BGR Takeaways for Session 8

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BGR 8

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Takeaways for BGR MBA Class of 2015

BGR - Session 8

Case:Report of the Commission appointed by the Honourable Supreme Court of Pakistan, through Order dated 2-10-2009 -- to determine the Cost of Production and Profit Margins in the Sugar SectorSupplementary Reading:Unpublished paper on Sugar and Political Power by Dr Adeel Malik

Takeaways

1. The sugar industry in Pakistan represents the perverse aspect of business-government relations. Other than a few units, the industry is primarily the result of political largesse sustained by state patronage and protection from competition, both domestic and foreign. The wave of liberalization that also engulfed the sugar industry has been countered by anti-competitive collusive behavior at the PSMA level and an insidious use of political clout.

2. Exposing the sugar industry to free market forces and strengthening the Competition Commission to enable it to take strong action, as necessary, is the obvious answer but this may not be feasible given the industrys power and influence.

3. It would be best for a non-political new entrant to adopt the progressive JDW route and set up a most modern and competently-run facility with largely tied sources of raw material (i.e. cane). This enterprise should also be extensively engaged in the production and sale of profitable by-products (substantively reducing the significance of the main product, i.e. sugar, in the achievement of corporate performance goals). Although risky, membership of PSMA cannot be avoided but it is important to carefully distance the new entity from PSMAs decisions and actions in order to prevent being held culpable under the competition law.

BGR MBA Class of 2015 (Semester IIIB Nov 5 Dec 27, 2014)