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Pakistan: Sialkot

SIALKOT - A CITY AT WORK 

Sialkot, Pakistanís export capital has the highest per capita exports in Pakistan. Three industries dominate Sialkot - Surgical goods, Sports goods, and Leather goods. Sialkot produces over 2000 different surgical instruments for worldwide export. Sialkot was selected to supply footballs for the 1998 World Cup. Sialkot industry holds many lessons for the rest of Pakistanís economy. 
" The sights and smells of Sialkot are of a different order than Lahoreís. Horse drawn tongas are in plentiful supply as they ease down thin alleyways purportedly referred to as streets. Sialkot prides itself as the birthplace of Allma Iqbal. The cityís pragmatism becomes evident when viewing its industrial area: workshop upon workshop of boys and men, labouring together, making balls, gloves, bats, all sorts of sporting goods. This is a city at work, which moves about briskly in the morning, and closes up early in the evening...." Weiss
Sialkot, Pakistanís export capital, represents an economy and a class of entrepreneurs quite different from that nurtured by the state apparatus over the years. Though Sialkotís roads and other infrastructure are primitive and choked, yet the culture of enterprise sported by this city and its contribution to the national economy is unmatched by any other city in the country.
Located 130 kilometres northwest of the provincial capital Lahore, and with a population of about 600,000, Sialkot is in many ways a unique city in Pakistan. A strong export and entrepreneurial culture combined with widespread availability of subcontracting arrangements has resulted in low barriers to entry and a proliferation of small and medium scale enterprises. These enterprises are financed mostly through family savings. They compete by remaining lean, with low and shared overheads. They thrive through a network of subcontracting relations, which allows each company to specialise in only part of the overall value chain. These are enterprises deeply embedded in the socio-economic context in which they exist. The trickle down effect in terms of information, skills, and wealth are many; in sharp contrast to the relatively insular circuits of power and wealth promoted by the vertically integrated organisations, which have developed elsewhere in the country.
The craftsmen entrepreneurs of Sialkot with their middle class backgrounds, represent an industrial bourgeoisie which has emerged to fill the vacuum created by the departure of the primarily non-Muslim trading and industrial class to India. These craftsmen entrepreneurs are quite distinct from another small but powerful industrial elite class, which also emerged at this time.
The latter class consisted mostly of traders -turned-industrialists who received strong support from government policies and invested essentially in capital-intensive and highly protected large scale manufacturing industries. A considerable concentration of wealth soon accumulated with sixty industrial groups, controlling two-thirds of all industrial assets and eighty percent of bank assets by 1954. The seventies saw the nationalisation of the financial sector and a substantial part of the large-scale industry.
Sialkot epitomises the industrial bourgeoisie of Pakistan, a class that has created "pockets of efficiency" in the economy.
 

Sialkot Exports in Rs millions


Year 
 Sports Goods
 Surgical Goods
 Leather Goods
 Total Exports

1991-92 
 2.3
 1 .8
 1.9
 8.7

1992-93
  2.5
 2.3
 3.9
 10.2

1993-94
 4.3
 2.4
 4.1
 12.8

1994-95
 4.7
 2.9
 5.8
 17.0

1995-96
 5.8
 4.2
 7.2
 20.4

1996-97
 7.2
 4.5
 8.8
 24.5
 
 

Source - Sialkot Dry Port Trust


Three industries dominate Sialkot. Of the Rs.24.4 billion exported from the city in 1996-97, 36 percent came from leather goods, 30 percent from sports goods and 18 percent from surgical instruments  In 1988 about 93 percent of the 2565 surgical goods manufacturers in the country were located in the city of Sialkot. Similarly over 98 percent of the 3559 sports goods manufacturers in the country are located in Sialkot and its neighbouring localities.

THE SPIRIT OF SIALKOT

Sialkot contrasts sharply with the rest of Pakistan in terms of manufacturing and export activity. The number of individuals involved in manufacturing [proportionate to population size] is over four times higher, the number of manufacturing establishments is six times higher, and the exports are eighteen times higher compared to the rest of the country. Equally contrasting is the profile of manufacturing establishments. The proportion of manufacturing workers employed in the large firms nation-wide is 27 percent, compared to less than one percent in Sialkot. The proportion working in small enterprises is over 90 percent in Sialkot versus about 60 percent in the rest of the country. Tables 1 and 2 provide further details on these figures.
 

TABLE 1 - SIALKOT PER CAPITA MANUFACTURING AND EXPORTS
 

 Pakistan 
 Pakistan Urban
 Sialkot City

Population -1995
 135 m
 39 m
 0.606 m

No. of Mfg. establishments-1988
 290,073
 176,749
 8,415

No. of employees in mfg. est. 1988 
 1.6 m
 1.01 m
 34,115

Exports- 1995-96 in Rs
  295 b
 177 b
 24 b

Mfg. Establishments per 1000 population
 2.2
 4.5
 13.9

Mfg. employment per 1000 population
 12 
 27 
 56

Per Capita exports in Rs.
 2,183
 4,540
 40,338
 

The vast majority of firms in this city are family owned and managed. There are few professionals; firms are staffed by craftsmen who learned their trade by serving as apprentices to other craftsmen. Sialkot has a high degree of exposure to the international economy with entrepreneurs participating in numerous trade fairs abroad and hosting visits of foreign buyers. Even the smallest of exporters is likely to boast of a fax machine and a mobile phone to maintain contact with the outside world. This exposure to the international environment is gradually leading to the realisation that firms will have to become more professional in order to compete favourably in years to come. Issues like ISO 900 certification have led to a realisation that local industry has to spend a greater effort on worker training and quality assurance than what has been done historically.
Firms typically prefer to subcontract rather than make investments in equipment and manpower, which would be necessary for in-house manufacturing. Even among the workers working within the firm, many are piece-rate craftsmen rather than salaried employees. Firms subcontract anywhere from 20% to 80% of their manufacturing to vendors. For instance soccer ball exporters often subcontract upto 90% of their value-added to cottage industries with only material cutting , final testing and packaging being performed in-house.
The preference for subcontracting and piece-rate workers over vertical integration and the development of a loyal workforce is the natural outcome of the fierce entrepreneurial spirit, which is characteristic of the citizens of this city. When asked about his ambitions, a young craftsman stated that " I would like to own my own workshop and become an exporter or maybe get exported[ i.e. migrate ] ". This entrepreneurial spirit results in low company loyalty; not many want to remain as employees in someone elseís organisation. As soon as a person has saved enough to buy the most rudimentary equipment, he wants to get started in exports. Wide spread sub-contracting, strong socio-economic networks of support, and the entrepreneurial spirit in the city results every year in the birth of hundreds of companies such as the Suddle Group described below in the boxed insert.
Sialkotís industries are in many ways typical of industrial clusters in many parts of the world. Clusters are defined as geographical concentrations of related industries. Growth results from agglomeration effects as specialised skills and services are developed within and attracted from without the cluster. The presence of numerous final firms and multiple sources for ancillary services and inputs results in fierce competition and local rivalries. It also results in pool of specialised manpower, in rapid diffusion of information, and in low barriers to entry due to easy access to the resources within the cluster. As Marshall put it " The mysteries of the trade become no mystery; but are as it were in the air...if one starts a new idea, it is taken up by the others and combined with suggestions of their own; and thus it becomes the source of further new ideas.
Sialkot is very much a city at work, energetic and chaotic. Weiss [ 1991, pa 48] describes her impressions as :
.." The sights and smells of Sialkot are of a different order than Lahoreís. Horse drawn tongas are in plentiful supply as they ease down thin alleyways purportedly referred to as streets. Sialkot prides itself as the birthplace of Allma Iqbal. The cityís pragmatism becomes evident when viewing its industrial area: workshop upon workshop of boys and men, labouring together, making balls, gloves, bats, all sorts of sporting goods. This is a city at work, which moves about briskly in the morning, and closes up early in the evening...."
Three industries dominate Sialkot. Of the Rs.24.4 billion exported from the city in 1996-97, 36 percent came from leather goods, 30 percent from sports goods and 18 percent from surgical instruments While clusters of leather goods manufacturers and exporters exist in several other parts of the country as well, the surgical and sports goods clusters are uniquely located in Sialkot. In 1988 about 93 percent of the 2565 surgical goods manufacturers in the country were located in the city of Sialkot. Similarly over 98 percent of the 3559 sports goods manufacturers in the country are located in Sialkot and its neighbouring localities.

"At Sialkot, there are excellent surgical instruments, knives, scissors, etc, turned out by two factories of Messrs. S.S. Oberoi & Sons and A.F.Ahmad & Co. A new industry has also sprung up recently of making steel and iron trunks, office trays and cash boxes; this noisy trade has invaded the central part of town, near the Fort. There are about 500 iron-workers at Sialkot" [Government of Punjab 1920, pp125]
 

THE SURGICAL GOODS INDUSTRY


Sialkotís surgical goods industry is responsible for 75 percent of Pakistanís engineering exports. It produces over 2000 different instruments, mostly made from imported stainless steel. With a 20 percent share of the total world surgical goods exports, surgical instruments made in Sialkot are used by surgeons, dentists, and veterinarians throughout the world and are considered second in quality only to Germany, the global leader in this field.
As is typical of Sialkot, the industry is characterised by a high degree of specialisation. Of the roughly 3000 firms in this industry in 1994, only about 200 firms both manufactured and exported surgical goods. Another 600 firms were involved in trading, i.e. these firms exported surgical instruments but did not own any manufacturing facilities; instead they relied entirely on the vendor industry. Of these 600, only half could be categorised as serious exporters of surgical instruments, while the remaining 300 dealt in multiple product items including surgical gods. The third industry segment comprised about 2000 small vendors. Nadvi [1966] describes the host of "stage firms" who supplied specialised vendor services for both the manufacturer and trader segments. These include individual firms specialising in filing and grinding, in forging and die making, in milling and box fitting, in polishing, in electroplating, and in heat treatment. Providers of ancillary services and inputs include suppliers of steel and machinery; travel agents, communication couriers, cargo handlers, legal and accounting services and repair workshops, and institutional support in the form of financial institutions, trade associations, and various government funded training and research centres.

IN THE BEGINNING

As with industrial clusters elsewhere in the world, the birth of Sialkotís surgical industry can partly be explained by what Paul Krugman [U.S. economist] calls an " historic accident". The Punjab, [Sialkot was on the route taken by invaders] historically, had to bear a greater share of the brunt of invasions from central and west Asia, and as a result developed an expertise in manufacturing metal-based weapons. The koftgars [blacksmiths] of Sialkot developed a reputation by making swords and daggers for the Mughal emperors. In the late nineteenth century some koftgars repaired surgical instruments for the American Mission Hospital. Encouraged by the hospital staff, they gradually started manufacturing replicas of originals, and a new industry was born. By 1920 Sialkot was exporting to all parts of the subcontinent and as far away as Afghanistan and Egypt, and was later selected for supplying surgical instruments for allied forces in World War II.
Excerpts from the 1920 Gazetteer of the Sialkot District provide interesting insights regarding the early years of the industry.
" Kotli Loharan consists of two large villages of Lohars [ironsmiths] lying about five miles to the northwest of Sialkot. All kinds of articles for use and ornament are made, such as shields and arms, betel-nut cutters, knives, boxes, plates, inkstands, and so on. The material used is iron, and gold and silver are used in inlaying.... the lohars of these villages are now very well off [unlike what was reported by Mr. Kipling in the last Gazetteer], having earned large sums as armourers and shoe- smiths during the War. There are some twenty concerns which turn out manufactured articles of iron and steel, including swords, spear-heads, gurkha knives, razors, stirrups. The workmanship is excellent in most cases.
At Sialkot, there are excellent surgical instruments, knives, scissors, etc, turned out by two factories of Messrs. S.S. Oberoi & Sons and A.F.Ahmad & Co. A new industry has also sprung up recently of making steel and iron trunks, office trays and cash boxes; this noisy trade has invaded the central part of town, near the Fort. There are about 500 iron-workers at Sialkot [Government of Punjab 1920, pp125]
The industry has come a long way during the last seventy years. The Metal Industries Development Centre [ MIDC] , initially established in 1942 to act as a supply and inspection agency for allied forces and later upgraded in 1947 and during the eighties to provide workshop facilities and advisory services to local industry, pioneering the introduction of several new technologies including drop forging hammers, vacuum heat treatment , and numerically controlled [ CNC] die making machines. During the nineties several international joint ventures with European firms were set up.

ecorded history of the industry goes back to 1895 when the city started becoming famous for its tennis racquets. By 1903 cricket bats were being crafted from imported English willow and gradually exported to different parts of the subcontinent and beyond. In 1922 one Sayed Sahib was awarded the British Empire Export Award for supplying footballs to the British Army. Over the years the industry grew to include a variety of wood and leather based sporting equipment, and diversified into related industries such as sports apparel and riding equipment and even Scottish bagpipes.
 
 
 

THE SPORTS GOODS INDUSTRY

Sialkot - Football suppliers to Football World Cup 1994 , 1998
1994 is remembered in Sialkot as the year the city was selected for supplying the official ball to the Football World Cup in the United States. It culminated a year of frenetic activity as Sialkotís industry turned out over 20 million footballs to cater to the excitement created by the publicity surrounding the event. Exports of footballs doubled from Rs 1.6 billion in 1992-93 to Rs 3.2 billion in 1993-94. In addition to top brands such as Adidas and Puma, major sports clubs around the world sourced footballs from Sialkot. The burger chain McDonaldís reportedly took a planeload of footballs to be distributed as souvenirs during the tournament. Years later, the excitement still remains; the city was also selected to supply footballs 1998 world cup.
The 1994 world cup was only one more in a long list of achievements. Recorded history of the industry goes back to 1895 when the city started becoming famous for its tennis racquets. By 1903 cricket bats were being crafted from imported English willow and gradually exported to different parts of the subcontinent and beyond. In 1922 one Sayed Sahib was awarded the British Empire Export Award for supplying footballs to the British Army. Over the years the industry grew to include a variety of wood and leather based sporting equipment, and diversified into related industries such as sports apparel and riding equipment and even Scottish bagpipes.
The industry earned over Rs. 7 billion from exports during 1996-97, over half of which came from the sale of footballs. The industry is primarily cottage based, employing some 15 to 20 thousand workers. Even a giant firm such as Saga Sports with half a billion Rupees in exports and a thousand employees, subcontracts much of the stitching work to hundreds of small firms. The work is skill - intensive and labour intensive with a typical football requiring about 1400 individual stitches, and an expert worker turning out about four such balls in a day.
 
 

Responding to Challenges. [ GATT, WTO]


Over the years Sialkotís industries have faced many challenges. These have been met with varying degrees of success. The advent of new light-weight [carbon and graphite ] material for the tennis racquets and other sporting equipment quickly eroded the international competitiveness of Sialkotís wood based products . However, Sialkotís firms responded by developing new niches in footballs and leather and textile based sporting apparel. The seventies saw a period of labour unrest and strikes spurred by the then popular socialist slogans of " factories to the workers". Trust and harmonious relationships so essential to the network of subcontracting arrangements started breaking down. The city soon recovered and the dream of most young men today is to start their own workshop or trading company, to spend their energies creating value /wealth rather than redistributing wealth.
One response to the requirement of ISO quality certification by the European importers before the turn of the century has been vertical integration. The larger football manufacturers have started establishing stitching centres in nearby villages. Instead of villagers working at home or travelling an hour each way to the factory in inner Sialkot, they work at these centres, where standards can be more easily enforced and quality monitored. Medical Devices, which specialises in quality surgical instruments, recently obtained ISO 9002 certification after setting up its own fully integrated manufacturing unit involving no subcontracting. Only young educated workers are hired and trained entirely in the firm. Another response, as described in the insert on Leather Field is to compete by innovating and professionalising oneís operations.
The export oriented industrial clusters, which emerged in cities such as Sialkot, thrived despite rather than due to government policies for most of the last fifty years. Will these industrial clusters continue to thrive as non-tariff barriers to trade and regional trading blocs make it increasingly difficult for the small exporter to compete. Collective efforts, alliances, and public-private partnerships are the new strategic weapons being forged to fight the trade battles in the twenty-first century.
An equally compelling concern is the future of the industrial elite elsewhere in the country. Much of the large-scale manufacturing thrived on credit and other inputs, and behind high walls of tariff protection. The current wave of deregulation, privatisation, and trade liberalisation are ending this comfortable state. The industrial elite may wither away, much as a terminal patient after its life support systems are removed.
A revamped industrial elite and industrial middle class can both not only survive but also thrive. In a world where globalisation and regionalism of industrial activity exist simultaneously, the large and small complement each other. The large firms provide the deep pockets, the credibility, access to markets and technology and bargaining power necessary to compete internationally, while small firms are more innovative and lighter on their feet. Regional clusters provide local concentration of knowledge, of specialised skills, institutions, and infrastructures and of spillovers among organisations. Companies such as Saga Sports and leather Field in Sialkot, Millat Tractors in Lahore, GFC fans in Gujrat, and Pak-Suzuki in Karachi have, over the years, created regional clusters of hub and spoke relationships wherein the lead organization provides access to technology and markets for a complex of suppliers surrounding the central hub. 
 
 
 
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 This article courtesy
JAWAD HUSSAIN
 
 
 
 http://moveforjustice.org
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