Pakistan. It seeks to advocate for the needs of larger businesses and push the government into adopting reforms that would benefit its members as well as the wider Pakistani economy. And on the other end is Amen Tech, an endeavour of the Aman Foundation, which is the philanthropic organisation started by Arif Naqvi, the founder of Abraaj Capital, the Dubai-
“The PBC came about as a realization that there was no organisation in Pakistan that really espoused the cause of businesses from a long term perspective… Sales of our members represent every ninth rupee of Pakistan’s GDP, and together the members contribute a quarter of the annual tax revenue and exports” Ehsan Malik, former managing director of Unilever Pakistan and currently the CEO of PBC based private equity firm that recently entered into liquidation proceedings. What these endeavours have in common is their effort to shape the Pakistani economy for the better through activities outside of the core businesses of the companies that sponsor them. They reflect an increasing understanding among some of the largest companies in Pakistan that they cannot ignore the larger socio-economic context in which they operate and that they must get involved in order to help Each of these approaches involves a different element of what Pakistan’s larger companies believe is needed in Pakistan’s economy. The lobbying allows for the advocacy of policies they believe are necessary for economic growth. And the philanthropic activities such as those engaged in by the Aman Foundation help fill the gaps from where the government fails to provide services.
Pakistan Business Council (PBC)
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anufacturing is any developing economy’s backbone and Pakistan is prematurely moving away from it, which is especially concerning as the country has over 200 million consumers that can derive demand for locally manufactured goods. In addition, the huge market could give manufacturers the opportunity to achieve economies of scale and make it easier for them to compete in the global market. Pakistan’s share of manufacturing in the GDP had dropped from 17.5% in 2005 to 12.1% in 2018 and some large businesses are advocating for its increase with the slogan of “Make in Pakistan”. The Pakistan Business Council (PBC) is a lobbying group representing the interests of some of the largest companies in Pakistan. Its members include some of the largest local businesses as well as multinational corporations. The PBC has recently taken up the mantle of emphasising the need for Pakistan to increase the share of manufacturing in its GDP and has
organised seminars and conferences for its promotion. Profit sat down with Ehsan Malik, former managing director of Unilever Pakistan and currently the CEO of PBC, for a discussion about the role of PBC in Pakistan’s business landscape. Established in 2005 with 14 members, PBC now has 80 members with 50 local businesses and 30 multinational corporations. “Sales of our members represent every ninth rupee of Pakistan’s GDP, and together the members contribute a quarter of the annual tax revenue and exports,” says Malik, highlighting PBC’s scale in the business sector. Malik says that PBC was established because no organisation in Pakistan espoused the cause of business from a long term perspective. The fluctuating economy and volatile business conditions often lead business to think short-term, and this is especially true for businesses that exist on a smaller scale. Such businesses often have to think on a day to day basis due to limitations in capital. “The PBC came about as a realization that there was no organisation in Pakistan that really espoused the cause of businesses from a long term perspective,” says Malik. The way PBC does is that by conducting research, publishing policy papers and holding seminars and conferences to facilitate the flow of relevant information to all stakeholders in the country. It also works closely with relevant governments, ministries, and regulators and institutions to develop consensus on major issues which impact the conduct of business in Pakistan. As part of its research, PBC recently published a report, in collaboration with the Consortium for Development Policy Research, about Pakistan’s readymade garment sector and its future in light of China Pakistan Economic Corridor. The report concludes that Pakistan has a huge opportunity ahead of it due to China’s transition away from low value-added garments and it can expand its share of exports by $170 billion.
Research is extremely vital for devising a long-term industrial strategy as it has to take into account the ground realities that affect the economy. Any policy that is devised based on data has a greater chance of addressing the underlying issues and can propose solid rectifying measures. And in this regard, PBC has the unique advantage of being able to create a large scale impact since, under its belt, it has most of the biggest players in the country that represent all the major sectors. While PBC’s core research focuses on economic indicators and industry related concerns, the Centre of Excellence in Responsible Business (CERB) — PBC’s in-house research wing — focuses on long-term sustainability and development that is socially inclusive. CERB specifically focuses on the environmental impact of production, gender inclusivity and business culture that ensures sustainability. While PBC is advocating for Pakistan to increase its share of manufacturing in the aggregate output, which can therefore the overall GDP, and that too in a sustainable, inclusive manner, there’s another private sector organisation that’s providing a valuable resource to the economy i.e. labour.
Aman Tech
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f Pakistan intends to achieve long term sustainable growth, then labor needs to be put at the center of its industrial strategy. The experience of East Asian ‘Tiger’ Economies points to the importance of human capital and knowledge and skills dissemination amongst the population. These countries achieved rapid and miraculously high growth rates in the period before 1990s largely due to their literacy strategies. According to a report by UNDP Pakistan, around 135 million people in Pakistan are below the age of 35. To put that in perspective, that number is equal to the combined populations
BEYOND BUSINESS
Vocational Training session at Aman Tech of Germany and England. Another report by UNDP states that an estimated 1.3 million young people enter the job market every year. It is the quality and outreach of Pakistan’s education that will decide the extent to which these young entrants are going to be a useful for the economic future of the country. In Pakistan, there has been a mushrooming of universities offering management degrees and institutes imparting foreign certifications on finance and accounting. Respectable engineering schools and departments also dot the urban centers of the country. These are all important attempts by the private and the public sector to promote quality education but there are certain factors which limit these attempts from truly transforming the country’s industry. The fact that most of the developments in higher education over the past decade or two are led by the private sector mean that there is a class-based exclusion. High tuition fees and open competition for the limited placements curb the participation of poor into such institutions. And even in the public sphere of higher education, the phasing out of two-year undergraduate degrees unfairly discriminates against students coming from less privileged backgrounds as they have greater financial
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responsibilities and are often unable to stay out of employment for a period of four years after high school. Founded in 2008 by Arif Naqvi and Fayeeza Naqvi, the Aman Foundations is one of the private philanthropic organizations that has been educating students not catered to by the mainstream higher education system in Pakistan. Aman Tech is a subsidiary of this foundation and offers technical and vocational trainings, employing what is known as the TVET model. Aman boasts a placement rate of 65% and a graduation rate of 90% on their website. Both of these numbers are way ahead of what any other vocational training institute has been able to achieve. To learn more about their educational model and its importance for the larger economy, Profit sat down for a conversation with the CEO of Aman Foundation, Mujahid Khan at their head office in the heart of Karachi’s industrial district Korangi. The very first differentiating factor that one would notice when visiting its Karachi office is that despite falling in the NGO category, its structure is much closer to a modern corporate entity than a typical imagining of a not-for-profit organization in Pakistan. The corporate ethos is also reflected in the profile
of the CEO who has worked in leading firms in Pakistan and USA, and the way Aman Foundation works. “The way this organization works in terms of its processes and systems is very close to how a corporation would work in terms of looking for efficiencies. We have the same cost consciousness, the same [key performance indicator] KPI-driven approach, we employ the same milestones and outcomes driven approach that the corporate sector has. The difference however is that corporate sector looks at financial returns whereas we look at social returns,” said Mujahid. The goal of Aman Foundation is to produce labor that is efficient and can play its part in increasing the output of the company where they work. This has a direct consequence of increasing the total output of the country and reducing overall waste in the process which makes its products more competitive on a global scale. “Everybody says that Pakistan’s competitive advantage is cheap labor, I don’t believe that cheap labor is a competitive advantage, however efficient labor is. And China is a good example of that. Labor cost in that country is not cheap, but why is Chinese production cheap is because they are efficient. Throwing bodies
“The way this organization works in terms of its processes and systems is very close to how a corporation would work in terms of looking for efficiencies. We have the same cost consciousness, the same [key performance indicator] KPI-driven approach, we employ the same milestones and outcomes driven approach that the corporate sector has. The difference however is that corporate sector looks at financial returns whereas we look at social returns” Mujahid Khan, CEO of Aman Foundation at a problem is not going to solve it, but adding skills and productivity into the mix is definitely going to help by creating efficiencies. That is how we look at it.” says Mujahid. The reason Aman Tech has been able to achieve a placement rate nearing 70% is that they start with the end goal in mind. Since their primary aim is to get their graduating student placed into jobs, their programs are designed to cater to that goal. And this is achieved through meetings with an Industry Advisory board. Every 6 months they sit down with the advisory board to discuss with them the curriculum and trade offerings and tweak things around to reflect industry’s demands. The feedback of industry then guides Aman Tech’s core activities such as curriculum design, hiring and training of teachers, planning for labs and assimilators. Only after they have planned their entire course do they recruit students. This ensures that students joining Aman Tech have an already planned cycle for them after which they meet a specific end goal i.e Placement. Another reason for Aman Tech’s success is that they have always been open to tweaking
their operations based on the industry feedback they get or the data they gather. Two such examples which Mujahid shared with Profit were their discontinuation of a course on carpentry because of a lack of demand in the industry for skilled carpentry graduates. “There is very little formal economy that can absorb carpenters, we were providing it because we feel it is a great skill that is needed in the economy, but its demand was lacking. So we let go of that trade, as it just wasn’t creating the impact.” The second tweaking Aman employed based on industry and data insight was shortening of their flagship program from 1 year to 6 months, while increasing of the training hours from half-day to full-day . The rationale behind this decision was that students would be able to graduate quicker and hence start earning earlier and also get a taste of a full work day. The intention with these changes is that students align themselves with actual work conditions as much as they can. The full efforts of their research can be seen in the form of a policy paper published by Aman Foundation titled ‘Strengthening Skills’.
The reason Aman Tech has been able to achieve a placement rate nearing 70% is that they start with the end goal in mind. Since their primary aim is to get their graduating student placed into jobs, their programs are designed to cater to that goal. And this is achieved through meetings with an Industry Advisory board. Every 6 months they sit down with the advisory board to discuss with them the curriculum and trade offerings and tweak things around to reflect industry’s demands
The paper is based on extensive primary and secondary level research and propose several recommendations for the TVET sector in Pakistan based on its findings. The policy paper identifies two successful models whereby TVET graduates are able to earn significantly above minimum wage, as a starting salary: “1) TVET graduates of training programmes that have mandatory On the Job Training components built in with industry support, can earn up to 25% more in terms of starting salary as compared to those who go through a non OJT based model of training. However, formal OJT models have a cost attached to them, and need extensive commitment of time and resources from industry. 2) TVET graduates who become micro-entrepreneurs tend to start at a salary of Rs. 30,000 to Rs.35,000 a month, moving up to approximately Rs. 58,000 per month in 3 years. TVET institutions that provide some form of support to aspiring entrepreneurs, either via linkages to seed funding or lease to own models etc. are also able to better cater to the needs of female graduates, who often prefer to seek self employment, enabling them to work around barriers to mobility, yet earn well above minimum wage.” And Aman has started to take these recommendations into account as well. WIth the start of their apprenticeship program, students are moved onto job sites for 2 months towards the end of their vocational training. Mujahid also announced the intentions of his organization to establish an incubation center for graduates of TVET education. He referred to this as micro-entrepreneurship whereby graduates will not only be able to gain self-employment and earn a much higher wage than the market, but also have the potential to grow into an SME organization, generating employment and serving as an important value chain in the industry. n
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