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Sustainable business growth

March 12, 2018

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WHILE some segments of big businesses are often accused of rent-seeking, the community’s innovative ideas, use of latest technologies, and international practices in upgrading human skills and tackling social vulnerabilities find no space in public discourse.

Despite patronages, first generations of family-managed groups failed to stand the tests of time and were left on the wayside. Successful conglomerates have been deeply conscious of sustainability of their businesses in an environment of frequent ups and downs of the economy.

“Sustainable development is a way of solving problems,” says eminent economist Jeffrey Sachs in his latest book The Age of Sustainable Development. In a foreword to the book, former United Nations secretary general Ban Ki-moon describes sustainable development “as the central challenge of our times”.

“Good businesses always have a multi-stakeholder approach,” Sachs adds.

‘The corporate world is strengthening its role in implementing the UN programme for achieving SDGs that include a parallel system for CSR spending,’ says an executive

One such representative case in Pakistan is that of Atlas Honda, which publishes a separate yearly sustainability report on its performance as an integral part of the company’s annual corporate reports.

The leading two-wheeler engineering outfit of over 50 years has successfully engaged its stakeholders through institutional means to sustain its debt-free status over the past six years. It managed all its investment projects through equity in the previous fiscal year.

A sister company of the group borrows money for short-term working capital but not for long-term capital spending. Recently, it has set up a second synchronised assembly plant, doubling the production capacity of its Sheikhupura facility, with an investment of $100 million.

Around $50m was invested directly by the company, followed by $30m by its associated firms, and $20m by the suppliers to expand their respective facilities. The company’s capital spending policy has done away with much of bank borrowing and equity support from the Pakistan Stock Exchange.

It has done this though the conglomerate to which it belongs — Atlas Group — does own a brokerage firm and manage a mutual fund to benefit from trading and investments in shares.

The group consists of four listed and 14 non-listed firms. The enterprises with surplus funds provide required inter-corporate financing. To improve efficiency and save costs, associated companies were set or acquired by the group to develop backward and forward integration.

The group has 18 IT, engineering, power, finance, and trading firms, etc. The diverse economic activities have reduced the group’s overall business risks by integrating and retaining businesses within its competence. The only exception was disinvestment of its shares in Atlas Bank sometime ago.

Such has been the pattern of growth of many big business houses. For example, Nishat Group has seven listed and 23 non-listed companies including Nishat USA Inc in America. The group claims that it has presence in all major sectors of the economy and compares itself with multinationals in Pakistan with respect to quality of products and management skills.

Very old flagship enterprises — which acquired economies of scale with major domestic market shares in goods and services — were listed by conglomerates at the PSX. Other enterprises have been kept out because of hassles and heavy regulatory compliance expenditure.

They are also not too inclined to share their profits with non-stakeholders. The Atlas Group’s cultural values include a policy of self-reliance, derived from the group’s motto: “Organisation development through self-development.”

The emphasis on organic growth through self-development provides a sense of participation at every level from grassroots to the very top people of the company, and includes Japanese partners, according to the annual report.

Professional management, work culture, upgraded skills and technology help “transform ideas into accomplishments,” the report states, adding, “Harmonised professional management and institutionalisation of the group shareholding is an endeavour to build businesses to last generation after generation.”

The company’s board comprises one independent, three executive and four non-executive directors, including three Japanese directors from Honda Japan. The CEO is Harvard-educated Saquib H. Shirazi. A human resources and numeration committee plans succession.

While collaborating with its stakeholders for sustainable business development, Atlas Group Chairman Yusuf H. Shirazi affirms his commitment to inclusive economic development saying, “What has come from the society should be shared with the society.”

To quote from the statement of Atlas Battery on value-addition, the wealth generated and distributed during 2017 was as follows: cost of materials and services 65.6 per cent, employees 5.5pc, government 20.1pc, providers of capital 0.3pc, society 0.1pc, depreciation and amortisation 1.3pc, and retained profits 7.1pc.

“If you look closely at a big picture, the corporate world is strengthening its role in implementing the UN programme for sustainable development goals that include corporate social responsibility spending,” says a business executive.

jawaidbokhari2106@gmail.com

Published in Dawn, The Business and Finance Weekly, March 12th, 2018