Increasing market access and decreasing protectionism in the wake of globalization have put competitiveness at premium. Only competitive nations can enjoy the fruits of globalization. But what is competitiveness?
In the context of international trade, the term competitiveness can be applied to countries, industries, firms and products. A country or a nation is competitive if it can sell its products in international market at low real cost.
An industry or market is competitive if there is intense rivalry among firms to increase or maintain their market share. Gain for one firm is loss for another. A firm or enterprise is competitive if it creates higher value for customers than others offering similar products.
A firm is also competitive if it can successfully face foreign firms without state protection. And a product is competitive if it has an over-riding advantage over the products offered by competitors.
Since it is businesses, not the government, which are the real players on international trade scene, trade competitiveness of a country means the competitiveness of its firms.
Firms compete on the basis of price, quality or both. Some firms position their brands also low price, low quality products. For such firms price is the main competitive weapon, and the target market consists of middle or low-income people.
Other firms position their brands as high quality, expensive products. For such firms product quality is the strategic weapon and the target market comprises high-income customers.
In case of firm achieves efficiency, it may compete on the basis of both high quality and low price- a combination which may be difficult for other firms to match. A word of caution is necessary here.
A company may produce "high quality" goods but fail to sell them, because they do not pass the test of consumer expectations. Therefore, it will be a strategic mistake to define quality in terms of the producer or supplier rather than the customer.
Quality means creating value for the customer. The greater the value the customer attaches to a product, the higher its quality. Customer value is however relative. One customer segment may attach greater value to product design while for another product durability may be more important.
This means an enterprise cannot create customers value or quality without identifying the potential customers and studying their needs and wants, dreams and wishes. The same product cannot be offered to two or more customer segments if they differ in their value concepts.
For each segment, the product has to be adapted. Only those firms can succeed which keep their fingers at buyer's pulse and adapt their offerings accordingly. Thus the fundamental condition for competitiveness is creating the highest possible customer value, which is a fairly difficult task.
It entails studying the various factors -education, income, social class, age, gender and social organization- which underlie the target consumers' behaviour, followed by improving the production, distribution and market communication processes. Even then, the job is only half done.
Since customer value is not static but dynamic, firms have to constantly take feedback from customers. It is in the light of this feedback that product design, performance, image, supply and promotion have to be adjusted.
Price competitiveness, the other element of competitiveness, depends on the cost of doing business, particularly the cost of production. The higher the cost of doing business, the less the price competitiveness.
In order to curtail the cost of production and thus to increase price competitiveness, it is imperative to bring down the real cost of inputs. Here one misconception needs to be dispelled. It is widely believed in developing countries including Pakistan that low wages are the key to competitiveness.
No doubt, low wages may help bring down the cost of production; the advantage will be offset if labour productivity is also low. What really matters is the final productivity of labour.
This is borne out by the example of developed countries, which have achieved competitiveness by increasing labour productivity. Thus instead of keeping wages low, there is need to enhance labour productivity. This will reduce the real cost of labour.
Curtailing the cost of doing business depends on several factors some of which are firm-specific, while others are country- or market-specific. For a firm, the best way to cut the cost of doing business is to introduce a culture of quality and efficiency in the organisation so that scarce resources are optimally used.
Of vital importance in this respect is the total quality management (TQM)) concept. A management philosophy of absolute customer focus, TQM enables businesses to offer products that provide the highest value to customers at low real costs.
This is possible if quality, as perceived by the customer, becomes a way of life in the organisation. In contrast with traditional business philosophies which place emphasis on inspection and subsequent removal of defects, TQM focuses on prevention rather than removal of defects.
Quality is not the responsibility of a particular department, like quality control department, rather it is woven in all organisational processes. The country- or market-specific factors include, a competitive business friendly environment, a quality infrastructure, macro-economic stability, interest rates, political certainty and continuity of policies.
Poor infrastructure, high interest rates or economic or political instability enhance the cost of doing business, which increases the prices of goods, thus making them less competitive.
Having discussed the basic components of product competitiveness, let's see how much competitive Pakistan's exports are. Pakistan's exports are heavily dominated by low technology products, whose share in total export earnings exceeds 85 per cent.
The share of medium technology products in exports is below 10 per cent, while that of high technology products is negligible. This is in contrast with the global scenario, Developing countries by and large are making strides in making high and medium technology products and their share in global exports is fast increasing in these sectors.
The share of high and medium technology products in Chinese exports, for instance, is 30 and 25 per cent respectively. High technology products make up 60 per cent of Malaysian exports, while the share of medium technology products is 20 per cent.
In case of India, high and medium technology goods account for 25-30 per cent of the country's exports. The greater the value addition, the higher the prices exports bring in. Since high technology products embody the maximum value addition, countries relying on such products have high export earnings and rising market share.
The low level of value addition in Pakistan is a major factor behind the slow growth in export earnings. During 1992-1993, the value of Pakistan's exports stood at $6.8 billion, which increased to S11 billion in 200203.
This means during last 10 years Pakistan's exports registered an increase of 61.8 per cent, Compare this with other countries' export growth. In 1992, China's merchandise exports were $85 billion, which grew to $326 billion in 2002, registering an increase of nearly 290 per cent, India's exports were $19 billion in 1992 and rose to $53 billion in 2002, growing by 180 per cent.
In 1999, Pakistan"s share in Asia's merchandise exports was 0.6 per cent and it remained stagnant by the close of 2002, China, on the other hand, doubled its share from 11 to 20 per cent. Even India's share increased from 2.4 to 3 per cent.
In 2002, Pakistan's share in world merchandise exports was 0.14 per cent, whereas in 1980s it was 0.22 per cent. Obviously on account of less value addition we could not keep pace with the surge in global exports.To increase Pakistan's export competitiveness, the following suggestions are made:
1. One of the major causes of slow export growth is that most of the exporters do selling rather than marketing. Instead of first identifying customers and their needs and than offering goods that satisfy them, our exporters by and large try to sell whatever they have produced usually in excess of domestic capacity.
As their products are not fully tuned to customer needs, they are deficient in customer value. Some exporters even cheat customers by selling substandard goods.
2. Understanding and complying with the regulatory environment of importing countries is also very important, Globally, while tariffs are being reduced, other trade barriers are supplanting them.
These include environment standards and those dealing with protection of human, animal and plant lives. It is pertinent to mention that 60 per cent of Pakistan's exports are purchased by the USA and the European Union (EU), which have strict product and packaging standards.
3. Low labour productivity makes it difficult for exports to become competitive. Labour productivity is low, because, human resource development has traditionally been a neglected area in Pakistan, Workers are potentially an organisation's greatest asset and no organisation can compete successfully if its most valuable asset remains under-utilised. This calls for making greater investments in capacity building of the work-force.
4. Like HRD, industrial research has been a low priority area in Pakistan. Because education is not market-based, whatever scientific research is done in academic institutions has little relevance to industry, The result is that there is little innovation or even product up gradation coming through.
5. A competitive export regime exists only in a competitive economy. Business culture in Pakistan has traditionally been characterised by protectionism, which hindered the growth of competitive firms.
However, during last half decade, the government has liberalised the economy. One important step in this respect is tariff reduction. At present, maximum tariffs in Pakistan are only 25 per cent, while average tariff rate is about 15 per cent.
6. The cost of doing business in Pakistan has remained high due to such factors as poor infrastructure, high interest rates, macroeconomic instability and political uncertainty.
To cut the cost of doing business, the government has cut interest rates and presently they are all time low. However, there is also the need for improving infrastructure and attaining macroeconomic stability and political certainty.
7. In international markets, both products and the exporting country's image are sold. An otherwise competitive product may not find a large number of buyers simply because of a poor image of the exporting country.
This holds true in case of Pakistan, whose international image is one of extremism, intolerance and lack of transparency in business dealings, Image building is a matter of both perception and reality; therefore, the need is to improve upon both these aspects.
On the one hand, we must curb extremism, show greater respect for human rights and become more transparent in business dealings, so that the ground reality gets better.
On the other hand, the mere negative perception about Pakistan should also be corrected. The fact is that things in Pakistan are not as bad as they are perceived to be.