Pakistan Cutlery Study

8/8/2019 Pakistan Cutlery Study

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DIAGNOSTIC STUDY

CUTLERY CLUSTER WAZIRABAD PAKISTAN

Conducted By

Mr. Ansir Mahmood NCND UNIDO

Supervised By

Mr. Muhammad Ali Haroon ANE UNIDO

June 2006

Developed under UNIDO Cluster Development Programme Pakistan

Partner Agencies

Focal Point UNIDO:

Mr. Anjum Fayyaz NPC UNIDOMr. Sarwar O. H. Hobohm - Team Leader CDP UNIDO Vienna

All rights reserved. No part of this document may be reproduced or transmitted, in any forms or by any

means, without prior written permission from UNIDO


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Table of Contents

Description Page No

1. Objectives

2. Description of the cluster

2.1 Definition of the products ----------------------------------------------------- 012.2 Usage of the products--------------------------------------------------------- 012.3 Geographical location --------------------------------------------------------- 012.4 History of the cluster-----------------------------------------------------------012.5 Current output ------------------------------------------------------------------- 02

2.6 Production process (Knives)------------------------------------------------- 022.7 Flow Chart (Knives)------------------------------------------------------------042.8 Production process (Spoons)------------------------------------------------ 052.9 Flow Chart (Spoons)----------------------------------------------------------- 062.10 A snapshot of Kitchenware Cutlery--------------------------------------- 072.11 A snapshot of Non Kitchenware Cutlery -------------------------------- 072.12 Wazirabad Cutlery Cluster (National Scenario) ----------------------- 082.13 International Trade of Cutlery---------------------------------------------- 092.14 Cluster Actors------------------------------------------------------------------ 09

a. Core Cluster Actors------------------------------------------------------- 10

b. Other Cluster Actors------------------------------------------------------ 11

2.15 Supports Groups & Associations ----------------------------------------- 132.16 Cooperation Matrix ----------------------------------------------------------- 172.17 Current Cluster Map---------------------------------------------------------- 19

3. Social Dynamics of Cluster ----------------------------------------------------- 21

4. Value Chain Analysis -------------------------------------------------------------22

4.1 Value Chain Analysis (Knives) --------------------------------------------- 22

4.2 Value Chain Analysis (Spoons) --------------------------------------------234.3 Cost Analysis (Knife & Spoon) --------------------------------------------24

5. Analysis of Business Operations ---------------------------------------------25

5.1 SWOT Analysis ---------------------------------------------------------------- 29

6.Porters Framework for the Cluster ------------------------------------------ 30


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7. Cluster Vision------------------------------------------------------------------------ 33

8. Strategy-------------------------------------------------------------------------------- 33

9. Future Cluster Map----------------------------------------------------------------- 35

9.1 Explanation of Future Cluster Map---------------------------------------- 36

10. Action Plan-------------------------------------------------------------------------- 37


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Objectives

The report (Diagnostic Study) is an outcome of Cluster Development Programmeinitiated in mid-2001 by United Nations Industrial Development Organization inPakistan; five pilot clusters were selected with partner agencies listed as Leather

and leather products in Korangi, Karachi; Gems and jewelry in Saddar, Karachi;Ready-made garments in Lahore; Electric fans in Gujrat; and Cutlery in Wazirabad.The programme is intended to enhance the productivity, competitiveness andinternational market penetration of Pakistans SME clusters.

The study attempts to present and analyze the current position and also tounderstand the functional dynamics of the cluster. The central concern, however,relates to two important issues: a) the nature and strength of current stakeholderlinkages and b) areas of strategic interventions for development of cluster. Thestudy, in general, provides an insightful view of cluster turning points, nature oforganizations, business linkages, problems faced & perceived at both policy and

entrepreneurial level and, especially, deals with the potential areas of jointcooperation for future individual & cluster growth.

Disclaimer

The purpose & scope of the study is to provide cluster level information to thereaders. All the material presented is based on primary/secondary data,discussions/interviews with a number of individuals concerned, directly or indirectly,to the cluster, and certain assumptions are also incorporated for the purpose. Theinformation compiled in the document may vary considerably due to any unforeseencircumstances. Therefore, the authors make no warranty, expressed or implied;

concerning the accuracy of the information presented, and will not be liable for injuryclaims pertaining to the use of this publication or the information contained therein.


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Diagnostic Study on Cutlery Cluster Wazirabad

UNIDO Cluster Development Programme Pakistan 1

2. Description of Cutlery Cluster Wazirabad

2.1 Definition of Products

Cutlery products are defined as the cutting instruments and tools. The raw material

for cutlery manufacturing may include metal-ware, plastic-ware, glassware etc, butWazirabad is famous to produce Stainless Steel Cutlery products. Cutlery isclassified into two broad categories: Kitchenware and Non-Kitchenware. The firstsection includes cutting, serving & eating utensils such as spoons, table-knives,forks, etc, while the latter includes blades, scissors, shears, daggers, swords, etc.The cutlery is one of the important commodities of engineering group in Pakistan.

2.2 Usage of product

The kitchenware cutlery is mainly used as domestic utensil and also in hotels,restaurants and houses for serving food and as an eating implement.

The non-kitchenware cutlery is totally export oriented and mainly used in sports,hunting, household cutting tools and as gifts/collective items.

2.3 Geographical Location

Wazirabad is situated on left bank of the river Chenab at a distance of 3 km, 32 kmto the north east of Gujranwala, 45 km south west of Sialkot and 14 km south ofGujrat. The industry is situated in the locality of Wazirabad, Nizamabad andAllahabad in Gujranwala District.Wazirabad has been famous for its good qualitycutlery even before the independence.

2.4 History of Cluster

Cutlery is basically a cottage industry. The origin of cutlery industry can be traced tothe invasion of India by Alexander The Great. The legend goes that cutlery itemswere repaired by local craftsmen and the magnificence of the repairs carried outwere much appreciated. In the pre-partition era, the Wazirabad Cutlery cluster hadbeen famous throughout India for its good quality cutlery and knives. During 1881-82, the town produced arms and ammunition for the British army. It also producedweapons such as knives, daggers, karpans, etc. for the Allied Forces during WorldWar-I and II. After the war, the skilled craftsmen of Wazirabad diversified their

product in different categories such as tools, utensils, table cutlery, door locks etc.The British used to call Wazirabad as the Sheffield ofIndia.


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2.5 Current Output

There were approximately 150units in kitchenware cutlery segment, about 10-15 ofthem were large units, while 100 to 130 units were sub-contractors for othermanufacturers. The total average production was 4000-5000 pieces per day.

Due to high prices of raw material and tough competition with China, the number ofunits of swords, daggers, knives had decreased. Currently there were only 100-150units out of which 15-20 were large. The average production capacity was 500pieces per day.

There were about 7-8 razors manufacturing units in Wazirabad.The approximateproduction of this category was 400 dozen pieces per day. These manufacturingunits were mainly subcontractors for Sialkot region.

The estimated consumption of steel in cutlery industry was 6000 tons per annum

and the average annual production in dozens of pieces was 1.65 million.

2.6 Production Process (Knives)

a) Cutting:In the first step the metal sheet was cut into different piecesdepending upon the sizes of knife blades.

b) Straightening:The blades were straightened manually during the process.

c) Hardness:The blades were hardened; an essential process required for the

sharpness of blades.

d) Surface Grinding:Surface grinding machines smoothed the surfaces ofblades on both sides.

e) Edging:The process was used to carry out both manually and throughmachine work to develop the edges of knives.

f) Handle Making:Handle making was performed manually in two steps:Handle making & Fixation.

g) Polishing:Semi-finished knives were then sent to the polish department.

h) Cleaning:After polishing process, knives were cleaned by kerosene oil and/orwood brada.

i) Inspection:The products were then passed through the inspection phase;products were checked according to the standards prescribed by thecustomers.


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j) Packaging:The knives were then packed into cartons and gift boxes of

different sizes.

2.7 Process flow chart of Knives

2.8 Production Process (Spoon)

a) Sizing: Stainless Steel sheets were cut into the required sizes through Cuttingpress.

b) Die Cutting:After sizing, the pieces were brought to the die section, whereaccording to the product requirements; the sheets were further cut and drawnto give basic shape. Presses ranging from 30-100 tons were used in thissection according to the product specifications.

c) Grinding:After cutting & drawing, the items were brought into the grindingsection to smoothen the rough edges and remove any extra material, if

present.

d) Bendingand Shaping:Small items as spoons, forks etc were brought intothis section where the final shape of products was achieved.

e) Straightening and Stamping:Handles of spoons were straightened andshaped in this section. Stamps of brands were also fixed here.

Cutting Straightening Hardness

SurfaceGrinding

HandleMaking

Polishing Cleaning Inspection

Edging

Packaging


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f) Accessories Fixation:Plastic or steel accessories were fixed in this section

depending on the style/design.

g) Polishing:The product surface was smoothened and proper shine was given

in this process.

h) Final Inspection:Quality of the product was checked during the finalinspection phase in addition to any minor rework if required; failing with theitem was rejected and sent back for major rework.

i) Packing:The product was then packed according to the requirement of buyer.

2.9 Process flow Chart (Spoon)

Sizing Die Cutting Grinding

Bending &Shaping

StampingPolishing

Inspection Packing


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2.10 A snapshot of kitchenware Cutlery

Kitchenware industry got established in Wazirabad way back in 1930s. 3-4 unitspioneered the work of kitchen cutlery before partition. The industry got momentum

after partition, the companies multiplied in late 1950s and the cluster entered into anew era of domestic and international market with quality products.

During 1970s the tableware industry started declining due to various reasons, themain reason being the introduction of the Nationalization Scheme by theGovernment. In 1990s, the number of companies crossed over 100, the competitionbecame fierce with shortening of export margins. In late 1990s, China entered thecutlery market, displaced the competitors due to its mass production/less pricestrategy and claimed a handsome market share in a short span of time.

The Harmonize Code (HS) of the Kitchenware Cutlery along with their description is

given as follows:

HS Codes Description

8215Spoons, Forks, Ladles, Skimmers, Cake Servers, Fish Knives,Butter Knives, Sugar Tongs, etc

8215.91 Plated with precious metal

8215.10Set of assorted articles containing at least one article platedwith precious metal

8215.20 Other sets of assorted articles

2.11 A snapshot of non-kitchenware Cutlery

In 1947, around 40-50 knife manufacturing units used to produce knives for Hindubusinessmen. The Indian traders used to up-grade and export these semi-finishedproducts. The cutlery industry faced serious crisis after partition because the largesthome markets (i.e. Bombay, Calcutta and Delhi) got included in India. The Hindufinanciers migrated to India leaving behind the skilled and hard working craftsmenwho were able to recapture their fame within a very short span of time.

In 1950s, the knife manufacturing business declined mainly due to naturalcalamities primarily flood. In 1960s, the knives of Wazirabad catered 90% of the

domestic market while 10% were used to export. About 10-15 knife manufacturingunits were operational at that time. In 1970s, the business flourished and thenumber of units increased to 100. During 1980s, the knife manufacturing businessboomed and the units multiplied to 500; the knife products repositioned as 100%export oriented. In 1990s, new products were introduced and the manufacturingbusinesses reached new heights until early millennium; China introduced low costproducts and displaced local exporters.


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The Harmonize Code (HS) of the Non Kitchenware Cutlery along with description isshown below:

HS Codes Description

8208Knives & Cutlery Blades for machines or for mechanical

appliances.8211 Knives with C. Blades, Serrated or not, of 8208.8212 Razors and Razor. Blades, safety Razor Blade etc8213 Scissors, Tailors Shears, etc.

8214Other articles of Cutlery (e.g. hair clippers, Butchers or KitchenCleavers, Chopping or mincing Knives), Manicure or Pedicuresets etc.

2.12 Wazirabad Cutlery cluster (National Scenario)

Cutlery is one of the important commodities of engineering group in Pakistan. Thecutlery items includes both kitchenware and non-kitchenware cutlery. The first groupwas mostly domestic oriented having an export presence of 11% while the 2nd groupwas mainly export oriented contributing remaining 89% of exports in 2003. Theexports of Pakistan under the cutlery category in 2004-2005 were US$ 34 millionsharing 0.26% of the total export target.Wazirabad is the main manufacturing area for the cutlery products in Pakistan,whereas a limited manufacturing is also done in Sialkot and Dir (NWFP).

Kitchenware cutlery has experienced an increasing sales trend in the domesticmarket, while the non-Kitchenware cutlery remained and has been mainly export

oriented; although the export volume had been continuously decreasing since thelast few years.


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The export figure of cutlery from Pakistan is given as follows:

2624

29 2934 33

0

5

10

15

20

25

30

35

Million $

2000-

2001

2001-

2002

2002-

2003

2003-

2004

2004-

2005

2005-

2006

Year

Cutlery Export (2000-2006)

(Source: Export Promotion Bureau & FBS)

2.13 International Trade of Cutlery

World cutlery exports were USD 5.4 billion in the year 2003 showing a growth rateof 12 % in comparison to 2002. China had a formidable position as a market leaderwith an export figure of USD 1,174 million (growth rate 16.03 %), closely followed byUK USD 892 million and Germany at USD 704 million.

Pakistans share in global export market had been meager but quite stable hovering

between 0.47-0.61 percent. Similarly, Pakistan exhibited an export ranking of 22-27from 1998 to 2003. During 2002-03, exports to USA declined by 3.3 %, exports toFrance increased by 21.7% and UAE declined by 15.8%. The main internationaldestinations for the Pakistani Cutlery products were USA, France, Dubai, SaudiArabia, Germany, Belgium etc.


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2.14 Cluster Actors

a. Core Cluster Actors

i. Large Manufacturers

There were approximately 300 units of Kitchenware and non-Kitchenware cutlery.The large manufacturers of Kitchenware & non-Kitchenware cutlery wereapproximately 25-35. Larger units outsource work-jobs from Common FacilityCentre and SMEs.

ii. Medium & Small Manufacturers

Around 89% of the manufacturing concerns comprised of medium & smallenterprises. Most of the small manufacturers are subcontractors of largemanufacturers.

Parameters Large Medium SmallExport

Performance(PKR)

I Crore annually50-70 lakhannually

25 lakh or lessannually

Labour 100-150 12-20 5 or lessMachines (Nos.) 25 10 3-4

Target Market(Tearing)

Intl Brands (5%)Wholesalers orRetail chains

(90%)

Warehouses (70%)Traders (25%)

Indirect (mostlythrough large

manufactures orSialkot region )

Sub Contractingactivities

In-house (90%) In-house (60%) In-house(30% - 40%)


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b. Other Cluster Actors

i. Die manufacturers

Die manufacturers are the backbone of cutlery industry. There were about 100-150

die manufacturers which served the demand of the industry. Both kitchenware &non-kitchenware products directly depend on the die manufacturers.

Die Manufacturing services utilization is given as under:

Kitchenware 25-30 (%)Non-kitchenware 10 (%)Others (Textile,Sanitary, Fan, Shoe etc)

60-65 (%)

Die manufacturing was started way back in 1960s and the first organized Die

manufacturing process was started by Punjab Small Industries Small Tool ServiceCenter in 1962.

The die manufacturers had relatively weaker relations with the cluster owing to thefact that the production of new designs; a pure investment case was mostlyperformed one-sidedly, as the manufacturers had virtually no design departmentresulting in the reliance on the previous designs with a little bit alterations.Delayed/Non payment of outstanding dues was another problematic area requiringimmediate attention. Die manufacturers demanded profit/loss partnership in cutlery-selling business; the incentive would incite them to invest in designing field. Thedecline in exports (mainly non-kitchenware items) had direct implications on the

business; while seasonal variations in trade were also observed.

The average number of employees in the die manufacturing units were between 5-10. They required up-graded machinery to match the quality requirements ofInternational buyers including

Computer Numerical Control (CNC) Layth machine Computer Numerical Control (CNC) Milling machine Computer Numerical Control (CNC) Wire Cutters

ii. Raw Material providers: (Manufacturers & Traders)

The basic raw material used for the tableware cutlery manufacturing is non-magnetic Stainless Steel sheets, while in non-kitchenware cutlery manufacturing,magnetic Stainless Steel sheets /Flats, Brass rods, Steel Wire etc are used as thebasic ingredients. In the tableware units, both indigenous and imported rawmaterials were used in the production processes. As per the American Iron & SteelInstitute (AISI), the standards 420, 430 & 302, 304 series are prescribed as steel for


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tableware cutlery & surgical instruments. While series 302 and 304 were typicallyused for the production of non-kitchenware items.

The material procurement model followed in the industry is as follows, directdealings with mills (mostly in case of large entrepreneurs), and, purchase through

dealers/traders were the two commonly used methods through local steelmanufacturing companies. Similarly, investors/traders used to import steel to fulfilthe steel needs of the cluster both on cash as well as credit basis.

The composition of raw material usage is given as under:

Stainless Steel Sheets Source % UsageLocal Gujranwala 40%Local (Better Quality) Lahore, Gujranwala 45%Imported 15%

The increasing trend of raw material prices from 2004-2006 is given as under:

Year Magnetic steel(Rs. per kg)

Non-Magneticsteel (Rs. per kg)

Brass (per kg)

2004 80 65-75 90-1352005 100-110 78-107 150-1752006 125 107 200-270

There were about 20-25 raw material suppliers in Gujranwala and around 3-5 inWazirabad.

iii. Machinery Suppliers

There were about 10-15 traders of machinery suppliers in Gujranwala and 10-20 inDaska which catered the demand of cutlery Industry. Only few traders of importedmachinery operated from Lahore. The consumption chart of local & importedmachinery in Cutlery cluster is as follows:

Local machinery--------------------90% Imported machinery---------------10%

The local machinery used is as follows:

Cutting Press Grinding Machine Polishing Machine Rolling Machine


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The imported machinery used is as follows:

Surface Grinding Edge Making Cleaning Machine

The main consumption of the machinery is the cutting press mostly used bykitchenware producers.

2.15 Supports groups & Associations

i. Cutlery Institute of Pakistan (CIP)

Trade Development Authority of Pakistan in collaboration with Pakistan Cutlery &Stainless Utensils Manufacturers & Exporters Association (PCSUMA) Wazirabad

has setup this institute. The objective of the establishment of Cutlery Institute ofPakistan was to provide skilled labour and common manufacturing facilities to thecutlery cluster.The general supervision, administration and control of the affairs ofthe institute and the power to lay down the policies of the institute were vested in theManagement Committee.

A strategic plan was developed by SMEDA for the revival of CIP to play its due roleas a Trained labour production centre. The plan indicated that training would beimparted at two levels i.e. technical and managerial. As a Common Facility Center,the institute would also provide business development service (BDS) such asconsultancy to produce market and product profiles, trade show participation,

pricing strategies, identification of new trade opportunities and certifications.

So far, the cluster has not been benefited from the institute to a greater extent.Cutlery Institute of Pakistan since its inception has trained 77 persons in twobatches and carried out 850 jobs mainly for non-kitchenware cutlery manufacturers.

The institute had been closed since July 2005. The reasons for the closure are asunder:

The machinery installed in the CIP catered only the needs of non-kitchenwarecutlery manufacturers.

Due to the slump in the exports of non-kitchenware cutlery products and lessorders, most of the SMEs did not get much benefit from the CIP.

A feasibility report had been formulated by SMEDA for running of the institute,but the project was not funded by TDAP for the realization.


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ii. Pakistan Cutlery & Stainless Utensils Manufacturers & ExportersAssociation (PCSUMA)

Pakistan Cutlery & Stainless Utensils Manufacturers & Exporters Association(PCSUMA) was established in 1967. There were approximately 108 registered

members with the association.

PCSUMA served as a negotiation platform between the members of cutlery clusterand the Government, Semi Government and other autonomous bodies. It workedfor the export promotion of the cluster in collaboration with TDAP through variousseminars, exhibitions and trade delegations. The association also used to providesupport for export refunds and rebate cases. The following services were providedby the cutlery association:

Information about exports/meetings through circulars; Booking of stalls in exhibitions/fairs;

Trade body meetings; representation of cluster; Police protection.

Only 04 trade delegations had been organized since 1988. The entrepreneurs usedto attend 3-4 exhibitions annually from associations platform. The current problemsassociated with the association are listed below:

Association is greatly monopolized & controlled by a minority group; the businessinformation is usually filtered and passed only to selective entrepreneursbelonging to the elite group;

Primarily engaged in lobbying activities with the government/other agencies; noreal-time business development services are provided to attract people;

Members occasionally gather to solve some specific problem rather thanmeeting regularly to align the services of PCSUMA with the cluster requirements;

Rely heavily on membership dues; no income generating strategy in place; No method/strategy to ensure the gradual progress for the achievement of

common goal/growth; Lack of a common vision.

iii. Government Small Tool Centre (GST)

The Institute, situated in the middle of manufacturing area, catering the needs of

kitchenware and non-kitchenware production units got established in 1962. Theinstitute was established not only as a common facility centre for the cluster but alsoused to provide training to the labour force.

The following common facilities were offered by the centre:

Polishing facility


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Rolling facility Cutting facility Forging facility Hardware testing facility

The machinery used in the center was mostly outdated and needed immediate up-gradation.

iv. Trade Development Authority of Pakistan (TDAP)

TDAP is the primary agency of the Government of Pakistan, an attacheddepartment of the Ministry of Commerce, engaged in the promotion and boosting ofcountry's exports. Since its inception in 1963, TDAP has continued to facilitate theexporters in overcoming difficulties faced by them on the supply and demand side ofexports. It had 04 regional and09 sub regional offices.

Sialkot office-TDAP had arranged about 3-4 trade delegations for the cutlery clusterin collaboration with the cutlery association. An exposure visit to China including 12manufacturers was conducted in April 2005 to expose the cluster entrepreneurs toChinese technological advancements. Similarly, the Sialkot office also arrangedparticipation in trade exhibitions in connivance with the association.

v. Small & Medium Enterprise Development Authority (SMEDA)

SMEDA was established in October 1998 to take on the challenge of developingSmall & Medium Enterprises (SMEs) in Pakistan. It is an autonomous body workingunder the umbrella of the Ministry of Industries & Production. SMEDA is an SMEpolicy-advisory body for the government of Pakistan and also acts as a one-stop-shop for its SME clients.

It is the flagship organization of Pakistan providing necessary services to help SMEsovercome the weaknesses endogenous to their very nature, and has contributedtowards the growth and development of SMEs in Pakistan through:

Business plan development services Training services Technical services Legal services etc

SMEDA Sialkot office got incepted in January 2002. The number of averagemeetings conducted per year with Wazirabad cutlery entrepreneurs were around15-20. The following services had been provided to the cluster so far:

Strategic plan for Cutlery Institute of Pakistan; Financing facility (a package was developed for SMEs with The Bank of Punjab,

7-8 companies availed the scheme);


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Training needs assessment (door-to-door interview); Arranged a training exercise in partnership with M/s Pakistan Steel Mill; Website development for Cutlery association; under process.

vi. United Nations Industrial Development Organization (UNIDO)

The United Nations Industrial Development Organization (UNIDO) is the specializedagency of the United Nations dedicated to promoting Sustainable IndustrialDevelopment in developing economies. UNIDO acts as a catalyst to help generatenational economic wealth and raise industrial capacity through our roles as aworldwide forum for industrial development and as a provider of technicalcooperation services. Established in 1968 and located in the capital city, Islamabad,the UNIDO Representative office in Pakistan has extensive and successfulexperience in industrial development cooperation.

In recognition of the relevance of Cluster Development to Pakistan, a programme

US/PAK/01/099 was included as the centerpiece of Institutional Capacity buildingfor SME development in the UNIDO Integrated Programme (IP) Pakistan. Initiated inmid-2001, the programme covered five pilot clusters: Leather & leather products,Gems & Jewelry, Readymade Garments, Fans and Cutlery.

The diagnostic study report was an outcome of CDA training initiated by UNIDO inPakistan from July-September 2005. In the cluster, UNIDO had already undertakena series of meetings with the Cutlery association and the entrepreneurs. Individual &

joint visioning exercises had also been conducted in the cluster. WazirabadGreenways Network (the first export consortium), was the outcome of theprogramme in cluster, whereas the members had planned to undertake joint actionsfor their individual and collective growth. Similarly, other networks such as: PakCutlery Consortium (PCC), Evercon, Global Cutlery Consortium (GCC), White GoldCutlery Consortium (WGCC), Wazirabad Cutlery Network (WCN) had also beenestablished to replicate the UNIDO methodology for cluster development. Moreover,UNIDO also sponsored Cluster Development Agent in the cluster to undertake andsustain the Change Management initiative.

v. Financial Institutes (FIs)

Almost all registered commercial and industrial development banks of Pakistan hadtheir branches in the cluster. They had however exhibited a very weak link with theSMEs.The main reasons for this weaker linkage (entrepreneurial point of view) areelaborated as the Interest-based banking system, lengthy loan processing periodsand collateral requirements for loaning purposes.

Although nearly all the enterprises enjoyed the leverage of having their accounts inmore than one bank, the bank-customer relationship was however on the weakerside. The banks were more interested in financing the consumer products rather


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than issuing business loans. They blamed the SMEs for the weaker linkages,whereas the SMEs blamed the banks for the same.

vi. The Sialkot Chamber of Commerce & Industry (SCCI)

SCCI is a trade body, which was established in 1982. Late Mr. A.D. Bhutta was thefounder President of this esteemed organization. It comprised of industrialists,importers and exporters belonging to various fields.

There were approximately 6000 members of SCCI in the year 2004-2005. Most ofthem were connected with sport goods, surgical, leather garments, and somemembers were cutlery producers.

SCCI had a strong relationship with Cutlery Association as many members of theassociation were also members of SCCI. SCCI used to send 2-3 weekly invitationsand a fortnightly newsletter regularly to PCSUMA. Similarly, SCCI used to involve

members of the Cutlery Association in the formulation of Government policesregarding exports of cutlery, rebate issues etc. R&D centre for cutlery products andmarkets was also operational in SCCI.

2.16 Cooperation Matrix

CIP TEVTA SMEDA SCCI PCSUMEA EPB F.I

CIP * 0 1 0 2 2 0GST 0 * 0 0 0 0 0SMEDA 1 0 * 1 1 1 1SCCI

0 0 2 * 2 2 0PCSUMEA 2 0 1 2 * 1 1TDAP 2 0 1 2 1 * 0FIs 0 0 1 0 1 0 *

Explanation of defined Parameters:

On the basis of the feedback from the cutlery association these parameters can beexplained as follows;

Not possible (*):

* donates that relation is not possible.

No relation (0):

0 signifies that the relation is non-existent.


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Normal Relation (1):

Normal relation is defined on the basis of correspondence and personal visits ofthese institutions in a month with the Cutlery Association.

Correspondence in a month = 1-10Personal Visits = 1

Good Relation (2):

Good relation can be defined on the basis of correspondence and personal visits ofthese institutions in a month with the Cutlery Association.

Correspondence in a month = 10-15Personal Visits = 2-4


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2.17 Current Cluster Map

Cluster MapAbbreviations:

CIP (Cutlery Institute of Pakistan)GST (Govt. Small Service & Tool Center)SMEDA (Small & Medium Enterprise Development Authority)D.M (Die Manufacturing)R.M (Raw Material Suppliers)TDAP (Trade Development Authority of Pakistan)PCSUMEA (Pakistan Cutlery & Stainless Utensils Manufacturers & ExportersAssociation)

Razors (8-10)

Small Tool Center

[TEVTA]

Domestic Mkt

USA, EuropeDirect

Through Sialkot

TDAP PCSUMEABanksSMEDA

R.M

(20-25)

D. M

(100-150)

Large Manufacturers of

Kitchenware Cutlery (10-15)

Medium & Small (100-130)

Large Manufacturers of

Non Kitchenware Cutlery(15-20)

Medium & Small (100-150)


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Notations Description

Group of stakeholders

Square representing allPrincipal firms

A well functioning network of agroup of stakeholders

An underdeveloped linkageA well developed linkage

Number of stakeholders in agroup

( )


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3. Social Dynamics of the cluster

The Cutlery cluster Wazirabad has a rich history, and has evolved over a long spanof time. The traditional knowledge has trickled down, and passed from generation togeneration, and has developed into the distinct art of cutlery craftsmanship.

The manufacturers are closely knitted with each other in a strong Beradari system.Mughal, Bhutta, Lohar are the major castes involved in the cutlery manufacturingbusiness. Although they are close relatives but the overall business environmentdepicts a sense of jealousy and leg-pulling. Cut-throat price competition amongstthe manufacturers has resulted in compromise on quality and reduction in the valueof the product. Unorganized business practices such as non-adherence to deliveryschedules, non-existing inventory control systems, variant receivables/payables,unprofessional product pricing methods have played a vital role in establishing theoverall cluster atmosphere. All these factors have collectively served as a barrier tothe growth of cluster.

Education levels are quite low amongst the present generation of entrepreneurs.However, their children are going to schools and pursuing technical studies; someboys are also undertaking higher education from nearby cities. Entrepreneurs havesomehow realized the importance of technical education especially knowledge ofcomputers and Information Technology, and are generally more inclined to favourI.T studies for their upcoming generation.

Lack of professional management at almost all levels has resulted in poor shop-floororganization and labour handling. Most of the units were either managed byentrepreneurs themselves or by a Munshi (a lower level manager/supervisor) hired

to run the business operations and day to day handling of business operations. Theentrepreneurs considered the placement of a professional or a business graduateas a waste of money. Moreover, the professionals are misconceived as anotherexploitation tool who might steal their business secrets.

Labour is employed mostly from nearby villages. The skills are transferred to newcomers through the conventional system of Ustad/Shagird. All the training isprovided practically on the shop floor.

In short, weak business management, non-professional marketing, poor record-keeping, lack of professionalism, poor human resource management, and lack oftrustworthy relationship were some of the main reasons for the slow growth of the

cluster and overall lesser exports.


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4. Value Chain Analysis

4.1 Value Chain Analysis (Knives)

Raw Materials for 1 Dozen Knife(SCHRADE 5) Gauge (18 * 9 * 8)

Brass Bolster = 8 GaugeSteel Blade = 9 GaugeBrass Lining = 18 Gauge

S.No Name of Material Unit Qty

Rate

(Rs)

Cost

(Rs)

1 BRASS KG. 3.50 225.00 787.502 STEEL KG. 1.50 60.00 90.00

3 WOOD HANDLE NO. 12.00 0.50 6.00

4NAIL (BRASS+STEEL) NO. 12.00 1.66 20.00

Total of Material Cost 903.50

MATERIAL

COST

CUTTING

12.00

903.5

ASSEMBLING

50.00EDGE MAKING

12.00

TEMPERING

5.00

STRAIGHTENI

NG

915.5 923.5918.5

935.5

REFINISHING

25.00

POLISHING

45.00

PACKING

15.00

1030.985.5 1055.

1070.


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4.2 value Chain Analysis of Spoons

Raw Materials for 1 Dozen SpoonGauge 16

S. No. Name of Material Unit QtyRate

(Rs)

Cost

(Rs)

1 Non Magnet Steel KG. 1.00 90.00 90.00

Total Material Cost 90.00

Note: All costing is given in PKR

MATERIAL COST

90.00

CUTTING

2.00

90.00

POLISHING

15.00STAMPING

1.50

BENDING

1.00

GRINDING

5.00

92.00 98.0097.00

99.50

PACKAGING

5.00

119.5114.5


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4.3 Cost Analysis

Activity/Material Knife SpoonMaterial 72% 76%Cutting 01% 2.5%Embossing ------ 1.7%Polishing + Bending 5.05% 15.25%Cleaning & packing 10.1% 4.24%Hardness 2.5% ------Straightening 0.6% ------Surface Grinding 4.9% ------Handle & Blade Fixing 4.04% ------


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5. Analysis of Business Operations

1. The SMEs in the area faced several problems such as decreased export orders,lack of finance, scarcity of skilled labor, unavailability of modern technology andproduction in-efficiencies. Most of the non-kitchenware manufacturers wereexpanding their facilities and even kept switching the product-line to tap thetableware market at both domestic and export levels.

2. Marketing was one of the major issues being highlighted by the SMEs of thecluster. The SMEs lacked awareness, knowledge of markets & marketingintelligence, and techniques to retain the existing markets. Moreover, entrepreneurshave started focusing more on other markets rather than the regular ones due to thelack of awareness, inability to compete and retain the customer.Usually two ways were adopted to attract the buyers Participation in trade fairs/exhibitions through TDAP/personally Individual foreign visits

Another reason for the decline of exports from the cluster was non-compliance withIntellectual Property Rights (IPR) requirements1.

3. The tableware manufacturers were mostly targeting the domestic market. Theywere also present in the export market indirectly through exporters from Sialkot. Themanufacturers stressed for a more effective marketing strategy of TDAP. Thetableware manufactures requested TDAP for participation in relevant tradefairs/exhibitions and organization of trade delegations to tap the unexploredtableware markets. A detail of largely untapped European market is given as under:

Harmonized Code(HS)

Import-2003 (USDmillion)

Largest exporter(2003)-Exports (USD)

8215 616 China821510 50 China (22 million)821520 280 China (141 million)821591 13821599 273 China (101 million)

Pakistan tableware exports to Europe in the same year in the category 8215 wasUSD 0.65 million only.

1 As an example, a number of non tableware manufactures exported copied products of M/s United Steel, oneof the leading American Cutlery traders. When the original company checked the piracy act, the company notonly black-listed the manufacturers but also imposed a ban on cutlery imports from Pakistan.


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The exporters required TDAP to organize and formulate professional tradedelegations with the active participation and consultation of manufacturers andexporters.

4. Introduction of new designs (Design of the month or design on special occasions)

is necessary to remain competitive in the global competitive market. But in cutlerycluster, lack of proper designing mechanism/facilities was observed as a weakness;entrepreneurs usually perceive it as an expense rather than investment.Entrepreneurs required professionals induction, AutoCAD facility and CAD/CAMmachinery as a Common Facility Centre in the cluster2.

5. Lack of consumer profiling and market research has limited the creative potentialof the cluster. Entrepreneurs usually produced according to the samples providedby the buyers.

6. Shortage of raw material was one of the major hiccups in the export of cutlery

products. There was no mechanism to purchase the raw material from a commonsource. The individual purchasing of local and imported material has resulted in theincreased bargaining power of traders and manufacturers of raw material.

7. The availability and performance of Stainless Steel sheets, the basic rawmaterial, according to the required specifications was an issue in the cluster. Therewere two main campuses of Stainless Steel production, in Karachi (M/s Steel Mill &Peoples Steel Mill) and one in Lahore (M/s Mughal Steel). The mentioned steel millswere not willing to undertake a smaller manufacturing order as their minimum ordersize is 10 tons. In addition, lack of modern technology in these mills required for thefulfillment of metallurgical needs of the cluster has also effected the exports.Moreover, the steel mills located in Karachi were assigned to undertake moreorders from the Pakistan Army.

8. Most of the SMEs were using Conventional methods in production requiring animmediate exposure and introduction of latest technology3.

9. Primitive style of production process has led to very low capacity utilization. Thescarcity of skilled labour (less that 200) was another major obstacle leading to thehigher costs and ineffective production system.

10. CIP and Small Tool Center, located in Wazirabad as the Common Facilitycenters were established to provide skilled manpower to the cluster. Both theinstitutions lacked modern machinery and facilities to produce skilled labour. The

2 Majority of the entrepreneurs in the cluster used to introduce only 2 or 3 designs per annumwhileon the other hand, China use to introduce thousands of new designs every year.

3 Tableware manufacturers are in dire need of semi automatic/machinery (rolling mill, polishing,grinding, molding, stamp pressing, kining machine, heat treatment, tampering and cutting press).


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industry was getting benefit only from Small Tool Center, whereas CIP was no moreoperational. According to the entrepreneurs, the institutions required good Trainersboth in Production and Metallurgical processes. The gap in skilled labour was to befilled by the institutions as the total labour in the cluster was approx. 15000 whereasthe skilled labour was less than 200.

11. Around 6-7 financial institutions/banks were present in Wazirabad. Collateralrequirement, lack of awareness about loaning schemes, high markup rates weresome of the major issues confronted by SMEs. SMEDA arranged the ProgramLending Scheme in collaboration with The Punjab Bank a few years back. Only 7-8SMEs availed the opportunity as yet. Cash Online scheme was launched byUnited Bank Limited in the recent past; but the scheme outreach was limited.

12. Lack of Inventory/Material management systems, poor line-balancing,production & labor inefficiencies, lack of modern machinery and skilled labour weresome of the problems being faced by Cutlery cluster. Most of the firms did not follow

any quality standards such as ISO9000/ISO14000. There was an urgent need toimprove the working conditions of the labour and introduce the safety relatedmeasures.

13. There was least focus on product differentiation, the entrepreneurs exhibitedinflexibility to change the product line i.e. Handmade vs. Machine Intensiveproducts. On top of that, entrepreneurs required new markets & productdevelopment techniques in addition to the understanding of product positioning.

14. There was an excessive involvement of different Government departments likeSales Tax, Income Tax and Social Security etc. One window tax collection facilitywas required to be provided to SMEs of the cluster. Similarly issues relating topublic utilities needed an immediate addresser by the Government agencies.


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Issues Observed

1. The problem of the scarcity of export orders could be linked to a number ofvariables. Exceptionally high prices of raw materials have hindered the SMEs torealize previous export orders and even to secure new ones. On the other hand,

usuage of non-standardized raw materials had led to non-compliance with theproduct specifications. Similarly, untimely delivery of products had resulted in evengreater losses in the form of individual damage claims or cancellation of orders, andpoor branding of the cluster. Moreover, poor International Branding of Pakistan wasalso a major reason contributing to the downward trend of exports.

2. Lack of awareness regarding the demands of customers & reliance on traditionalmarket approaches has also resulted in the shift of customer to other markets suchas China, India etc.

3. There were more than 300 cutlery units in Wazirabad and hardly 10-12 units had

their own websites, which were not even properly & regularly maintained. There isan urgent need to increase the IT focus in all aspects to promote and enhance saleof cutlery products in International markets.

4. Less than 10 units were ISO 9000 certified. International market practices of thebusiness have now changed; importers are more interested in companies whichhave some kind of certification.

5. Most of the entrepreneurs were uneducated, and employed poor businessmanagement practices. Furthermore, no business record-keeping had resulted inthe non-professional handling of customers.

6. Consistent product quality during manufacturing was also a pressure point. Whileprocessing bulk orders, the quality of the products usually decreases within themanufacturing cycle.

7. The entrepreneurs had the tendency to hire lower-waged unskilled staff, althoughskilled and trained machine operators could have been hired from nearbytowns/cities but at higher salaries.

8. Non-compliance with social standards, poor house-keeping, hazardous workenvironment & child labour had also contributed towards the downward trend of

exports.


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5.1 SWOT ANALYSIS

Strengths

Competitive prices (especially in Handmade products); History of manufacturing (inherited skills), good-will of Wazirabad; Presence of Cutlery & Small Tools Service Centre in Wazirabad.

Weaknesses

Lack of market awareness; marketing tools and techniques; poor end-productpackaging;

Primitive style of manufacturing; low level of technology (Manual/semi manual); Monopoly of raw material providers; shortage & fluctuating raw material prices;

Lack of skilled labour; Poor quality; lack of standardized systems; Less production & more wastage; Non-cooperation/mistrust among SMEs, lack of coordinated efforts; Un-ethical business practices leading to price-cut competition; Weak SME representation in cutlery association & poor flow of information; Comparatively less services provided by the technical institutes; Least focus on On-line marketing techniques; Unwillingness to systemize production processes, the major hurdle in ISO &

other certifications; Highly rated utility bills;

Tax issues.

Opportunities

Unexplored Tableware export markets such as Africa, Australia, Russia etc; Import of raw materials at controlled prices; Introduction of Automatic machinery as a Common Facility; Social standards implementation & ISO certifications; Possibility of product diversification; low end to high end (need product & market

segmentation)

Threats

Proliferation of less-priced Chinese products in the market (especiallyTableware);

Regulations in USA After 9/11; conflicting laws and definitions of terrorism; Cutlery smuggling from France, Germany, China etc


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6. Porters Framework for the Cluster

Porters Framework for Non Tableware Cutlery

Porters determinants Score Remarks and Status

Factor conditions:

1 Raw material availability 2 Shortage of Raw Material due to non availability of

scrap from the neighboring countries

2 Quality of raw material 2 Quality of raw material is inconsistent due to non

purification in production process of steel

3 Human resource and skill

availability

2 Human resource available & skills are traditionally

inherited

4 Capital availability 2 Lack of working capital due to weak linkages with

financial institutions

5 Availability of infrastructure 3 Road connectivity is satisfactory, other moderncommunication resources are available, consistent

power supply & space

Demand conditions:

1 Size of domestic market 5 All over the world

2 Number of buyers 3 No. of buyers are decreasing due to presence of

Chinese products with least prices

3 Growth rate of domestic

demand

3 Domestic market size is the same

Size and structure of firms:

1 Number of firms 4 Decreasing due to presence of Chinese products and

lesser prices (Weak players are out or switching their

business lines while survivals are realigning &

repositioning)

2 Size / efficiency of the firm 2 Small units, efficiency limited by management,

technology & capital

3 Existence of rivalry (among

firms)

2 Intense rivalry among the firms, unorganized & internal

price war

Related and supporting

industries:

1 Design / product development 1 No design development due to high cost and non-

functional copyright act

2 Marketing & Advertising 2 A few big players are using marketing and

advertisement tactics

3 Market research 1 No market research for product diversification (Only

through personal visits or trade delegations or

marketing tours through EPB or UNIDO)


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4 Training 2 No training institutions geared to the demands of the

cluster

5 Research & development 1 No R & D undertaken for product development &

increased productivity

6 Component & machinery

suppliers

1 Imported machinery is very expansive, while local

machinery lack precision7 Existence of promotional

institutions

2 UNIDO, PSIC, SMEDA, EPB, TEVTA, NPO, PNAC,

PITAC, PCSIR, Banks, etc. need to be linked

8 Establishment of Focus

groups

5 Wazirabad Pakistan Cutlery Network (WPCN),

Wazirabad Greenways Network (WGN), EverCon and

Wazirabad Cutlery Network (WCN) has been

established to undertake UNIDO Networking

methodology

9 Existence of producers

associations

2 Cutlery association was relatively ineffective, needed

to be repositioned & revived

Code: (1- highly unfavorable, 2- unfavorable, 3- neutral, 4- favorable, 5- highly

favorable)

Porters Framework for Tableware Cutlery

Porters determinants Score Remarks and Status

Factor conditions:

1 Raw material availability 2 Shortage of Raw Material due to non availability of

scrap from the neighboring countries

2 Quality of raw material 2 Inconsistent quality of raw material due to non

purification in production process of steel3 Human resource and skill

availability

2 Human resource available & skills are traditionally

inherited

4 Capital availability 2 Lack of working capital due to weak linkages with

financial institutions

5 Availability of infrastructure 3 Road connectivity is satisfactory, other modern

communication resources are available, consistent

power supply & space

Demand conditions:

1 Size of domestic market 5 Sold all over the country

2 Number of buyers 4 No. of buyers are increasing

3 Growth rate of domestic

demand

2 Growth rate is also increasing

4 Quality producers 2 Few quality producers linked with superstores and

hotels

Size and structure of firms:


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1 Number of firms 4 Increasing due to increase in local demand (Even

SMEs in Non-tableware product manufacturing are

expanding the facilties)

2 Size / efficiency of the firm 2 Small units, efficiency limited by management,

technology & capital

3 Existence of rivalry (amongfirms)

2 Intense rivalry among the firms, unorganized & internalprice war

Related and supporting

industries:

1 Design / product development 1 No design development due to high cost and non-

functional copyright act.

2 Marketing & Advertising 2 Sub-contracting system with market-led production, No

marketing and advertising

3 Market research 1 No market research for product diversification or better

margins

4 Training 2 Less customized training courses geared to the

demands of the cluster

5 Research & development 1 No R & D for product development & increased

productivity

6 Component & machinery

suppliers

1 imported machinery is very expansive, while local

machinery lack precision

7 Establishment of Focus

groups

5 Pak Cutlery Consortium (PCC) has been established

and has already undertaken a number of joint

initiatives

8 Existence of promotionalinstitutions

2 UNIDO, PSIC, SMEDA, EPB, TEVTA, NPO, PNAC,PITAC, PCSIR, Banks, etc. need to be linked

9 Existence of producers

associations

2 Need to redefine role of cutlery association (as the

association is ruled by large Non-tableware

manufacturers)

Code: (1- highly unfavorable, 2- unfavorable, 3- neutral, 4- favorable, 5- highly

favorable)


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7. Cluster Vision

Cutlery cluster Wazirabad would be widely recognized and regarded as the

premiere producer of quality cutlery products, infuse the latest modern technologies(for mass-production) and transmit the sense of responsibility/responsiveness

adopting best manufacturing practices in the next five years

8. Strategy

Cutlery cluster Wazirabad needs to be strengthened at both supply and demand-sides. A careful strategy needs to be drawn to fulfill the requirements at both endssimultaneously.

Initially the efforts must be made on the Export Marketing front, export orders areto be generated to plan and stimulate any kind of intervention on the supply anddemand sides.

i- Export Marketing End:

The cluster requires both short and long-term strategies; short-term may includedirect marketing exercises through export consultants at network level, while thelong-term strategies may be evolved at the association level. An action plan shouldbe drafted to sustain the business activities by focusing on the consumer rather thanniche markets only.

Due to the exposure of tableware manufacturers to the international market, theyshould be facilitated to participate in trade fairs/exhibitions. Furthermore TDAPshould concentrate on both traditional as well as untapped markets having scope ofPakistani Cutlery products.

ii- Technology End:

The Cutlery Cluster can be revived through the introduction of modern machinery.The manufacturing in the cluster is either accomplished manually or at the most bysemi-automatic machines. Hence, there is a great need to incorporate latestautomatic machines in the cluster by involving technical institutes.

iii. Human Resource End:

To limit the human resource problems following areas are needed to be addressed:

Devising of real-time training programmes


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Hiring of trained machinery operators by the networks Maintenance of healthy & hygienic work conditions Incorporating employee retention mechanisms

iv. Quality End:

Training of labour on quality systems Line balancing of machines Wastage reduction through modern machinery and training

v. Raw Material Purchases:

Joint purchase of raw material Bulk purchase of raw material by involving banks.

The smaller joint activities should be continued to achieve short-term wins

consequently preparing the networks for bigger initiatives.


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9. Future Cluster Map

Razors (8-10)

CIP TEVTA

Domestic Mkt

USA, Europe

Direct

EPB PCSUMEABanksSMEDA

R.M

(20-25)

D. M

(100-150)

Large Manufacturers T/W (25-50)

Consortiums = 5

Medium & Small T/W (100-200)

Consortiums = 2

Large Manufacturers NT/W (50-70)

Consortiums = 5

Medium & Small NT/W (150-200)

Consortiums = 8

Association of

Die Manufacturer

All PakistanTableware Association


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Notations Description

A Two-way fully developedlinkage

T/W TablewareNT/W Non-tableware

9.1 Explanation of Future Cluster Map

All Pakistan Cutlery Association has strong relations with non-kitchenware ascompared to kitchenware, so in future cluster map, there would be separateAssociation for kitchenware manufacturers because of minimum presence andparticipation in association affairs.

In current cluster map, banks have a weak relationship with the entrepreneursbut it would be much more strengthen in future. Relations would be improvedwith the introduction of customized product/service packages to the cluster and

by reducing other concerns.

Currently, there is no association of die manufacturers but it is proposed that inthe future there would be one to serve as a platform from where they would beable to exercise/demand their rights.

In the current cluster map, there is negligible direct export of kitchenware but inthe future map, it would be possible to export directly in international marketsthrough export consortia.

In the current cluster map, relationship of SMEDA and TDAP is weak. It would be

strengthened by the CDA by developing direct linkage of networks with theagencies.

CIP would be revived and in future it would develop a strong mutual relationshipwith all the entrepreneurs.

Relationship with the association will be strengthened by the provision of morevaluable services to the cluster as has already been discussed.


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10. Action Plan

Year 2007

Sr. # Activity Finish date TDAP SMEDA UNIDO Net/Assn Implementer

1Cutlery Associationstrengtheningactivities

Q2-Q4CDA,

Networks,PCSUMEA

2

1-day workshop on E-based marketingthrough Networkingapproach

Q3 70% 30%UNIDO,

Networks,PCSUMEA

3

1-day workshop onQuality certificationthrough Networking

approach

Q3UNIDO, CDAPCSUMEA

4

Marketing events(networks): Exportdelegation throughconsultant

Q4 70% 30%UNIDO,

Networks

5Participation in tradefairs through TDAP

Q1-Q470%

(participationin trade fairs)

30%TDAP,

Networks,CDA

6

Launch of NDA trgprog. at the platform

of GujranwalaChamber

Q4 100%UNIDO, CDA

Networks

Pakistan Cutlery Study

Documents

Transcript of Pakistan Cutlery Study