SIALKOT - A CITY AT WORK
Sialkot, Pakistan’s 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 Pakistan’s
economy.
" The sights and smells of Sialkot are of a different order than Lahore’s.
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 city’s 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, Pakistan’s export capital, represents an economy and a class
of entrepreneurs quite different from that nurtured by the state apparatus
over the years. Though Sialkot’s 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 else’s
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.
Sialkot’s 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
Lahore’s. 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 city’s 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
Sialkot’s surgical goods industry is responsible for 75 percent
of Pakistan’s 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 Sialkot’s
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 Sialkot’s 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 McDonald’s 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 Sialkot’s 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 Sialkot’s wood based products . However, Sialkot’s 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
one’s 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.
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