September 15, 2003	Monday	Rajab 17, 1424

With the present up-surge in public spending, the need for correct and appropriate procurement, especially through domestic sources, increases.

As this mega-spending primarily remains confined to large and unwieldy organizations like Wapda, the Railways, the PTCL, the NHA and a host of smaller but equally spendthrift and notorious entities (at least in the eyes of public), we would specially focus on technical inventories - specially machines, tools, plants and instruments (of all nature) and the implications of incorrect procurement thereof.

The sourcing and outsourcing by public sector enterprizes (PSEs) and progression of development of local manufacturers too would be dealt with in the subsequent paras. All in all, it becomes a much-needed study and a dire necessity specially because the procured items and pieces of equipment are being funded by tax payers and customers/ end-users of the above mentioned entities are probably a huge majority of tax payers again. As such any improvement of the present morass would ultimately benefit the whole Pakistani nation.

As is known to all, at one time-except for a miniscule amount from Japan, machinery, tools, plants and instruments were imported from Europe and the USA. By and by, Europe and specially the USA got converted to the hi-tech level and thus slowly ceded part of the low and medium-technology to the earlier importing clients. It is besides the point that this too was a ploy to gain through continued sales of nearly redundant technology and the huge inventory of spares lying pilled up with them.

In this regards the normal style was (first of all) to set up an assembly line, sell CBUs in its shadow, then peddle semi- built up units, assemble CKDs and spread over a decade or so, to effect some deletion. As such a typical licensee would keep on importing original imperatives for quite some time and then add on some local components subsequently. The licenser would however, as part of the license prerequisites and in order to qualify for earning royalties, would ensure quality and also add on to the product through injection of newer inventions/ patents /technology; this they did through the huge R & D facilities at hand with them.

Here reference is indeed necessary to be made to the technological edge which Europe and the USA had on the rest of the world including the erstwhile Eastern Bloc. This edge was on account of the vast R&D establishment it possessed (strong R&D base being a sine qua non for an independent manufacturer) and the incentives and fruits for the inventor it guaranteed through fool-proof registration of patents - what is now billed as the intellectual property rights. As a consequence, which still is in practice, the licensers were able to improve upon their own and the licenser’s products at very short intervals.

Alongside was the progress achieved in the formulation of QA (quality assurance) legislation through implementation of the various standards and specifications. This was and still is a double-edged sword,as it assures quality but also wards off potential competition. This probably, remains and would remain the main reason for the building up and continued dominance of the MNCs.

In order to ensure that these standards and specifications would remain enforced, special QA and inspection regimes were formulated and then transferred to the technology importing nations. The licensers, incidentally, took lot of pains to train the importers and this training, at one time, paid the progenitors extremely hefty dividends, in the shape of near monopolies. This near stranglehold was somewhat broken by the smaller of the Western European nations and vastly by the Eastern Bloc with the then USSR leading the pack.

Their alternate technology was cheap, easily available as barter and could also be purveyed against long-term payment schedules. Actually the socialist assembly line had to keep on rolling in face of universal employment goals of that bloc. This somewhat broke the road-map set forth by the European and the USA exporters and the licensers. With the injection of this comparatively cheap technology and acceptance thereof in our public sector, a feeling set in to the effect that the standards set up by the West could be watered down with not much of a difference. With this change of heart, the PSEs started going for cheaper versions at the expense of the standard equipment. However, everybody remains oblivious of the damage caused on account of these cheap versions and the ensuing reduced life, capacity and stunted production.

This transition from correct/standard procurement to the present style of doing things makes very interesting reading. Feeling a stranglehold on the importers—mainly the developing world, the European and the US manufacturers had inordinately increased their prices,specially when it came to the supply of spares. This required outsourcing by the end-users and instead of remaining with the approved and up-to-mark suppliers, they simply went overboard and ended up with below-mark operators and eventually with the new so-called manufacturers in China etc. Japan on the other hand, though considered as a part of the developed world’s monopoly was a little better and thus kept on as a manufacturer/supplier to our country till late 1980s. Moreover, it did not charge exorbitant rates for the after-sale upkeep of already supplied equipment, etc.

The opening of China as a huge exporting assembly line after Japan and Taiwan followed by the five Asian tigers, thereafter, complicated the issue to the level that now it has nearly no chance at all to correct itself. Chinese companies unlike Japan, Korea and somewhat Indonesia and Singapore do not bother much about enforcement of intellectual property rights on the corporate or the individual level. This remains a very important point of discord between the world bodies and the Chinese. As a consequence , the earlier licensees there too have quietly severed connection with their parent companies or principals and have started behaving like full fledged manufacturers.

The Pakistani counterparts have also joined in and are ready to have their pound of flesh. Herein lies the biggest of the problem which in a way can take the nation even more backwards in comparison to the time when sub-standard imports from the Eastern Bloc flooded us. On the other hand, but for industrial espionage and blatant copy , the self-proclaimed independent manufacturers now stand bereft of the required level of R&D support. Product development thus is a mirage now. Pragmatically speaking, this arrangement only offers one consolation, but that too for the maverick manufacturer viz. they do not have to pay any more royalty and nor have to attend to the unnecessary hassle of conforming to many a strict requirement of certification /rating. If the end-user becomes the butt of a pun, it matters not specially when we live in the present alone and then who has seen the future.

Side by side has been the progression and improvement in moral standards and a yearning to achieve high ethical levels in Europe and the USA. All this has had a negative impact on business doing in the corruption ridden developing states. Adding higher production costs to this yearning, along with the quest to maintain quality to meet the stringent standards developed to satisfy the requirements of the Western end-user and consumers, has made the Western product simply non-competitive.

In this scenario the Chinese, the Korean, the Taiwanese (whether we recognize the state or not) and the rest of the tigers have had a field day. These are again of three types, viz the licensees of conformed western manufacturers having due backing on the basis of their earlier licenses, the mavericks who have reneged on their contracts and are now on their own and stand static at a particular period of time and the(simply) independents who were never attached with any one and now capable enough to manufacture at a very low tech level .As the first variety is proceeding correctly and lawfully and the third type remains of no-consequence, we would discuss the second variety in the coming paras.

I consider the inroads made by China and the Asian tigers as opportune and necessary, but with a proviso to the effect that non-certified/non-validated imports from these countries may be good upto a level and for the private importers, but procurement by the government and its surrogates and extensions need to keep the larger picture in view; this may be very important because such purchases are to be put in place for public use and should be able to take care of the needs for at least the projected life of the product.

In other words the product must conform to the (now accepted at least on paper) specifications/standards laid down for the same. Indeed inspections would be carried on before acceptance, with the aging test a pre-requisite, but the manufacturer /supplier must also be able to validate the same. How can such a validation be acceptable and what would be the chances of redemption of the given warranties subsequently. This indeed is a very important question and needs to be answered. This question attains even more seriousness, when we see that governments are more and more averse to giving guarantees and warranties and that now one would have to accept the word of the manufacturer alone.

Coming to the Pakistani manufacturers, we see that they also fall in the same categories and the most notorious remain the maverick variety- -the ones who were once licensees and who thereafter had severed the link. Now they are propagating themselves as independent manufacturers and then selling their wares to governmental organizations for public use. With it is the traditional collusion and inapt working of the procuring setups- thus leading to inappropriate procurement. Besides this has been what is known as the domestic preference on account of a minimum deletion effected in a once foreign made product.

This domestic preference comes into play whenever bids received in international tenders are evaluated and has led to many a tender going to the local manufacturer. On paper it seems good, but what needs to be understood first is whether the pre-qualification accorded to any particular local or foreign manufacturer on the basis of a license or the position that indeed the company can be considered as an independent manufacturer is correct or not. In order to qualify to be considered or graded as an independent manufacturer, the scrutinizing agency can always follow international norms and standards and then seek requisite certification/ratings before its verdict to accept the same or not. This is quite easy because the requirements are known worldwide. Similarly, in case the participant/bidder in particular tender claims to be a licensee of an independent manufacturer, it would need to be counter- checked, before any award is made. However low-tech procurement may not entail such stringent scrutiny. All the above would lead to a better level of procurement with longer product life and less pressure on the public exchequer besides qualifying Pakistan for the various conditionalites put forth in the WTO. This would also enable Pakistan to qualify for the much needed WB/IMF funding as the issue of patents, confirmation to licenses etc are given lot of weightage by the world body. Similarly, foreign investment in Pakistan,on the wane, would get a much-needed boost. Actually the Pakistani entrepreneur, specially the manufacturer, enjoys a bad reputation for, first, accepting all conditionalities for getting licenses to manufacture (and for transfer of technology) and for subsequently reneging on the contracts.

Correction of the situation would also lead to attainment of the pre-requisites to being accepted as independent manufacturers by many Pakistani entities with chances of their competing for exports and tender business in other countries.

The foreigners participating in our international tenders for medium to high-tech equipment would also be required to satisfy us before being pre-qualified to compete in the tenders. This would be a boon for Pakistan, which loses billions each year on account of procurement of spurious equipment.