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Has franchising in Pakistan really benefited participants?

Without mincing words, it may be said that the franchising business is still a nascent phenomenon in Pakistan. Some of the critics may not agree with the assertion as they mix it with other practices, i.e. authorized bottlers, fast food chains and manufacturing under license. This should also not be surprising because brand awareness and brand loyalty are also scanty. Often the use of products of certain brands is considered a status symbol. The users just cannot differentiate the products, if offered without the name or wrapper.

Let us begin with the use of branded products, use of unpacked/un-branded milk is the biggest example. Pakistan is among the top five largest producers of milk in the world. However, less than 10% of total milk produced in the country is packed in tetra packs. Within tetra packs, less than half a dozen brands are produced in the country. In the beginning the producers of tetra packs have spent billions of rupees to promote packed milk, now the individual brand holders spend their own money. The paltry share of packed milk in total consumption is because of certain perceptions prevalent among the consumers, but mostly because they believe the brands are sold at the premium. This may not be wrong to say that almost all the brands are sold at the same price or at a marginal difference.

A reference to pharmaceutical products, narrates a different story. In the past, a case was built that around half a dozen multinational companies control bulk of the market share. The Government of Pakistan was also made to believe that multinational companies were selling their products at a premium. Therefore, all the manufacturers were ordered to sell their products by the generic names. However, with the passage of time the practice had to be discontinued because experts convinced the government that the reputed companies spend billions of rupees on the research and development and also on quality control.

Another interesting example is the sale of branded computer products. Initially, personal computers (PCs) of Apple, Commodore, NCR and IBM had the largest market share. All these brands were manufactured in the US. However, with the passage of time production/assembly of these brands started in Korea and Taiwan. This practice developed primarily to bring down the cost of production. At times customers asked was the quality of these brands produced in different countries uniform? The brand holders convinced the buyers that the products produced in different countries have to pass through very stringent quality controls. Therefore, these are of the identical standard.

The phenomenon of ‘outsourcing’ is very popular in textiles and clothing business around the world. Under this arrangement the leading brands are often manufactured in the third-world countries. This has become necessary because of this industry being ‘labor intensive’. The wages and labor laws in the developed countries are often very stringent. Therefore, to save the cost, the brand holders get their products made in the countries where wages are still low while labor laws are not very strict.

It is on record that with the passage of time the manufacturing of leading American and European brands first moved to Taiwan, Japan and Korea and now to Thailand, Bangladesh and Vietnam. However, it may be pertinent to mention that India attracts a lot of ‘outsourcing’ business whereas Pakistan has not been able to attract any significant share.

Though, the discussion may get a little tangent discussing the reasons for Pakistan not being able to get its due share is necessary. The key weaknesses of Pakistan are; 1) high cost of doing business, 2) exorbitant energy cost and worst of all 3) perceived bad image of the country. It may be true that often the exporters are not competitive, but delays were also common due to political turmoil in the past. It may be right to say that in many countries the government offer special incentives to export-oriented industries, but the track record of successive governments in Pakistan is not enviable. Textiles and clothing industry has enjoyed special concessions for decades, but it has not learnt to live without the crutches of government support. With the pressure of the multilateral donors to withdraw subsidies, growth of Pakistan’s textiles and clothing industry has remained stagnant.

To conclude, it is necessary to say that the Government of Pakistan has to come up with supporting regulatory infrastructure that can facilitate outsourcing and franchising business in the country. There is also a need to bring change in the mindset of people. Gone are the days when players in a particular industry used to compete with each other, now they complement each other. A perfect business case study is Pakistan’s automotive assembly industry. While there are about half a dozen assemblers, there are around 3,000 manufacturers of parts and accessories. There are about 40 assemblers of motorcycles operating in Pakistan, who have been successful in bringing down the cost of production. This has become possible through economies of scale as well as standardization and following quality standards.

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