Profit E-Magazine Issue 32 by Profit (by PT)

8 Weekly Roundup 10 3 men show how to successfully mix business with pleasure 16 Can Tapal’s new boss lady defy the odds?

25 25 An annoying blend of oddities! Rizwan Ghani 28 Pak pharma industry suffers from government’s shackles

32 Government inaction smokes away Rs25 billion annually 35 Can ‘Bothie’ do for Nokia what ‘Selfie Expert’ did for Oppo? 38 Measuring the market

Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Business Editor: Agha Akbar Editor Reporting: Farooq Baloch l Reporters Aisha Arshad l Arshad Hussain l Bilal Hussain l Eleazar Bhatti l Syeda Masooma Ahmed Ahmedani l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulﬁqar Butt (Lhr) Mudassir Iqbal (Isl) Design & Layout: Rizwan Ahmad l Illustrator: ZEB Photographers: Zubair Mehfooz & Imran Gillani Publishing Editor: Arif Nizami Contact: proﬁt@pakistantoday.com.pk

CONTENTS

WELCOME

PASSING THE BATON SheÊs going to be the fourth Tapal to run the tea empire. The odds are against Mehvish Tapal. At least statistically speaking. Studies have shown that it is the third generation of family-run businesses that runs the concern to the ground. Her father was one of the statistical outliers; could she carry on this winning streak? Should she be in charge in the first place? Any such discussion on a family owned concern leads to a more abstract, general discussion on the dynamics at play. The primary argument against the Seth-model centres around the lack of accountability. Who is going to keep him/her in check? Things are worse when the next generation, or the one after that, is in charge. They wouldnÊt have gone through the scrappy hustle that set the business up in the first place. Little accountability and as little a track record. The arguments for that relative lack of accountability in Seth-run firms could be a strength as well. When a company is making a fundamental shift in its core businesses, career-employees can be bullied into playing it safe; owners, not so much. Lastly, when the going gets tough, when the company is forced to sell its good silver, career employees canÊt be faulted for leaving. Why would they put their personal lives and financial futures at risk for an endeavour which, even if things do work out, wonÊt yield them anything? Owners and their kids, on the other hand, canÊt just give up and leave. There is a measure of comforting certainty in that, especially for investors evaluating a company to invest in.

FROM THE MANAGING EDITOR

In Pakistan, coming back to the tea industry, things havenÊt been bad for family-run concerns and have been bad for professionally run firms. While Tapal - and its challenger Vital - have thrived, UnileverÊs Lipton has lost market share rapidly, despite its immense brand equity. The owners choosing their progeny to run their businesses is, demonstrably, not necessarily a bad idea. But only if the children are up to the task. As a father myself, I know how difficult it is to evaluate ones own children, but it is an evaluation that nevertheless needs to be done. Perhaps an audit from the outside would help. Many factors need to be taken into account. Does the child actually want to be in the business? Are they up to the task intellectually? And, given how they have had a plush existence, not knowing the struggle that their fathers did, do they have the requisite passion? At the end of the day, even for privately held businesses, there should be a separation between the business and the person who owns it. If the sole purpose of the business is to earn money for the owner and nothing else, then perhaps treating it as an asset, a dukaan, so to speak, to pass on to the next generation makes sense. But if the idea is to treat a corporation as a rich, pulsating organism unto itself, then there is a need to modify the instinctive impulse to pass on the reins to ones children and see who would be actually a good fit for the job, family member or not.

Babar Nizami

“The ministry is working to formulate a comprehensive e-commerce policy framework in the country” Minister of State for IT and Telecommunication Anusha Rehman

QUOTE

BRIEFING

“Benefits can be had from investment opportunities through exchange of delegations between Pakistan and Japan” Japanese Consul General Toshikazu Isomura

of investment is lined up for development Thar coal, said Minister for Planning and Interior Ahsan Iqbal while speaking to Senate. Responding to a deferred motion of Dr Jehanzeb Jamaldini to discuss the issues arising out of the establishment of coal-based power plants in the country, the minister said the Thar coal reserves, which were equal to the accumulative energy reserves of Saudi-Arabia and Iran, were sufficient to generate electricity for 400 years. He said unfortunately, Thar reserves could not be tapped in the past. Dispelling misconception about China-Pakistan Economic Corridor (CPEC) projects, the minister categorically said no sub-standard or second-hand coal power plant was being installed under CPEC. Supercritical technology was being used in the coal-based power plants to control carbon emission, he added. Ahsan said the Asian Development Bank (ADB) was also financing a super coal power project in Guddu. The United States was generating 30 per cent power by utilising coal, India 45-50 per cent, and Pakistan only 0.8 per cent, he added. He said the government had introduced hydel RLNG (re-gasified liquefied natural gas) and renewable energy based power projects to ensure reliable energy in the country.

$5b

will be raised by Dawood Hercules Corporation Limited (DHCL) billion will be utilized for reprofiling debt/operations of the company alongside other funds will be used for investment purposes. The notification read “The Company will raise funds in the form of Rated, over the Counter Listed and Secured Sukuks (Islamic Bonds) under Section 66 of the Companies Act, 2017 and the Regulations governing Over the Counter (OTC) market under Schedule III (Listing of Debt Market Securities Issued to Qualified Institutional Buyers (QIBs) through Private Placement) to the extent of PKR seven billion for a period of five years. The funds from the Sukuks will be utilized for re-profiling of debt and operations of the Company. JS Bank has been awarded the mandate for this transaction and will act as the Exclusive Advisor and Arranger to the issue.” DHCL will also procure Term Finance Facility (TFF) being a combination of Islamic and Syndicate Finance up to an amount of PKR six billion for a period of five years. The funds will be utilized for investment purposes. Dubai Islamic Bank, Allied Bank Limited and MCB Bank Limited (being part of consortium and syndicate) have been mandated for this transaction, read the notification. DHCL also announced it would be investing Rs17.453 billion in Edotco Pakistan (Pvt) Limited. At end of August 2017, DHCL in partnership with Edotco entered into an agreement with Veon Pakistan Limited to acquire its wireless tower business in Pakistan for $940 million.

Rs13b

$1.5b have been remitted by foreign airlines in form of remittances from Pakistan due to lack of proper implementation of control mechanisms by the State Bank of Pakistan (SBP) and Civil Aviation Authority of Pakistan. Governor SBP Tariq Bajwa, briefing Senate Standing Committee on Finance, Revenue and Narcotics here on Tuesday, informed that the foreign airlines in 2015-16 earned $ 1.068 billion in Pakistan through the sale of tickets out of which they used $ 300 million for local expenditures in Pakistan while remitted $ 795 million to their countries. Similarly, the foreign airlines earned $ 1.238 billion in 2016-17 and remitted $ 786 million to their countries while the spending remaining amount in Pakistan. Senate Standing Committee Chairman Saleem Mandviwalla urged the SBP and other concerned authorities to take notice of the situation. He said that many others countries have implemented control mechanisms but unfortunately, there is no restriction in Pakistan where the foreign airlines operate without any control.

BRIEFING

“The construction of small and medium dams in Balochistan would help boost agriculture production” Planning Secretary Shoaib Ahmed Siddiqui

QUOTE

Rs1b

will be injected by PTCL in Ubank which is a wholly owned subsidiary of PTCL. This capital injection will enable the bank to further capitalise on the possible growth opportunities in Pakistan’s microfinance sector. Given the overall economic landscape, competitive environment and the opportunity to serve a considerably large underserved population, this capital injection will provide the necessary growth impetus for the bank to leverage on and achieve its goals. U Bank serves more than 625,000 customers, where 30 per cent of the served customers are women. By the end of 2017, U Bank’s deposit portfolio grew from Rs 8.1 billion to Rs 11.97 billion, while the loan portfolio grew from Rs 5.5 billion to Rs 10.64 billion.

has been released for road infrastructure projects of the National Highway Authority (NHA) under the Public Sector Development Programme (PSDP) so far. An official source said for Lahore Abdul Hakeem Motorway (M-3) Rs 25,000 million has been released so far under PSDP. He said Rs 10435.914 million has been released for Hakla-DI Khan Motorway. For New Islamabad Airport Road link Rs 1500 million have been released so far. For widening of Grand Trunk Road from Thokar Niaz Baig to Hudyiraa drain in Lahore Rs 5000 million has been released so far, he said. He added that Rs 14,250 million has been released for construction of Lahore-Sialkot Motorway. He said that for Lowari tunnel project Rs 2218 million has been released under the PSDP. He further added that for dualisation of 210 section of Yarik-Mughalkot-Zhob highway, Rs 800 million has been released. For improvement and widening of 167 km Jaglot-Skardu Road Rs 1914 million has been released so far.

Rs70.812m

increase was recorded in production of cars and jeeps during first five months of financial year 2017-18. As many as 97,036 cars and jeeps were manufactured during July-November (2017-18) against the production of production of 75,314 units during July-November (2016-17), according to the latest data of Pakistan Bureau of Statistics (PBS). The production of light commercial vehicles (LCVs) also increased by 19.20 per cent by going up from output of 10,358 units last year to 12,347 units during the ongoing year while the production of motorcycles surged by 18.16 per cent as its manufacturing increased from 987,546 units last year to 1,166,207 units during the current fiscal year. According to the data, the production of trucks also increased from 3,212 units last year to 3,889 units during the current year, showing growth of 24 percent while the production of tractors surged by 64.05 per cent by expanding output of 16,889 units to 27,706 units.

28.84pc

decline in cement exports was registered in December 2017 to 328,000 tonnes from 369,000 tonnes in the year-ago period, according to data released by the All Pakistan Cement Manufacturers’ Association (APCMA). Between July-December 2017, cement exports declined by 17.3 percent from 2.911 million tonnes to 2.406 million tonnes. Exports from southern-based mills were particularly affected as they were reduced by 36.2 percent from 0.953 million tonnes in July 2016 to 0.608 million tonnes in July-December 2017. Northern mills saw their exports decline by 8.1 per cent to 1.799 million tonnes from 1.958 million tonnes in JulyDecember 2016. Industry sources said that exports have been affected by the high cost of doing business but also by high duties and taxes on exports, eroding the domestic industry’s ability to compete in the global market.

11pc

Rs9.8b have been accepted through banks via ecommerce websites at end of June 2017. In addition to that, transactions worth Rs 20.7 billion were carried out by consumers on international e-commerce websites, stated State Bank of Pakistan in its quarterly report while quoting latest ecommerce data. According to the report, growing incomes, coupled with advancement in communication technology and expansion of internet access and branchless banking, had been propelling the sector forward. Various benefits such as comfort of shopping from home, wider selection variety, ubiquity of 24×7 service, and interaction possibilities like reviews to make an informed decision were the main sources of attraction to the consumers. Businesses, meanwhile, are venturing into digital platforms to increase their reach, the report added.

BRIEFING

Why a banker, a dentist and a marketing man change horses midstream to join the nascent tourist industry? By Bilal Hussain

bandoning jobs mid-career is something that the less adventurous abhor. After all who would want to leave the safety of a job with a decent salary, in the bank at the end of the month. But a trio from professions as diverse as a mid-career banker, a dental surgeon, and a marketing man did opt for going on their own and getting into tourism business – hitherto a no-go area, but now seemingly thriving, with immense potential to grow further. Indeed impressive are the statistics, quoted by Chaudhry Abdul Ghafoor Khan, managing director of Pakistan Tourism Development Corporation (PTDC). In the year 2016 alone, the global tourism industry added $7.6 trillion to the world GDP – contributing 10.2% to the global economy, and producing 292 million jobs!

Flourishing by leaps and bounds eanwhile, domestic tourism in Pakistan is also becoming much more alive. The top man at PTDC forecasts: the number of domestic tourists for the year 2018 would be well over 50 million – a far cry from four to five years ago when terrorism and not travel weighed heavy on people’s minds – in the Northern and

Princess of Hope Southern parts of the country alike. And the sheer weight of statistics proves that Ghafoor’s optimism is wellfounded. The number of international tourists in 2017 saw nearly 60 percent increase, to 1.75 million from 1.1 million of the previous year. For nearly a decade and a half post 9/11, the scary security situation kept foreign and local tourist at bay – the risk involved in the North and and the South alike being too high for people to venture

there with tourism on their mind. While the North also has places that are still unexplored, but quite a lot about the many destinations there is rather well-known and widely photographed. But Balochistan and Sindh have remained almost entirely out of the public radar, security being only one of the reasons, the other, access being difficult. With the security situation improving, and the construction of Makran Coastal Highway having been completed along

ENTREPRENEURSHIP

with the port of Gwadar, it is now open to travel and tourism, and as the previously unvisited spots galore, many are headed in that direction.

The trio changes course nly two years back, Vohra was assistant vice-president serving as manager at UBL Karachi’s Shahrah-e-Faisal branch in the Nursery area. In what was a surprise to his colleagues and friends, Vohra resigned from the bank to the astonishment of his colleagues and joined his friend Ghazanfar Sheikh, another banker, who was previously UBL’s Head of Credit, to enter into tourism business. “This is a growing industry and I wanted to be among the early movers. It not only offers you livelihood but while you are working, you’re having fun too,” said Vohra. What Vohra had been earning after 12 years of service at the bank, he matched it in just about two years in his chosen vocation. The middle-ranking officer of a status similar to Vohra’s at the bank makes around Rs150,000 a month. Hammad Shakeel of Josh Tours said, he was financially better off now as compared to when he worked in newspaper Jang’s marketing department. “Now I

‘THIS IS A GROWING INDUSTRY AND I WANTED TO BE AMONG THE EARLY MOVERS. IT NOT ONLY OFFERS YOU LIVELIHOOD BUT ALSO PLEASURE’ Fahd Vohra, Director Rocket Tourism have no trouble paying my rent, which previously was not the case.” Hammad’s wife is also working at the backend of the venture – mostly booking clients. Vohra also wizened up Profit about a dentist, who worked with him for a few months before operating tours on his own. “I stumbled into dentistry. In Karachi for some reason, I coincidently got an interview call from Dow Medical College and went over to kill time without even giving a thought to the possibility that I might pass the interview,” said the dentist requesting not to be named. He belongs to Mirpurkhas and works at his family’s farms during winter and in the summer operates tours mostly for K-2. “Travelling has always been my passion. And now I am doing what I like the most.”

Dhurna Island

The lure of the South he adventure is in Balochistan... at places like Kund Malir and Ormara. Another favourite is Churna Island – where the season is limited to between March and May due to choppy waters. I don’t consider the northern areas as adventure, as you get most facilities there. And that’s not adventure to me,” said Hammad talking to his patrons on the return trip from Ormara back to Karachi as some people complained about the lack of facilities, like proper washrooms etc. Hammad takes groups to northern areas between March to November, but for about three years now as the winter sets in, he mostly operates in the South – in Balochistan and Sindh. With snowing and extreme cold making the high northern altitudes well nigh impassable from November onwards, for the citizens of Karachi as well as foreigners in that neck of the woods, the South becomes the destination of choice. “When you are on the way towards Ormara from Kund Malir, it would seem to you as if you were in Egypt. It’s amazing,” said an excited Rashid Qureshi, a couple of medical stores and investments in real estate being his major sources of income. He has recently developed a taste for travelling within Pakistan. “I would recommend you to go there. You would really enjoy and on return if you show selfies to your friends, you could easily trick them into believing that you went to Egypt rather then

“T

made a trip within Pakistan,” said he. The natural beauty of our northern areas is breathtaking for the local as well as foreign tourists. Naran, Kaghan, Saiful Malook, Murree, Nathia Gali, Azad Kashmir and list goes on. But the beaches of Balochistan – especially Ormara and Kund Malir, to mention just the two so far explored – have largely remained outside tourists’ radar. However, travelers have now started frequenting these places.

Day trips ureshi’s trip with his friends to Ormara couldn’t be considered as tourism as he left in the wee hours from Karachi and later return the same day. It would rather fall into recreational activity. But if these spots are developed and if hotels and restaurants are established then certainly time period of tourists’ stay in the area would increase. For the longer the tourists remain at a place the more the economic benefit to the locals. “Certainly I will stay if there are some hotels around in a place like Kund Malir or Ormara. It is very hectic to travel more than 700 kilometers to and from those destinations in a day,” said Qureshi. However, camping is the new ‘in’ thing and operators like Hammad are offering this option to their clients. Kund Malir beach is the place where camps abound, with bonfire and music.

Social media playing its part ew kilometers before zero point, there’s a hotel in a small town Windar, where busses carrying tourists stop for 20-odd minutes for people to refresh themselves with a cup of tea or make a toilet call. “Now and then, we talk to hotel owners about this. On winter weekends,

Ormara we guess, around 1,000 tourists visit these areas,” said Ghazanfar Sheikh, who runs Rocket Tourism along with his friend Fahd Vohra. But that is the low point. During the summer, the tourist traffic inflates by about 50 times, to over 50,000 a week. “It’s our conservative estimate. In one recent summer, I counted around 150 buses, all 52-seat coasters, at a time on the Kund Malir coast alone. So, the number hotel owners give us was not an inflated one.” Whatever the exact number, the trend is obvious. People are indeed headed the Ormara and Kund Malir way. The social media also has a role to play in this newfound enthusiasm for these spots. “In popularising these areas, social media has definitely been a major catalyst. Not even five percent of the people now visiting these places would have ventured there before 2013. Since then the visitors to these Makran coast spots has increased by at

‘THEN THERE ARE MANY WHO WOULD TRAVEL MANY A MILE TO PAY HOMAGE TO THE SAINTS, IN SINDH ESPECIALLY TO THE SHRINES OF LAL SHAHBAZ QALANDAR AT SEHWAN SHARIF AND SHAH ABDUL LATIF BHITAI AT BHIT SHAH’

least 30 times. Both the federal and provincial governments have done nothing all these years. Social media has made everyone sit up and take notice,” said Vohra.

Virgin beaches beckon he more adventurous among the natives and tour operators – who incidentally are dependent on social media for their marketing – charging reasonable fees to take them there combined to popularise these destinations. And once the pictures of pristine shores and lovely desert sites were posted on social media the number of takers catapulted. Then there are activities unheard of: such as at Churna Island, close to Karachi in Kemari Town, offering scuba diving in a scenic setting. “My agency takes around fifty people to these places every month”, said Vohra, who plans group as well as private trips. There were seven to eight other agencies involved in the business. Many people though hit the road on their own, in cars or even motorbikes, as Qureshi and his friends do. “These places are visited seasonally. Between May and July, the tides are high and generally people avoid going to the sea or island spots. Other than that the number of visitors remains consistent,” Vohra said. “All these are virgin beaches and possess immense potential to at-

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Dhurna Island tract tourists,” said Commander Kaleem Ishaq, the head of security at Byco Petroleum’s Single Point Mooring (SPM) facility near Churna Island. “However, volatile security issues arising now and then wouldn’t let these places become in-demand tourist destinations. People definitely won’t risk their lives no matter how highly scenic natural beauty they might be missing. “A retired major, who started adventure sports like paragliding near here but since very few people came, he went bankrupt. I believe people were not heading towards these beaches only because of security apprehensions,” Ishaq said.

tourism largely remains unimpacted, regardless of security situation etc. In order to promote it, we have also been approaching various countries. In fact, Uzbekistan and Iran are ready to sign the MoUs on the subject with us,” he said. All this indicates towards much to cheer about as far as tourism in this country is concerned, and as acts of terror are obliterated and the culture of intolerances subsides, replaced by a spirit of coexistence and bonhomie, it surely would blossom further.

With spirituality the guiding light hen there are many who would travel many a mile to pay homage to the saints, in Sindh especially to the shrines of Lal Shahbaz Qalandar at Sehwan Sharif and Shah Abdul Latif Bhitai at Bhit Shah. With spirituality their guiding light, people flock to these places from far and wide. Devotees throng these shrines throughout the year but on the occasion of annual Urs (the death anniversary of a saint), the surge must be seen to be believed. Such tourism, however, remains a neglected area. Visits to these shrines are not restricted to only Pakistanis or Muslims. For instance, a Sri Lankan tourist was taken to Sehwan as he wanted to listen to sufi music, said Vohra. Then for the Hindus, Nani ka Mandir near Kund Malir in the South and Katas Raj in the central Punjab, both said to be more than a thousand years old, are tourists. Meanwhile, thousands of Indian and local Sikhs visit Guru Nanak Sahib every year. Last year more than 30,000 from around the world came to Karachi to attend Ashra Mubaraka, a Dawoodi Bohra holy event with the 53rd spiritual leader Dr Syedna Aali Qadr Mufaddal Saifuddin leading it. The families that come to him ask for tours to sufi saint towns, like Sehwan, said Hammad, adding, “roughly 10 percent do want to go to these places exclusively.” With so many Hindu, Sikh and Buddhist holy sites in Pakistan, the PTDC boss Abdul Ghafoor believes that Pakistan’s potential for religious tourism is immense. “Personally I give it top priority, because religious

Byco's SPM near Churna Island

Kund Malir camping site

ENTREPRENEURSHIP

Given that most family businesses last up to three generations, Aftab Tapal has done exceptionally well, taking his grandfather’s business to unprecedented heights. But since his daughter, Mehvish took charge, Tapal Tea’s dominance has increasingly come under threat by the Vital Group. To make matters worse many members of Aftab’s core team have parted ways

By: Farooq Baloch ou can keep wealth in the family only for three generations,” asserts an ancient Chinese proverb. Similar aphorisms exist elsewhere. “From the cowshed to the stars and back to the cowshed”, and “Shirtsleeves to shirtsleeves in three generations” are deductions made by the wise in Italy and the US.

“Y

FMCG

‘As pArt of the ongoing move to mAke the mAnAgement structure more professionAl And cApAble, the induction of the next generAtion hAs been done with mehvish At the helm. our current mAnAgement mAinly includes top professionAls with long term mnc experience, both locAl And internAtionAl. it is A reflection of the competitive pAy structure And environment thAt we offer’ Aftab Tapal, Chairman, Tapal Group By the time the third-generation takes over, most family businesses go bust, or close to tanking out, so the sages say. And available data backs this hunch. “Despite the extraordinary longevity of some individual family firms, the average life-span across family businesses is three generations,” one of the world’s largest professional services firms PricewaterhouseCoopers (PwC) says in its global family business survey 2016, noting: “typically, only 12% make it that far”. Given the odds of failure being high due to succession, Aftab Tapal is an archetype showcasing how to take a family enterprise so painstakingly built by the pioneer to another, far higher plane. “Tapal has celebrated 70 years of operating as a business this year. As you can imagine, we have evolved over the years as an institution and successfully adapted to changes that have kept us at the top of the class. This has included one generation handing over the reins to the next in the past as well,” said Aftab Tapal while speaking to Profit for this feature. One of the most revered, and celebrated, figures inheriting a business, Aftab Tapal took Tapal Tea to unprecedented heights in his four decades at the helm. Joining the firm in 1977, he eventually took the baton from his founding grandfather Adam Ali Tapal, who had started it in 1947. The company’s annual turnover at the time was 500,000 kilograms. The junior Tapal expanded his family business 100 times to over 50 million kgs now. No small feat that, particularly if you look at it in the context that it made him the world’s largest individual tea importer – as one official with insight into the Tapal busi-

ness put it.

uncertainty aﬞer decades of growth hile the last four decades of Tapal’s growth certainly belong to Aftab Tapal, the 67year-old’s role in the business has gradually diminished, in the main owing to health issues that enforce spells of rest and recuperation. He is still the group chief executive, but mostly it is his daughter Mehvish Tapal who calls the shots. Since Aftab’s father and the founder’s son Faizullah Tapal never really ran the venture, though in lineage Mehvish maybe fourth, she actually is the third generation to lead the company. Post her honors degree in Business Management from London’s prestigious Imperial College, she was in her mid 20s at the time when she joined the firm in September 2006. Her LinkedIn profile details various job rotations, covering human resource, marketing and supply chain departments before assuming the important role of Director, Sales, Marketing, Operations, Administration and Human Resources. Though she became a Director much later, in 2010 to be precise, one company official with unimpeachable credentials told Profit, she had the chutzpah to make important management decisions from the word go. Aftab’s frequent absences would mean she had to be put on fast track for the top job because her siblings had abdicated and settled abroad. Having recovered enough to be back, our sources divulge, Aftab Tapal’s health remains a serious concern, making a complete transition to the next generation immi-

nent. To some that has already transpired, for almost all day-to-day decisions are being taken by Mehvish; she is also directly supervising important departments.

new era coinciding with vital threat t is quite obvious that the hugely successful family enterprise has entered a new era, one that is likely to test the company overall, as well as the acumen, insight and perseverance of the 34year-old Tapal scion. Within two years of her joining, about half a dozen senior executives chose to exit, citing as reasons the new incumbent’s ‘lack of experience’ and ‘management style’. An integral part of Aftab Tapal’s core team built in the mid-1980s, the departing executives were said to be sick to the core about the needless everyday scrutiny, and instead of getting into too-frequent arguments chose to part company, the unanimous sentiment being that the new head honcho didn’t have the nous to make important calls. On the condition that their anonymity would not be breached, they poured their heart out to Profit: “Born with a silver spoon, she was more of a dictator than a director.” The Imperial College alumnus’ management style may have been too overbearing for the quitting executives, those who have replaced them assert that questioning and accountability by the business head is par for the course. Be that as it may, human resource remains an area that she has found difficult to tackle – or so her detractors claim.

Having cornered glory, post the parting of key members of the Team Tapal – some were actually banished, our sources reveal – Mehvish kept on hunting for fresh talent. The tougher part though was retaining the new inductions. To coincide with Mehvish coming onboard, as if on cue the Haroonabad, South Punjab-based, Vital Group decided to expand its operations to Karachi. As the fastest growing brand in recent years, already the ascendance of Vital tea was giving jitters to both Tapal and Unilever – owners of Lipton and Supreme brands in Pakistan.

Transition s they transition from one generation to another, it is typical of family businesses to encounter challenges that might even lead to failure, the PwC study says. “The most obvious potential ‘failure factor’ for the family firm is the succession process. The transition from one generation to the next is the faultline in this business model,” the PwC says of family-managed businesses. Change in leadership certainly brings changes to the business, but it works both ways, Arif Iqbal Rana, associate professor at the Suleman Dawood School of Business at LUMS and head of the university’s Family Business Initiative said, implying the next generation can make the business even more successful, and not necessarily destroy it. Though some experts we spoke to say the international studies like the one by PwC hold true in the Pakistani context,

‘EMPIRICALLY, NON-PUBLIC FAMILY BUSINESSES PERFORM WORSE THAN PUBLICLY LISTED PROFESSIONALLY RUN COMPANIES, BUT THOSE PROFESSIONALLY RUN COMPANIES ARE OUTPERFORMED BY PUBLICLY LISTED COMPANIES THAT STILL HAVE A FAMILY AS THEIR MAJOR SHAREHOLDER’ Prof. Arif Iqbal Rana, Head of LUMS Family Business Initiative Rana says it is difficult to come up with a percentage because there is no local study available on the succession process of Pakistani family businesses. Even if there was one, Aftab Tapal would still be an exception in the sense that he defied all odds when having stepped into his grandfather’s shoes, he thrived like it was nobody’s business. But the big question is: Can the daughter pull a similar feat? Apart from Aftab Tapal, It was deemed appropriate to take views from people familiar with the apparently contrasting father-daughter management style, industry experts and market sources to get a better picture of how the company fared under the younger Tapal and how big a threat the Vital Group was. To understand why it matters and what is at stake, it is important to dig into the history and find out why Tapal is so well-regarded.

The rise and rise of Tapal

ften touted as a source of national pride, Tapal Tea’s legend is rather well documented – stuff of a decent case study for those vying for

Aftab Tapal (in the middle), with Mehvish Tapal on his left

a postgraduate degree. In Pakistan’s recent history, it won’t be far off to say, the Tapal surname is synonymous with spectacular flourishing of a family venture – a small tea-selling shop in Karachi’s Jodia Bazar, the city’s oldest and largest wholesale grocery market to a corporate behemoth. The founder, Adam Ali Tapal introduced a new blend of leaf and dust in the 1960s. The multinational companies (MNCs) scoffed at the initiative back then, but it was the proverbial idea whose time had come. And the rest, as they say, is history. Aftab Tapal could have continued on the template already in place but his entrepreneurial nous helped him carve his own marketing methods – its cornerstones in the main being product innovation and employing contemporary management. He went into distribution, branding and packaging right after joining. The purpose was to bypass the system of sales depots – a tactic followed by other brands – and go where the customer was – a big relief to the latter who had to make it to Jodia Bazar from all parts of the metropolis and then queue up at the shop to procure their favourite blend. Soon after taking over Aftab was adamant to create a brand image for Tapal, which at the time was selling its quality product in loose thelis. Tapal’s logo as a sticker first appeared on the little bags. That evolved into the tea being properly packaged and branded which led to increase in sales, brand recognition and customer loyalty. Eventually the process was mechanised and streamlined all under Aftab’s leadership. It is not all about packaging though, it was the substance that made Tapal so successful. Aftab interacted with tea connoisseurs from across the world to introduce new blends. Tapal’s ‘Chenak’ in 1984

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pretty much ended Unilever’s ‘Red Rose’ in Thar district. In 1988, ‘Mezban’ was launched to cater to the taste of interior Sindh that defeated Uniliver’s ‘Pearl Dust’ to emerge as the top brand in the region. But perhaps Aftab’s first major highpoint was the introduction of the ‘Danedar’, a granular tea that became an instant hit. Other brands followed suit, but the word ‘Danedar’ is still identified with Tapal. “Aftab desired to have the distinction of being the largest tea-seller in the country, and he accomplished that,” narrated an official with firsthand knowledge of Tapal. At the time Tapal was working on very narrow margins as the tea it was importing from Kenya cost much more than the Ceylon teas that its competitors were importing. But the strategy of providing higher quality tea at competitive prices paid off in the long term. Under Aftab’s stewardship, the company took the formidable MNCs head-on and became the largest tea seller in the country between 2004 and 2005, surpassing the Anglo-Dutch foods and consumer goods giant Unilever. Within two years, the 21st Century Business and Economic Club launched his autobiography, ‘Transforming a vision into reality’, documenting his and Tapal’s rise for aspiring entrepreneurs. “His [Aftab’s] main strength was he would always hired people who were more qualified and had greater knowledge of the business than him,” said the official. A down-to-earth, humble person, Aftab would not mind reaching out to those well below top management for their opinion on critical decisions. Potent advertising

campaigns, a robust nationwide distribution network, and innovation have been some of the company’s major strengths. Over the years, the brand Tapal has earned a customer loyalty that even direct comparative advertisement by the competition failed to create any dent in its leadership position. Unilever’s Lipton began a direct comparative campaign in 2016 which failed to make any dent in Tapal’s market share. Such campaigns rarely do work and data suggests it actually makes customers more loyal to their preferred brand rather than encouraging them to shift to a competing brand. Ironically in the early 2000’s Lipton almost took Tetley to court for showing a blurred out image of the former’s tea in a TV advert. In Pakistan the strength of any tea brand is based on geography. Each region has its own preferences in terms of how their tea should taste and look. In the North a lighter coloured less strong flavour is preferred buy as you move towards the South the colour becomes darker and the taste stronger. Knowing this Tapal with its portfolio of 20 variants attempts to cater to tea drinkers across Pakistan. According to a survey by Euromonitor, for the branded tea segment Tapal accounts for 35% or Rs51 billion – the entire pie being Rs147 billion as of December 2016 – of retail value sales. Tapal was among the 100 top tax-paying companies in fiscal year 2013, contributing more than Rs1 billion in taxes, according to the details of Taxpayers’ Privilege and Honour Card Scheme, a part of Prime Minister’s Tax Incentive Package. Presently, it is the

largest fully-owned Pakistani tea business, also marketing its brands in various parts of the world. A shining ‘born in Pakistan’ example, indeed. With pride oozing from his assertion, Aftab Tapal said: “Tapal Tea (Pvt.) Limited is the largest tea company in Pakistan both volumetrically and by value, this is according to syndicated third party data.”

Enter the younger Tapal n article in the Harvard Business Review, Jan-Feb 2012 issue, points out that many family businesses have the same leaders for extended tenures, stretching up to 25 years, increasing the difficulties of coping with shifts in technology, business models, and consumer behavior. “Today family firms in developing markets face new threats from globalization. In many ways, leading a family-owned business has never been harder.” Tapal seems no different as Aftab led the company for well over three decades before the heir apparent could be ready. The Tapal Senior’s deteriorating health meant the daughter had to be pressed into the position sooner than planned, missing on the apprenticeship under the maestro. And even if you’re good, missing out on that learning curve is something difficult to cope with – especially when your calls can make or break the company. Besides the privilege – simultaneously a challenge – of managing the country’s largest tea brand, Mehvish by default has also inherited the issues that were to emerge. From coping with the unstructured (undocumented) sector, to recruiting and retaining the tried and tested workforce, and facing off an aggressive local competi-

tor, she has been juggling too many balls all at the same time. In carving her own path, little surprise that not all her decisions sat well with the senior lot, some of them preferred desertion over sticking it out with her. “One of her first major decisions was to reduce the size of Tapal’s sales team, but the people she chose to sack were the work horses. It didn’t make sense at all,” said one in the know with dismay. To another insider, the younger Tapal wanted to build a new team consisting of MBAs of top universities for sales and marketing functions. That’s when the old and experienced employees, who did not have business degrees and specialization, started to leave or were told to leave. This would mean, Tapal had to deal with the unstructured or unbranded loose tea, seriously impinging the growth of the formal sector, without the luxury of an experienced team. With a market size of 280 to 300 million kilogram (based on customs estimate), Pakistan is the second largest importer of tea after Russia, and one of the largest consumers in the world on a per capita basis, which stands at more than 1 kilogram. “As a private limited company, we do not disclose these figures as is normal practise”, said Aftab Tapal while refusing point blank to disclose turnover and growth rates, however he informed: “We have outstripped category growth consistently over the last decade or so.” The numbers sounds mouth watering, but the formal sector hasn’t been able to tap into it fully. Up from one-third of the market a few years ago, the volume of unbranded loose tea is said to be between 40 to 50 percent of the total tea consumption – according to Aftab Tapal, it is 40%. “The

tea category is about 220 thousand tonnes with about 40% of the market being loose and unbranded,” says the elder Tapal. The unbranded sector largely remains undocumented (evades duties and taxes), making their tea cheaper compared to the legitimate players. Their network is spread across the country, and is hurting the growth of entire industry, and not just Tapal. Aftab Tapal agreed that the smuggled tea is one of the greatest challenges. Detering that threat would require a larger and experienced workforce, but our sources say the size of Tapal’s human resource has reduced in the recent years. Profit could not obtain the exact number of employees who left the company or were laid off since the change in management, but our sources confirmed more than half a dozen senior executives left shortly after she took control. “The senior employees who left because of Mehvish didn’t like a 24-year-old questioning them because it became an ego issue,” said an official who was part of the younger lot recruited under Mehvish’s stewardship. Explaining, he said these employees, mostly in their 50s, had played with her when she was a child and saw her grow up in front of them. This transition, he went on to say, was normal for most family businesses. Aftab Tapal’s take is diametrically different: “Mehvish entered the company when most of the staff were reaching their retirement age as per Pakistan law. With regards to senior executives leaving, we have had many employees who have spent the better part of 30 years with us and have left because the Pakistan laws stipulate 62 years as retirement age, so they have parted with

handsome retirement packages.” “A fresh brain always brings in new ideas and a lot of changes so it was obvious she would do things differently,” the young official said referring to the changes the younger Tapal made during last six to eight years. Aftab Tapal, the ageing chairman, concurs with the aforementioned assertion in his talk with Profit, giving his daughter a thumping vote of confidence: “As part of the ongoing move to to make the management structure more professional and capable, the induction of the next generation has been done with Mehvish at the helm. “Tapal is the outright volume leader in the tea category and we have outstripped category growth for the last five years. “This has happened because of our commitment to unwavering quality as well as innovations. So that tells me we are on the right track. Tapal did not enter tea bags and green tea for higher margins. We are trying to lead the future global trends and these teas do not come cheap.” For the uninitiated, these initiatives were Mehvish’s brainchild. That said, based on the input Profit garnered from officials familiar with the management styles of both the Tapals – the two are polls apart in their approach. Aftab Tapal was old school who would consider employees as family members. He was of the opinion that employees should share the profits, as evident from bonuses he would shower on them every quarter. At times, bonuses would be higher than salaries, one official said. For important management decisions, he would go to several employees and reach out to the concerned teams and seek their opinion beforehand.

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Mehvish, on the other hand, is more of a 21st century style leader. She thinks employees should be treated as employees and they can be questioned about their performance. She also reduced the number of bonuses from four (one each quarter) to only one performance-based bonus per year. Similarly, she thought important decisions should be taken by top management, and not employees – Tapal’s Strategic Management Committee comprises almost entirely of Tapals with only one member from outside. However, there is one constant in their respective leaderships: both hunted for top talent. “Though a visionary leader himself, Aftab used to hire people more qualified than him,” said an official. Mehvish, too, wants the country’s top business graduates in her team. But in her case, it hasn’t been easy. The company is finding it increasingly challenging to retain talent, especially in the marketing department. According to an expert, who provides consultancy services to fast moving consumer goods companies (FMCGs), Tapal is unable to recruit top talent because it is offering lower salaries compared with what is paid by other FMCGs for similar jobs. Explaining, he said every sector has a comparator basket to compare salaries for certain positions and companies like Engro Foods, Nestle Pakistan, Unilever and Pepsico will fall in the same basket. There are

about a dozen positions in a basket that determine what industry pays to each position, he said. Moreover, when a company is struggling, hiring new employees becomes even more difficult, he said referring to the challenges facing Tapal. The Tapal Chairman offers a strong rejoinder. Dispelling doubts, he stated: “Our current management mainly includes top professionals with long term MNC experience, both local and international. It is a reflection of the competitive pay structure and environment that we offer. We are market benchmarked using Mercer’s survey in order to offer competitive compensation and this is part of the progress and evolution of the company under Mehvish’s management along with a competitive, performance-based culture.”

The Vital threat ince overtaking Unilever over a decade ago as the top tea brand in the country , Tapal has mostly kept competition at a distant south, but that equation seems to be changing because of Vital Tea, the fastest growing brand in recent years. Since both Tapal and Vital are private companies, they don’t publicly release financial data. Unilever, too doesn’t publish these figures. It is, therefore, hard to measure the exact market share of any of these players. But by all estimates, Tapal is the

‘MAYBE AN IPO WILL HELP SOLVE THEIR PROBLEMS, BECAUSE ONCE THEY MOVE TO CORPORATE GOVERNANCE LED BY A BOARD AND HAVE PROFESSIONALS RUNNING THE COMPANY, THEY CAN GROW FURTHER 22

market leader. Unilever is the second largest brand by most accounts. Vital, on the other hand, became the third-largest company after surpassing Tetley a couple of years ago. Vital is a serious business threat to the entire industry, not just Tapal and Unilever, insisted an importer and member of Pakistan Tea Association, an importer-body comprising 146 members. “Several small companies are enhancing their share, but Vital has become a big player – obviously a concern to the status quo,” he said. Refusing to be drawn into a discussion about his competitors, “It would not be correct of me to comment on the workings of our competitors”, responding to another question, though not directly naming Vital for indulging in underhand tactics, Aftab Tapal still obliquely hinted at it while speaking of the threat from that quarter and why it was difficult to counter: “For all legitimate corporate citizens, the main challenges are smuggled goods, competitors that evade taxes and duties and offer inferior products at low prices.” Vital Tea, the signature product of Group, has been operating since 1991 under Eastern Products Private Limited, but it was mostly catering to rural Punjab and Sindh, thus remaining lesser known. When it launched in Karachi some eight years ago, it was selling 500,000 kgs per year across Pakistan and wasn’t even 5% of the market. But based on latest estimates, it is selling 1.5 million to 2 million kgs per year, which translates to a growth of 200-300%, highest by any brand in the review period. The company now enjoys 15 to 17% share in the market based on industry estimates. Vital Group didn’t entertain Profit’s request for an interview with its chairman, Haji Muhammad Yasin. But industry

sources say, this former distributor of Unilever always had business acumen; all he needed was to find a big investor, which he eventually did. Vital’s chief indeed is a smart cookie. At Vital’s launch, he did not directly confront Tapal or Unilever. Instead he went to the hinterland, where the two giants had limited outreach. Even when entering Karachi, he first went to the outskirts like Gulbai, Surjani, Landhi, Korangi and Malir etc. Having captured the market there, he stepped into the mainstream wholesale market, ventured into urban centres, to take on the big guys. Vital is the only company that first went to the rural areas and then to the urban centres – the exact opposite of the traditional approach. Yasin’s philosophy was to offer credit to retailers. He would give tea on credit as opposed to Tapal and Unilever who would sell it for cash, one of the reasons why retailers would prefer selling his products, said an industry expert. “Many people have switched to Vital recently because of its aggressive free sampling,” an official said giving an example of the promotion campaign the company ran at all airports a couple of years ago. The airport campaigns were meant to lure the middle and elite classes. It is so aggressive in free sampling that it even goes to small events (with 15 to 20 people in attendance) like a kabbadi match in a small off the beaten track rural town in Punjab and offer free tea to the crowd. The onground free samples are complemented with a strong electronic media campaign. For example, from initial commercials that would target labor class, the ads have changed and now includes all income groups in a single commercial. That said, experts and even Vital’s competition agrees the company offers a good blend of tea as marketing and advertising alone can’t make people switch brands that easily. Though Vital has eaten mainly into the market of Unilever, which has lost volumes in recent years, market sources say it is catching up very fast and is now threatening Tapal’s dominance. In fact, the two are even fighting for exports as Vital has expanded into all the international destinations where Tapal has a strong presence. “There is an issue with the direction at Tapal. Mehwish seems to lack the under-

SINCE OVERTAKING UNILEVER OVER A DECADE AGO AS THE TOP TEA BRAND IN THE COUNTRY, TAPAL HAS MOSTLY KEPT COMPETITION AT A DISTANT SOUTH, BUT THAT EQUATION SEEMS TO BE CHANGING BECAUSE OF VITAL TEA, THE FASTEST GROWING BRAND IN RECENT YEARS standing of the market and Aftab’s often remaining away from the business due to health issues doesn’t help either,” said an expert, adding the lack of experience could be the difference. “I think they are more focussed on high margin, value-added section as opposed to economy of scales,” the expert said, which is exactly what Unilever is doing for some years. “Vital on the other hand seems to be doing what Tapal did many years ago, playing on volumes,” he said recalling Aftab Tapal who was ‘definitely a volumes guy’. “In FMCGs, you can’t be complacent, if you give space to competition, they will jump on the opportunity,” he said referring to examples of PepsiCo and Haleeb, which lost significant share to rivals Coca-Cola and Engro Foods respectively. And he was not the only expert with this view. “Tapal’s philosophy has changed, they seem to be moving to high margin items like tea bags and green tea,” said another official – under Mehvish’s leadership, the company has introduced four flavors of green tea and also launched an instant tea mix. By contrast, Aftab Tapal’s dream was to be the largest tea seller in the country, which is why he always focused on volumes. “Tetley wound up, Meezan Tea came but it could not fit in either. Tapal on the other hand shifted its strategy and it left a gap that Vital has cashed in on,” he said. Moreover, the change in company culture seems to have a role too, the official said. “Unlike old employees who served the better part of their lives at Tapal, latest recruits switch jobs frequently and there is no loyalty or employee commitment. Some of these people lack knowledge of the job and market,” he added. In the meantime, Vital has been adopting strategies that were once Tapal’s: a strong marketing campaign, large distribution network and a good blend. However, an official with insights to Tapal, says the

local tea giant is apprehensive of the way Vital operates. For example, he said the south Punjab-based tea maker has political connections, which earned them favours. Vital got the permission for the airport campaign, but Tapal was turned down, he said. Since Vital didn’t entertain Profit’s multiple requests for an interview, we could not get their comment. However, it is pertinent to mention here that in the past Tapal has received the same permission and also did a successful promotional campaign at all airports. Though the official agreed Vital is the fastest growing company, which has worried Tapal, he added the latter didn’t lose any share. “Tapal Tea is continuously growing under Mehvish,” he said adding the industry overall grew by 5% in 2016, but the company witnessed 10% growth in the same period. Giving other examples, the official said Mehvish introduced four new flavors of green tea, which resulted in higher sales in that category. Her other venture, Instea, an instant tea mix, didn’t do well when first launched in 2009. To this, he said the market wasn’t ready then, but she relaunched it in December 2015 and it clicked. When comparing growth figures it is important to note that Tapal is already a very big company and has a large base, therefore, the growth figure may look small in terms of `percentage when compared to Vital, which is much smaller brand, the official said. For example, if Tapal raises volumes from 50 million kgs to 55 million kgs, it translates to a 10% growth. But, if Vital raises volumes by the same 5 million, that is from 15 million to 20 million, it will be a growth of 33%. The market share of all these brands varies depending upon which data one quotes. For example, Euromonitor estimates Tapal’s share to be 35% of the retail value sale, not counting exports and Unilever at 21%.

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Interestingly, the global research firm doesn’t count Vital in the top three and instead estimates Tata Global Beverages (Tetley) to be the third-largest player with a 10% share in retail value sale in 2016 – Tetley had wrapped up operations in Pakistan two years ago and is currently not available in the market with the exception of smuggled quantities. “The report was published in Jan 2017, the analysts researched the market details and dynamics upto that date and publish their findings,” the research firm said responding to a query by Profit. “Vital Tea is currently documented under our “Others” section. We are aware of the fact that it is a conspicuous player in the market and we will cover it as a separate entity in our next edition (due in 2018).” Nielsen is another global research firm that has studied market shares of all tea brands, but both Tapal and Unilever discontinued its service after they found a notable difference in its findings and their own sales data – we could not obtain the copy of Nielsen’s report. Then there is the Pakistan Tea Association, which relies on customs data, and estimates that the market size is between 280 million kgs and 300 million kgs, of which 50% is unbranded tea. Of the remaining half, Tapal imports around 50 million kgs, Unilever’s share ranges from 30 to 35 million Kg while Vital imports up to 15 million kgs a year. The legal import figures are authentic but most estimates including those by global research firms do not include export data. Secondly, a large quantity of tea is smuggled into the country, therefore, it is almost impossible to get the accurate data unless all the brands share their figures. However, in a surprising revelation, an official from Vital, who requested anonymity since he is not authorized to comment, said Vital has already crossed Unilever. “We import 3 million Kg per month (36 million Kg per year),” he said – and Tapal is much higher than 50 million Kg, he said. Responding to a question, the Vital employee said they sell 500,000 kgs per month just in Sindh, where they are number three. “If you add Punjab, where we are 80% of the market and rest of the country because collectively we we sell 3 million kgs every month.”

‘PRESENTLY, TAPAL IS THE LARGEST FULLY-OWNED PAKISTANI TEA BUSINESS, ALSO MARKETING ITS BRANDS IN VARIOUS PARTS OF THE WORLD. A SHINING ‘BORN IN PAKISTAN’ EXAMPLE, INDEED’ The Vital figures are almost double of what industry estimates indicate. However, if the numbers are accurate, Tapal should be worried. “When Unilever was all over the country, it did not give much thought to losing most of that market to Tapal,” the official said adding, “If Tapal can beat a global giant, we too can be the market leader.”

An IPO on the cards? ehvish is still young. Maybe, going forward, she can prove to be a good leader,” said an official. However, he added that the company may go for an initial public offering, which will be a logical step – a view widely endorsed by almost every source we spoke to for this article. “Empirically, non-public family businesses perform worse than publicly listed professionally run companies, but those professionally run companies are outperformed by publicly listed companies that still have a family as their major shareholder,” says Professor Rana of LUMS family business initiative - and others seem to agree. “Maybe an IPO will help solve their problems, because once they move to corporate governance led by a board and have professionals running the company, they can grow further,” said another official. Aftab Tapal is a shy person and did not like the idea of facing shareholders, but Mehvish is likely to go for it, say sources. In fact, an official with insights to the company said as per his knowledge Tapal Tea has already sold about 20 to 22% stakes to an investor in Dubai in 2015 or before. An IPO is in their long-term plan because the overseas investor is a little worried and would obviously like to monetize his investment. If listed within a year or two, Tapal’s IPO will be oversubscribed and the stock will sell like a hot cake, he said – and the sector’s forecast explains that optimism. “Tapal is a professionally run company that constitutes of a non-executive

“M

board that includes family members as well as external representation. Most of the largest companies of the world today were at one point small family run business. This holds true for Walmart, BMW, P&G etc. Each company will find its own path and its own timing to evolve. There is no direct formula for success, each has to find its own,” said Aftab Tapal, staying noncommittal on the issue. The off-trade tea sales rose by 6% in terms of volume and 11% in terms of value in 2016, according to Euromonitor. Tapal Tea led the market with 35% share in value. The research giant says tea consumption was fuelled by population growth and the shift from loose unbranded tea to branded alternatives. The share of unbranded tea is gradually declining due to the increasing affordability of branded products as a result of rising disposable incomes, it said. “Tea is expected to post an off-trade value compound annual growth rate of 8% (at constant 2016 prices) over the forecast period that ends in 2021,” it said. The Euromonitor forecast is optimistic about the growth of tea in Pakistan and identifies Tapal as a strong brand well placed to cash in on the opportunity – the PwC study, on the other side, is not too optimistic about third-generation leaders of a family business. “Only 3% [of family businesses] survive till four generations,” the PwC says. How Tapal’s new Czar leads her legacy will determine which side of the equation the company ends up at. Aftab Tapal, though, for his part, remains optimistic: “The local market is still vibrant, we are a heavy tea consuming nation so opportunities will always exist for companies that provide specialized offerings to our varied taste palette. We export to over 30 countries where our blends are sought after and we plan on widening that footprint. Additionally, Tapal has always taken the lead in various SKU’s to compete with the competitors.” –With assistance from Aisha Arshad

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OPINION

Rizwan Ghani

An annoying blend of oddities! Education and awareness along with appropriate salaries and emoluments will bring about the change ommercial business activity, encompassing all economic and monetary pursuits, from delivering a newspaper to managing a multimillion rupee company in Pakistan, is perhaps like any other developing country but with a difference. Its very own unique blend of moral, religious, cultural and regional influences, making it very interesting and different. To cap it, it is also quite an annoying blend of oddities and international non-conformances with regards to good practices. We discuss the non-tax paying culture endlessly, its effects on our economy, pros and cons of paying taxes versus the ill-usage, squandering of tax money, corruption, personal gains through public funds, etc. but we do not appreciate, apprehend or calculate the impact of some subtle and some very glaring practices, behaviors and way of conducting business which not only affects our commercial repute, our standing, and our name as businessmen, a nation, and a country. To someone like me who has seen the market form both sides

Rizwan Ghani Rizwan Ghani has held managerial and leadership roles with one of the world’s leading Packaging Group. His career spans over 34 years. Hands on, widely travelled and recently retired, he is a part of an international recruiting company and teaches at a local university.

HUMAN RESOURCE

‘A GOOD MAN WITH A VISION, EDUCATION, COURAGE TO DELEGATE, THE COURAGE TO EMPLOY GOOD PEOPLE, KEEP THEM HAPPY AND PAY THEM WELL, WILL CREATE A GOOD ORGANIZATION AND CAN SINGLEHANDEDLY CHANGE A LOW PERFORMING COMPANY TO A CENTER OF EXCELLENCE’ for the last 35 years, it seems that we are not happy doing whatever we do, may it be one’s own business, a job or an entrepreneurial venture. Just think of how many shop owners, rehriwalay, cashiers, do you see smiling or greeting you or saying thank you for your business, not snatching the money from your hands or not banging the change for you to collect and pick up yourself. This may be an attitude, below par quality of education or most likely not taking pride in what they are doing for a living. By quality of education, I mean not the number of years but the type of education, so-called, that we are imparting to our people in the scarce, ill-equipped and badly managed institutions.

The finesse… why do we lack it up north?

hen I was posted back to Punjab after living and working in Karachi for 11 years, I noticed while shopping that the shopkeeper literally snatched the currency from your hands. Now this means nothing to most of us, we see it all the time and do not even notice, but I distinctly remember, the shop owner on the ground floor of our complex where I lived in Karachi, just holding the currency note with two fingers and waiting for you to let go of the note. This is finesse, this is an art of making someone a feel important, in a nutshell, to quote the famous slogan of a hotel, “we care about small things”.

Why is it that the creditworthiness of businesses shows a marked decline when one travels from south to north of the country? Food chains, superstores, hotels, front-end offices – same chains, same companies – exhibit marked different attitudes, lower levels of service or just turn into plain callousness. Why is that so, what is the difference? On the other hand, why are businesses in small cities like Sialkot so agile, aware, professional and like to improve and take charge of activities good for their business? The city claims the highest per capita income in the country. Perhaps, in general, it will be correct to state that we have not taken business and commercial activity seriously or at least as seriously as the rest of the world. It has to do with our genetic factor (agriculture/martial race etc.), background, history or some other unknown factor in our sub-conscious, we do not put our heart and soul into our livelihood, we do not enjoy doing so, or are happy doing so. Just imagine some of the workplaces you see every day, offices, factories, shops, restaurants etc., where we spend the best part of the day and probably our life, are filthy, not illuminated properly, very difficult to sit or work comfortably in. There is a lot of difference between having pride and enjoying what you do and ‘just having to do it’, as if there is ‘no other choice’. When I retired from the company I had worked for all my professional life and took up another line of business, I realized that how lucky I was to be paid always and every time at the end of the month. There are so many companies, including public limited, that I have come across who do not pay their em-

‘THIS MAY BE AN ATTITUDE, BELOW PAR QUALITY OF EDUCATION OR MOST LIKELY NOT TAKING PRIDE IN WHAT THEY ARE DOING FOR A LIVING. BY QUALITY OF EDUCATION, I MEAN NOT THE NUMBER OF YEARS BUT THE TYPE OF EDUCATION, SO-CALLED, THAT WE ARE IMPARTING TO OUR PEOPLE IN THE SCARCE, ILL-EQUIPPED AND BADLY MANAGED INSTITUTIONS’ ployees for months. In some cases, it is an attitude, a ‘can-do’ exploitation, which is obviously horrendous. Then there is this evil vicious circle where the businesses are not paid in time and hence the employees are not paid promptly either. The basic business principle of ‘running expenses or operating expenses’ is either nonexistent or not understood. Quite a few local businesses like to and take pride in not using banks, either due to religious reasons or the need to operate under the radar. The million-dollar question is that if the employees and workers sleep hungry and suppliers are not paid in time, the business cycle is excessively elongated and becomes totally out of sync with the rest of the world. Is it really ethical? Can we then compete with the rest of the world? There is a minimum wage by law which the companies are supposed to pay (different levels grade-wise), which I believe is Rs15,000/month for 26 working days in Punjab. My son while doing his internship in HR department of a renowned textile giant told me that the telephone operator at the reception is paid Rs8,000/month. I am told young girls teaching at ‘mohalla or minor’ schools are paid Rs5,000/month. This is today, the year 2017 I am talking about.

‘WE DISCUSS THE NON-TAX PAYING CULTURE ENDLESSLY, ITS EFFECTS ON OUR ECONOMY… BUT WE DO NOT APPRECIATE, APPREHEND OR CALCULATE THE IMPACT OF SOME SUBTLE AND SOME VERY GLARING PRACTICES, BEHAVIORS AND WAY OF CONDUCTING BUSINESS WHICH NOT ONLY AFFECTS OUR COMMERCIAL REPUTE, OUR STANDING AND OUR NAME AS BUSINESSMEN, A NATION, AND A COUNTRY’ 26

Sri Lanka, and its ‘Happiness Economics’ was posted to Sri Lanka, it is a developing country, lacking in many ways as compared to Pakistan, especially in infrastructure, but I was deeply impressed by their humility, levels of contentment and index of happiness, or ‘Happiness Economics’, which is a formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth. Their health care and educational services are enviable. I do not know if this is the sole reason, but Sri Lankans are fun loving, ready to smile, happy and enjoy life. This directly reflects on their business and work ethics. Bad debts are rare and enforcement is strict, apology and accepting fault/mistake is common, safety in workplace is by personal desire, government offices are helpful. Traffic is chaotic but very well regulated. Trucks by law have six-sides covered containers, so you do not see overloaded, skyscrapers on the roads. Their trishaws or our rickshaws have the left back exit blocked so even if the passenger tries, he/she cannot exit on the wrong side of the road. These minor differences save lives. I remember an incident where one of our critical raw material consignment, upon special request, was custom-cleared on a holiday and that was without any perks, if you understand what I mean. I needed a driving license, went and joined a line at 6 am in the morning, the queue was almost half a kilometer long. It scattered numerous times when it rained, people went for snacks and came back, the order of the queue never changed, no one swore, no fist fights and no arguments, I even noticed that they did not inform queue members to keep their place, it was so ‘usual’ and ‘common’. I could

not help comparing and imagining what would have happened back home. Once we went to their wildlife park called Yala – a heaven in the woods. I had booked what is called a ‘full board’, which includes all meals etc. We were late arriving at the hotel and missed lunch. The receptionist asked me if she could arrange special lunch for us (shocking, is it not) as the normal buffet time was over. I declined as we had eaten something on the way. Two days later, when checking out, I saw a deduction in the invoice, upon inquiry I was told that since we did not take lunch on the day we arrived, cost of the same has been deducted. It was a pleasant surprise, indeed. How many of us have seen such an occurrence by one of our posh hotels? But I do remember being almost shoved aside by a politician and his guards at the reception of a Lahore hotel, even more humiliating was the attitude of the check-in receptionist, who promptly forgot all about me and started bowing to the ‘shov-

‘WHY IS IT THAT THE CREDITWORTHINESS OF BUSINESSES SHOWS A MARKED DECLINE WHEN ONE TRAVELS FROM SOUTH TO NORTH OF THE COUNTRY? FOOD CHAINS, SUPERSTORES, HOTELS, FRONT-END OFFICES – SAME CHAINS, SAME COMPANIES – EXHIBIT MARKED DIFFERENT ATTITUDES, LOWER LEVELS OF SERVICE OR JUST TURN INTO PLAIN CALLOUSNESS’ ing gentleman with a gunman’. One early morning, being driven to the factory I received a call from my credit card bank, enquiring if I was present in Sri Lanka, I was and asked the lady, why? I was told that my credit card has been used in New York for a shocking amount. Shocked at the amount I said I will come to the bank right away. She said, no sir, no need for you to do that, you are on your way to the office, our representative will visit you, show him your passport and credit card, prove your presence in the country and the fake transactions will be reversed. This is what exactly happened. I am still pursuing my bank which while undergoing a merger with a giant Pakistani bank recently, bounced two of my cheques for credit card payments. The bank has not bothered to reply to my letter and a reminder. This is a country which is very much like us, these are not examples from developed world where the business ethics and practices are by far better, highly competitive, conscientiously practiced and enforced.

The man at the top sets the tone n my youth sales and marketing days, while cold calling prospective clients, I could make a very good guess as to

how I would be treated by the owner or the manager of the factory by the reception and attitude of the gate clerks or guards. Over time similar experiences strengthened my thinking and belief that the man/woman sitting at the top sets the tone of the business. A good man with a vision, education, courage to delegate, the courage to employ good people, keep them happy and pay them well, will create a good organization and can singlehandedly change a low performing company to a center of excellence. On the brighter side, you do see a change, though subtle and slow, especially in the younger people, who are more aware and enlightened. A major credit is due to multinationals, who have contributed so much. You do see smiling faces, courtesy, better service, more females, same staff mopping the floors, cleaning the tables, this was something not seen earlier, pride in the job, clean shiny uniforms, dedication and the best, in my opinion, the attitude and actions to please and delight. What is making the difference is the new company culture, traveling, awareness, training and livable salaries, the Happiness Economics seems to be improving. Let me quote a good friend of mine, “it is double jeopardy, the employers are unhappy because they feel they are paying more than the work being done by the employees and the employees are unhappy because they feel that they are not being paid enough for the work activity they are doing”. The change will come with time, there is no other way, the world is getting smaller, people travel more often, they see better and want better back home. Education and awareness along with appropriate salaries and emoluments will bring about the change.

HUMAN RESOURCE

And lack of FDAapproved plants â&#x20AC;&#x201C; having none compared to Indiaâ&#x20AC;&#x2122;s 200

By: Tayyab Tariq thriving sector in Pakistan’s economy, pharmaceuticals is a $3.2 billion industry, growing at 15% annually, while its exports now at $US200 million are also continually on the rise – quite impressive given the bleak situation of our exports. One of the pioneering indigenous companies, in about 52 years since its humble beginning in 1965, it is now among the top 10 in Pakistan, and, having recently purchased a unit in Vietnam, CCL has established a base in about 10 countries abroad. A CCL director, Nadeem BJ Sheikh – the Kasuri Sheikh is a second generation entrepreneur inheriting the family business from their father and uncles – gave Profit a lowdown on the company and the industry. “In 2016, our annual sales were Rs6.5 billion, with around 65% coming from the local market and the rest from exports. We are among the top 10 local pharmaceuticals and 19th overall among pharmaceuticals including multinationals. Currently we are exporting to 22 markets which include South Asia (Pakistan, Sri Lanka, Afghanistan, and Maldives), South East Asia (Vietnam, Malaysia, Indonesia, Singapore, Thailand, Philippines, Laos, and Cambodia), Central Asia (Uzbekistan, Turkmenistan, Kyrgyzstan,) and Africa (Sudan, Kenya, Tanzania, Nigeria, Algeria, Tunisia, Morocco, Senegal). We are among the top five pharmaceutical companies in Sri Lanka and are among the fastest growing companies in our operative markets with double digit annual growth. We employ more than 1500 people all over the world.”

Profit: Why Pakistan’s export volume is low in general compared to other South Asian nations, India and Bangladesh, and in particular to the US and Europe? Nadeem Sheikh: Compared to India and Bangladesh, our exports are miniscule, as both

export to highly regulated and high-end North American and EU markets. India has 200 FDA-approved plants – the largest number of the US FDA approved pharma units outside the US – and even Bangladesh now has four. We have zero, as no Pakistani company ever got an FDA approval to export to the USA. The Indian pharma industry earns around 50 % of its revenue from exports, which stands at $16.4 billion. India also accounts for 30% of the US’s generic drug imports, and is the fourth largest supplier to the US with $5.1 billion, nearly five times China’s at $1.1 billion in 2016. India is also exporting a huge volume of non-branded generic drugs to the world while ours is almost negligible, and exports were only around Rs200 million in 2016. Profit: In your reckoning, why our exports are so low? Why have our manufacturers failed to tap high-end US and EU markets? NS: Our regulatory authority is the reason. On documenting medicines for exports, the fee is huge, besides there are a few other irrational restrictions. The overall government attitude towards pharma industry can be one of the reasons of our low exports. The ministry must allow the third party contract manufacturing facility, which can get itself certified with the World Health Organization or Pharmaceutical Inspections Convention. As for exports to the and EU, as I said before, presently no facility in Pakistan is FDA approved, only a couple of WHO-certified ones. As a country, Pakistan is not a member of Pharmaceutical Inspection Convention/Cooperation Scheme (PIC/S). They provide good manufacturing practice (GMP) guidelines to be followed for exporting to high end markets. If Pakistan were a member and it obeys the regulations, Pakistani medicines would have access

‘OUR REGULATORY AUTHORITY IS THE REASON. ON DOCUMENTING MEDICINES FOR EXPORTS, THE FEE IS HUGE, BESIDES THERE ARE A FEW OTHER IRRATIONAL RESTRICTIONS. THE OVERALL GOVERNMENT ATTITUDE TOWARDS PHARMA INDUSTRY CAN BE ONE OF THE REASONS OF OUR LOW EXPORTS’

to at least 50-plus countries from Asia to Europe. Only with FDA certifications and the PIC/S membership Pakistani pharma companies will get access to the US and the EU. Profit: Why do we not have a single FDA approved pharma unit in Pakistan? NS: Well, most plants in Pakistan were built in the 1980s and the 1970s, and to fulfill the quality requirements of the European market huge investment is needed to buy the latest machinery. Unfortunately, QC equipment, HVAC etc. are under heavy import duty and sales tax. The government does not waive these. Without such incentives the cost of overhaul is very high, and for companies there is no incentive in it. Profit: Why do we not have raw material units (Active Pharmaceutical Ingredients)? NS: Many firms want to start production of APIs but cannot because these plants require investment to the tune of billions. Compared to an India pharma manufacturer, our volumes are much lower size and scale of home market. No native Pakistani investor can afford API plants, while multinationals who had promised would have not done so. Then there is no tax exemption for those who want to invest on basic manufacturing, and there is no incentive and rebate in sales tax etc. Markup rates too are very high, labour is becoming expensive day by day, the security issues add to complications. Owing to of all these reasons cost of API manufacturing is very high. Profit: Why has CCL preferred to invest abroad instead of other sectors of the economy? NS: Our focus is on healthcare market because we are engaged in it for the last 50 years. Secondly, the ROI in the healthcare market is still very high. We wanted to grow at double the pace than the local pharma market. That is why

PHARMACEUTICAL

we chose to go global and invest in new potential markets with better opportunities than Pakistan. Profit: Having recently purchased a factory in Vietnam, why did CCL choose Vietnam in South-East Asia as a strategic option? NS: Well, there are several reasons. One, pharmaceutical export from Pakistan is now very difficult and new regulations are adding to the difficulty. South East Asia is where we are doing well. The Vietnam unit was meant to mitigate the risk; if ever our exports from Pakistan are hampered, we can still continue our operations there, avoiding losses. Then, Vietnam’s economy is growing at a phenomenal rate. The pharma market there represented an opportunity that we wanted to grab for having an early mover advantage. Thirdly, Vietnam is connected by land to many important South East Asian countries such as Thailand, Cambodia, Laos etc. and is in close proximity to Malaysia, Indonesia and Philippines. Exporting to the ASEAN markets from Vietnam is more convenient compared to Pakistan. So, Vietnam seemed to us like a natural strategic choice. Profit: The pharma market, we’re told, operates differently. How? NS: Well, yes, it is a little different from the traditional FMCG market as there is an intermediary involved in the form of doctor and the person who is using the medicine is not the direct client/consumer unless it is not an OTC (over the counter) product. There are two ends in this market: one, the pharmaceutical company distributes the product to the drug stores; two, the medical representative of the pharma company markets the products to the doctor who then prescribes it to the patient, who purchases it from the medical store. So, the key success factor is not one, it involves marketing and the supply chain. That said, quality is also equally important. To obtain success, many factors are involved. As for margins, the breakeven in a new product is difficult to achieve but once when you get there the margins are good. To improve the bottom line, managing

‘OVER THE NEXT 100 OR 200 YEARS DOWN THE ROAD, THE WHOLE PARADIGM AND CONCEPT OF DRUGS MAY CHANGE. IN THIS RAPIDLY CHANGING WORLD CCL WOULD WANT TO ADAPT TO STAY RELEVANT’ Nadeem BJ Sheikh, CCL director your sales expenses is always a crucial factor, meaning either reduce your sales expenses or improve it to a point to achieve economy of scale. Another important factor in improving profitability is introducing new products with high growth and profit potential as in the pharma sector, the competition is amongst the drugs and not between the companies. The company with the first mover advantage in any drug gets the major market share, making it difficult to compete it. Profit: Unethical marketing, pharma companies bribing doctors, offering foreign tours or even commissions for every drug they prescribe? Does CCL engages in such practice? NS: Well, we need to understand how marketing is done in the pharma industry, as it is an ever-evolving market with new research and enhanced drug knowledge coming out every few months or weeks. The doctors who completed their medical degrees just years ago feel their awareness is not upto the mark and that they need to update it about fresh research and consequent drug formulations. Pharma companies help them in keeping them updated through conferences, seminars and other events that also help in marketing their products and building relationships with the doc-

‘MOST PLANTS IN PAKISTAN WERE BUILT IN THE 1980S AND THE 1970S, AND TO FULFILL THE QUALITY REQUIREMENTS OF THE EUROPEAN MARKET HUGE INVESTMENT IS NEEDED TO BUY THE LATEST MACHINERY’ 30

tors. The media sometimes creates a perception of this being a bribe while in fact it is not. Most companies never bribe doctors. But in every industry there are some black sheep; ditto for pharma industry. In my view, it does not give them too much of a leg-up, for out of the 350 companies in Pakistan, around 50 have 90% market share while the other 300 share the rest. If they could buy success, they would not lag behind? Success in pharma sector is a complex process that involves superior drugs, marketing and sales strategy, supply chain management and human resource quality. Producing some medicine, going to the doctors to prescribe these and they will sell easily is not the way it happens. CCL does cares about doctors and invests in their education, without ever engaging in any unethical practice. Profit: And what about the spurious medicines? NS: Every medicine dubbed as spurious is in fact not spurious. According to the law, even if the colour of the outer carton is faded, it would be considered spurious, while in fact it’s not. Spurious drugs is not much of a problem in Pakistan as our laws and regulations are quite strict. Our pharma industry is one of the highly regulated in the country and in the region as well. Our drugs quality is much better than our competitors in China or India. That’s one of the reasons why Pakistani pharma companies are well received and are achieving success in other regions as well. The fake drugs is another issue; somebody in a far flung area producing drugs with any famous brand name. Yes, that is something the industry and the government need to tackle together.

Profit: Why do Pakistani companies spend so little on research and development? NS: Since R&D requires huge investments, given their limited scope and volume, it is difficult to make such outlays. What we do is follow the alternate path: acquiring R&D-based products from other companies and then marketing them in Pakistan. Having said that, since the last 7-8 years, Pakistani companies are also focusing on and allocating budgets devoted to R&D. Profit: In the pharma and biotech sector, many interesting things are happening in the startup world. Will CCL invest in any innovative startup from Pakistan belonging to the biotech/ pharma sector? NS: Over the next 100 or 200 years down the road, the whole paradigm and concept of drugs may change. In this rapidly changing world CCL would want to adapt to stay relevant. For instance, there is research-based drug called interferon which used to be in injectable form but now is available in solid drug form. So, definitely we will be willing to invest in some innovative biotech or in general, a healthcare startup bringing new, innovative and workable ideas to the table. Profit: From an entrepreneurial point of view, if someone wants with a relatively small capital wants to get into the pharma industry, what should he do? NS: I would suggest third party manufacturing, where you get the drugs manufactured by some third party and market them with your brand name. Later on, when you develop the demand for your products you can have your own unit as well. The other area is distribution. In suburban areas the market is still open and has relatively less competition. One can get into distribution with relatively smaller capital. Profit: Any complaints from the government? NS: Well, the unjustified upper price ceiling imposed by the government on many drugs

is an issue. I call it unjustified because for the drug launched 20 years ago, the raw material and packaging costs increases every year but we are not allowed to cater for that. As a consequence, the number of pharma multinationals in Pakistan has come down from 40 to 7 in the last two decades. The second issue is the bottlenecks in various government departments. Pharma industry is a research based industry with new molecules and drugs coming every year. And, when the concerned departments do not register the new drugs or delay the process, this hampers productivity. Profit: But the governments have to take care of the people too… NS: No, it does not benefit the consumer in any way because the focus should be on quality, not only on price. If a very low-priced drug is on offer, quality may be an issue. I don’t think it benefits the consumer for he should get quality, and not a low-priced drug with little or no efficacy. Profit: The CEO of Getz Pharma, one of the top local companies and a multinational now is on record saying the company would reduce its investments if the government does not allow them the increase in prices of drugs. Do you think the government strategy would affect the investment climate in Pakistan in the pharma sector? NS: Yes, the Pakistani local companies and other multinationals will divert their resources to other countries where they get a higher margin instead of investing in Pakistan. That is the rule of the capital. It flies where it gets a higher return. Secondly, it is not only about pricing, it is also about the regulations and unnecessarily squeezing the pharma industry. Previously, we have seen many multinationals either departing from our market or merging with another multinational because of the policies of our government. If the government asks pharma companies which were founded three or four decades

‘WHAT WE DO IS FOLLOW THE ALTERNATE PATH: ACQUIRING R&D-BASED PRODUCTS FROM OTHER COMPANIES AND THEN MARKETING THEM IN PAKISTAN. HAVING SAID THAT, SINCE THE LAST 7-8 YEARS, PAKISTANI COMPANIES ARE ALSO FOCUSING ON AND ALLOCATING BUDGETS DEVOTED TO R&D’

ago to upgrade in one or two months by doubling or tripling the investments on their plants, I think that is injustice. In this way many of the pharma companies in Pakistan would close down. The government should regulate the industry and should not compromise on quality but the government should not unnecessarily and not resort to hastily implement regulations from the first world by forcing the Pakistani industry to make huge investments in plants or machinery. There should be a reasonable timeline with some benchmarks to achieve. It should be an evolutionary process, not a revolutionary one. That’s how it has happened in the West as well. Secondly, as discussed, there should be some incentives as well in the form of tax breaks or lower markup etc. as it will not only benefit the industry or the investor but also the economy as well. Profit: How do you view the present economic climate in Pakistan? NS: Well, we are optimistic. Pakistan is an emerging market and pharmaceuticals has witnessed double digit growth for the past few years. The benefit of the pharma industry, the government and its economic managers must appreciate, is that it provides direct employment all over the country, not only at where the unit is installed. It employs medical and sales representatives nationwide. So, growth in pharma industry means more employment across the country. Profit: From a skills point of view, what kind of degrees or skills is required by the pharmaceutical industry so that students interested in pursuing a career in pharmaceutical industry may opt for that degree? NS: From a manufacturing point of view, D. Pharm is important. From marketing point of view, having an MBA degree is utmost with an aptitude to become a sales geek, travelling the country, and having the ability to bear the work pressure as you have to fulfill the ambitious sales targets for the companies and if you are able to achieve them, you will be a precious asset for your company. Sales and marketing career is more rewarding in pharmaceuticals. Most of the people sitting at the top positions in pharma companies belong to the sales and marketing category. One can also have a D. Pharmacy and then an MBA from a good university. That would add another arrow to his bow and would complement his existing skill sets.

PHARMACEUTICAL

Bangladesh and Sri Lanka have shown the way by almost eliminating illegal trading of cigarettes, while it remains rampant in Pakistan By: Usman Hanif

old Leaf is a popular cigarette brand in the country, and Kabir Khan usually puffs up on it. But occasionally when he is with his university university friends, he prefers to flaunt with Benson & Hedges – a premier global brand. It goes without saying that it is smuggled, evading the heavy taxes on tobacco. This fact though does not really fill KK and his friends, or the one who smuggle it and outlets that retail it, with an iota of remorse. “Without requiring any reference, I pickup my supply from either the wholesale market in my area or from Boulton Market [Karachi’s oldest and largest wholesale market where multiple brands are available by cartons off-the-shelf],” said Shakil Khan, a roadside vendor dealing in cigarettes and chewable tobacco in North Karachi. His stock contains smuggled brands for his many customers. “Occasionally the government cracks down on gutka and mainpuri [a chewable variety] and other tobacco products. That's why we only sell these to people we already know,” said Naveed Wasim, who owns a modest kiosk cabin in Landhi. “Smuggled cigarettes is different altogether; we can easily sell that to every customer whether we know him or not,” he adds. In 2014 alone [the last data available], more than 19.5 billion illicit cigarettes were sold in Pakistan. On average, more than 1.6 billion illicit cigarettes are sold in Pakistan

every month, and this segment continues to grow steadily. Ranked fourth in Asia in terms of illicit cigarette trade, one out of every four cigarettes sold in Pakistan the country has been brought in illegally, a number 137 points higher than the global average, according to a research by Nielsen conducted in 2014.

A billion sticks added each year uring the last half a dozen years, the illicit trade segment has grown by a staggering 43.5 percent – on average, more than a billion sticks are added each year – while the tax-paid cigarette volume has declined by 11 per cent. More than 1.6 billion cigarettes are sold this way each month; the number touched 19.5 billion for the year 2014. “This high prevalence is driven by a multitude of demand and supply factors. As fiscal and regulatory burden on tax-paid segment increases, more and more consumers are purchasing smuggled substitutes that are either cheaper due to tax evasion or non-compliant,” said the Nielsen report, adding that pricing and regulatory differential with Afghanistan also plays a key role in continued inflow of smuggled cigarettes into Pakistan. In 2014 more than two billion cigarettes were smuggled into Pakistan through Afghanistan. One such methodology is mystery shopping, where the surveyors pose as consumers to estimate sales at retail outlets. This method may not be effectively used in Pakistan because retailers mostly sell smuggled or illicitly produced cigarettes to repeat customers and familiar faces to avoid risk of being exposed and penalized. In

such circumstances, new and unfamiliar faces in the surveying mystery shoppers team may not be able to gather the correct market information, thus undermining the accuracy of the data collected.

An elaborate chain n elaborate, well-established supply chain is present in Pakistan for such market. “Cigarette-making itself is an elaborate process. Manufacturing and marketing of such a huge quantity of cigarettes (17.3 billion LTE cigarettes in 2014) involves extensive operations involving buying of raw materials, treatment of raw material and conversion into manufactured cigarette, storage facilities, and an extensive countrywide distribution network. The under declaration of tobacco crop, cigarette paper, and filter rods helps in under-declaration of volume of cigarette manufactured that ultimately assists in evasion of excise duty and sales tax on the cigarettes – final taxable product,” explains Nielsen. Such trade also makes cigarette more widely available, undermining public health agenda. Despite fiscal burden and increased regulation, incidence of smoking remains unchecked. Mubashir Mehmood, who quit smoking, is of the opinion that the government should raise taxes on cigarettes. “An average smoker might be paying Rs50 per pack a day, which accounts for Rs18,000 a year, but when this person gets

TRADE

cancer he will not be cured in this sum. So, the government ought to raise taxes which will discourage people from smoking,” he said. Juxtaposed against it is the legitimate tobacco industry stance, which argues that increase in taxation would lead to an increase in illegal trade, only causing further loss of tax revenue while not reducing the prevalence of smoking – as evident from various researches conducted in this area. The illicit cigarette trade contains a huge chunk of Local Tax-Evaded (LTE) market that forms around 89 percent of the total trade. In 2014, in Pakistan 17.3 billion LTE cigarettes were sold – making it 21.1 percent of the total cigarette market in the country. The Local Tax-Evaded (LTE) cigarettes are manufactured and distributed across the country, and are extremely cheap. The average selling price is Rs27, far below the minimum tax per packet of Rs33.80. On the other hand, most of the tax-paid brands are priced at least Rs57. In the last four years this price differential has increased by 100 percent. According to the Nielsen, people avoid packets illustrating health warning, giving space to non-compliant LTE cigarette distribution. Many LTE manufacturing units are situated in Azad Jammu & Kashmir (AJK) where printing of pictorial warning is not a requirement. The non-compliant cigarette packets from the AJK region then make it

into Pakistan. Substandard cigarettes are also produced in Karachi factories situated in Cattle Colony, Ibrahim Haidery, Redhi Goth, Sukhan, and Shah Latif Town, just to name a few. Illegal cigarette trade costs the government Rs24.6 billion in revenue annually – an amount equivalent to the deficit of Pakistan Railways, reported to be under Rs25 billion in fiscal year 2016. From 2008 to 2013, the volume for such trade grew by 24.8 percent, leading to a decline of 10.1 percent in the taxed segment. The 23.7 percent illicit market pays only 0.7 percent of total revenue generated through cigarette market.

Laws remaining unimplemented here are over 25 ordinances and statutory rules enacted through 13 agencies for regulation of illegal cigarette trade supply chain. The illicit trade segment, however, still holds almost a quarter of the total market. There are examples within South Asia that controlling such trade is not impossible. Bangladesh and Sri Lanka almost eliminated it, an accomplishment achieved through strict law enforcement. In Bangladesh and Sri Lanka the illegal trade market in 1998 stood at 24 and 22 percent respectively. By 2014, in Bangladesh it had shrunk to 1.16 percent, whereas Sri Lanka whittled it down to 1.5 percent in 2014. The results Bangladesh and Sri Lanka obtained is proof enough that meaningful stringent action can control and over time virtually eliminate illegal trade. The moot point is whether the Pakistan

government has the will to control the movement and distribution of smuggled cigarettes. “FBR recognises the existence of the trade of non-duty paid cigarettes. To check this trade various administrative steps are being taken on a continuous basis,” an FBR spokesperson said. Intelligence and Investigation departments of FBR regularly conducts raids and seize various consignments of non-duty paid cigarettes, he added. Crackdown against manufacturers and smugglers of non-duty paid cigarettes is a regular feature. However, it also said that due to stern action by FBR some manufacturers of non-duty paid cigarettes have established their manufacturing facilities in Azad Kashmir – out of bounds for FBR. Responding to a question, the spokesperson said FBR is also taking a major initiative of introducing track and trace system under which stamps or other markings will be affixed on cigarette packs and the non-duty paid ones sold in the market would become easily distinguishable, making it relatively easier to initiate action against such products. With regard to queries on potential loss in tax revenue as estimated by the industry, the spokesperson said FBR has no sound basis to estimate the share of illicit cigarettes in the total market. The various figures quoted in this regard are based on the studies which were conducted by the tobacco industry. With additional reporting by Arshad Hussain

TRADE

The jury remains out in the market By: Bilal Hussain ith the tagline ‘Be less Selfie, be more Bothie’, Nokia launched its new line of smartphones with Nokia 8 last month. The innovation of ‘Bothie’, using dual cameras simultaneously, facilitates the person shooting a video or taking a snap sharing half the picture along with the subject – be it the person, place or object. “The response is good, much better than expected. Indeed, overall we got a

W MARKETING

good response for all of Nokia phones,” Ammar Ahmed, head of marketing HMD Global, which markets Nokia phones in Pakistan, told Profit. In the same breath, he conceded that “it will be too early to comment on Nokia 8’s success or failure.” As to why, he reasons, “we want to give it time, as we are still in the process of making people aware [about it].” Having been priced at Rs59,900, Nokia 8 was launched on Dec 13, 2017 in Karachi. Explaining the high-end market in this country, Ahmed said, for smartphones tagged above $500 (Rs55,000),

the monthly sale was approximately 25,000. Since in mid-2016, according to Ahmed, the sales of high-end sets was around 6,000 units per month, a year’s time has seen a fourfold increase – reflecting the growth potential in this particular segment.

Smartphones, now ruling the roost

oing by the Pakistan Bureau of Statistics data, out of 24 million mobile phones imported last year, nearly half were smart-

‘THE RESPONSE IS GOOD, MUCH BETTER THAN EXPECTED... IT WILL BE TOO EARLY TO COMMENT ON NOKIA 8’S SUCCESS OR FAILURE… WE WANT TO GIVE IT TIME, AS WE ARE STILL IN THE PROCESS OF MAKING PEOPLE AWARE [ABOUT IT]’ Fahd Vohra, Director Rocket Tourism phones. Meanwhile, internet giant Google has put Pakistan under the scanner as it rates the country among the quartet that will give it its ‘Next Billion Users’ – the other three being India, Brazil and Indonesia. “The first billion users came to the internet through computers, while the next billion would emerge through mobile phones,” said Singapore-based Tania Aidrus, chief of staff of Google’s ‘Next Billion Users’. At this point, divulged the Google official, Pakistan has around 40 million internet users – up from five million before 3G and 4G spectrum was introduced here in the first half of 2014. And around 32 million, a whopping 80%, employ cellular phones to access the internet.

Nokia, trapped in the past?

n the basis of number of handsets sold, Ahmed claimed, Nokia still is the biggest brand in this country. “Pakistan is not only

few large metropolises, there are huge number of people in small towns and rural areas still using feature phones,” said he. If anything, the statement made it quite apparent that Nokia taking pride in being leaders in the feature phone category remain prisoners of glory days long past while the leading lights in telecom are taking massive strides towards evergreater innovation. From the 1990s uptil early 2000s, Nokia overwhelmed others with its 50% global market share. By 2013, it had come down to a puny 3% only because smartphones with a host of new features captured the market – other brands that produced it leaving Nokia in its wake. Since they were expensive to begin with, the trend was slow to gain momentum in Pakistan. Launched in Pakistan in 2009, Qmobile filled the vacuum, taking the market by storm, with its cheap range of smartphones to emerge as the biggest selling brand in a matter of a few years.

What the market gurus say hough not as successful as Q-mobile, Oppo made its presence felt coming with its ‘Selfie Expert’ tag – offering handsets with better selfies than competition. Now Nokia in attempt to better it, has offered ‘Bothie’ in Nokia 8, making simultaneous use of its front and rear camera. Since almost all smartphones have front and rear cameras, either copying the design or creating software similar to Nokia 8 should not be a challenge. “To install it is not difficult at all, but simultaneous use of rear and front cameras heats up the handset while Nokia 8’s specific design makes it stay cool,” said Ahmed. According to the UK-based reviewer Chris Martin, Nokia 8 has comparable specifications to that of Sony Xperia XZ1 and HTC U11, costing £599 and £649 respectively. However, in Pakistan Nokia 8’s main rival is Samsung’s Galaxy S8 – quite expensive at Rs81,000 to Rs83,000. On the other side of the coin, Huawei’s Honor 9 – not yet available in the Pakistani market – also offers similar features and costs less than Nokia 8.

Not competitively priced

Nokia 8 vs A8 vs Mate 10 Lite

onsidering the features on offer and its brand worth in the smartphone category, Nokia 8 has not been competitively priced. “It’s way too expensive”, said the market

sources. “At around Rs30,000, Huawei Mate 10 Lite is priced at half than Nokia 8. Meanwhile, Samsung, a highly acceptable brand in smartphone category, is selling its A8 Rs2000 to Rs4000 above Nokia 8 for almost the same features,” said Mohammad Majid, a salesman at a wholesale shop at Karachi’s biggest cell phone market in Saddar. Mohammad Asif, another salesman, giving his evaluation, said: “The resale of Nokia 8 sets one back big time, as within one week it would fetch just Rs15,000 or even less. Samsung by far gets one the best resale – declining by around Rs5,000 to Rs10,000 even after three to four weeks. “People are finicky about their handsets; they would rather incur a loss ditching one they don’t fancy. We come across many everyday who sell at much lower prices sets that are a hit otherwise,” said he. Yet another salesman Mohammad Bilal Yousuf, works in a shop beautifully branded by Oppo, also advised this reporter to buy Samsung’s A8 or Huawei’s Mate 10 Lite – both having the same features as Nokia 8. “When it comes to resolution, nothing beats Samsung – the best, even ahead of Apple. Oppo offers a good selfie and nothing more. Incapable of upgrading to the latest android standards; as its processor is very slow, an Oppo set with Android 6.0 cannot be upgraded to 7.0,” he said. Meanwhile, Bilal said, Nokia’s keypad 3310 was selling well, though it’s priced at Rs6,000 – around the same price touch-screen Androids can be pur-

chased. Interestingly, G-Five has also named its keypad phone 3310 with addition of a ‘G’ in the beginning. “G3310 doesn’t boast features of Nokia’s 3310, but its price-tag at Rs2000 is also at rock bottom,” said a salesman. While Nokia has jumped on the bandwagon with the intent to grab as much as they can of the ever-growing smartphone market in this country, beating their counterparts does not seem to be the agenda. With its feature phones market intact, it wants to push its smartphones using the very channels it employs in the former. If media reports are to be believed, five mobile manufacturing companies including Chinese giants Foxcom are moving to Pakistan to start production here. Only one out of five salesmen this writer talked to mentioned, without much

‘FROM THE 1990S UPTIL EARLY 2000S, NOKIA OVERWHELMED OTHERS WITH ITS 50% GLOBAL MARKET SHARE. BY 2013, IT HAD COME DOWN TO A PUNY 3% ONLY BECAUSE SMARTPHONES WITH A HOST OF NEW FEATURES CAPTURED THE MARKET – OTHER BRANDS THAT PRODUCED IT LEAVING NOKIA IN ITS WAKE’

‘INTERNET GIANT GOOGLE HAS PUT PAKISTAN UNDER THE SCANNER AS IT RATES THE COUNTRY AMONG THE QUARTET THAT WILL GIVE IT ITS ‘NEXT BILLION USERS’ – THE OTHER THREE BEING INDIA, BRAZIL AND INDONESIA’ conviction, ‘the Bothie aspect’ of Nokia 8 despite its being projected as its ‘Unique Selling Proposition (USP)’. “The [cell-phone] market is so huge, nobody kills another. Nokia 8 too will not be killing anyone’s sales either,” said Ahmed. It sounds like being resigned to remain content with whatever Nokia can get out of its latest offering would be welcome. No dreams of cutting a scythe into opponents!

MARKETING

Reading it wrong, leads to flaws in marketing and operational strategies – one reason why so many enterprises trail a blaze initially only to lose steam, caving in to competition

By: Syeda Masooma

ow do retail brands measure their performance in Pakistan and how accurate is it? More often than not, the sole parameter used in this country is ‘sales,’ with only a precious few doing the extra bit by measuring outlet footfall. Curiously, neither of these accurately represent performance. Is that why many businesses trailing a blaze initially lose steam, caving in to competition, because of flaws in marketing and operational strategies.

Around the world, retailers employ several metrics with varying accuracies – including the number of customers visiting an outlet, average time spent at the outlet, customer satisfaction, dropout and retention rates, and product line sold mapped against customer demographics. “In this country, the overwhelming weightage is given to sales – without regard for merchandize, marketing, or retail performance. This often leads to inaccurate performance measurements, invariably leading to less than appropriate future strategies by businesses,” said Footmetrics CEO, Ahmed Muzzamil.

‘WE CONNECT OURSELVES WITH MULTIPLE INPUT STREAMS… WE HAVE DIFFERENT KINDS OF DEVICES... AND ALL THOSE DEVICES PROVIDE DATA TO OUR CENTRALIZED STATION – TELLING US HOW MANY PEOPLE ARE WALKING INTO A STORE, HOW MUCH TIME DO THEY SPEND INSIDE, THE FREQUENCY AND DEMOGRAPHIC OF THE CUSTOMERS, AND THE CHOICE OF PRODUCTS’ Ahmed Muzzamil, CEO Footmetrics Subsidiary of Mezino, a decade-old services company mostly catering to clients in the UK and the US, Footmetrics works as a customer experience-enhancing system. “We connect ourselves with multiple input streams, and then collect data from different systems. On top of that, we also do intelligent design and then make decisions based on that data.” “We have different kinds of devices that we install at different shops and all those devices provide data to our centralized station – telling us how many people are walking into a store, how much time do they spend inside, the frequency and demographic of the customers, and the choice of products,” said Ahmed.

Sales, the sole criterion rawing comparisons with the world, Ahmed said, “We see that there is a big gap in Pakistan retail sector. There are a couple of things that are not happening here, and compared to the retail business in the US and the west we are far behind in being appropriately equipped, with the technology setup and technical expertise. We do not have the data that drives retail across the world, with ‘sales’ being the only measure to gauge success.” To Ahmed, this is incapacitating our

retail to operate at par with international brands. The story doesn’t end there. To Ahmed, while sales might not suffice for assessing performance, actually any metric boiling down to mere number-crunching falls short of the purpose. The Harvard Business Review warns against putting too much faith in numbers while appraising performance. “Good or bad, the metrics in performance assessment package all come as numbers. The problem is that numbers-driven managers often end up producing reams of low-quality data.” This hints at irrespective of which method is used, it might not be the best answer to measuring actual performance. Let’s go over some of these criteria with a finetoothed comb.

Sales: Volume and Value he pros of this approach allow for a detailed evaluation of market trends – in growth or decline. Easy to measure, it also sheds light on competition through changes in prices and outlines the geographically better placed outlets of a brand, allowing for improved workforce distribution amongst outlets. A major flaw with this approach, however, is that it might mislead a single

‘AROUND THE WORLD, RETAILERS EMPLOY SEVERAL METRICS WITH VARYING ACCURACIES – INCLUDING THE NUMBER OF CUSTOMERS VISITING AN OUTLET, TIME SPENT THERE, CUSTOMER SATISFACTION, DROPOUT AND RETENTION RATES, AND PRODUCT AND CUSTOMER DEMOGRAPHICS’

brand’s falling or rising sales into making them believe that the entire market is moving in the same direction. Changes in sales figures do not show the consistency or sustainability of the business either. Rising sales might lead the brand to expansion plans, only to fall back into losses. Over expansion is one of the top seven reasons that lead to businesses declaring bankruptcy right after they start expansions. Sales figures, if higher than a business’s current production, can also lead them into thinking that their success is linked to how fast they can expand. Expansion is a decision that needs to be arrived at after carefully considering what needs to be added into the business, and higher sales of any particular product can end up leading the business into making wrong decisions. Another problem with sales measurement driving a business’s decision is the price fluctuations. The local retail industry screams of this effect, whereby the discounts trend leads to higher sales, eventually whittling down prices across the board, thus squeezing profit margins while alienating customers unless there is a special sale or discount. If measured in terms of year-on-year numeric, this measure goes further down on the scale of unreliability because of its yearlong time lag. And it does not account for potential future inflation changes, behavioral shifts in customers, and does not account for any of the external factors such as competition, taxes or obsoleteness of the products. Linking back to expansion, sales metric alone is not enough to measure performance of any retail business. Pakistan’s retail industry is a clear example of that, where brands like Khaadi and Nishat kept expanding as they saw their sales rise, and

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when the market trends changed with sales culture becoming the new norm, their profitability went southwards sharply.

Various parameters hile these measures somewhat offset the blanket measurement of sales by taking averages of different costs incurred to the revenues earned, the overall results still remain less than trustworthy. According to Zodiac – a predictive customer analytics platform, these metrics lack visibility, are highly erratic and channel specific, and are backwards-looking. Furthermore, none of these metrics sheds light on demography of the customers, trends over time, or the success of brand’s marketing campaigns. The past performance – as denoted by backward-looking – also falls short of predicting future trends of the business and the market. While sales per employee metric is on the cost side and can help the brands identify the productivity and efficiency of their resources, the fault with this metric lies in the possibility of corrective action. Since this method takes an average of the performance of a brand over its entire workforce, it is impossible to find out the individual resources’ productivity. This method is also only applicable for sales representative, whereby the effects of marketing or brand image building are not the primary concern. For an average retail outlet, this might not be the most optimum measure of performance.

Footfall umber of customers visiting a shop is probably the most apparent measure of a brand’s marketing success. The higher the number of customers, the higher the chance of more purchases being made. This method also allows for measuring traffic by the hour, day of the week, store location, seasonal peri-

ods, and promotion periods. However, the problem here is twofold. Firstly, the measurement metric itself is dubious. Ahmed explained that his technological equipment tells him how many people are passing through the sensors and entering the shops. Sefam Senior General Manager Omer Chaudhry casts doubt on this method saying. “The mere measurement of people entering a shop cannot give an accurate representation because you have to discount the employees of the shop as well. The number of employees and then how many times they move in or out of the shop is impossible to determine with accuracy which can compromise on this measure.” Secondly, footfall is not a measure of actual conversion rate. The interpretation of this number also doesn’t tell much as it is as likely for a customer to make a purchase as it is for him to visit the shop without spending a single rupee. It is also possible for a very high number of customers making only small purchases, for example socks or belts

‘IT DEPENDS UPON THE COMPANY MANAGEMENT TO EVALUATE THE MIX OF DIFFERENT METRICS TO BE USED TO EVALUATE THEIR PERFORMANCE. A SINGLE OBJECTIVE OR SUBJECTIVE FACTOR HAS NO HOPE OF DRIVING ANY BUSINESS TOWARDS SUCCESSFUL PLANNING AND MARKETING’ 40

in a garment shop, which probably would not even suffice for the operational costs of the business. Another problem with footfall metric is related to the rising trend of e-commerce. The store numbers do next to nothing to account for the online sales. If in loose terms, visits per site are taken as the virtual footfall, all shortcomings of the metric in a brick and mortar outlet apply to online visitors checking the store’s website.

Conversion rates onversion rate is a step up on footfall as it measure the number of actual customers to the number of visitors. This metric is calculated by dividing the number of customers making purchases by the number of customers entering the shops. This method can also provide the brand management with an idea of the effectiveness of their staff, if the business is such that the staffers are responsible for aiding the customers into making a purchase, for instance in an electronics shop or a car showroom. However, the fault with this criterion steps from the average calculations. It is especially difficult for brands that are expensive; since it is quite possible that one or two customers, possibly belonging to a specific socio-economic bracket, make large purchases while a large number of people

only check the price tags. As a result, the conversion rate fails to provide any details about the demography of the actual customers and can lead to faulty marketing campaigns or selling incentives that end up harming the brand more than helping it. Conversion rates also fail to account product returns and can end up skewing the results of actual sales as opposed to momentary sales. As far as number of items purchased per person is concerned, it might mislead in terms of value. If every customer is purchasing a higher number of products than before, it is quite likely that they are buying on the cheap. This is especially true with discounts and sales offers. As a result, the metric will show growth while the value and the profits will be declining all the same. The average time spent in the shop might also be misleading. Longer time spent in the shop could be an indicator of customers’ interest in the brand, but it could also be the result of the workforce’s inability to help and guide the customers quickly.

Brand awareness, customer satisfaction ow these metrics are measured in the first place? There are surveys handed over at the time of purchase or questionnaires circulated online or in real time among the customers to fill out. The most frequent questions: the level of satisfaction from the product or service and the likelihood of the customers recommending the brand to others. With both these methods it is often pertinent to protect the privacy of the customer, which means that they cannot be asked personal questions like income level and age group etc. If asked, these questions can themselves become the discouraging factor for them to fill out these forms. This means that despite collecting data on customer satisfaction, there is no way to deter-

mine with certainty the gender, age or socio-economic standing of the most or least satisfied customers. The recommendation metric also only becomes useful when the sales of the product depend on recommendations or word of mouth. For most retail brands, that is not the case. Also customers’ propensity to let their purchase decisions being influenced by others’ opinions differ for every industry. While they might come in handy in terms of medical treatments, it might not affect clothing choices much. Now let’s move to the financial formulae used to measure performance. Return on Investment, Inventory turnover, Earnings per share, and gross profit at the very start are frequent indicators used to explain a company’s performance.

Gross Profit/Net Profit his is the easiest and holy grail of the performance of a company, albeit not without its own faults. Whereas gross profits only provide an estimation of the mark up success of the difference between the direct cost of raw materials and their selling price, it completely misses out on the overall expenses incurred by the busi-

‘THE AVERAGE TIME SPENT IN THE SHOP MIGHT ALSO BE MISLEADING. LONGER TIME SPENT IN THE SHOP COULD BE AN INDICATOR OF CUSTOMERS’ INTEREST IN THE BRAND, BUT IT COULD ALSO BE THE RESULT OF THE WORKFORCE’S INABILITY TO HELP AND GUIDE THE CUSTOMERS QUICKLY’

ness’s operations leading up to its profitability and hence sustainability. The problem with net profit is that by the laws of accounting it is not inclusive of any investments or divestures made by the company. As a result, this metric is purely periodic and tells nothing about the fluctuations in the past or possibilities of changes in the future. It also doesn’t shed light on the changing market trends, rising competition, competitiveness of the company’s products or the success of its marketing campaigns. A positive number at the end of the profit and loss account can only tell so much about a company’s performance.

Earnings per share, dividends arnings per share’ is frequently quoted as a trusted figure for company’s financial and operational strength, but the backward-looking problem continues to manifest itself with this metric as well. The actual impact of this ratio comes in form of dividends which can be misleading as well. If the profits made are distributed among the shareholders too frequently, it might not bid well since it is a clear indication that the profits are not being reinvested in the company which will mean no expansion and therefore possible loss on the market share. If, however, the dividends are not being paid at all, the future of the company then banks on the success or failure of the new investments being made by the company. In either case, EPS alone is not enough to show sustainability of the business.

‘E

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Return on investment n article published in Forbes Magazine shed more light on this matter. “ROI’s roots are in evaluating onetime capital projects. “But is marketing a one-time capital project?” said the article. The fact remains in the details of the statistics used for this ratio. While marketing expenditure is sometimes counted as an investment, in real terms it remains an expense. In a layman’s terms marketing cost is part of the continued expenses a business incurs while investment is one time expansionary spending. “Plain ROI is certainly an important metric for managers. But it falls well short of helping us understand marketing's contribution to business goals, or how those contributions can be improved. ROI is too limited. To gauge and improve marketing effectiveness, for example, we must factor in the strategic intent of all marketing investments a company makes.” This method can also lead to false conclusions when this ratio is continuously being used to measure performance. For example a marketing campaign might prove successful but shows results in terms of purchases with a time lag. This is true for products that can cause customers to save money or wait for the pay-day to make a purchase. However if the ROI on a marketing campaign shows unfavorable results, it might be scratched off and replaced with another marketing campaign which ends up being less successful. Furthermore, an improvement in ROI is not an indicator of overall improved performance if the other marketing goals are not being achieved, such as product positioning or target customer attraction.

Inventory turnover ash is the most important asset for any business and inventories are the biggest blockage of cash, especially for a product heavy business. This

ratio is calculated by dividing the value of sales by the average inventory value. While this may allow for a balanced inventory to sales volume, this ratio seriously undermines the trends in the market and can lead to too much or too little inventory for a retail business. Even if calculated per product – which makes it several times more cumbersome – this ratio fails to project future demands and can fall victim to seasonal changes in the market. In his book, “The End of Accounting and the Path Forward for Investors and Managers” Baruch Lev goes on length to point out flaws in the current financial statements and metrics of performance. “Financial reports as an historical document will always be important… I don’t completely disregard it. But it doesn’t give you linear information about what will happen in the future.” The problem therefore with all these financial ratios ends up being them all focused on past performance and failing to provide any insight into the future strategies.

‘IT IS FAIRLY CLEAR THAT NONE OF THE COMMON METRICS PROVIDE AN ALL-ENCOMPASSING MEASURE OF BUSINESS PERFORMANCE, RATHER THEY ARE ALL INTERDEPENDENT AND A MIX OF MEASURES SUITED TO THE INDIVIDUAL NEEDS OF A BUSINESS NEED TO BE ACCOUNTED FOR’ 42

What to do then? t is fairly clear that none of the common metrics provide an all-encompassing measure of business performance, rather they are all interdependent and a mix of measures suited to the individual needs of a business need to be accounted for. However, the idea that all these measures are important is equally ridiculous. Credit Suisse Managing Director and Head of Global Financial Strategies Michael J. Mauboussin might have a solution after all. In his article, ‘The True Measure of Success’ he says that defining your governing objective, develop a theory of cause and effect to assess presumed drivers of the objective, and then evaluating your statistics based on that objective is the only way forward. To add to this, in layman’s terms, the performance metrics used by any company should be real-time, accounting for the changes in market trends as well as forward looking. One size fits all criteria is not going to work, especially in a country like Pakistan where industry is volatile and uncertainty rules everything. At the end of the day, it depends upon the company management to evaluate the mix of different metrics to be used to evaluate their performance. A single objective or subjective factor has no hope of driving any business towards successful planning and marketing.

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