the-south-asian.com August 2004
Culture & History
Lehngas - a limited collection
Heaven and Hell
The South Asian Business Empire
Case Study- Pakistan
"Management Practices and Business Development in Pakistan 1947-1988"
Published 1997 by Avebury, Ashgate Publishing Ltd., USA,
Reviewed by Salman Minhas
Dr. Naveed Hasan is a graduate of Leeds University. She set up the Government College University Business Management Department recently in Lahore.
This is a land mark book covering the relationship of Pakistan’s State-injected external investment/funding, modern information systems & quality circles methodologies / approach to the Business Management Practices and the subsequent long-term growth of four major Business Groups in Pakistan’s private sector, namely the Wazir Ali, The Crescent, the Ghulam Faruque, and the Dawood Groups. The author Naveed Hasan undertook this pioneering work as part of the Doctoral Thesis at Leeds University, U.K.
The Chapter 1 – Introduction [containing sources of data, Systems Approach/ Analysis methodology] is an overview of the migrating Muslims in 1947, who were "weak educationally and inexperienced in commerce" and "the ownership of land was the paramount status symbol ". High growth rates were the result of heavy Government protection and not international competition. Industrialization policy [with no long-term vision] did not create any institution building or long-term R & D or Employee Training/ Education. Companies that did not have a long-term business strategy simply withered away slowly once state funding /largesse was stopped.
The book contains a chapter  on Korea’s economy as a reference benchmark as the two countries started off at the same time.
Chapter 3 – The Industrial Policy and business evolution – starts by showing the weak economic infrastructure of Pakistan in 1947. There were only about nine textile factories, an electrical furnace, and a small business elite comprising the Dawoodi Bohras [Bombay] Ismailis, Memons from Kathiwar, the Chinioti [Sargodha] leather traders, and Wazir Ali [Bombay-Bhopal]. They were the sum total of positive business assets. Subsequent state funding was via PIDC [Pakistan Industrial Investment Corporation]. The fairly large irrigation network is missed out as an asset.
Chapter 4 covers the Wazir Ali Group [Vegetable Oil, Treet Blades, Packages, Ali Automobiles, Milkpak, Tetrapak] companies in detail and the classic feudal family-run [Seth /Chaudry] business approach and its subsequent failure in today’s world.
Chapter 5 on the Crescent Group is an object lesson to South Asian businessmen & students on the wisdom and lessons to be learnt on how to successfully develop and grow [Crescent Textiles, Sugar Mills, Distillery, Shipping, Spinning, Jute, Paper, Apparel, Steel, Engineering, Ginning, Chemicals, and Banking] a business using the Systems Analysis and Quality Circles management approach.
Chapter 6 is on the "Ghulam Faruque" group’s business ventures [Ghulam Faruque started his career as transport adviser to Tatas, then was General Manager East India Railways, Chairman PIDC – Sarhad Bank, Greaves Cotton-Electrical Transmission Equipment, Cherat Cement, Maersk Shipping Lines joint venture].
The finally Chapter 7 is on the Dawood Group growth [the Dawood’s started early in 1930s with trading in spices/foodstuffs later cotton trading, "Descon" [recently bought out by a Saudi Group] industrial plants engineering & computer control, 1946 cotton ginning factory, vegetable oil mill Calcutta, Madras, Bombay, Cycles, Yamaha bikes, Karnaphuli Rayon & Chemicals, Dawood Herculees –Fertilizer, Shipping, Soap, Baluchistan Engineering, etc]
Warning to Pakistan Business Houses – Corporate Alzheimer:
This book’s central thesis is that in the long run [Ferdinand Braudel’s "le long duree"] it is the critical success factors below that have enabled these businesses' growth over the last 50 years:
1. A holistic systems approach [aka business process re-engineering
2. Continuous adaptation to external [capital?] discontinuous/dynamic market forces [as opposed to businesses whose main focus is on assumptions of continuity of operations] that allow open decision-making processes, change conventional [Pakistan’s feudal/military/bureaucratic] notions/models of control
3. Without the above 2 factors, their performance is condemned to the entropic slide into the black holes of corporate Alzheimer/ mediocrity or extinction [witness the industrial mutation of the Industrialist Saigols families breakup into real-estate developers, the Wazir Ali / Babar Ali heavy industry tigers into retail consumer goods cats].
In Pakistan, the successful industrial groups such as Crescent Group, Ghulam Faruque, and Dawoods overcome cultural "lock-in" by transforming [via Systems approaches and Quality Control circles- Crescent being one of the few companies to practice this] rather than incrementally improving their companies. In order to continue their success, these companies create new businesses and sell off or close down businesses or divisions whose growth is slowing. They also abandon outdated, ingrown structures and rules and adopt new decision-making processes, control systems, and mental models. Corporations must learn to be as dynamic and responsive as the market itself if they are to sustain superior returns and thrive over the long term.
Historical & Business Cycles:
This is an excellent book on Pakistan’s industrial growth. The reasons and arguments put forth are very compelling . However questions need to be raised in order to find the answers that beset industrial groups' failures globally. The demise of a 300 year old Bank ING Barings in 1998 by the derivative transactions of the rogue trader Nick Leeson; the meltdown of LongTerm Capital Management [LTCM] headed by derivatives Professors Black & Scholes . The subsequent bailout of LTCM by the FEDS . The recent spectacular business bankruptcies /failures in Corporate America [ Enron, TYCO, WorldComm-MCI, Credit-Suisse First Boston – Mr. Quatronne, etc , Europe [Paramlat–dairy, Vivendi-media ] .
The questions that arise in these situations are :
1. Were systems approaches not followed by such corporate groups? The notion that LTCM, MCI-Worldcomm , Tyco, Enron , Paramlat , ING Barings , Vivendi systems not working that even their auditors – Arthur Andersen – were unable to discover such huge frauds ?
2. If system approaches were in place then what led these businesses to collapse spectacularly ?
3. Does this mean that systems approaches are an insufficient condition for success in business?
4. How is it that the small entrepreneurs of Sialkot, Gujranwala, Faisablabd have been able to grow and survive with little financial help from the Governmental Finance Institutions and such modern systems approaches ?
In closing this
book review, Peter Drucker in the famous interview In Wired Issue 4.08 | Aug
1996 , "The Relentless Contrarian" needs to be read again. He has
argued successfully about the relatively short length / duration of
Super-Regional Empire cycles [ Roman, Colonial --British, French,
German, Dutch, etc and the recent Soviet -USSR-
Russia as a 100-300 year cycle] and the Business /Industry empires [ 10- 30
"………………The first international industry…………. was banking, beginning in the 15th century. The Medici ………… Fuggers in Germany ………… Genoese, ………Dutch …………for 300 years you have the world's first multinational companies. ………………….yet, while you have those enormous individual fortunes, the industry itself, the banking industry, the first multinational industry in the world, never made a penny. ………………………………….., the first information-based industry in the world, did all right. Some lasted one generation, two generations. Then they miscalculated, misspeculated, and ended bankrupt. ………………………….The Medici went bankrupt in the 1490s. The Genoese in general went bankrupt. Barcelona went bankrupt. The Fuggers were much brighter. The second generation liquidated the bank and bought enough real estate in Germany to become princes. Individuals made enormous fortunes. But the industry never made a penny.
……………….the .Soviet Union died in its sleep of old age. But that never had happened before - and I'm not sure it will ever happen again. …………………………..All earlier empires and powers, no matter how arthritic and senile, only succumbed to bloody wars - international or civil. It took the First World War to bring about the collapse of the Hapsburg and Ottoman empires. It took the Second World War to bring about the demise of those unbelievably fragile constructs - the 19th-century colonial empires of the European powers: Britain, France, and The Netherlands. It took the barbarian invasions and a military collapse to bring about the dissolution of a moribund Roman Empire. And here was the Soviet Union, its military might totally undiminished, that simply collapsed.
Drucker then goes on to make an important point –namely that of civil society and the recent trend in getting business involvement into civil society works/institutions.
Unless there's first a functioning civil society, the market can produce economic results for a very short time - maybe three to five years. For anything beyond those five years, a functioning civil society - based on community organizations like churches, independent universities, or peasant coops - is needed for the market to function in its economic role, let alone its social role.
Where those traditions exist - the best example is the Czech Republic with its old tradition of a strong and healthy community - the market produces the needed economic results. Where those traditions do not exist - and they do not exist in most of the old Soviet Union, in most of China, in most of India, let alone in most of tropical Africa - the market by itself does not produce democracy and does not even produce a healthy and growing economy.
Fortunately there are enough success stories to serve as examples. But it will be a tough 20 years or so to convert the Failure of Communism into the Triumph of Democracy.
Let us hope that in Pakistan these above lessons are forcefully and rapidly absorbed into the social and industrial fabric by our social , political and economic strategists and policy makers .This book is a definite 'must study' for all undergraduate students as a first year basic Pakistan studies course and all south Asian business /economic students, teachers, policy makers and general readers.
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