Exporting to learn: how foreign markets encourage firms to innovate

Every match of the 2026 FIFA World Cup was played with a ball made in Sialkot. The Adidas Trionda carried a motion sensor that fed data to referees, and its maker, Forward Sports, has now supplied four consecutive World Cups.

The firm did not learn to build such a product by selling at home. It learned by selling to the most demanding buyer in sport.

Economists call this learning by exporting. Selling abroad earns dollars, but it also brings knowledge: buyers’ specifications, factory audits, rejected batches, shared designs and exposure to the world’s best rivals. For a country whose exports have stuck near USD31 billion, this is an important argument aspect that policymaker should not ignore.

In fact, innovation determines up to 85 percent of economic growth and serves as the primary mean for competitiveness, survival, and progress in this globalized world.

Innovation in Pakistan has a stark contrast between its grassroots execution and institutional framework. It shows a mixed picture: while traditional manufacturing and overall global innovation rankings lag behind regional peers, the Information and Communication Technology (ICT) and software export sectors are experiencing rapid expansion.

The evidence from Asia: Studies across Asia comes up with real evidence. Korean plants that began exporting in the 1990s saw their productivity gap over domestic firms widen for several years after entry, most of all in skill-intensive firms.

A 2024 study of Chinese firms traced patent citations to show knowledge flowing from destination markets to exporters, raising both the quantity and quality of their innovation. Japanese firms that started exporting to North America and Europe gained far more in R&D and productivity than those selling within Asia. Demanding markets teach more.

In Vietnam, Samsung sent Korean experts to coach local suppliers; one circuit-board maker cut quality-control rejects by 68.5 percent after three months. In Bangladesh, Desh Garments sent around 130 workers to Daewoo in South Korea in 1979. Almost all later left to start their own factories, and now their industry dominates the exports.

The Pakistani snapshot: When China’s machine-made ball beat Sialkot’s hand-stitched entry for the 2010 World Cup, Forward Sports rebuilt its production system to Adidas’s requirements and won the 2014 contract.

Lahore School of Economics research on 377 textile and apparel firms finds that firms selling to Europe and the US are more likely to innovate, and that innovation spending rises with exports. On the other hand, IT exports reached a record USD4.6 billion in FY26, and in WIPO’s 2026 Global Innovation Index Pakistan is 95th overall but 15th for ICT services exports as a share of trade.

But a dilemma is that exports have fallen from about 16 percent of GDP in the 1990s to 10.4 percent in 2024, and the World Bank puts Pakistan’s missing exports at about USD 60 billion. While South Asian firms spend an average of 12.5 percent on Research & Development, only 2.3 percent of Pakistani firms invest in R&D.

In fact, a Gallup Pakistan analysis showed that 0 percent of surveyed local firms introduced products that were entirely new to their main market. Pakistan spends approximately 0.2 percent of its GDP on R&D, while China spends 2.4 percent. A typical Pakistani export product reaches about a tenth of its possible markets; a Chinese one reaches 85 percent.

The government of Pakistan has launched some strategic funding pools through the Ministry of IT & Telecom (MOITT) and the Planning Ministry: one is the Pakistan Startup Fund (PSF) which provides up to 30 percent equity free grants to back foreign venture capital rounds, effectively absorbing early stage investor risk; secondly, Pakistan Innovation Fund (PIF) is a multibillion-rupee development fund awarding seed funding (up to Rs. 20 million per project) to commercialize indigenous tech, specifically targeting advancements under the 5E framework.

To boost exports, Pakistan must first eliminate its domestic anti-export bias by reducing high tariffs and energy costs while lowering initial barriers for SME exporters through specialized banking and certification support.

Building absorptive capacity is equally critical, which can be achieved by funding cost-shared R&D, establishing testing labs within industrial clusters, and rewarding universities for industry collaboration. Furthermore, the country needs to initiate learning partnerships with foreign investors and diversify trade agreements into new regions.

At the end we know and we celebrate as Sialkot did not learn to make World Cup footballs by selling at home. If Pakistan wants more firms like Forward Sports, it must push more of them into the world’s toughest business hubs, and help them learn once they arrive.

Copyright Business Recorder, 2026