SMALL BUSINESS MANAGEMENT IN PAKISTAN

Executive Summary This paper analyses the importance of management in small enterprises in Pakistan. We specifically focused on a tendering business Progressive Enterprisers situated in P.E.C.H.S, Karachi and its subsidiary Rising Earth to exemplify our findings with validity. Our chief concentration was on the tendering company which takes up the projects to install engineering equipment and infrastructures (like wind turbine that it recently fixed near highway for the government). We had the privilege to interview Mr. Nisarul Haque, CEO of Rising Earth and Technical Advisor for Progressive Enterprisers. In his discourse he elucidated us on the running of business both at normal the pace and in sporadic situations. He explained us the processes and operations in tendering in detail. He was quite expressive about the significance of all four management functions within his business. Moreover he even told how external factors challenge the trade and are catered to sustain stability growth. As a final point, he also discussed two of his projects with different outcomes and what experience and insight he and his team gained from them. All in all, it was a very enriching experience for us as management students. We had the opportunity not only to gain knowledge about administration of small/medium business set-ups but also were enlightened with the views of Mr. Haque as an active businessperson on countrys economy, current political situation and management.

Management is required at even a smallest business unit situated at the corner of a city. Whether its a sole trader business or an extended corporation, the crucial part is to manage the resources in an effective and efficient manner. We have examined a sole trader business run in Karachi, known by the name of Progressive Enterprises, for our research. The business aims to sell engineering parts through tendering, to deal with international buyers. We interviewed Mr. Nisar ul Haque, the founder of the business, who helped us gain insight of his work. Along our research paper, we have highlighted the prominent factors affecting the business, either internally or externally. We talk about the mechanics of managing a sole trader business in Pakistan, while improving its performance in correspondence with the political and economic downturn undergoing the Pakistani environment. Further, we have discussed the outcomes of some of the projects the business person has carried out, that have come out either as a success or a failure.

Managing the Functions

Mode of Payment and Recovery problems The entire business functions on credit so the mode of payment is cheques which are receivable at a later date because. The company buys engineering equipment from foreign companies and it places the order for delivery when it receives a tender from a local firm. Once the company receives the engineering equipment it pays the foreign firm through cheque and supplies the equipment on credit to the local firm. A risk of recovery arises due to these credit sales. This is because the vendor (the company in this case) has to send its people repeatedly to the firms in order to get the cheques that are due. This gets even more problematic in times of crisis when the firms to which the company has supplied the equipments are unable to pay the amount they owe and they try to avoid the recovery staff by changing their contact numbers or addresses and if recovery is not possible the company has to bear huge losses which shows that there is always a risk associated in a tendering business. Late Delivery Problems at the Vendors End When the vendor/ company has placed an order to the foreign firm it takes almost a month for the equipments to arrive because they come by ship. At times the consignment gets delayed and the vendor/company does not receive the equipments on time hence it is not able to supply those equipments to the local company that from which it has received the tender. This causes problems for the vendor because it has made a commitment to the firm which it is unable to fulfill. However, the vendor is not at fault because the consignment has been delayed owing to unexpected events but in the end the vendor is one that earns a bad name. Insurance The company/vendor is responsible for the installation of equipments and in case of any damage caused to the equipments as result of a natural calamity or any unexpected event the company has to see to it 3

that the damaged equipment is either repaired or replaced and the company has to pay from its own accounts if it has not got those equipments insured. However, the company most often takes a risk and does not get the equipments that it supplies insured. This is because when different firms compete for the tender most of the other firms quote a low price because they have not taken into account the cost of insurance which causes the company that has included the cost of insurance to lose the tender. Due to this, the company lets go of the insurance and takes a risk in order to avoid reducing its marginal profit. Hence, the company does not have any viable contingency plans because in Pakistan small/medium sized firms cannot afford them. Employees The company has a small workforce because it is a tendering business which is associated with the supply and installation of engineering equipments. Other than this, the company has another small branch which supplies car batteries and provides alternative energy solutions. Hence, a small number of employees are required for the business to function and they mainly look after the supplies of the company. Since the workforce is small there is no need to hire a manager and the owner controls it on his own. He gets to interact with all his employees almost every day which is why he is also able to keep a good check on them. Moreover, the owner also keeps check of the companys accounts himself in order to avoid any fraud because once he has had such an experience where his accountant had tried to tamper with the accounts. In order to motivate the employees the owner usually opts for salary increments or fringe benefits because he believes that most people get motivated by them. This is because he believes that living in Pakistan the biggest need of the people is money because the necessities of life have become so expensive that everyone wants to earn more for a better living. Other than this, the employees who are part of his business have simple jobs that are not very demanding so there is not much that can be done to alter the nature of their work therefore financial motivators prove to be the best. Also, other nonfinancial motivators cannot be used because the company cannot afford them or probably it does not even need them in the first. Importance of Accounting and Finance Both Progressive Enterprises and Rising Earth are small businesses therefore they do not need very highly qualified accountants to maintain their books of accounts so only one accountant works for the firm. The owner of the firm has enough knowledge of accounting himself which enables him to keep a check on the accounts. Furthermore, the firm uses accounting software called MYOB (Mind Your Own Business) which makes maintaining the accounts very easy as just a single entry made into the software automatically gets posted in all the respective accounts. Other than this, the accounting and finance of the business is of immense importance to the firm at times of budgeting. Once, the financial statements have been forecasted the budget decided and financial decisions regarding the business such as whether the firm should apply for the tender or not are made in accordance with it. Auditing is also carried out. However, it is not required by single owner

businesses to get the auditing done but sometimes banks and dealers demand to see audited financial statements before they sanction a loan or sign a deal respectively.

External Factors Affecting the Business

Fluctuating Government Policies Mr. Nisarul Haque was nostalgic about the period of Musharrafs government, when the political conditions were stable and the business environment was conducive to growth. A decade-long regime offered steadiness in the policies and businesses all over the country had opportunities to thrive and expand. In contrast to that, he says that in todays scenario with so much instability in the political as well as the corporate structures with continuous fluctuations in policies and the schemes formulated by each political party , small and medium sized commercial set-ups have to work for their sustenance and more importantly for survival. He calls this a jerky situation. Government laws and codifications Like all other tendering businesses, Progressive Enterprisers too has to be watchful of the annual budget. It has to forecast tax rates so to quote the prices accordingly. Moreover it has to check on the foreign exchange open market rate every time it makes a deal with international customers. Oftentimes it happens that the deal was finalized at a different dollar rate which eventually changed when the goods were actually imported. This makes actual profit differ from the estimated one. The other external factor to be taken into consideration in a tendering business is the custom duties. The tariff that the government imposes on the imported goods is eventually a part of the cost incurred by the company. However, harmonization of regulations and the consumer protection laws often make the transactions easier. Trade Agreements The business agreement of importation of the goods is primarily on Cost and Freight (CFR) basis defined as A trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier. Under CFR, the seller does not have to procure marine insurance against the risk of loss or damage to the goods during transit (Investopedia). This makes the company liable of the cost of insurance and freight in case of loss of goods. The contract also specifies time, place of delivery and mode of payment. Political Conditions of the Country The unstable and insecure political conditions of the country in general and Karachi in particular affect almost every business, giant or small, says Mr. Nisar. But the situation becomes more adverse for the 5

small business set-ups and precisely for the company it increases the risk factor to a great extent since it does not have a viable contingency plan (Practically, most small businesses in Pakistan cannot afford a sound emergency plan). In addition to that, as aforementioned Progressive Enterprisers does not usually insure its goods this adds up to the risk even more. Then there is a frequent outcry of strikes in the city, and that is when they have to halt the activities, an action not favorable for the business that deals mostly with foreign sellers.

Projects
Shops Exclusively for Car Batteries- An Experiment Mr. Nisar was candid enough to discuss with us his success story as well as a project which did not meet up his expectations. Speaking about the latter he told us that he experimented by opening five sophisticated shops in different areas of the city to sell car batteries, mainly the brands Excite and AGS. The shops were also interlinked with each other, so for instance you buy a battery from the shop in DHA you can also avail the after-sale service say from the in North Nazimabad. However, this idea did not work out the way it was expected because the people are still inclined to buying batteries in the conventional way i.e. from their mechanics garages. Eventually, four of the shops were shut down. Rightful Pioneers- A Success Story The other project that he takes pride in (which is fairly his right) is of installation of a windmill and a wind turbine. As in his own words he and his company is pioneer of such a venture which was of cost Rs. 15 million. The technologies were fitted at the highway for the government of Pakistan. It basically is for the governments scheme to provide the farmers with cheap electricity through the turbine, whereas the windmill shall run nearly any device directly through mechanical power. The equipment was imported from China and companys engineers have to learn the techniques involved in the fixation of the devices. Mr. Nisar also shared with us an incident that occurred during the process of installation; the device that tells the wind direction was not functioning properly, so after interaction with the Chinese manufacturers in was finally replaced with another one, which too was sent by the same company in China.

Limitations
Searching for a small firm was in itself very difficult because larger companies are widely recognized whereas small firms are quite low profile. Getting an appointment that suited our schedule was another issue that had to be sorted out. We wanted to interview people from other small firms in the same sector but we were not able to get appointments to perform the interview. We did not find articles on local tendering business therefore there was no literature that we could refer to.