Sialkot Entrepreneurial Spirit

CMER Working Paper Series

CENTRE FOR MANAGEMENT AND ECONOMIC RESEARCH

Lahore University of Management Sciences Opp. Sector ‘U’, DHA, Lahore Cantt. 54792, Lahore, Pakistan

Tel.: 92-42-5722670-79, x4222, 4201 Fax: 92-42-5722591 Website: www.lums.edu.pk/cmer

Working Paper No. 96-10

SIALKOT'S ENTERPRENEURIAL SPIRIT

By

Dr. Jawaid A. Ghani

SEPTEMBER, 1996

SIALKOT'S ENTREPRENEURIAL SPIRIT Page I of 19

SIALKOT'S ENTREPRENEURIAL SPIRIT

TABLE OF CONTENTS

ABSTRACT ............................................................................................................................................ 2

1. INTRODUCTI 0 N..............................................................................................................................3

2. THE SPIRIT 0F SIALKOT ................................................................................................................4

3. THE SUR GI CAL GOODS IND US TRY .........................................................................................8

4. THE SPORTS GOODS INDUSTRY .................................................................... ............... 10

5. RESPONDING TO CHALLENGES ................................................................................................ 11

6. CONCLUSI0NS............. .............................................. ... ................................................................................. 14

LIST OF TABLES AND BOXED INSERTS

TABLE 1: SIALKOT PER CAPITA MANUFACTURING AND EXPORTS............................................................................................. 4

TABLE 2: EMPLOYMENT BY SIZE OF FIRM............................................................................................................................................ 5

TABLE 3: SIALKOT EXPORTS (IN Rs. MILLIONS) .................................................................................................................................. 7

Box 1: SUDDLE GROUP OF COMPANIES, ....................................................................................................... 6

Box 2: ONE-STOP SHOP FOR RIDING ENTHUSIASTS .......................................................................................10

Box 3: PROFESSIONAL MANAGEMENT AT LEATHER FIELD.......................................................................... 12

SIALKOT'S ENTREPRENEURIAL SPIRIT Page 2 of 19

SIALKOT'S ENTREPRENEURIAL SPIRIT

ABSTRACT

Sialkot represents a class of craftsmen-turned-entrepreneurs who emerged after partition. With the highest per capita exports in the country, the city thrives on a dense network of subcontracting relationships and a fierce entrepreneurial spirit. With over fifty years of success behind it, the city is now bracing to take on the threats of non-tariff barriers to trade by establishing joint ventures and professionalizing its operations. Having survived despite, rather than due to government policy, it now holds many lessons for the rest of the economy.


1. INTRODUCTION

Sialkot, Pakistan's export capital represents an economy and a breed of entrepreneurs quite different from

that nurtured by the state apparatus over the years. Though Sialkot's roads and other infrastructure are

primitive and choked, yet the culture of enterprise sported by this city and its contribution to the national

economy is unmatched by another city in the country.

Located 130 km northwest of the provincial capital, Lahore, and with a population of about 600 thousand,

Sialkot is in many ways a unique city in Pakistan. A strong export and entrepreneurial culture combined

with widespread availability of subcontracting arrangements has resulted in low barriers to entry and a

proliferation of small and medium scale enterprises. These enterprises are financed mostly through family

savings 1. They compete by remaining lean, with low and shared overheads. They thrive through a network

of subcontracting relations which allows each company to specialize in only part of the overall value chain.

These are enterprises deeply embedded in the socio-economic context in which they exist. The "trickle

down" effects in terms of infom1ation, skil1s, and wealth are many; in sharp contrast to the relatively insular

circuits of power and wealth promoted by the vertically-integrated organizations which have developed

elsewhere in the country.

The craftsmen entrepreneurs of Sialkot with their middle-class backgrounds represent an industrial

bourgeoisie2 which emerged to fill the vacuum created by the departure of the primarily non-Muslim trading

and industrial class to India3. These craftsmen entrepreneurs are quite distinct from another small but

powerful industrial elite class which also emerged at this time. This latter class consisting mostly of traders-

turned-industrialists who received strong support from government policies and mostly invested in capital-

intensive and highly protected large-scale manufacturing industries. A considerable concentration of wealth

soon accumulated with sixty industrial groups, the robber barons as Papanek (1967) called them, controlling

two thirds of all industrial assets and eighty percent of bank assets by 19594. The seventies saw the

nationalization of the financial sector and much large scale industry. The combination of robber barons and

bloated public sector organizations resulted in large pockets of inefficiency in much of the economy.5


Sialkot epitomizes the industrial bourgeoisie of Pakistan, a class which has created "pockets of

efficiency" in the economy. This chapter seeks to elaborate on the nature of industrial activity

which characterizes this city, the challenges it faces, and its future. In the process we hope to draw lessons

which others in Pakistan and elsewhere can learn from the experiences of this city.

2. THE SPIRIT OF SIALKOT

Sialkot contrasts sharply with the rest of Pakistan in terms of manufacturing and export activity. The

number of individuals involved in manufacturing (proportionate to population size) is over

four times higher, number of manufacturing establishments is six times higher, and exports eighteen times

higher compared to the rest of the country. Equally contrasting is the profile of

manufacturing establishments. The proportion of manufacturing workers employed in large firms nation-

wide is 27 percent, compared to less than one percent in Sialkot. The proportion working

in small enterprises is over 90 percent in Sialkot versus about 60 percent in the rest of the country. Tables I

and 2 provide further details on these figures.

Table 1: Sialkot per capita manufacturing and exports

Pakistan Pakistan Sialkot city (urban) Population (1995) 135 m 39m 0.606 m No. ofl71fg establishments (1988) 290,073 176,749 8,415 No. of employees ill m(g est. (1988) 1,622,687 1,049,406 34,115 Exports6 (1995-96) ill Rs. 294,741 m 177,000 m 24,445 m Mfg establishments per 1000 population 2.2 4.5 13.9 Mfg employment per 1000 population 12.0 26.9 56.3 Per capita exports in Rs. 2,183 4,540 40,338

Source: Census of Establishments (1988) data files; Sialkot Dry Port Customs; Economic Survey (GOP)


Table 2: Employment by size of firm

% of total manufacturing employment

Firm Size Pakistan Sialkot city (# of employees)

1-10 42.1 65.2 11-50 18.4 26.3

51-250 12.3 7.6 Over 250 27.1 0.9

100% 100%

Source: Calculated from Census of Establishments (1988) data files Note that figures for Sialkot district were quite similar to that for Sialkot city.

The vast majority of firms in this city are family owned and managed. There are few professionals; firms are

staffed by craftsmen who learned their trade by serving as apprentices to other craftsmen. Sialkot has a high

degree of exposure to the international economy with entrepreneurs participating in numerous trade fairs

abroad and hosting visits of foreign buyers. Even the smallest of exporters is likely to boast of a fax

machine and a mobile phone to maintain contact with the outside world. This exposure to the

international environment is gradually leading to the realization that firms will have to become more

professional in order to compete favourably in the years to come. Issues like ISO 9000 certification have led

to a realization that local industry has to spend greater effort on worker training and quality assurance than

what has been done historically.

Firms typically prefer to subcontract rather than to make the investments in equipment and manpower,

which would be necessary for manufacturing in-house. Even among the workers working within the firm,

many are piece-rate craftsmen rather than salaried employees. Firms subcontract anywhere from 20% to

80% of their manufacturing to vendors. For instance, soccer ball exporters often subcontract up to 90% of

their value-added to cottage industries with only material cutting, final testing and packaging being

perfoD11ed in-house.

The preference for subcontracting and piece-rate workers rather than on vertical integration and

the development of a loyal workforce is a natural outcome of the fierce entrepreneurial spirit which

is characteristic of the citizens of this city. When asked about his ambitions, a young craftsman stated that

he "would like to own his own workshop and become an exporter or would like to get exported,

i.e., he would like to migrate". This entrepreneurial spirit results in low


company loyalty; not many want to remain as employees in someone else's organization. As soon as a

person has saved enough to buy the most rudimentary equipment he wants to get started in exports.

Widespread subcontracting, strong socio-economic networks of support, and the entrepreneurial

spirit in the city result every year in the birth of hundred of companies such as the Suddle Group

described in the boxed insert.

Box 1: Suddle Group of Companies

Sialkot's industries are in many ways typical of industrial clusters in other parts of the world 7. Clusters are

defined as geographical concentrations of related industries. Growth results from agglomeration effects as

specialized skills and services are developed within and attracted from without the cluster. The presence of

numerous final firms and of multiple sources for ancillary services and inputs results in fierce

competition and local rivalries. It also results in a pool of specialized manpower, in rapid diffusion

of infom1ation, and in low barriers to entry due to easy access to the resources within the cluster. As

Marshall put it "The mysteries of the trade become no mystery; but are as it were in the air….if one man

starts a new idea, it is taken up by others


and combined with suggestions of their own; and thus it becomes the source of further new ideas" 8.

Sialkot is very much a city at work, energetic and chaotic. Weiss (1991, p. 48) describes her impressions as:

"The sights and smells of Sialkot arc of a different order than Lahore's. Horse drawn tongas are in plentiful supply as they ease down thin alleyways purportedly referred to as streets. Sialkot prides itself as the birthplace of Allama Iqhal. The city's pragmatism becomes evident when viewing its industrial area: workshop upon workshop of boys and men, labouring together, making halls, gloves, bats, all sorts of sporting goods. This is a city at work, which moves about briskly in the morning, and closes up early in the evening. "

Three industries dominate Sialkot. Of the Rs 24.4 billion exported from the city in 1996-97, 36 percent came

from leather goods, 30 percent from sports goods, and 18 percent from surgical instruments (see Table 3).

While clusters of leather good manufacturers and exporters exist in several other parts of the

country as we1l9, the surgical and sports goods clusters are uniquely located in Sialkot. In 1988

about 93 percent of the 2565 surgical goods manufacturers in the country were located in the city of

Sialkot. Similarly over 98 percent of the 3559 sports goods manufacturers in the country are located in

Sialkot and its neighbouring localities10. In the next sections we elaborate on the dynamics of the surgical

and sports goods clusters and the challenges faced by each.

.

Table 3: Sialkot exports (in Rs. millions)

YEAR SPORTS SURGICAL LEATHER TOTAL GOODS GOODS GOODS EXPORTS

1991-92 2,276 1,826 1,851 8,695 1992-93 2,475 2,263 3,920 10,205 1993-94 4,329 2,382 4,144 12,837 1994-95 4,718 2,860 5,769 16,984 1995-96 5,860 4,194 7,243 20,428 1996-97 7,261 4,498 8,745 24,455

Source: Sialkot Dry Port Trust


3. THE SURGICAL GOODS INDUSTRY

Sialkot's surgical goods industry is responsible for 75 percent of Pakistan's engineering exports. It

produces over 2000 different instruments, mostly made from imported stainless steel. With a 20

percent share of total world exports, surgical instruments made in Sialkot are used by surgeons,

dentists, and veterinarians throughout the world, and are considered second in quality only to

Germany the global leader in this field-.

As is typical of Sialkot, the industry is characterized by a high degree of specialization. Of the

roughly 3000 firms in this industry in 1994, only about 200 firms both manufactured and exported

surgical goods. Another 600 firms were involved in trading, i.e., these firms exported surgical instruments

but did not own any manufacturing facilities; instead they relied entirely on the vendor industry. Of these

600 only half could be categorized as serious exporters of surgical instruments while the remaining 300

dealt in multiple product items including surgical goods. The third industry segment comprised about 2000

small vendors. Nadvi (1996) describes the host of "stage firms" who supply specialized vendor services for

both the manufacturer and trader segments. These include individual firms specializing in filing and

grinding, in forging and diemaking, in milling and box fitting, in polishing, in electroplating, and in heat

treatment. Providers of ancillary services and inputs include suppliers of steel and machinery; travel agents,

communication couriers, cargo handlers, legal and accounting services, and repair workshops, and

institutional support in the form of financial institutions, trade associations, and various

government funded training and research centers.

As with industrial clusters elsewhere in the developed and developing world, the birth of the Sialkot

surgical industry can partly be explained by what Krugman calls an "historic accident"11. The Punjab

historically had to bear a greater share of the brunt of invasions from Central and West Asia, and as a result

developed an expertise in manufacturing metal-based weapons. The koftgars (blacksmiths) of Sialkot

developed a reputation by producing swords and daggers for the Mughal emperors. In the late nineteenth

century some koftgars repaired surgical instruments for the American Mission Hospital. Encouraged by the

hospital staff, they gradually started manufacturing replicas of the originals, and a new industry was born.

By 1920 Sialkot was exporting to all parts of the subcontinent and as far away as Afghanistan and Egypt,

and was later selected for supplying surgical instruments for allied forces in World War II.


Excerpts from the 1920 Gazetteer of the Sia1kot District provide interesting insights regarding the early

years of the industry:

"Kotli Loharan consists of two large villages of Lohars (ironsmiths) lying about .live miles {() the north-west of Sialkot. All kinds of articles for use and ornament are made, such as shields and arms, betel-nut cutters, knives, boxes, plates, inkstands, and so on. The material used is iron, and gold and silver are used in inlaying. . . . . The Lohars of these villages are now very well off (unlike what was reported by Mr. Kipling in the last Gazetteer), having earned large sums as armourers and shoe-smiths during the War. There are some twenty concerns which turn out manufactured articles of iron and steel, including swords, spearheads, gurkha knives, razors, and stirrups. The workmanship is excellent in most cases. At Sialkot, there are excellent surgical instruments, knives, scissors, etc., turned out by the two factories of Messrs. SS Uberoi & Sons and A.F. Ahmad & Co. A new industry has also sprung up recently of making steel and iron trunks, office trays and cash boxes: this noisy trade has invaded the central part of the town, near the Fort. There are about 500 iron-workers at Sialkot. " (Government of Punjab 1920. pp. 125)

The industry has come a long way during the last seventy years. The Metal Industries Development Centre

(MIDC), initially established in 1942 to act as a supply and inspection agency for allied forces and later

upgraded in 1947 and during the eighties to provide workshop facilities and advisory services to local

industry, pioneered in introducing several new technologies including drop forging hammers, vacuum heat-

treatment, and numerically controlled (CNC) die-making machines. During the nineties several international

joint ventures with European firms were set up.

Together with its many successes the industry has also faced difficult times. Due to local rivalries, price

wars, lack of a professional workforce, and a subsequent short term orientation among businessmen, quality

standards were not maintained during the late eighties by many exporters. As a result, due to the export of

substandard surgical instruments to the United States, in April 1994 the U.S food and Drugs Administration

(FDA) imposed a ban on the import of surgical goods from Pakistan. Only firms conforming to Good

Manufacturing Practices (GMP) issued by the World Health Organization would be allowed exports to the

United States. With over half of Pakistan's surgical goods exports going to the United States, exports did fall

for a while but have been able to rebound since then.


Will the industry continue to thrive, or will it die a natural death just as numerous craft industries were

eventually replaced by mass production techniques in the automobile and other industries at the turn of the

century in Europe and the United States? Before attempting to answer that question we now turn to a

discussion of another industry in this unique city.

4. THE SPORTS GOODS INDUSTRY

1994 is remembered in Sialkot as the year the city was selected for supplying the official ball to

the Football World Cup in the United States. It culminated a year of frenetic activity as Sialkot's

industry turned out over 20 million footballs to cater to the excitement created by the publicity surrounding

the event. Exports of footballs doubled from Rs. 1.6 billion in 1992-93 to Rs. 3.2 billion in 1993-94. In

addition to top brands such as Adidas and Puma, major sports clubs around the world sourced footballs from

Sialkot. The burger chain McDonald's reportedly took a plane load of footballs to be distributed as souvenirs

during the tournament. The excitement remains four years later, since once again the city has been selected

to supply footballs for the next World Cup in 1998.

The 1994 world cup was only one more in a long list of achievements. Recorded history of the industry goes

back to 1895 when the city started becoming famous for its tennis racquets. By1903 cricket bats were being

crafted from imported English willow and gradually exported to different parts of the subcontinent and

beyond. In 1922 one Sayed Sahib was awarded the British Empire Export A ward for supplying footballs to

the British army. Over the years the industry grew to include a variety of wood and leather based sporting

equipment, and diversified into related industries such as sports apparel and riding equipment.

SJALKOT'S EN7'N/_PRENEURIAL SPIRIT Page JJ of J 9

Box 2: One-stop shop for riding enthusiasts

The industry earned over Rs. 7 billion in exports during 1996-97, over half of which came from the sale of

footballs. The industry is primarily cottage-based, employing some 15 to 20 thousand individuals 12 Even a

giant firm such as Saga Sports with half a billion rupees in exports and a thousand employees subcontracts

out much of the stitching work to hundred of small firms. The work is skill and labour-intensive with a

typical football requiring about 1400 individual stitches, and an expert worker turning out about four such

balls in a day.

Will Sialkot still remain competitive as other countries with even lower wages, enter the market? Will

Sialkot be able to overcome increasing non-tariff barriers to trade such as requirements for quality and

environmental certification? Ultimately the continued success of the city will be detem1ined by its ability to

respond to new challenges and opportunities, and it is to this topic that we now turn.

5. RESPONDING TO CHALLENGES

Over the years Sialkot's industries have faced many challenges. These have been met with varying degrees

of success. The advent of new light-weight material for tennis racquets and other sporting equipment quickly

eroded the international competitiveness of Sialkot's wood-based products. However Sialkot's firms

responded by developing new niches in footballs and leather and textile based sporting apparel. The

seventies saw a period of labour unrest and strikes spurred by the then popular socialist slogan of "factories

to the workers". Trust and harmonious relationships so essential to the network of subcontracting

arrangements started breaking down. The city soon recovered and the dream of most young men today is to

start their own workshop or trading company, to spend their energies creating rather than

redistributing wealth.


The ban imposed by the U.S. Federal Drug Administration in 1994 on the import of surgical goods resulted

in a flurry of activity to obtain the necessary quality certification. Joint ventures were formed and efforts

made to tap into alternative markets in Central Asia and the Far East. It also resulted in exporters

switching to other growth industries such leather goods (particularly gloves for sporting events),

where exports have increased five times in the last five years.

A much greater threat looming around the comer is the requirement of ISO quality certification by European

importers before the turn of the century. This will affect all products, not just surgical goods. The

certification requirements are also far more stringent13. Reportedly less than half a dozen firms have so far

received certification. The road to quality certification will indeed require a major change in the way

industry in Sialkot works. The flow of each production batch through the various stages of production will

need to be recorded, tests will need to be performed on materials and components, health and safety

standards and general working conditions will need to be improved upon. Having uniformed workers

working at benches while periodically taking notes on quality levels. is a far cry from the current cottage-

based subcontracting system with craftsmen sitting on the floor with piles of material around.

One response has been vertical integration. The larger football manufacturers have started establishing

stitching centers in nearby villages. Instead of villagers working at home or traveling an hour each way to

the factory in inner Sialkot, they work at these centers, where standards can be more easily enforced and

quality monitored. Medical Devices which specializes in quality surgical instruments, recently obtained ISO

9002 certification after setting up its own fully integrated manufacturing unit with no subcontracting. Only

young educated workers are hired and trained entirely in the firml4. Another response, as described in the

boxed insert on Leather Field is to compete by innovating and professionalizing one's operations.


Box 3: Professional Management at Leather Field

"

Another challenge facing the city is its relative inability to collectively solve some of its own problems15.

Infrastructure facilities arc woefully inadequate. This includes poor air, road and rail transport, and

telecommunications. The drainage is in shambles, there are few recreation facilities, few colleges, and no

universities. Somehow the city's strong entrepreneurial spirit and the dispersed heterogeneous vendor base

seem to get in the way of collaborative business activities16. Ironically these are also the very sources of its

strength. The fierce individualism leads to localized rivalries and price wars, and the lack of collective long

term vision among the

SIALKOT'S ENTRFJJRENEURIAL SPIRIT Page 14 of 19

various industry segments. In addition Sialkot does not belong to either of the two most powerful lobbies in

the country, i.e.. that of feudal agriculturists and that of big business, notably textiles. The lack of strong

secretariats within business associations has also contributed to their lack of effectiveness 17. Thus there is

little representation from Sialkot on key national committees, resulting in the general feeling among Sialkot

business that the city and its industry fail to receive fair treatment at the hands of the central government.

6. CONCLUSIONS

The export-oriented Industrial clusters which emerged in cities such as Sialkot thrived, despite rather than

due to government policies in place for much of the last fifty years. Will these industrial clusters continue to

thrive as non-tariff barriers to trade and regional trading blocs make it increasingly difficult for the small

exporter to compete. Collective efforts, alliances, and public-private partnerships are the new strategic

weapons being forged to fight the trade battles in the twenty-first century: these are missing in the alleys of

Sialkot.

An equally compelling concern is the future of the industrial elite elsewhere in the country. Much of large

scale manufacturing thrived on government largesse, a result of subsidies on credit and other inputs. and

behind high walls of tariff protection. The current wave of deregulation, privatization. and trade

liberalization are ending this comfortable state. The industrial elite may wither away, much as a terminal

patient after life-support systems are removed.

I believe a revamped industrial elite and industrial middle-class can both not only survive but also thrive. In

a world where globalization and regionalism of industrial activity simultaneously exist, the large and the

small complement each other. The large firms provide the deep pockets, the credibility, access to markets

and technology, and bargaining power necessary to compete internationally, while small firms are more

innovative and "lighter on their feet". Regional clusters provide local concentrations of knowledge, of

specialized skills, institutions, and infrastructures, and of spillovers among organizations. Companies such

as Saga Sports and Leather Field in Sialkot, Millat Tractors in Lahore, GFC Fans in Gujrat, and Pak-Suzuki

in Karachi have over the years created regional clusters of hub-spoke relationships wherein the lead


organization provides access to technology and markets for a complex of suppliers surrounding the central hub.18

;

World class regional clusters do not just haphazardly emerge. The extant literature in this area suggests that

such clusters are crafted with the support of local government, through the development of trust which

encourages investments in relationship-specific assets and which mitigates against threats of opportunism.

Current policies strongly discourage cottage industries from growing to small-scale19. They thus often

remain at the periphery in the undocumented economy, surviving by scraping costs and selling counterfeits.

A "radius of trust" which is limited to the extended family. prevents medium-sized companies from growing

further. No firm in Sialkot has yet gone public and few hire professional managers, thus considerably

diminishing the chances or growing into truly world-class companies. There is much which industry and

government can learn from thriving clusters elsewhere, from the metal-based industries in neighbouring

Ludhiana, from the new high tech industries in Singapore's Technology Corridor and Califomia's Silicon

VaHey, from the military-industrial complex in Changwon in South Korea and from Japan's Shinanogowa-

Nagasoka technopolis programme for the development of new materials and technologies. In all of these

local government and institutions, as well as partnerships between large and small firms played a key role in

the development of the industrial district20.

Fifty years ago when industry was at a standstill, two distinct classes emerged in the country. Both thrived,

one with and one without the support of government. Today they both stand at another cross-road. One lacks

capital, the other entrepreneurship; both lack professional management. The future of Pakistan's economy

depends on whether the two can work together in partnership with government, in order to survive

together21.

Acknowledgments

This study was possible because of the many entrepreneurs of Sialkot who shared their stories, their time, and their Friendship so generously with me. 1 owe thanks to Dr Tahir Andrabe and Was!{ Khan who u!/Ilinue 10 be a source of new ideas, to Dr. Noor M. Lard( who provided access to Federal Bureau of Slalistics data tapes, and to an earlier grant Fain the Asia Foundation on which part of work is based.


I According to Abbasi (1994) over 80 percent of small enterprise financing comes from own or extended family savings. Only II percent comes from banks or money-lenders.

2 The term industrial bourgeoisie was first used for this class by Weiss (1991). See Altaf' (1983) for a discussion or this entrepreneurial class as it impacts the nature of industrialization in term of choice of scale and capital intensity. ownership (public vs. private), product (industrial vs. consumer), and policy (import substitution vs. export driven).

3 British rule in the Punjab was dominated by three political themes: political entrenchment, revenue extraction, and military requirements. The resulting elite zamindar class had little interest in the development of modern agriculture. The little commerce and industry that existed was dominated by Hindu banias, Sikhs and Parsis; while Muslims were primarily peasants, artisans, and soldiers. See Ali (1988) and also Papanek (1968) and Altaf (1983). Indeed there W<IS concern as to whether the new state was even viable. The world press referred to Pakistan as "an economic monstrosity" and described it as an economic wreck.

4 By 1970 forty four industrial groups controlled 35 percent of total large-scale industrial assets. See Papanek (1967). Ahmed and Amjad (1984), and Burki and Baxter (1991) for extended debates on the impacts of government policy during the Ayub, the Bhutto, and the Zia years.

5 One symptom of the inefficiency of large scale industries is the Rs. 100 billion in bad loans to this sector which have accumulated over the years. Typically these industries involved 70 debt financing. The 30 percent equity was often substantially recovered through various forms of over-pricing of machinery and land, leaving little incentive to the "nominal" investor for developing a profitable business.

6 Rural exports were calculated assuming that 1 00% of rice and cotton exports, and 50% of other cotton based products, were generated in the rural areas. Exports from Sialkot are taken from the Sambrial Dry Port Customs, through which the vast majority of Sialkot's exports flow. However some of Sialkot's products are exported by traders from Lahore and Karachi who purchase from the city. On the other hand, not all Sialkot exports are truly completely manufactured in the city. About 20 to 30 percent of Sports Goods are made in the villages surrounding the city. Thus there is both an under and an over estimation bias in the reported figures.

7 A nation's competitive industries are generally found clustered together in sector specific agglomerations. Schmitz and Musyck (1994) describe four industrial districts in Europe: Baden- Wurttemberg in Southern Germany, West Jutland in Denmark, in North-East and Central Italy, and in South-West Flanders in Belgium. These regions had the highest GDP growth rates and lowest rates of unemployment in the 1970s and 1980s compared to almost all other regions in their respective countries. For detailed discussions on clusters in developed countries see P011er (1990). An excellent review of clusters in the developing world is contained in Nadvi and Schmitz (1994)

8 Marshall's seminal work on external economies is largely based on his observations on industry localization (what we refer to as clusters). Marsh<Ill (1920>. identified three distinct reasons for localization: presence of a pooled market for workers with specialized skills which benefits both workers and rums, provision of large variety of industry-specific nontraded inputs at lower costs, and technological spillovers due to rapid diffusion of information.

9 While Sialkot's exports of leather and leather goods has been increasing rapidly, it still represents only 34 percent of Pakistan's exports in this product area. The major cluster is in Karachi, where 29 percent of leather tanneries and 43 percent of all leather garment units are located. Lahore is home to Pakistan's footwear cluster with 51 percent of all units in the country. Production of leather gloves however is mostly concentrated in Sialkot where 87 percent of all such units are located. Source: LIDO Directory 1994.

10 3504 of the 3559. i.e., 98.5% of sports goods manufacturers are located in Sialkot district. Of these 2233 (64%) are located in Sialkot city. Thus there appears to be considerable subcontracting of sports goods to

SIALKOT'S ENTERPRENEURIAL SPIRIT Page 17 of 19

smaller manufacturers in villages around the city, In contrast 2257 (93%) of the 2565 surgical manufacturers (in the country) are located within the city of Sialkot. Source: Calculated from Census of Establishment (1988)data files.

II Krugman (1991) argues that "there is a strong arbitrary, accidental component to international specialization", that the location of particular industries such as autos in Detroit and chips in Silicon Valley often reflects the "locking in of transitory advantages", and that the existence of cities and even the unequal development of whole regions "can be driven by cumulative processes that have increasing returns at their roof' (pp, 9, 10). Porter (1990) provides numerous examples of stimuli to initial cluster formation, e.g., hard rock mining equipment developed in Sweden to exploit large (though difficult to mine) Swedish ore deposits (pg. 160).

12 The 1988 Census of Establishments reported a total of 3504 firms employing 12989 individuals (in SIC

392: Sports goods). The Industry Association estimates that total employment in 1996 was between 12 and 15 thousand.

13 According to once respondent, just the consultancy charges for receiving ISO9000 certification are Rs. 3 million.

14 Another response to the ISO challenge includes urging subcontractors to set up plants close by in new

industrial parks in order to ease monitoring and supervision by the parent firm.

15 One notable exception to the otherwise bleak history of collective business action in Sialkot is the Sambrial Dry Port which was established through a contribution of Rs. 10,000 each by 52 of the leading exporters in Sialkot. and which has significantly contributed to improving the logistics of exporting from the city.

16 Fundamental to collective action is the level of trust within an industry or region. See Fukuyama (1995)

for a discussion of trust as social capital and its role in creating economic prosperity.

17 A visitor to the Sialkot Chamber of Conm1erce and Industries is struck by the lack of library facilities, the non-existence of any studies analyzing the needs and plans for further developing the city and its industries, and

even basic data on the composition of industry in the city.

18 One promising area of industrial activity is in the triangle formed by Lahore, Sialkot and Gujrat. This

triangle which falls within a radius of fifty ki10metres, contains half of Pakistan's light engineering industry. In addition to Sialkot. the triangle is home to the Gujrat-Gujranwala fan cluster with over 90 percent of firms in this industry. Wazirabad is known for its cutlery industry, Daska for agricultural implements. Lahore and adjoining Sheikhupura represent the heart of the tractor industry. Other such pockets of industrial activity exist in Karachi, and around Taxilla.

19 The new labour laws introduced in the seventies are considered the most liberal among developing

countries, providing a variety of benefits ranging from social security and training to clean toilets. In practice the Jaws, rather than benefiting labour, simply help line the pockets of petty tax inspectors and add to the costs entrepreneurship. Labour laws and sales and with-holding taxes, do not apply to cottage industry (defined as units employing- less than 10 full-time workers). Thus firms prefer to simply reorganize and subcontract work to their former employees, rather than be reclassified as small-scale. This is similar to what Powell (1990) describes in his description of the "Third Italy" where firms prefer to grow by multiplying rather than through growth in size.

20 Ludhiana in East Punjab is responsible for 20% of world exports of cycle parts, in addition to being a centre for India's sewing machine and hosiery industries. Ten satellite towns have grown around the city.

During the period 1983-89 the Ludhiana Stock Exchange grew from Rs 20 million to Rs 2 billion with over 150 public listed companies. See Gupta (1989). For an account of the rise of the Silicon Valley see Saxenian (1994), for the Japanese technopolis programme see Masser (1990), and for Changwon in South Korea see Markusen and Park (1993).

SIALKOT'S Entrepreneurial SPIRIT Page 18 of 19

21 In a deregulated open economy the chances of survival seem higher for the leaner middle class entrepreneurs then for inefficient large scale manufacturing. The former will draw resources from international alliances as has started to happen. Collaboration between the two domestic groups has also begun: a few traditional large groups in textiles and leather have recently acquired small high-tech firms.

References

Abbasi. M.B., Capital Markets in Pakistan, Karachi: National Development Finance Corporation, I <)()4.

Ahmed. V, and R. Amjad, The Management of” Pakistan’s Economy i947-82, Karachi: Oxford University Press, 1984.

Ali,1.. The Punjab under Imperialism 1885-1947, Princeton: Princeton University Press, 1988.

Altaf, Z., Pakistani Entrepreneurs, London: Croom Helm Ltd., 1983.

Burki, S..1., and C. Baxter, Pakistan Under the Military Eleven Years of Zia-ul-Haq, Westview, 1991.

Fukuyama, F.. Trust: The Social Virtues and the Creation of Prosperity, New York: The Free Press. 1995.

Govell1ment of Pakistan, Census of Establishments, Islamabad: Federal Bureau of Statistics, 1988.

Government of Punjab, Punjab District Gazetteers: Sialkot District, Vol. XXIII-A, 1920, Reprinted by Sang-e-Meel Publications, Lahore, 1990.

Government of Punjab, Punjab Development Statistics 1995, Bureau of Statistics, Lahore.

Gupta, S. D., "Ludhiana: The Spirit of Success", India Today, October 31, 1989, pp. 62-65.

Krugman, P., Geography and Trade, MIT Press, 1991.

LIDO Directory 1994, Leather Industry Development Organization, Ministry of Industries and Production, Government of Pakistan, 1994.

Markusen, A., and S.O. Park, "The State as Industrial Locator and District Builder: The Case of Changwon, South Korea", Economic Geography, 69(2), April 1993, pp. 157-181. Marshall, A., Principles of Economics, London: Macmillan, 1920. Masser, I., "Technology and Regional Development Policy: A Review of Japan's Technopolis Programme", Regional Studies, 24(1),1990, pp. 41-53.


Nadvi, K" "Small Firm Industrial<11 Districts in Pakistan", Unpublished dissertation, University of Sussex, 19%.

Nadvi, K., and Ii, Schmitz, "Industrial Clusters in LDCs: review of experiences and research agenda", IDS Discussion Paper, No. 339, Brighton: University of Sussex, 1994.

Papanek, G.F., Pakistan's Development: Social Goals and Private Incentives, Cambridge, Mass.: Harvard University Press, 1967.

Porter, M,E" The Competitive Advantage of Nations, New York: Free Press, 1990.

Powel1, W.W., "Neither Market nor Hierarchy: Network Forms of Organization", in B.M. Staw and LL Cummings (eds.) Research in Organizational Behavior, Vol. 12, 1990, pp. 295-336.

Saxenian, A, Regional Advantage: Cultural and Competition in Silicon Valley and Route 128, Cambridge, Mass.: Harvard University Press, 1994.

Schmitz, B., and B. Musyck, "Industrial Districts in Europe: Policy Lessons for Developing Countries?", World Development, 22( 6). 1994, pp. 889-910.

Weiss, AM., Culture, Class, and Development in Pakistan: The Emergence of an Industrial Bourgeoisie in Punjab, Lahore: Vanguard Books, 1991.

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Sialkot Entrepreneurial Spirit