For appreciable increase in exports, Pakistan needs
an effective strategy. This article pinpoints the main components of
such a strategy, which are product and market diversification, cluster
development, competitiveness and effective marketing of both products
and national image.
Export promotion brings a number of benefits to a
country. These include job creation, improvements in the balance of
payment (BoP) position, accelerated economic growth and increase in the
level of incomes and standard of living. Like other developing
countries, Pakistan is also looking for ways and means to boost exports.
The present level of exports, however, is not satisfactory. The share of
exports in GDP is less than 18 per cent. Though the country's exports
have exceeded $11 billion, they still constitute less than 0.2 per cent
of total world exports.
For effective export promotion a country needs to
broaden its export base, which can be done in two ways: by increasing
the number of products exported — product diversification — or by
increasing the number of export markets — market diversification. By
broadening its export base, an economy safeguards itself against
international price and demand fluctuations.
In case a country has a narrow export product base,
reduction in unit price of export commodities may adversely affect its
export earnings. However, if a country exports a large number of
products none of which has a major share in its total export receipts,
reduction in international market price of a few export items will not
much affect the monetary value of its exports. The same is true of a
narrow market base. In case a country exports only to a few markets,
reduction in demand for its products will substantially affect the
volume of its exports. However, in case a country has a large number of
export markets, the repercussions of fluctuations in international
market demand can be minimised.
Pakistan, however, has a narrow export base with
regard to both products and markets. This is well revealed by an
analysis of the country's exports performance during last five years. To
begin with, our exports are overwhelmingly dependent upon one product
category, as nearly 64 per cent of exports consist of textiles &
garments only. Just five product categories — textiles, leather, rice,
sports goods and carpets & rugs — constitute more than 82 per cent
of our exports. As for lack of market diversification, fifteen countries
account for two-thirds of Pakistan's total exports. More than 54 per
cent of our exports are destined to two regions: the EU and North
America. Even within these two regions, we lack market diversification.
More than 91 per cent of our North American exports are purchased by the
USA, which is the single largest buyer of our exports accounting for
nearly 25 per cent of the total export earnings. Within the EU, five
countries — UK, Germany, Italy, France and the Netherlands — account
for nearly 74 per cent of the total exports to the region. Pakistan's
exports to the Middle East are 13.96 per cent of its total exports.
However, even within the Middle East market, there is lack of
diversification as in our total exports to the Middle East, the share of
only Dubai is nearly half. Regrettably, the share of the South Asian
region in Pakistan's exports is merely 2.86 per cent of its total
exports. The share of Eastern Europe and Central Asian Republics (CARs)
in our exports is almost negligible.
What are the implications of these facts? Pakistan 's
exports are open to the above-mentioned risks associated with lack of
diversification. Take lack of product diversification first. Textiles
make up nearly 64 per cent of the country's exports. Textile trade has
so far been subject to quantitative restrictions or simply quotas, which
ensures a specific share of Pakistani products in the markets of North
America and EU. However, under the Agreement on Textile and Clothing (ATC)
of the World Trade Organization (WTO), all quotas will be phased out by
December 31, 2004 and from January 1, 2005, there will be open textile
trade. It means our textile exports will face competition from other
textile exporters, particularly our neighbours India and China. Both
these countries are more price competitive than Pakistan because of
lower input, particularly labour and electricity, costs. Hence,
successfully facing competition from textile exporters of India and
China will be a big challenge for our exporters.
Thus instead of relying merely on what are called
core or traditional products, avenues for the export of non-traditional
products, such as engineering goods, cutlery, furniture and ceramics,
for which we have a lot of potential, need to be explored. This should
be accompanied with search for new markets.
Cluster development, the second element of the
strategy, can be of great help in broadening the export base. A cluster
is a sectoral and geographical concentration of small and medium
enterprises (SMEs) producing relating goods. Individually due to their
limited resources and high cost of production, these enterprises find it
difficult to exploit market opportunities. Cluster development, however,
enables these SMEs to complement each other's resources and expertise
and achieve collective efficiency through economies of scale and
specialization. This gives the enterprises competitive advantage and
helps them capture markets beyond their individual capacity.
Cluster development has been introduced with success
in several developing countries including Malaysia, Indonesia, India and
Mexico. In India, for example, clusters account for nearly 60 per cent
of the country's manufactured exports. In Pakistan as well cluster
development has an ample scope. A case in point is the light engineering
industry of Gujranwala and Gujrat. The industry comprises a number of
SMEs, which have a lot of export potential provided their individual
resources and expertise are pooled. Another example is the cutlery
industry of Wazirabad.
The next element of the strategy is competitiveness.
A product is competitive if it has an over-riding advantage over the
products offered by competitors. There are two principal means to
achieve competitiveness: price and quality. By being price competitive,
that is, by offering its products at a price lower than that charged by
competitors, a firm can successfully sell its products. The alternative
is to produce better quality products, which justifies a higher price,
than offered by competitors.
However, in the present highly competitive
international trade regime, a firm needs to be both price and quality
competitive. Unlike in the past, in the present scenario merely offering
cheaper but low quality products or high quality expensive products is
no guarantee that a firm will increase or even maintain its market
share. What the consumer wants is a quality product at an affordable
price. Competitiveness thus means both high quality and low price.
Price competitiveness depends in large measures on
the cost of production. The higher the cost of production, the higher
the price. In order to curtail the cost of production and thus to
increase price competitiveness, it is imperative to bring down the cost
of inputs. Interest rates in Pakistan are also comparatively high. The
higher the interest rate, the higher the cost of doing business and thus
less the price competitiveness.
As for quality, it needs to be defined in terms of
the customer. A product is good only if it satisfies customer needs.
This brings us to the final component of the strategy
— marketing. In order to understand the importance of marketing for
export promotion, it is better to understand the difference between
marketing and selling. An enterprise engaged in mere selling produces
what it is best at without identifying what the customer wants. In
contrast, marketing is customer-oriented. A firm first identifies the
needs and wants of potential customers and then makes products which
satisfy the same.
Selling thus defines quality in terms of the
producer; marketing defines quality in terms of the customer.
Contrary to popular opinion, marketing does not begin
after the product has been produced. Rather it precedes the production
process. A product must satisfy customer needs and wants, which are
determined by factors political, cultural, economic, demographic,
geographic, and technological. These factors differ from country to
country and even within the same country thus making for different
consumer preference for taste, colour, size, weight, material, product
package, and performance. Thus the same product cannot be sold in all
export markets. Rather for each market, the product has to be modified.
This is called product adaptation. It is by researching the target
markets that an exporter identifies customer needs and offers products
that best satisfy those needs.
Another important characteristic of marketing is that
it is a long-term activity. The relationship between the firm and the
customer does not end once the product has been sold. Rather it
continues as the firm seeks constant feedback from the customer. In the
light of this feedback, the firm makes changes in its product or pricing
In case of Pakistan, one of the major causes of slow
export growth is that most of the exporters do selling rather than
marketing. Instead of first identifying customers and their needs and
than offering goods that satisfy them, our exporters by and large try to
sell whatever they have produced usually in excess of domestic capacity.
As their products are not fully tuned to customer needs, they fail to
impress the customers. Some exporters even cheat customers by selling
This may help them earn profits in one deal but makes
it impossible for them to strike another deal with the same importer or
even in the same market.
Owing to resource constraint, it is difficult for
small exporters to conduct foreign market research. Such exporters need
the assistance of Export Promotion Bureau and Pakistan's commercial
officers in foreign missions to get the required commercial
In international markets, both products and the
exporting country's image are sold. An otherwise competitive product may
not find a large number of buyers simply because of a poor image of the
exporting country. This makes building and marketing a good national
image very important.