How to run Successful Small Business in Pakistan: MBA Report on Entrepreneurship
How to run Successful Small Business in Pakistan: MBA Report on Entrepreneurship
This report aims to study business profile an a small local entrepreneur, to help understand the different aspects of entrepreneurship in Pakistan and how to be successful.
ENTREPRENEUR: Mr. Syed Pervez Mehdi
Mr. Syed Pervez Mehdi is the Entrepreneur with vision and sight whom we have selected for our report. He is the owner and creator of Arco hosiery and garment manufacturing company. He set up the factory in the year 1988. However, we must note that the idea did not come to him out of the blue. He had been observing his father-in-law running a similar business. His association with this concern was to enlighten himself about the dynamics and technicalities of being in such a business. About six years of his life were spent in learning about the business and to appreciate the environment in which he intended to operate.
Mr Mehdi spent the initial years of the company in achieving the CMT system. This system is known as the cut-to-pack system. Under this system an exporter could reach the company and ask them to prepare a particular order for them. The fulfillment of the order allowed them a certain level of commission. The amount of commission was only a nominal amount above the cost price of the total manufacturing. This low profit was acceptable because of two reasons.
The existing entrepreneur did not have sufficient goodwill in the market to get an export order on his own. Also as most customers are supposed to be reference customers the pull factor in his case was not strong enough.
The owner in our case was immune from all sorts of risks. The market was assured the payment had to reach them in any case and also if the final customer refused the good their share was virtually assured.
These two reasons were compelling enough for the owner/manager to continue with this practice. The absence of risk and the security of return warranted smooth operations for many years. However, as they say that if you have to move to some destination, you have to depart from one place of relative stability. Mr.Mehdi had come to such a realisation and he decided that the time had come for him to depart from the existing method and go about his business independently. His innate ability to face challenges and to take risks drove him to aim for higher aspiration.
His eldest son Mr. Syed Bilal Mehdi had influenced this decision of his to a great extent. As a young man with vitality and vigor, he urged his father to seek export orders on his own instead of acting as agents for several exporters. This allowed the company to try the new system YMT. YMT is an abbreviation of yarn-to-pack. This system means that the manufacturer takes full responsibility of the production process. The risk and the costs are all borne by the manufacturer and the returns are not guaranteed.
Fortunately, the company has not received any problems since they started on this system in 1997. The company is growing and expanding. Profitability is following as a periphery. The change in the business operations is that now Mr.Bilal Mehdi is gradually taking more and more interest in his father’s business.. According to him he handles 45% of the affairs and his father the rest 55% of the affairs of the business.
The manufacturing facility is located near Sohrab Goth. In local parlance it is called as the ‘power house’. The premises are located on the second floor of the building and there are about six rooms devoted to the production process. The owner has one functional office to entertain clients and other such guests. The location was rented because of its proximity to yarn manufacturing units and also its nearness to their primary customer, King’s Apparel. These two factors prompted them to see this premises as their ideal location.
However, a change has occurred in the thinking process of the owner/manager. He is now no longer willing to operate in rented premises. He is desirous of a location, which is totally owned by him. Hence, by June this year he plans to shift to another location, which is in Nazimabad. This location does not have the advantages of the previous location. However, the entrepreneur believes that this is worth the advantages of owning a premises than having a rented one.
Mr. Mehdi’s far sightedness and open thinking have turned otherwise an ordinary concern into a more productive and profitable venture. According to our analysis the main reasons for the success of business are as follows:
The culture in the company is totally informal. The entrepreneur is addressed as “Uncle”. This shows two things:
The owner is respected and the title is one of reverence.
The family atmosphere has been cultivated.
Deadline Meeting Ability
In an of the cuff question we inquired as to why does a customer come to them or in other words what is it that they can offer and others cannot. His simple answer was that his company could meet deadlines. In the active season work scheduled extend till 0200 hours following day. The staff put in their dedication in it and all of their orders are fulfilled on time and in all cases to the satisfaction of the customers.
The customers are highly valued and are allowed total freedom to inspect the production facility and also they are given total freedom to comment on the actual production process. The customer can seek even the smallest of detail at any time from the people at the factory.
The owner/manager by being in business for such a long time is now in a position to claim with reasonable amount of accuracy that he is a known commodity in the local market. The suppliers and customers have got highly interactive and personal relationships with the entrepreneur. Also the fact that Mr. Mehdi is known for his integrity and high standards of business practice, the company has enjoyed tremendous boost in its reputation in the market.
Emphasis on Quality
The phrase now has occupied the distinction of a cliché. However, Mr. Mehdi believes that if his product is not satisfactory he risks losing a tremendous amount of goodwill. This inherent risk has made him cautious and responsible and has made him demand the very best from his employees and the suppliers for the best quality of physical and mental input as well as of raw materials.
Profile of the Entrepreneur: Mr. Syed Pervez Mehdi
It is said that all success stories are based on a very high proportion of imagination and fantasy; ours is an exception. The story of our entrepreneur, Mr. Syed Pervez Mehdi, is a real life narration of a very hard working, dedicated and pragmatic human being who always had the desire of becoming something in life. He received his early education from a mediocre school and college. Mr. Mehdi was never a studious person; he believed in being an all-rounder rather than a specialist. After completing college, and a bachelors degree in Commerce, he joined PIA. His job was to supervise the loading and unloading of cargo. Later on he had the opportunity to do his L.L.M from U.S.A. He had experience in Quality Control and served as a quality controller in U.S.A. He has been associated with the export of Garments for the past 18 years.
It was during his employment at P.I.A that Mr. Mehdi had the opportunity to travel abroad to the States. The Entrepreneur held another job in American Airlines when he was in the States. He stayed as an illegal immigrant in America for approximately 8 and ½ years. Later on, he migrated to Canada. Mr. Mehdi developed a disease in his feet; he had to undergo 7 Operations for the cure of his feet. Mr. Mehdi was limited in his ability to walk long distances. He decided to return home and try his hand at business to find out if he could succeed in the entrepreneurial exercise. This was the prime reason why he left his job and decided to try out his own business.
Mr. Mehdi initially started to observe the business with his father-in-law. The eldest son of Mr. Mehdi’s father-in-law died and he took control of the day to day activities of the business. Mr. Mehdi has been exporting garments for the last 12 years. He used the transition period of 6 years to gain hands on experience of the business.
The period of 6 years served as the learning time for Mr. Mehdi. During the series of Interviews conducted, he claimed that he used to observe the businesses of other entrepreneurs and observe them thoroughly. He got himself acquainted with the prevalent norms and practices observed in the textile industry. He learned form the mistakes of different persons and vowed never to make them in his personal business. He describes the early days as the most difficult and challenging time that he faced in his career as an Entrepreneur.
Mr. Mehdi identified many difficulties that he had to face in the initial days. He had to undergo constant struggle and faced many difficulties. The main difficulties identified by Mr. Mehdi were:
- Lack of Finance
- Lack of Experience
- High Cost of Machinery
- Hostile Government Rules and Regulations
- Dynamic Environment
- Fluctuating Export Orders
- Lack of Trust placed by Buyers in the new business
The greatest difficulties identified by Mr. Mehdi were Lack of Finance, High Cost of Machinery and Hostile Government Rules and Regulations respectively.
Entrepreneur’s Values and Beliefs
The Entrepreneur believes in two core values and views them necessary for the success of any business
Dedication in the job that you Perform
The Entrepreneur suggested that in any business, credibility is of paramount importance for the business to succeed. Mr. Mehdi claims that he has always delivered the orders placed by the buyer on time. A common grievance that the exporters have is that the order is not fulfilled on time; consequently the credibility of the person is destroyed and he loses business. The level of commitment of the Entrepreneur can be gauged from the fact that he has not missed a single day during his operation of 12 years.
Views on Loan and Interest
Mr. Mehdi views loan and Interest as evils and tries to avoid them at all costs. He has financed all the expansion plans from his personal savings. There have been occasional circumstances when his son, Bilal Mehdi, has persuaded him to borrow money for expansion purposes. Credit was easily available on concessional terms; however, the Entrepreneur resisted the temptation of borrowing money.
Risk Taking Ability
Mr. Mehdi believes in taking calculated risks. The availability of finance is the greatest factor that the Entrepreneur considers while taking risks. He believes that if you have limited finance available, then you should undertake such an activity, which you believe, will succeed.
The factor that inhibits a person from taking excessive risks is the level of responsibility that a particular individual shoulders. The Entrepreneur believes that if you are living alone then the level as well and the magnitude of risks that the person can take is greater than he will take if he has a family to support. When Mr. Mehdi started his business, he had a family to support. This proved to be a limiting factor in his ability to take risks, as he could not afford to lose all his personal savings in the business. Therefore, the Entrepreneur took calculated risks that paid off in the long run.
Mr. Mehdi believes that Bilal should eventually take the control of the entire business. He wants Bilal to finish his education first and then enter the field of business. He encourages Bilal to participate in the activities of business and take export orders. Mr. Mehdi is of the view that the present work is entirely of the new generation. He believes that the business requires new blood and talent, which is essential for Arco Garments to continue its growth.
Mr. Mehdi plans to stay on the business and eventually let Bilal handle the entire business. He wants to maintain an active profile by giving valuable advice to his Son.
Bilal Mehdi is a sharp contrast to his father. He possesses the same entrepreneurial qualities that are present in his father. However, his attitude towards life and values are significantly different from his Father.
After doing his Intermediate from Gulshan College, Bilal took one year off to decide on his field of career and the choice of career. He obtained admission in Karachi University in 98 and is presently in 3rd Year. The major subjects that he has studied are Economics, International Relations and Mass Communication. He feels that every person should have sufficient exposure to economics; the role of economics in resource allocation is of paramount importance. That is the prime reason that Bilal choose Economics as the major subject of specialization in College. The Influence of Economics on Bilal is strongly reflected in his business aptitude.
Bilal believes that the desire for uniqueness and creativity are the chief factors responsible for his success and flair for business. The desire to break free from the traditional norms and values and to establish his own identity are the main motivating factors responsible for his Entrepreneurial Flair. Thus Bilal can be considered as the classic example of an “unstructured rebel” present in the society who wants to make his mark. But all this he says, is due to his father who has always taught him to be a leader in thoughts as well as in execution. Mr Mehdi has always instructed him to achieve the highest levels of excellence through hard work and dedication, because “there is no substitute for hard work” according to Mr. Mehdi.
During an interview with Bilal, we found out that his interest in Textile Designing has been the major factor for his interest in business. Bilal claims that he has no formal training as an Entrepreneur in the field of Textile Designing. He claims that he has learned by observing his father. Bilal mentioned in the interview that he always has a strong liking for wearing different clothes and shows a strong desire for recognition. He contributes these as the main factors that have influenced his behavior as an Entrepreneur. He claims that he has designed the designs of some of the items that the company has exported. All these factors led to Mr. Mehdi’s decision of appointing his son as the next owner/manager of Arco Garments.
Moral Values and Attitudes
Mr. Mehdi believes strongly in Moral Values and character. He tries to pray regularly and observe all the injunctions laid down by Islam. He is willing to compromise on his values and beliefs if he believes it is necessary for the survival of the business.
Role of Government Rules and Regulations
Mr. Mehdi believes that the attitude of the Government towards small businesses is extremely hostile. The government officials make it very difficult for a person to operate legally in the present environment. Mr. Mehdi as well as his son Bilal define the presence of red-tapism as the biggest obstacle faced by the business. Bilal claims that when Arco Garments had to fulfill their first export order, they had to make a file that was extremely thick. Redundant and long procedures had to be satisfied by different authorities before the factory could even start making the initial order. The purpose of the Government agencies is simple; make life for the exporters so miserable and tedious that they are forced to bribe you.
Role of Income Tax officials
Arco Garments is continuously hounded by corrupt income tax officials who are trying to extort money from the enterprise. Mr. Mehdi narrated an incident in which an income tax official came to the factory and demanded that the company pay labor tax @ Rs. 5000 for all the personnel employed by the factory. The company employs 180 persons in the factory on permanent and contract basis. The amount that the company had to pay would have been quite exorbitant.
Negotiations began to take place between the IT officials and the respective employees of the company. After long and tedious discussions, the IT officials demanded that the company pay them Rs. 5000 and the whole matter would be settled amicably. The company had to reluctantly part with the above mentioned amount and the matter was resolved. This was just one incident that the entrepreneur sited in isolation. There have been numerous such instances when the company had to pay a sum to the IT officials to continue to function.
Mr.Mehdi wants to continue to function honestly and through legal means. However, he is willing to modify his values and beliefs to survive. He beliefs that it would become impossible for the business to continue to function legally in the present circumstances. Even if the company files tax returns correctly and fulfills all the procedures, the IT officials still continue to haunt them on the pretext of filling low tax returns. The always find some loopholes which force the Entrepreneur to grease the palms of the IT officials.
Risk taking ability
An Interesting observation made by Bilal during the interviews was that he viewed his father as a conservative person who is not willing to take risks willingly. Mr. Mehdi refuted these views during the Interview conducted with him. He believes in taking calculated risks, as it has already been mentioned in Mr. Mehdi’s Profile.
The difference lies in the perception of the two persons on the degree and the level of risk that both are willing to take. Bilal believes in taking excessive risks and trying out new ventures. He is willing to gamble with all the resources of the company to see if his idea would succeed. He believes that the company cannot grow without taking risks and it is necessary for the long run survival of the company.
Mr. Mehdi believes in taking calculated risks. He justified Bilal’s philosophy by saying that the risk a person takes depends on the overall responsibility that the person shoulders. Mr. Mehdi recalls that when he started his business, he had to support a wife and five children.
Therefore, he was limited in his ability to take risks. He believes that if a person has lack of finance, then he should undertake that activity in which he is fully confident of his abilities and is likely to succeed. The person should avoid trying out new areas if finance is limited because the ability to absorb losses is small.
Bilal shoulders no responsibility presently; he has to look after his studies and devotes time in the business after attending classes in the University. His passion and desire to succeed are strong which make him take excessive risks.
Level of Involvement
Mr. Mehdi still looks after all the important activities concerning the business and attends to all the areas of concern. Mr. Mehdi wants Bilal to concentrate on his studies fully before finally joining the business. He wants Bilal to gain hands on exposure and be familiar with the terms and conditions prevalent in the business before fully taking over the business.
He wants the transition to occur slowly and with time. Bilal agrees with his Father’s philosophy and is willing to wait. However, he is radical in his ideas and wants to export clothes under his own brand name 10-15 years from now.
Family problems and the Entrepreneur’s Responses:
Mr. Mehdi has had his share of usual jealousies and envy from his family and relatives. He describes his early success as greatly resisted and criticised by his uncle and his sons. They always wanted him to join hands with them and to pool in resources to become stronger, and they repeatedly tried to capatalise on Mr. Mehdi’s strong entrepreneurial traits and experience to get the maximum rewards. Mr. Mehdi was always aware of their dirty tricks and had the strength to counter their tactics and emerge as a winner in his battle against his own blood relatives.
Mr. Mehdi has a number of future plans which he says will be fulfilled not by him alone but by his son, Bilal, as well. He has plans to increase the production capacity and to cater to greater customers locally as well as internationally. Recently he had orders worth Rs. 5,250,000 from the Central Asian states to manufacture garments of various sizes and types.
Also, Mr. Mehdi is considering opening up a branch office at Lahore and to cater the market there and also to attract buyers from abroad.
These along with other minor plans, seem to be the targets that Mr. Mehdi wants to achieve in the next three years or so and he is confident as usual to get there with ease.