How quickly can firms bounce back?

Updated 10 Aug 2020

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The lockdown tested the endurance capacity and the risk appetite for innovation and adjustment of businesses in Pakistan, much like elsewhere. — Dawn/File
The lockdown tested the endurance capacity and the risk appetite for innovation and adjustment of businesses in Pakistan, much like elsewhere. — Dawn/File

With the easing of the lockdown, the return journey towards normalcy has begun in Pakistan. Businesses are gearing up to get back on track, trying to grasp challenges of a beaten world still grappling with the pandemic.

There is a glimmer of hope but anxieties over changing market dynamics continue to haunt the business community. Beside other factors, the size, organisational agility, appetite for risk and preparedness towards digitisation influenced the fate of businesses during the past difficult patch and will define the capacity to bounce back in the period ahead, indicators suggest.

The corporate sector, with access to concessional credit worth Rs128 billion disbursed by banks to 2,141 firms that committed to retaining 1.25 million employees collectively till mid-July, faster settlement of export refunds, cut in the interest rate from 13.25 per cent in February to 7pc currently, besides a slew of other incentives, was positioned better to make the necessary investment to switch production lines to manufacturing critical supplies. Initially, some small players tried to introduce home-made cotton masks in the market but they were driven out soon by big players.

“Instead of grumbling over losses we observed how our equals in other countries are coping, noted the spike in Covid-19 induced demand and swiftly responded by switching production line”

The pandemic shock has shaken the entire world. No one foresaw what was coming. The lockdown tested the endurance capacity and the risk appetite for innovation and adjustment of businesses in Pakistan, much like elsewhere.

Read — The impact of Covid-19: How Pakistani workers are living with the new reality

For some companies where physical interaction was unavoidable, the blow was harder, like hospitality, grooming, travelling etc. The virus scare and economic slowdown impacted consumer behaviour that became cautious as many preferred to hold purse-strings tighter. Following the global trend businesses dealing in non-essential and luxury items in Pakistan took a greater hit.

The complacent firms with cumbersome archaic structures, particularly those that were resistant to digitisation had their operations shattered completely over the months under the pandemic.

Whereas agile firms, manned by tech-savvy millennials or far-sighted leaders with sufficient risk appetite, ready to adapt to demands of changing times by converting production and operations fared better in the lockdown phase. They are well-positioned to bounce back as the government decides to allow businesses to resume respecting standard operating procedures.

There is no structured study available but a mentionable percentage (about 3-5pc) of big businesses in Pakistan did manage to make adjustments to ride through the tough phase comparatively unscathed. As local demand tumbled and export orders suspended switching production was the only option available for many to avoid a lockout of the plant and retrenchment of the workforce.

Many, however, took the easy path in desperation and opted to close down to cut losses but some leading groups of Pakistan, eyeing the market, did make arrangements to produce protective gears for health professionals, kits, gloves and face masks. Others started producing hygiene products such as liquid soaps, hand sanitisers and disinfectants. Some went into the production of spray machines and other safety tools and equipment.

Globally big brands like Ford, Rolls-Royce, Airbus, etc were manufacturing ventilators. General Motors, Telsa, etc built face shields for hospital staff and Chinese automaker BYD switched to produce face masks. The General Motors’ plant in China mass-produced N95 masks, Dyson build ventilator ‘CoVent’ instead of vacuum cleaners, H&M produced face masks and Inditex, the parent company of fashion brand Zara, and Ralph Lauren converted production lines to making hospital gowns and masks. Parkdale, US yarn spinning company switched to making medical equipment, so on and so forth.

Local names of big players like Gul Ahmed, Al Karam, Nishat, Khadi, Malik International, Shahraj Textiles, Rajby International, Mecotex, The Designer, ect cropped up in discussion over converting production lines to locally supply and export Covid-19 related essential supplies including masks, hospital gowns, shoes, gloves and medicated bed sheets.

“The bigger the business higher the stakes,” said a top gun narrating how his son floated the idea of importing mask-making machines to keep the textile unit up and running. “Instead of grumbling over losses and mounting inventories in the wake of crashed demand, we assessed the local market, observed how our equals in other countries are coping, noted the spike in Covid-19-induced demand and swiftly responded by switching production line,” he added. “We couldn’t make up for the loss but it was better than sitting locked in at home and sulking. Above all, we were saved from closing down our units and felt better by participating in efforts to deal with the emergency”.

“I learned about the suspension of my export orders in March and soon decided to invest in mass production of face masks. With the grace of God, we were able to chip in our share by supplying quality product locally and also bag export orders as soon as the government permitted exports,” Syed Shujaat Ali, former chairman Pakistan leather garment and manufacturers association said over the phone.

“Besides other gains it made the business community realise the export potential in this category of products,” he added.

Independent watchers were happy with the ingenuity shown by the current crop of businessmen. “It’s interesting to observe how the death threat worked to bring out the hidden entrepreneur in the seths of Pakistan. For once, instead of wailing themselves hoarse, they put their act together to help provide critical supplies in a crisis. It also provided them with a chance to shun tunnel vision and act responsibly. Basking in the warm glow by donating a portion of their products they seem to have broken out of perfect alienation,” a retired government official who served in the Ministry of Industry remarked.

“How long will this spirit of nationalism last? My guess is as good as yours,” he added.

The relevant government functionaries were approached but either they had nothing to add to whatever is already known or were reluctant to share their insight. Hammad Azhar, minister industries and production did not respond to calls and messages.

Published in Dawn, The Business and Finance Weekly, August 10th, 2020