KARACHI, April 12: Over the years, the big industrial groups created by the first generation of entrepreneurs have virtually disintegrated by splits within families, loss of East Pakistan and by nationalization in early 1970s.

Except for the financial sector, where mergers have been officially induced, the fragmentation is still fairly widespread. Entrepreneurs have failed to keep a growing family under one business roof.

The big groups are breaking into small units at a time when production on economies of scale are required to compete for global customers and the WTO’s 2005 deadline is knocking at our door, laments Irfan Mustafa, Dubai-based managing director for the Middle East, North Africa and Pakistan of Yumi Restaurants International.

Addressing the IBA Management Society on Tuesday on “Globalization: Opportunities and Challenges for Pakistan” he acknowledged the problems facing industry but asked: How many local entrepreneurs are focusing on raising productivity and efficiency? How many mergers and acquisitions are taking place to cut costs and undertake research and development? Why are best local talents attracted by multinationals and not employed by local firms?

Irfan Mustafa says that the local entrepreneurs want control over their businesses and seek profits that individual enterprises yield when the creation of big groups could multiply their financial gains. He advises them to change their mindset and eye the business potentials from a bigger vision. “We have to grow up and rise to the challenges of globalization,” he added.

In its vision paper on globalization, the IBA Management Society points out that multinationals can penetrate smaller markets of developing countries and realize lower costs through economies of scale. If implemented hastily, globalization would push small producers out of the market, create unemployment and foster dependence on foreign products.

IBA director Danishmand said that unlike China, local businessmen were afraid of WTO.

To add to what Danishmand says it is economies of scale that is making the difference. The big industrial groups, created during Ayub Khan’s development decade, have been split into many smaller units, whether it is the house of Habibs, Adamjees, Dawoods, Siagols, Nishat and Gul Ahmed. The multinationals have set up food chains with outlets throughout the country, whereas popular local restaurants are restricted to 2-3 locations in one city.

In Pakistan, big business has suffered because of the failure of Seths to separate ownership from management at the appropriate time as is the practice in industrialized economies. That is true of the first generation of entrepreneurs. Now their offsprings educated in foreign business schools have a professional outlook and are running their independent businesses quite successfully.

But fragmentation is a major hurdle in creation and nurturing large-scale production facilities or global marketing efforts. Chairman Atlas group of companies Yusuf Shirazi says the entrepreneurs forget the culture that made the family. The family culture has to be sustained through academic and professional experience and the value system.

After the corporate fiasco in the United States, he says there is a trend to move towards family-owned businesses. Owners have a vested interest in protecting the companies from mishaps. He quotes a Harvard professor speaking at a seminar that 76 per cent of the businesses in rich countries are family-owned.

Some years ago, he adds that the topic of family management was a taboo at Harvard University and no seminars could be organized on the subject at its campus. The situation is now changed. How to run family business is a subject that is taught at the University. Owner management programme is a three- year MBA course, which students are required to attend for three months every year.

Yusuf Shirazi and his young sons, now chief executives of group’s different units, have attended courses and seminars on values of family culture. In seminars held on the topic, wives of participants are also invited to attend week-long deliberations. His group has not been split.

Of course, says Altas chairman, the rule is that ownership and management should be separate. And the educated youth should work in other firms before they join their family business.