Export’s talent problem

It is no revelation that Pakistan’s exports are concentrated in low value-add segment. It is also no news that of the top 100 exporting firms, most do not qualify for the gold standard of corporate governance: that is, where management is independent of sponsor/owners. But exports may suffer from another challenge, one of talent.

Although research literature is conspicuously scant in this respect, anecdotal evidence may help establish the argument. Over the last 10 years, industries such as banking & FI, consultancy, food & beverage, telco & IT, pharma, media & comm., and oil & energy together hire as much as 80 percent of graduates from Karachi’s top business school.

While it may be tempting to blame lack of demand, the reality is not as clear cut. A review of annual reports put out by various business schools show that representation of traditional sectors such as textile has improved at career fairs in recent years. Yet they have failed to pique the interest of top talent.

It is hard not to appreciate why. As profit-driven economic agents, both employers and employees seek return on investment. And while modernizing domestic firms, especially in textile, may be willing to match compensation, prospective talent is driven as much by potential for growth.

While chances may be slimmer than film industry on average, business graduates are aware that they have a (theoretical) shot at making it to the top of FMCG, banking or IT firms. And while the best run sponsor-managed organizations may be known for taking care of top talent financially, rarely does the sponsor family allows managers into the inner circle or give away managerial independence.

It is no surprise then that this has skewed talent’s preference towards certain industries, exacerbated by concentration of alumni. The relevant question, however, is whether seth-run organization stand to gain from breaking this barrier? And that takes us back to profit motive.

Seth-run organizations, even when professionally run, are known to run tight ships. Consider the example of auto industry (albeit non-export), where even firms that may be classified as MNCs struggle to retain talent due to unattractive compensation. But compare the long-term ROE of autos and telco, and the former beats the competition hands down. If seths are already giving the rest a run for their money, why hire expensive talent and bloat overheads?

The answer – more relevant for export than others – is competitiveness. While talent is not loyal, it adds value in the process. Even though Pakistan’s bottom of the ladder exports such as yarn, cloth or rice may not require serious marketing spend, talent can also help run more efficient ships.

Would exporters argue that they could not better negotiate their financing, even as they complain how bankers fleece them time and again with steep commissions and fees? Lack of imagination in business strategy is another widespread disease, of which the sugar export fiasco is a basket case. The industry’s failure to make a case for itself, when arguably it had one, is only dwarfed by the conceit of exercising political influence.

Even the question of marketing is not entirely defensible. In an interview with BR Research earlier this year, Chairman Rice Exporters Association Pakistan noted that brand development can fetch 3-5 times the price of commoditized rice. This is when the returns from building a diversified brand portfolio of value-added goods using smart market talent has remained virtually unexplored. If exporters are happy with their bottom line, it could be because they don’t wish for much (pun is intended).