the Firm Strategy Structure and Rivalry

Sialkot is known as the export city of Pakistan. Out of many cottage and small scale industries, sports industry is one of the most prominent in the city. There are total 3559 sports goods industries in Pakistan out of which over 98 percent are located in the city of Sialkot and its suburbs.[1] Imported sports brands like Adidas (Germany), Puma (Germany), Nike (USA) and Slazenger (UK) started getting their products manufactured from the Sialkot sports industry. This international collaboration was a big achievement.

In 1994, official soccer balls were required for FIFA football World Cup, USA 94. Sialkot sports equipment exporters were selected for this supply.[2]

However, the industry is now experiencing loss of market share because of lack of modernization that is latest technology usage, poor information infrastructure, competition with China, India and Japan, low capital for industry expansion, lack of technical education, innovation and international standards in production, frequent power outages, poor management skills and lack of coordination among related industries in the sports cluster.

Using the Porter’s Diamond model for analysis, we can better understand the current situation of the sports industry (exhibit 1). Porter’s Diamond model[3] helps in understanding the role of clusters in competition and enables a government to gauge how an industry can become competitive on a global level.

Demand Conditions:

Sialkot sports industry had been generating major revenue by exporting sports wear and sports equipment to the international market. But there has been a recent downfall in the industry. The international market demands innovation in sports products, use of better technologies and international standards in production.

Firm Strategy Structure and Rivalry:

There is a strong competition with China, India and Japan. International brands like NIKE, Adidas etc. are getting their products made from these countries because of cheap labor and raw materials there. China specially is a big threat to the industry.[4]

Factor Conditions:

Small scale industries are run by a family’s own savings. As savings are limited, expansion of industrial units is not possible and it could soon get exhausted. So, capital is a hurdle in advancement. Power outages are one of the biggest problems of Pakistan these days. It causes problems in the form of delays in production. Employees are not well equipped with the management skills. Because of obsolete technology usage, the industry is lagging behind the market. Infrastructure needs to be enhanced according to modern demands. Raw materials which are required include synthetic rubber, rubber, leather (pebble grained leather), wood, aluminum, nylon, gut etc. These are all locally produced.

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Related Supporting Industries:

Despite the presence of big sports cluster including locally based suppliers of raw materials, the cooperation among the private-public partnerships seems to be low. Differences in prices are created because of lack of coordination among the related industries. Individuals are not well trained about the technology advancement. Entrepreneur fervor is there but innovation is lagging behind.[5]

Analysis:

Regaining markets share will require a number of changes. In order to analyze the importance of the sports industry and to judge whether there is really any need for upgrading the sports cluster, the SWOT analysis is carried out which shows the strengths, weaknesses, opportunities and threats faced by the sports industry of Pakistan (exhibit 2). According to it, the sports industry has sustained up till now because of the long history of exports which has enabled it to maintain active and reliable linkages in international markets. Though small in number, the labor force possesses multiple skills regarding production, for example, in the manufacturing of cricket bats, tennis rackets, and footballs which is keeping the industry functioning.

However, sports industries are small-scale cottage industries with weak management capabilities of the employees and a tough price competition in the market, making their survival difficult. Moreover, absence of international standards and accredited testing laboratories is also adding to the weaknesses. Lack of product innovation and extensive power outages are also affecting it negatively. Furthermore, employees are not well trained about the latest technologies in the market and are thus reluctant in adopting them which is putting the industry behind day by day. Keeping the employees well trained about latest technologies will enable them to keep track of the latest trends in the market. Also, in small scale industries the investors are poor and illiterate so the production methods and machinery are outdated.

Moreover, there are good opportunities for the sports industry to flourish like low rate of mark-up on working capital loans, very low income tax rates and better trade access in EU and USA.

Some threats to the industry involve technical and environmental barriers to trade, licensing and international standards requirement by the international markets and producers of raw materials. Lack of education resulting in poor technology advancement has become a threat to the industry.[6] China/ East Asia production is also posing serious threat to the industry.

Recommendations:

In order to improve the export conditions of the sports industry, the following Five Year Plan needs to be implemented.

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Five Year Plan:

The Five Year Plan would focus on:

  • Addressing barriers (poor information infrastructure, lack of technical know-how, less capital, power outages, illiteracy, poor management skills, lack of modernization)
  • Sports products innovation and diversity
  • Educating entrepreneurs about advanced technology
  • Labor skills enhancement to bring innovation and diversity in products

Overarching Strategy:

  • To enhance and strengthen the existing sports cluster and move it towards competitive advantage
  • To bring reforms which would enable the sports industry to overcome the market share losses

Year 1

  1. A Cluster Monitoring Cell comprising of dedicated departments would be established by the government which would monitor the activities of the sports industry cluster and would try to bring reforms to the industry.
  2. Existing employees would be educated about the latest technology trends prevalent in the market. Technical centers would be setup under government’s educational programs, launched and funded by the Education Department to provide adequate training to the employees.
  3. Workshops for counseling regarding investment and other matters would be provided to the new comers in the business. This would be taken care of by the Training Department.
  4. Research Department would point out industries in the cluster which justly require funds. Funding Department would then collaborate with the government to provide loans and easy installment facilities to the owners in order to reduce the risk of going out of business.
  5. The information infrastructure needs to be improved by the Information Resource Bureau for proper flow of information across the multiple industries in the sports cluster.
  6. Government intervention plans would be made and implemented in order to reduce threats. The Research Department would indentify when intervention is required.
  7. Human Resource Department would set criteria for hiring employees.
  8. Government would launch scholarship and exchange programs under the Education Department of Cluster Monitoring Cell in order to overcome the reluctance of employees in getting educated.

Year 2-3

In continuation to Year 1 Plan:

  1. In order to cater to the needs of a wide range of markets, diversity in production would be introduced.
  2. Responsible organizations like Cluster Monitoring Cell and Government would focus on capacity building so that better advantage could be taken of opportunities available to the industry.
  3. Issues regarding World Trade Organization would be overcome through proper seminars, trainings and workshops which would be conducted at least four times a year at different locations. Strict laws would be implemented, violation of which would result in penalties.
  4. Export services provided by the government would be strengthened.
  5. Solar, wind and hydel power generating units would be installed at the industry by the government to deal with power outage problem.
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Year 4-5

In continuation to Year 2-3 Plan:

  1. A comprehensive national level strategy plan will be made which would involve all the stakeholders. Focus would be on sustainable development of the industry. For that, reliance on subsidies and monetary support will be discouraged.
  2. Government would intervene to limit the ever increasing number of industries by allowing only those industries to export that have a certain capacity for capital investment.

Conclusion:

Sports industry is one of the most revenue generating industries of Pakistan. There is an urgent need to adopt the above recommendations before it is too late. These would help in bridging the gap between the various related industries in the sports cluster. Technical know how, information about WTO issues and latest technologies need to be infused in the minds of the entrepreneurs so that they could help in better running of the industry. Government needs to intervene in the industry matters at the right time in order to control the situation before industries are met with market shares losses.

Bibliography:

  • Ghani, Dr. Jawaid A. ‘SIALKOT’S ENTREPRENEURIAL SPIRIT’, No.96-10 (September, 1996).
  • Karim, Yasir,’Sports Industry in Pakistan’
  • Porter, Michael E., Chapter 7, ‘Clusters and Competition: New Agendas for Companies, Governments and Institutions’ in On Competition, (Boston:Harvard Business School Press,1998).

Web Resources:

  • DAWN Media Group (29th August, 2009) ‘Pakistan set to recapture football market’, available at http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/business/09-pakistan-set-to-recapture-football-market–szh-06, accessed 17th March, 2010.
  • Sialkot Export (no date) ‘Sports Wear, Sports Goods in Sialkot’, available at http://www.sialkotexport.com/sports.aspx, accessed 17th March 2010.
  1. Dr. Jawaid A. Ghani, ‘SIALKOT’S ENTREPRENEURIAL SPIRIT’, No.96-10 (September, 1996), p.7
  2. Sialkot Export (no date) ‘Sports Wear, Sports Goods in Sialkot’, available at http://www.sialkotexport.com/sports.aspx, accessed 17th March 2010.
  3. Michael E. Porter, Chapter 7, ‘Clusters and Competition: New Agendas for Companies, Governments and Institutions’ in On Competition, (Boston:Harvard Business School Press,1998), p.211
  4. DAWN Media Group (29th August, 2009), available at http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/business/09-pakistan-set-to-recapture-football-market–szh-06, accessed 17th March, 2010.
  5. Porter, Chapter 7, ‘Clusters and Competition: New Agendas for Companies, Governments and Institutions’ , p.210-213.
  6. Yasir Karim, ‘Sports Industry in Pakistan’, pp.9-10
  7. Yasir Karim, ‘Sports Industry in Pakistan’, p.11
  8. Porter, Chapter 7, ‘Clusters and Competition: New Agendas for Companies, Governments and Institutions’ , p.211
  9. Karim, ‘Sports Industry in Pakistan’, pp.9-10
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