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Page 1: Collective Succes or Collective Failure.pdf

Fayyaz, A.

1

Collective Success or Collective Failure? The Sialkot Football

Manufacturing Industry’s Response to International Labor Standards

Pressures in the Early 21st Century

Anjum Fayyaz Assistant Professor

Suleman Dawood School of Business (SDSB)

PhD Student – Copenhagen Business School

Director - Strategic Sectors Research Centre (SSRC)

Lahore University of Management Sciences (LUMS) – Pakistan

Email: [email protected]

Abstract:

In this article, we make a contribution to the literature on how industrial clusters in

developing countries respond to corporate responsibility demands from international buyers in

Europe and North America. We outline an analytical framework that integrates insights from the

global value chain, industrial cluster, and corporate social responsibility literatures with the aim

of explaining why joint cluster action through industry associations and/or public private

partnerships succeed or fail in facilitating cluster-wide compliance with CSR standards. We then

use this framework to analyze a case study of how various attempts at facilitating joint CSR

action in the Pakistani football manufacturing have consistently failed in addressing international

CSR compliance demands. We conclude that this form of collective failure – along with

technological changes, lack of innovation, and government failure - can partly explain why the

Sialkot has been marginalized in terms of its overall share of world football manufacturing in the

last decade.

Key Words: Clusters, Corporate Social Responsibility, Global Value Chain, Collective Failure

& International CSR Compliance

Biographical notes: Anjum Fayyaz is the Doctoral student with the Copenhagen Business School Denmark in the areas

of Entrepreneurship, Innovation and Strategy. He is an expert on industrial change management with an extensive

experience on networking and trust building. He has been working as head of program of United Nations Industrial

Development Organization (UNIDO) for more than nine years with effect from 2001-2010. He has developed a case

study on garments cluster Lahore under the supervision of Professor Jawwaid Ghani, Dean Dawood Suleman Business

School, LUMS which has been published in the Asian Journal of Management Cases. He developed a research paper

for ICSB World Conference 2007 in Finland (June 13 – 15, 2007) in collaboration with Prof. Dr. Jamshed H. Khan,

Lahore University of Management Sciences (LUMS) and Prof. Dr. Sarfaraz Mian, State University of New York at

Oswego. The paper has been published in the ―International Journal of Technology Intelligence and Planning (IJTP)‖.

He also developed a paper on ―The State of Entrepreneurship and Globalisation in Pakistan,‖ published in the volume 3

of the ―International Journal of Business and Globalisation (IJBG). He has also conducted and supervised almost 30

diagnostic studies on different SME clusters in Pakistan. His research interests are in the areas of global value chain,

entrepreneurship, corporate social responsibility, industrial clusters & networks and export clustering.

Page 2: Collective Succes or Collective Failure.pdf

Fayyaz, A.

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Introduction:

This paper explains how industrial clusters (agglomeration economies) in developing

countries respond to the corporate social responsibility (CSR – ethical behaviour of business)

demands from international buyers in Europe and North America. While responding, this paper

also elucidates why joint cluster actions through industry associations (enabling platforms for the

manufacturers to respond to the rapidly changing market conditions) succeed or fail in

facilitating cluster-wide compliance with CSR standards. Joint actions in clusters by small-to-

medium-sized enterprises (SMEs) are taken by combining their knowledge, financial resources

and contacts to significantly improve their export potential and reduce the costs and risks

involved in penetrating foreign markets. CSR standards are continuing commitment by business

to behave ethically and contribute to economic development while improving the quality of life

of the workforce and their families as well as of the local community and society at large (Holme

et al)1.

The case study on the sporting goods industry of Pakistan is selected for this paper to

know how various attempts at facilitating joint CSR action in the Pakistani football

manufacturing have consistently failed in addressing international CSR compliance demands.

Let us look at the significance of sporting goods industry in the world and its linkage with

the concepts of clusters, networks, global value chain and CSR compliance in the context of

football manufacturing cluster in Sialkot Pakistan to build the case for further discussion.

Out of 5 trillion dollar global retail industry, sporting goods market is about $110 billion

in the US with over 50 sporting applications. The future growth of the sporting goods industry

will be based on expected continued economic growth of the Asia Pacific region. The sporting

goods industry represents a highly attractive opportunity for original equipment manufacturers,

material suppliers, and part suppliers due to the size of the market and its prospects for further

expansion. Key success factor of this industry is based on knowledge of market trends, product

1 Alternatively, CSR is about how companies manage business processes to produce an overall positive impact on

society (Corporate Social Responsibility: News and Resources, Mallenbaker.net). According to Business for Social

Responsibility (BSR), CSR is defined as ―achieving commercial success in ways that honor ethical values and

respect people, communities, and the natural environment (Business for Social Responsibility).‖ Alternatively, CSR

is an action by a firm, which the firm chooses to take, that substantially affects an identifiable social stakeholder‘s

welfare (Frooman p. 227 (1997).

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Fayyaz, A.

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mix shifts, customer needs and effective market strategies2. If we only consider US market, it has

a huge potential for the manufacturers and exporters of sporting goods worldwide.

Sialkot sports goods cluster Pakistan is an established name in the world of sports goods

where many of world‘s famous brands such as Nike, Puma, Adidas, Mikasa, Grays, Select,

Umbro, etc. have established their supply chains of premium quality match-ball and club-ball

with the vendors from Sialkot. The cluster also entertains large quantities of other types of soccer

balls including practice balls and promotional balls. Sporting goods export from Pakistan was $

298 million in 2009-10 as opposed to $ 273 in 2008-9. Out of $ 298 million worth of sporting

goods, $43 million exported to USA in 2009-10 while $ 38 million exported in 2008-9. Football

export from Pakistan was $ 151.5 million in 2009-10 in comparison to $ 128.5 in 2008-93.

In Sialkot, the sports goods cluster is scattered over the whole city and adjoining areas.

More than 390 registered firms are related to the business of sporting goods in Pakistan4. Most of

the enterprises are involved in inflatable ball manufacturing and get their balls stitched by more

than 2,700 registered inflatable ball stitching units involving more than 100,000 employees5.

Core cluster actors in Sialkot soccer ball cluster include: manufacturers, subcontractors

(vendors/makers), stitchers and exportersi. Soccer ball is exported to 10 major importing

countries including US, UK and EU.

In 2006, world‘s leading brand, Nike, terminated its sourcing of soccer balls from the

sports goods manufacturing cluster of Sialkot in Pakistan. Nike alleged the presence of child

workers in the supply chain organised and managed by its Sialkot supplier. The Nike pull-out

was a continuous challenge that developing country producers face in terms of compliance with

international standards, and the consequences that this can have for the structure and the

organisation of global value chains (firms in one country contract with firms in another country;

outsource some or full value added part of the chain). Nike pulled out in spite of an extensive

and independent labour monitoring mechanism that had been in place in Sialkot since 1997

supported by various international and local actors (Nadvi, 2007). It was argued that Sialkot

sporting goods cluster addressed the child labour issue in the past through a complex network

2 http://www.lucintel.com – accessed on 24-4-11 at 1400 hours

3 http://tdap.gov.pk

4 Registered members of Pakistan Sports Goods Manufacturers & Exporters Association (PSGA)

5 Based on interviews, visits and meetings with stakeholders

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Fayyaz, A.

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arrangement that brought together an array of local, national and international actors from

business, labour, NGOs, the state, donors and international agencies (Nadvi, 2004).

Nike‘s stance in 2006 triggered a debate on how exporters face issues related to

governance of global value chains, respond as industrial clusters / networks to the challenge of

compliance while entering and sustaining in the global value chains. It was also important to

understand how local producers took joint actions to respond to these challenges while working

with the international buyers.

As we know that global value chain activities are tightly integrated and managed where

firms and workers are in widely separated locations (Johnson, C. 2005), a firm from one country

contracts with a firm in another country to coordinate production in plants owned by another

firm in a third country. Due to the complexities attached to these chains, it is important to

understand the link of these chains with small-to-medium-sized enterprises (SMEs) clusters and

the responses of the stakeholders in these clusters to the compliance challenges posed by the

global value chains.

Pakistan has 3.2 million SMEs. In overall terms, SMEs account for about 30% of

Pakistan‘s gross domestic product, 15% of investment, and 80% of employment. They also play

a prominent role as existing or potential producers of export goods. SMEs may thus be justifiably

characterized as the principal building blocks of the Pakistani economy, providing the country

with many opportunities for increased employment (including female employment) and poverty

eradication on the one hand, and enhanced productivity, competitiveness and international

market penetration on the other.

However, the performance of these SMEs continues to be constrained by a number of

weaknesses. These include an inadequate policy and regulatory framework, the absence of many

critical support mechanisms, shortages of inputs, high utility costs, lack of access to capital,

obsolete technology, traditional mindsets, limited management skills, low productivity,

insufficient quality control, a lack of homogenous standards, inadequate research and

development, limited market intelligence and marketing skills, and difficulties in achieving

economies of scale in the purchase of inputs (such as equipment, raw materials, and consulting

services).

The characteristics of the SMEs in sporting goods cluster Sialkot prevent them from

realizing their full potential as a source of economic and social development, and especially as a

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generator of export revenues. If we look at the composition of the enterprises in the sporting

goods cluster Sialkot, there are only two percent large enterprises (more than 250 employees and

directly working with brands) whereas ninety eight percent are small-to-medium-sized

enterprises (SMEs). These enterprises generate employment for a significant percentage of the

working population and thus play a major role in economic development (UNIDO SME Cluster

and Network Development) of the cluster.

As SMEs operate in clusters, UNIDO defines industrial clusters are sectoral and

geographical concentration of SMEs produce similar or related products face common

challenges and threats in an industrial sector. In developing countries like Pakistan, the sectoral

and geographical concentration of SMEs is common, with the existence of a critical mass of

specialized and agglomerated activities, in a number of cases with historically strong roots

(Becattini, 1987). Clustering may be considered as a major facilitating factor for a number of

developments including division and specialization of labor, the emergence of a wide network of

suppliers, the appearance of agents who sell to distant national and international markets, the

emergence of specialized producer services, the materialization of a pool of specialized and

skilled workers, and the formation of business associations. Clustering is the tendency of

vertically and / or horizontally integrated firms in related lines of business to concentrate

geographically (Hrvatska Kostajnica, Dina Ionescu Administrator, OECD LEED Programme).

Clustering has some positive impacts on the competitiveness of the firms located in the clusters

based on collective efficiency (CE).

To capture the positive impacts of these factors on the competitiveness of firms located in

clusters, Schmitz (1995) introduced the concept of ‗‗collective efficiency‘‘ (CE) defined as the

competitive advantage derived from local external economies and joint action. The concept of

external economies was first introduced by Marshall in his Principles of Economics (1920).

According to Schmitz (1999a), incidental external economies (EE) are of importance in

explaining the competitiveness of industrial clusters, but there is also a deliberate force at work:

consciously pursued joint action (JA).

Such joint action can be within vertical or horizontal linkages. The combination of both

incidental external economies and the effects of active cooperation define the degree of

collective efficiency of a cluster and, dynamically, it‘s potential for fostering SMEs‘ upgrading.

Both dimensions are crucial: Only incidental, passive external economies may not suffice

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without joint actions, and the latter hardly develop in the absence of external economies. Thus,

the focus of this paper is on the role of intra-cluster vertical and horizontal relationships

generating collective efficiency through upgrading.

The concept of upgrading is making better products, making them more efficiently, or

moving into more skilled activities. This has often been used in studies on competitiveness

(Kaplinsky, 2001; Porter, 1990), and is relevant here. Following this approach, upgrading is

decisively related to innovation. Upgrading can be defined as innovating to increase value

addition to the enterprises either by entering higher unit value market niches or new sectors, or

by undertaking new productive (or service) functions.

Now the question is whether SMEs in the sporting goods clusters Sialkot which are

already integrated in the global value chain would be able to respond to the challenges of CSR

compliance through joint actions. Whether these joint cluster actions through industry

association succeed or fail while responding to the global challenges through collective

efficiency and upgrading.

This paper has been structured as follows: First section introduces Sialkot football

cluster in terms of basic structure, characteristics, exports, and social dynamics. Second section is

a theoretical section, outlines the literature on global value chains, clusters/networks and CSR

compliance. Analytical framework has also been developed in this section. Third section is on

methodology and the fourth section is about empirical evidence structured according to the

analytical framework. Fifth section is on discussion whereas sixth and the final section is on

conclusion based on the above sections and the line of argument.

Page 7: Collective Succes or Collective Failure.pdf

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Sialkot Football Cluster:

Sialkot sports goods cluster is an established name in the world of sports goods where

many of world‘s famous brands such as Nike, Puma, Adidas, Mikasa, Grays, Select, Umbro, etc.

have established their supply chains of premium quality match-ball and club-ball with the

vendors from Sialkot. The cluster also entertains large quantities of other types of soccer balls

including practice balls and promotional balls.

In Sialkot, the sports goods cluster is scattered over the whole city and adjoining areas.

More than 390 registered firms are related to the business of sporting goods in Pakistan6. Most of

the enterprises are involved in inflatable ball manufacturing and get their balls stitched by more

than 2,700 registered inflatable ball stitching units involving more than 100,000 employees7.

Core cluster actors in Sialkot soccer ball cluster include: manufacturers, subcontractors

(vendors/makers), stitchers and exporters.

Compliance challenges for the producers of football in Sialkot include CSR, social

aspects of CSR and labor laws (ILO & local government). Environmental compliance revolves

around waste treatment and disposal of solid and liquid wastes. Other challenges include

negative pricing, technical compliances, restriction of hazardous substances (ROHS) and safety

standards. These issues are faced by most of SMEs in order to sustain and grow in the global

value chain.

Compliance on CSR is relatively difficult and more complicated in case of football

cluster in Sialkot as the cluster comprises of SMEs and a strong vendor-based industry. If we

look at the composition of football manufacturing cluster in Sialkot, it comprises of four major

tiers which are: large enterprises (20), medium enterprises (50+), small or micro enterprises

(400+) and subcontractors – makers or vendors (1000+). Labor standards applied to the

corporate or the industrial sectors cannot be enforced to this cluster due to the dynamics of

composition of the producers and the complications associated with the supply chain.

Football producers and exporters of Sialkot define sports goods as sporting goods or

sports equipment refers to as any object used for sport or exercise. It includes products and

accessories used in playing different sports, e.g. football, hockey, cricket, tennis, boxing, etc.

Soccer balls can be categorized on the basis of usage and technology. Following is the

6 Registered members of Pakistan Sports Goods Manufacturers & Exporters Association (PSGA)

7 Based on interviews, visits and meetings with stakeholders

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categorization of soccer balls based on their usage: 1. Professional Match Balls; 2. Match Balls;

3. Practice/Camp Balls; 4. Promotional Balls; 5. Indoor Balls; and 6. Futsal Soccer Ball.

Professional Match Soccer Balls: soccer balls are developed for top level international

professional matches. These balls are produced after getting approval from FIFA (Federation

Internationale de Football Association) and are designed to meet high testing standards

(trajectory, shape, balance, bounce, water–absorption, velocity, etc.) and contain five layers of

highest quality material.

Match Soccer Balls: usually designed for use in club or league level matches. These balls

are usually approved by national or international regulatory bodies, e.g. National Federation of

State High School Associations (NFHS), FIFA, etc. Usually four or five layers match ball costs

more than practice balls and less than the internationally approved soccer balls.

Training/Practice/Recreational/Camp Soccer Balls: training balls used for the daily

practice sessions of soccer players. They are less expensive as compared to match balls.

Normally they comprise of four or less layers of relatively lower grade material. Promotional

Balls is the most heavily traded category in soccer balls, produced to promote a brand name, an

organization or an event. They are exclusively printed, comprise lesser layers of material to

reduce the cost and are available even in variant sizes. Indoor Soccer Balls have same size and

configuration as the outdoor balls but are traded less in the international market. Many of them

contain a felt type outer covering, similar to the material used on tennis balls. Futsal Soccer Balls

are different from a typical soccer ball as the bladder is filled with foam which makes the ball

heavier and less bouncy. It is used to play on hard surfaces.

Technology wise categorization is based on Hand Stitched Balls and Machine Stitched

Balls. Hand Stitched Ball is produced by skilled labour without using any kind of machinery

except a wooden wise that holds panels of the soccer ball. They are stitched with a polyester or

similar thread that ensures tighter and stronger seams as they are meant to be deployed in

international or national matches. Machine Stitched Ball is a low-priced promotional ball, not

requiring high quality and performance in the field as compared to the hand-stitched ball.

Thermally Molded Ball is the latest technology of soccer ball manufacturing under sole

copyrights of Adidas who introduced Roteiro ball and later Teamgeist ball in FIFA World Cup

2006. Normally it uses three layers of patented materials, where the panels in outermost layer are

joined using thermal molding technology.

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In 1997, Nike and a Pakistani firm opened a soccer-ball stitching plant in Pakistan. At

that point, Pakistan‘s share of total soccer balls in world exports was 70-80% whereas China‘s

share was between 20-30%. Many cluster actors and international stakeholders started reacting

including The International Labour Organization (ILO), The United Nations Children's Fund

(UNICEF), The Sialkot Chambers of Commerce and Industry (SCCI) and major brands sourcing

from Sialkot8. The child labour allegations as surfaced in mid 90‘s prompted the entrepreneurial

sector and the SCCI to undertake adequate measures with concerned stakeholders to completely

purge the soccer ball industry from the child labour issue and to provide social protection to

children and their families. Independent Monitoring Association for Child-labour (IMAC)ii and

Child & Social Development Organization (CSDO)iii

are the extension of the same initiative to

sustain the success of the programme and address other upcoming issues.

IMAC, a non-profit organization, set up by ILO-IPEC9 (MOU signed between the ILO

and the Government of Pakistan to eliminate child labour) in 2002 to sustain the workplace

monitoring system against child labor in the soccer ball industry in Sialkot, Pakistan. In March

2003, IMAC assumed its independent role, took over from the ILO-IPEC along with all the

technical knowhow, logistics and trained technical staff to run the system. IMAC brought in

innovative changes in the system, giving new dimensions to the monitoring work adding

credibility and efficiency to the workplace monitoring functions10.

CSDO is a Civil Society, Non-Profit Organization (CSO) acting as a ―Social Arm‖ of

SCCI for the achievement of child labour free Sialkot with enhanced implementation of Child

Rights Convention (CRC) and Socially Responsible Entrepreneurship in Sialkot.

In 2006, Nike terminated its sourcing of soccer balls from the sports goods manufacturing

cluster of Sialkot in Pakistan. Nike alleged the presence of child workers in the supply chain

organised and managed by its Sialkot supplier. The Nike pull-out was a continuous challenge

that developing country producers face in terms of compliance with international standards, and

the consequences that this can have for the structure and organisation of global value chains

(GVCs).

Nike pulled out in spite of an extensive and independent labour monitoring mechanism

that had been in place in Sialkot since 1997 supported by various international and local actors

8 Interview with IMAC

9 International Programme on the Elimination of Child Labour

10 http://www.imacpak.org

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(Nadvi, 2007). It was argued that Sialkot sporting goods cluster addressed the child labour issue

in the past through a complex network arrangement that brought together an array of local,

national and international actors from business, labour, NGOs, the state, donors and international

agencies (Nadvi, 2004).

As the compliance with international standards is a pre-requisite for entry into the

globalised production networks, developing country firms are confronted by a set of distinct

product and process standards that they must meet. This has heightened the competitive

challenges SMEs face as the non-compliance can result in exclusion from profitable markets.

Nike‘s termination of sourcing of soccer balls from its lead supplier in Pakistan can be taken to

analyze the relationship between standards and governance. It is important to know how the

standards are shaped and implemented in the global context and how these standards affect the

governance of value chain ties (Nadvi, 2008).

The above example raises questions on how to integrate insights from the global value

chain, industrial cluster, and corporate social responsibility literatures with the aim to explain

why joint cluster action through industry associations and/or public-private-partnerships succeed

or fail in facilitating cluster-wide compliance with CSR standards.

In addition to various joint actions taken through the Sialkot chambers‘ platform in

collaboration with different stakeholders, establishment of ―Soccer Village‖ initiated by UNIDO

in 2008–9 is a good example to explore how collective actions failed to align the exporters with

the compliance requirements.

It is also important to discover how various attempts at facilitating joint CSR action in the

Pakistani football manufacturing have consistently failed in addressing international CSR

compliance demands. Furthermore, it is also required to know what form of collective failure

along with technological changes, lack of innovation, and government failure can partly explain

why Sialkot has been marginalized in terms of its overall share of world football manufacturing

in the last decade.

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Theoretical Framework:

It is important to note that access to US and Western Europe markets is based on meeting

international quality assurance standards, which in turn require greater local cooperation. It has

been observed that even with the increase in inter-firm ties and greater local cooperation, there

might be significant areas of collective failure (Nadvi, 1999). Even if the manufacturers and

exporters in the football cluster in Sialkot support collective efficiency as the key to export

success but there are some instances where local cooperation based on joint action did not

produce the desired results. Another question raised by Nadvi (1999) that whether collective

efficiency arising from clusters through joint actions facilitate upgrading to align the firms to

meet the international compliance challenges. While working on collective success or collective

failure it is important to establish evidence based on active collective efficiency in Sialkot based

on vertical supply chain (a company owns different aspects of providing the end product to the

customer) linkages, local cooperation and horizontal collaboration (business agreement between

two or more companies at the same level in the supply chain) with the local institutions.

Improvement in the standards and manufacturing processes require increased exchange of

information and experience of buyers with the suppliers and of suppliers with their

subcontractors. In case of Sialkot, weakness in the vertical chain relationship leads to a difficulty

in improving the ties with the buyers independent of relationships with the suppliers and

subcontractors. Relying purely on the private sector to solve compliance issues through joint

actions might lead to increased role of public sector to avoid collective failures in different

clusters in Sialkot especially the case of football manufacturing cluster.

Although collective efficiency is passively acquired through external economies but

actively generated external economies are central to the competitiveness for a specific cluster.

These external economies require joint actions based on collective benefits. It is also important

to note that joint actions are important for the growth of a cluster based on ties with stakeholders,

subcontractors, buyers, interest groups and support institutions. We know that clustering

facilitates international competitiveness which turns local producers into global competitors and

the competitive advantage is derived from local external economies and joint actions. Collective

efficiency can be explained in terms of incidental external economies and actively pursued joint

actions. Benefits associated with collective efficiency include: Local and specialized labor

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markets, division of labor based on core competence, presence of allied and subsidiary sectors

and easy access to specialized trade and technical knowledge (Nadvi, 1999). Joint action gains of

clustering can be explained by the dynamics of Sialkot cluster in terms of its vertical ties with the

ability of local firms to face the exogenous pressures although manufacturers/exporters in Sialkot

have weak form of horizontal collaboration. If we want to understand joint actions, it is difficult

to evaluate inter-firm collaboration and their relationship with their respective sub-contractors

and traders to understand the success or failure of joint actions (Nadvi, 1999).

As the networking behaviors are based on economic, social, cultural and industrial factors

(Yeh-Yun Lin & Zhang, 2005), Sialkot football manufacturing cluster seems to be a combination

of disconnected networks with a weak commitment to the regional innovation (geographic

concentrations of firms doing business with each other having common needs for talent,

technology, and infrastructure) and social learning (learning within a social context) with lesser

need for clustering or change. Weak network ties and heterogeneous network culture are linked

with the poor access to infrastructure with status and position of power in the network. Individual

actors‘ strong identity with their own community, systemically embedded culture of competition

and autonomy prevents virtual clustering in the Sialkot football cluster (Braun, 2003).

Literature on SMEs, Clusters, Networksiv

, Global Value Chain (GVC)v and Corporate

Social Responsibility (CSR)vi

requires a framework to identify the linkage between these areas

based on the line of argument and the context of SMEs integration into- and their response to-

the GVC and the social responsibility through collective efficiencyvii

.

Small and medium enterprises (SMEs) are an important plank of industrial policy in

many developing countries. Creating jobs, improving welfare, alleviating poverty, raising

incomes, enhancing technical and entrepreneurial capacities are some of the key strategies by the

state through SMEs support programmes. United Nations Industrial Development Organisation

(UNIDO) has been working on SMEs through the application of SME development

methodologies and approaches helping partner countries align their industrial development and

poverty alleviation agendas (Nadvi,1995).

UNIDO (2001) approach towards SMEs is based on a key role of SMEs in economic

growth and equitable development in developing countries. Their contribution to employment

generation, poverty reduction and wider distribution of wealth and opportunities represents a

major window of opportunity for most developing countries. However, the potential role of

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SMEs is often not realized because of a set of problems commonly related to their size and

isolation.

If we know the importance of SMEs for a developing country like Pakistan due to their

role in economic development, employment generation and poverty alleviation, we need to

understand how to enhance their competitiveness (nation‘s ability to produce goods and services,

meeting international standards, simultaneously maintaining and expanding real incomes of its

people over long term)11 through external linkages as SME clusters and industrial districts in

terms of agglomeration economies.

SME clusters are platforms of interventions for the policy makers and they have potential

to respond to the international challenges through collective efficiency. SME clusters are

important as the enterprises are able to overcome constraints in capital, skills, technology, and

markets by clustering. Enterprise clusters help their constituents grow and compete by

encouraging more effective knowledge, technology diffusion and product specialization,

leveraging local comparative advantage, fostering production value chains, and achieving

collective efficiency (Douglas, 2007).

One of the important things associated with SME clusters is the local comparative

advantage where they can restructure and enhance their competitiveness. The importance of

interactive learning process cannot be denied in the cluster setting as the SMEs come together to

exchange information and solve common problems. It is important to note that enduring

competitive advantage is localized and based on the tacit knowledge for building firm-specific

competitiveness.

Collective efficiency is one of the important strategies to address the isolation of SMEs.

There is a need to embed SMEs in productive relationship to give them real benefits through

enhancing external economies, reducing transaction costs and boosting their bargaining power

(Posthuma, 2004). Broader category of SME development is considered as private sector

development12

by the donors.

SME Networks in industrial clusters are enabling platforms for the manufacturers to

respond to the rapidly changing market conditions and remain competitive in an increasingly

global economic environment. These platforms are sources of information about markets, about

11

US Presidential Commission on Industrial Competitiveness – UNCTAD 2005 12

SME development in UNIDO comes under Private Sector Development Wing called PSD.

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competitors, and about new techniques to introduce a great number of new products or services.

Successful small firms are well integrated into international networks both for customers and for

suppliers (Malecki & Veldhoen, 1993). SME networks through inter-firm linkages of producers

in a regional district are more competitive than their larger counterpart through collective

efficiency. These clusters of firms demonstrate greater resilience during times of economic

downturn than their larger counterparts (Nadvi & Schmitz, 1994).

In order to understand the role of networks or strategic alliances to help SMEs enter

export markets, UNIDO (2003) established a guide to export consortia to overcome the typical

problem of isolation and small size of SMEs. The document elucidates the inescapability of

networking and trust building amongst SMEs to establish an export presence in the foreign

markets.

Although the member firms in the networks have greater resilience during the difficult

times but they require mutual trust, social capital and collaborative environment to achieve

better developmental outcomes. On one hand, strategic alliances or dynamic networks have

export potential through economic externalities and knowledge spillovers but on the other hand,

entrepreneurs or member firms fear partners‘ opportunistic behaviours and fear of losing of their

strategic control over their own firms.

In order to understand the network strategies at international level, we need to know how

strategic alliances help SMEs enter export markets. After learning about SMEs, Clusters and

Networks, it is important to know ―why‖ part of GVC and how SMEs are integrated in global

value chains.

The term globalization encompasses wide range of phenomena including cross-border

integration of wholesale and retail financial markets, increased global-scale market competition

and increased foreign direct investment (FDI). The term is also linked with the increased cross-

border contracting and global-scale production networks, formation of international joint

ventures and strategic alliances for research & development (Sturgeon, 2001).

Ideal type of export-oriented SME clusters tend to operate in medium high-technology

manufacturing and services, produce specialised capital and consumer goods and service specific

market niches. These export-oriented SMEs export independently, sell products directly to

specialised customers of special products and cooperate with foreign enterprises while

performing intramural research (organized within a set geographic area) and development

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activities. They also innovate product mix by including products with a higher value addition and

introduce new technologies, but without limiting their innovation activities on the acquisition of

technology (Račić, Aralica and Redžepagić, 2008).

While linking the small producers to the GVC, it is important to know the role of buyers

in upgrading the producers in the local clusters and also promoting full-package production in an

export-oriented cluster. Upgrading in the value chain literature is usually broken down into

process upgrading, product upgrading and functional upgrading. Processes are upgraded by

doing things better whereas product upgrading is done by producing better goods. Firms are

engaged in functional upgrading when they are involved in additional and higher value-added

activities (Humphrey & Schmitz 2002, 2004).

A key issue in the present GVC literature is the extent to which asymmetrical

relationships with buyers provide suppliers with opportunities for learning and upgrading. Global

buyers often play a significant role in process and product upgrading, especially for their more

favoured suppliers, and especially in the initial stages with incipient producers (Schmitz &

Knorringa, 2000).

Compliance with international standards is now a pre-requisite for entry into globalised

production networks. Developing country firms are confronted by a set of distinct product and

process standards that they must meet. This has heightened the competitive challenges SMEs

face as the non-compliance can result in exclusion from profitable markets. Nike‘s termination of

sourcing of soccer balls from its lead supplier in Pakistan can be taken as a lens to analyse the

relationship between standards and governance. It is important to know how the standards are

shaped and implemented in the global context and how these standards affect the governance of

value chain ties (Nadvi, 2008).

Unfortunately, a greater number of SMEs seeking to enter international supply chains,

social and environmental conditions are a challenge, which must be met in order to gain market

access. However, compliance is a competitive issue as suppliers can lose contracts through non-

compliance. Meeting social and environmental standards alone is not enough to win and retain

customers.

Companies‘ social and environmental responsibilities are increasing due to global

changes in the way the role of business is perceived. New role of companies requires policy

support as well as a strong ‗business case‘ for companies to actively support sustainable

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development beyond philanthropy and impact mitigation. Partnerships between the companies,

government and the civil society are introduced as a potentially effective and efficient strategy

for CSR. They are no panacea, however, and require a commitment to local communities‘ rights

with prior consent and authentic participation. CSR hence presents companies with significant

challenges (Hamann R., 2003)viii

.

If CSR is the global pressure for local responses and it adds cost, how local collective

action can be considered as voluntary action to improve business processes, improve

transparency and enhance social and environmental standards. When local export industries are

inserted into the global value chain, embeddedness of CSR initiative depends upon visibility of

the value chains. In case of Sialkot Soccer Ball Cluster, it comes under highly visible chains

where the external pressure was from the US buyers in 1995 and the industry response was based

on Atlanta Agreement in 1997 (Lund-Thomsen & Nadvi, 2010).

Corporate Social Responsibility (CSR) is a new understanding of the role of business in

collaborative governance. CSR can be taken as an active agent of an enabling governing style

that assumes its joint responsibility with all the other agents for social cohesion and

development. The usual problem is that it lacks a local and regional perspective while

implementing. Social responsibility provides the framework of governance with the idea to see

how social responsibility schemes can be articulated through models of public and private

cooperation (Díez, Ayuso, and Santos, 2008). Striking the right balance between national and

global interests, and public and private gains for trade and investment in a specific cluster,

Responsible Competitivenessix

Strategies are essential ingredients for effective global markets.

It blends forward-looking corporate strategies, innovative public policies, and a vibrant, engaged

civil society. It is about creating a new generation of profitable products and business processes

underpinned by rules that support societies‘ broader social, environmental and economic aims

(Hon. Al Gore, 2007).

Although application of CSR depends upon SMEs with cooperative structures and

networks when they operate in sectoral clusters but CSR appeared to be affected by a lack of

consensus on its scope and meaning. Reflexive-conceptual debate on CSR embraced the notion

that the best approach would have been to ‗‗make your path as you walk‘‘ (Díez, Ayuso, &

Santos, 2008). Alternative perspective of CSR offers a ground for caution about the actual

spread, reach and positive impact of CSR initiatives in developing countries. Accepting

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uncritically that more CSR can solve complex problems associated with poverty in the global

South ignores the possibility that CSR may do more harm than good (Prieto-Carrón, M., Lund-

Thomsen, P., Chan, A., Muro, A. and Bhushan, C., 2006).

Sialkot and Jalandhar soccer ball clusters in Pakistan and India responded to the Atlanta

Agreement (AA)13

between 1997 and 2007. Differences across both clusters as resulting from

various related factors such as the presence of the mega brands and associated attention from the

international media and labour/child rights groups as well as the Sialkot cluster‘s larger size

make it necessary to sustain a potentially stronger monitoring mechanism in Sialkot than in

Jalandhar where producers are less in the international spotlight. Nike pull-out in 2006 questions

about the viability of the Atlanta Agreement and the efficacy of local monitoring mechanism

(Lund-Thomsen & Nadvi, 2009).

On one hand, literature on SMEs takes isolation as a bigger problem of SMEs than their

size as the cooperation among SMEs through external economies can overcome the obstacles of

low level of investment, weak technology, low productivity and inefficient work practices. On

the other hand, SMEs face problem of low level of compliance if they try to target the

international market by entering the global value chain (GVC).

Although the member firms in the networks have greater resilience during the difficult

times but they require mutual trust, social capital and collaborative environment to achieve

better developmental outcomes. Strategic alliances or dynamic networks have export potential

through economic externalities and knowledge spillovers but these networks fail sometimes

when they go for joint actions due to partners‘ opportunistic behaviours and fear of losing of

strategic control over their own firms.

The success or failure of joint actions also depend upon the nature of business,

composition of the cluster, requirement of compliance, value chain and switching cost of the

business. Role of chambers or association is also important in addition to the interest of policy

makers and international donors for the cluster under-consideration. Framework to understand

the dynamics of joint action success or failure in a cluster like Sialkot football where compliance

with international standards in one of the main challenges can be developed as follows:

13

An agreement between the International Labour Organization (ILO), the Sialkot Chamber of Commerce and

Industry (SCCI) and UNICEF on February 14, 1997 – announced at the Sports Super Show in Atlanta, Georgia. Its

goal was to combat high rates of child labour in the Pakistani football making industry.

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Framework:

GVC for the Sporting Goods

Cluster Sialkot Cross-border integration of wholesale & retail

markets, increased global-scale market competition

and increased foreign direct investment

Relationship of

buyers & producers

Networking, Trust

Building &

Collective Efficiency Social Compliance

Responsible

Competitiveness

Enterprise

Upgrading

Management of

GVC Cross-border

contracting &

global-scale

production

networks:

Formation of

international joint

ventures & strategic

alliances:

Networks in the Sporting Goods

Cluster Sialkot

Enabling platforms for SMEs; respond to rapidly

changing market conditions & remain competitive

in GVC

Joint Actions – Collective Efficiency:

Dynamic SME networks leading to inter-firm

linkages, social cohesiveness & competitiveness

Joint Actions – Success or Failure:

Nature of compliance challenges, child labour, minimum wage, health & safety

standards for input material, nature of business and management structure, product or

business switching cost, role of chamber or association, ownership of public sector and

donor agencies, role of international buyers history of the cluster, joint action as a

business case for members, technology change and lack of vision to launch own brand.

Upgrade: SMEs

upgrade by

participating in

GVC through

social compliance,

networking and

collective

efficiency

Sporting Goods Cluster Sialkot

Platform of interventions

Respond to challenges of GVC through collective

efficiency, reduce transaction costs and boost

bargaining power

Constraints:

Size & Isolation

SMEs – Sporting Goods Cluster

Sialkot

Employment generation, poverty reduction, welfare

Improvement and wider distribution of wealth &

opportunities

Obstacles: Low

investment, weak

technology, low

productivity,

inefficient work

practices & low level

of compliance to

enter GVC

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Methodology:

The research paper develops a case study design to analyze how the SMEs in the sports

goods cluster Sialkot are meeting the challenges while entering the global value chain. The paper

outlines an analytical framework that integrates insights from the global value chain, industrial

cluster, and corporate social responsibility literatures to explain why joint cluster action through

industry associations and/or public private partnerships succeed or fail in facilitating cluster-wide

compliance with CSR standards. Distinct challenge faced during the data collection was to

identify the specific joint actions taken by the Sialkot football cluster whereas most of the joint

actions taken in Sialkot are generic in nature also covering football cluster but they also impact

the other industrial clusters in Sialkot. Secondly, specific joint actions related to CSR compliance

are also at two levels. Mostly at the top tier of the cluster producing high quality balls and few at

the lower tier of the cluster where promotional balls are being produced.

The study will be descriptive type as evident from the line of argument on joint action

successes or failures in the sporting goods cluster Sialkot. This has paved the way to understand

the impacts of dynamics of the Sialkot football cluster and its response to the challenges of

global value chain through networking and collective efficiency. The study has been conducted

based on the instruments such as focus group meetings, questionnaires, in-depth interviews, etc.

In this study inductive research strategy has been used through the patterns to be evolved taking

tentative hypothesis for developing the theory linking the challenges of global value chain. An

important point to note here is that the whole Pakistani sporting goods industry is confined to

Sialkot and this study would be helpful in improving the international competitiveness of this

particular cluster.

The study population in this case would the 390 sports goods producers in the Sialkot

sports goods cluster. These producers are registered with the sports goods association in Sialkot

and the Sialkot Chambers of Commerce & Industry. As we are trying to study joint actions and

the development of SME networks, it has been done through individual enterprise interviews

combined with the case studies of particular networks, particular joint action initiatives within

the industry. We have also mapped and talked to the existing support institutions such as

industry-based federal and provincial governmental departments, NGOs and civil society

organizations.

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We have also explored the initiatives of other cluster actions and support departments

such as Small and Medium Enterprise Development Authority (SMEDA), Trade Development

Authority of Pakistan (TDAP) and Punjab Small Industries Corporation (PSIC), which are trying

to implement the cluster development methodology in the sports goods industry, involving the

development of SME networks. We also explored the external economies and joint actions

already being taken in Sialkot Cluster such as soccer village (Sialkotec Network) and other

networks in sporting goods cluster. The research has focused on the ongoing or existing activities

in the cluster to understand the dynamics to answer the research question. Other sources of

knowledge such as cluster development agents working in Sialkot cluster, chambers, association,

support institutions and network members have been included in the interviews to understand the

ground realities.

20 interviews conducted with the principal firms divided into three tiers. 2 Large

enterprises, 4 Medium enterprises and 6 small enterprises were interviewed in addition to the

current and previous presidents of Sialkot Chamber of Commerce and Industry. 4 Interviews

conducted with the representatives of ILO, SMEDA, TDAP and PSIC. Selection of enterprises

was through random sampling out of the tiers already defined in the diagnostic study conducted

by UNIDO on sporting goods cluster Sialkot.

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Empirical Evidence:

One of the major compliance challenges under CSR which Sialkot football producers are

facing is related to football stitching in terms of minimum wage. Minimum wage set by the

government of Pakistan was Rs. 6000/- in 2009 – 10 which has been increased to Rs. 7000/- in

2010 – 1114

. It has become difficult for the manufacturers to increase Rs. 1000/worker in one

year although the producers working with top brands are bound to match the requirements15

.

Currently, child labor is not a visible issue in Sialkot football Industry, especially for the

producers of promotional balls. In 2007, Nike announced that it would resume soccer ball

manufacturing in Sialkot through a new supplier, Silver Star Group (2007)x claiming that Silver

Star is complying with the health and safety as well as standard operation policies (SOPs) of

Nike including Nike‘s core standards on management, environment, safety and health.

The other issue which is associated with the compliance is the use of DOP (Dioctyl-

phthalate), often also referred to as DEHP (Diethylhexyl-phthalate) and also called PVC

softener16. This chemical is used to manufacture the outer shell of the football. As the PVC and

softeners do not bond chemically, the softener can gradually dissolve out of the product again

when it is used, and as a result of evaporation, washing or abrasion it can get into the

environment and into the human body. EU has classified DOP as a hazardous substance for

reproduction (Category 2: toxic to reproduction and development) and included it in the so-

called ―SVHC Candidate List‖ as a ―substance of very high concern‖ (SVHC) in October 2008.

Sialkot football producers are in the process of replacing this chemical with DOP free chemical

which might take time and resources to align with the compliance requirements.

On the technology-related challenge, Ghulam Ishaq Khan University (GIK) is already

working with SCCI to help hand stitchers by semi-mechanizing hand stitching to eliminate

fatigue. This will help improve the production efficiency from 4 balls/day – 6 balls/day.

14

Government of Pakistan Labour Policy 2010. 15

It is important to note that labor cost is 25% of the total cost of the product whereas material cost is around 75%

(assuming that admin cost and indirect costs are negligible). Interview with an Ex-president SCCI 16

Softeners are used to give the essentially hard and brittle raw material PVC (polyvinyl chloride) its rubber-like

properties, making the material malleable and elastic for glove production, while at the same time keeping it

dimensionally stable (EU Commission Communication in the Official Journal of 13 April 2006, 2006/C90/04).

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In most of the SMEs working in and around the city, companies have lean management

structure in which there is no middle management present between the CEO and the Foreman17

i.e. no formal management structure in the companies. In most of the cases, application of

management practices is without appropriate business management education resulting in low

productivity and poor professional management.

Management of the factories is facing with the increase in prices of raw material which

has almost doubled in last one year and the cost of labor has increased by 30%. Football

producers/exporters need to work on cost cutting and waste management so that they could be

able to survive and grow. The basic reason behind this issue is that buyers are not willing to

match price increase on supply side.

Inland and international freight has increased in the last few years resulting in the careful

usage of full container load leading to the optimal utilization of containers, saving on logistical

costs through economies of scale. As most of the exporters are working for other brands, direct

marketing is not a pressing issue for the producers/exporters of football cluster in Sialkot.

Furthermore, due to the city package and the presence of dry port within the city has resolved

most of the issues related to the logistics.

Sialkot football cluster is responding to the challenges mostly as individual entrepreneurs

with a loose arrangement with the networks/consortiums, although they also respond through

chamber‘s platform through joint actions as follows:

As most of the manufacturers/exporters are producing cheaper balls, which are called

promotional balls, they are working jointly to upgrade technology, leading to machine stitching.

They are also working on material development in a passive way through exchange of notes with

the relevant people.

Material testing and sports goods testing laboratory is under development at Samberyal

(delayed because of delay in provision of funds by the government). Material testing facilities

are available in Lahore whereas sports goods testing facilities are not available in Pakistan. This

center is being developed with a vision to provide all testing facilities within Sialkot city.

17

Usually the supervisor will have assistants known as factory foremen. A factory foreman will be in charge of one

of the work shifts in the factory, and ensures that the production line proceeds smoothly during that shift.

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Other joint actions include: Sialkot Dry port, Sialkot City Package18

, Sialkot International

Airport and Sports Industrial Development Centre (SIDC) – a common facility centre established

to develop thermo-moulded balls. SCCI has also developed a ―Universal Primary Education

Programme‖ for the enrollment of children into primary schoolsxi

. Additionally, there are some

NGOs working on microfinance under ―Khud Kafalat Rozgar Trust,‖ to facilitate people not only

to expand their existing business but also to help establish new ones. This would help promote

entrepreneurship in Sialkot.

Dry Port is a need based project, a facility available in Sialkot as opposed to previous

practice to ship through dry port in Lahore. Dry port in Sialkot is working under the Sialkot Dry

Port Trust, which is the only dry port in Pakistan managed by the private sector which is not only

the most successful but also a profitable venture of entrepreneurs in Sialkot. Dry Port is the SCCI

initiative with land provided by the Government on lease agreement.

SIDC, a Common Facility Centre was planned to be completed and operational in 2009-

10 but due to lack of funds it is expected to be operational by 2012. Civil work is already

complete and waiting for funds to purchase the required machines and equipments to move

forward19

.

Airport20

was established under BOO (build, own & operate) policy and is profitable in

the 13th month of its inception. The only problem they are facing is the resistance of CAA to

allow open sky policyxii

which might be a conflict of interest with CAA. Airport Committee is

thinking of offering dividend to the shareholders of Airport next year. Initial perception of major

chunk of revenue generation from the Airport was through the cargo service whereas the major

portion of the revenue is coming from 49 passenger flights operating to reach domestic and

international destinations.

18

0.25% of export proceeds collected by SCCI (20%) with a matching grant by the government of Pakistan (80%) to

build roads and develop infrastructure in Sialkot. At the moment, city package is on hold as SCCI claims that

exporters have collected their share of the city package whereas government is not paying their share to keep the

initiative working. (Interview with a member of SCCI). On the contrary, lower tier manufacturers/exporters have a

perception that city package was developed and finalized by the select group of top tier entrepreneurs having leading

positions in the SCCI, that is why there is lesser ownership of lower tier for this initiative. Lower tier producers also

feel that they should pay fewer amounts than the amount being paid by the top tier producers (people travelling on

4X4 vehicles vs. people travelling on motorcycles). They feel discriminated on this issue. 19

SIDC is a common facility centre to establish the technology of thermo-molded balls which is only required by

the top tier and top brands and fully funded by the government, is a clear reflection of lack of ownership on the part

of most of the enterprises in Sialkot. 20

Land has been provided by the government of Pakistan with a cash contribution of Rs. 750 million (30%). Out of

this amount Rs. 250 million has already been released and the rest is still awaited.

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In 2006, child labour issue in sporting goods cluster in Sialkot was taken up by the

international community based on Nike pull out and it was a major set-back to the industry at

that point in time. The other important incidence was the minimum wage as per labor policy

2010 by the government of Pakistan. There is also some pressure from the buyers and ILO

convention which also includes establishment of unions and elimination of child labour.

To handle these challenges, SCCI as one of the major platforms and some networks (e.g.

Sialkotec Network) used as special purpose vehicles to solve common problems. Some NGOs

were also working to help drop-outs from schools (i.e. workers‘ children), providing

microfinance and health-related facilities. ILO and UNICEF supported the Child Labor

Elimination Programme (CLEP) in partnership with SCCI. CLEP was an independent

organization developed with the help of ILO, UNICEF, SCCI and government of Pakistan with

the following departments: Child and Social Development Organization (CSDO) and

Independent Monitoring Association for Child Labor (IMAC)21

. CSDO is responsible for

awareness creation through workshops and seminar. It is also responsible for advocacy of the

concept to the stakeholder (industry) and government bodies, NGOs and international

organization and communities.

CLEP programme has been running successfully to provide primary education to the

children. Initially the momentum of the programme was very strong while with the passage of

time ownership was a question mark due to which the programme is under financial constraints.

Business community is providing support which is insufficient to sustain the operations. Initially

International donors and government of Pakistan contributed to the development and

sustainability of the programme but no formal business plan was developed to identify the long-

term strategy for the organization22

.

Due to the nature of initiatives based on reaction instead of pro-action and perceived

short-term requirement of the mechanism, there is lesser ownership of CSDO and IMAC for the

21

ILO-IPEC (International Programme on the Elimination of Child Labour) designed and carried out the external

monitoring of registered stitching centres under the Project from 1997 to 2003. The Independent Monitoring

Association for Child Labour (IMAC) was established by the SCCI with the support of the ILO in May 2002 to

assume the monitoring role of ILO-IPEC. IMAC became operational in March 2003. 22

At the moment SCCI is bearing the cost of three employees working for CSDO.

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stakeholder in the present situation. It is a general perception that these initiatives are based on

selective interest of top tier soccer ball producers for these platforms23

.

Unfortunately, joint initiative of UNIDO, Trade Development Authority of Pakistan

(TDAP) and SCCI on network/consortium development to solve common problems did not work

very well in Sialkot. Concept of clusters and networks development initiated in full swing but

could not take off although there were some Informal networks developed which could not be

converted into formal ones. One of the reasons for poor ownership for this kind of initiatives is

the change of management every year24

.

23

Expenses and salaries of IMAC staff were being provided by the Export Development Fund but unfortunately the

staff has not been paid for the last 9 months. Reduced ownership of entrepreneurs, local government for IMAC due

to lesser pressure from international buyers/brands for child labor is an indicator that international community has

acknowledged the efforts of business community of Sialkot that they have resolved the child labor issue. As per

IMAC, child labor is still an issue for industries in Sialkot and IMAC has been performing a good job since last 13

years. There are some examples which are against the working of IMAC, are related to the reporting and inspection

of stitching centers in case of 2nd

or 3rd

tier exporters. An exporter with 20 stitching centres; developed 4 model

stitching centres for inspection; although rest of the centres are not fully complaint but are producing balls by

satisfying buyers through inspection of model centres. 24

Change of president in SCCI changes the priorities of issues which hampers the long-term sustainability of the

initiatives taken by the predecessors.

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Discussion:

We know that SMEs face problems of compliance when they try to target the

international market by entering into the global value chain (GVC). SMEs operate in clusters and

respond to these challenges through collective efficiency by reducing transaction costs and

boosting their bargaining power. As per literature on SMEs, they can be stable and enjoy

sustainability through participation in the global value chains by increasing productivity and

expanding their business. SMEs can also upgrade by participation in the GVC through social

compliance, networking, trust building and collective efficiency.

While looking at the compliance challenges especially CSR, it is important to not the

industry concentration ratio of Sialkot soccer ball cluster. Almost 20 producers/exporters

working with top brands of the world, contributing 60% to the total soccer balls export from this

cluster. This defines the high bargaining power and influence of these entrepreneurs in front of

the public sector, donors and the interest groups platforms such as chambers and associations.

If some of the top tier producers/exporters, while interviewed are mentioning minimum

wage and D.O.P. free material as major challenges, we can safely assume that child labor and

decent work are no more pressing issues for the cluster or at least not hurting the exporters at the

top tiers of the cluster.

On technology part related to collective action and compliance, semi-mechanising can be

helpful for top three tiers of the cluster as the production efficiency is an important aspect

keeping in view the rapid increase in the labour and material cost in the recent past. Thermo-

molded balls technology is required by the top tier of the producers or exporters so that they

could be able to produce balls for the top brands in the market.

Factory management might be a challenge but seems to be part of the nature of the

business. If investment in this business is too low and return on investment is extremely high,

whereas different operation along the value chain can be easily outsourced, owner / CEO can

afford to take full control of the business by keeping managers and supervisors. This is why

professional or top management under CEO is not required by the producers in most of the cases.

This issue can also be linked with the poor vision of most of the producers/exporters to launch

their own brands. If they can earn with such a small investment why to invest in building a brand

which is a long term game with lesser return on investment in short to medium terms.

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If we look at the one of the joint actions taken by the Sialkot cluster through SCCI city

package is not working due to the following reasons. Firstly, many entrepreneurs in Sialkot feel

that city development is the domain of government why Sialkot entrepreneurs are paying for the

development of infrastructure. Secondly, why all the exporters should pay the same amount on

export proceeds, decided by the few major players in SCCI and the association. Thirdly, other

people and/or professionals in the city should also contribute to the city package. For example,

suppliers with heavy trucks and trolleys are also using roads and they should also contribute to

the city package. City package might have been a success for some times but now it has become

a question mark, which is looking for a new formula or might revert back to the old version of

infrastructure development by the public sector.

Another initiative of Sialkot cluster is the new Airport which has been developed through

the contribution of 250 entrepreneurs (contributed Rs. 5 million each). Expected contribution by

the government is Rs. 750 million, out of which only Rs. 250 million released so far. As the

Airport is being run as a public limited company, shareholders are expecting to get dividends

from this venture. This is a good example of public private partnership with a flavor of social

entrepreneurship. Initially, airport was conceived as a platform to improve cargo service with

less focus on the passenger traffic. The actual outcome is reversed at least at the moment.

Passenger traffic is earning more than the cargo services with a perception to have enhanced

services on both fronts. The benchmarking of the airport is to be taken through experts and

intellectuals to inculcate best practices for optimal utilization of the facility.

Dry port is another joint action of Sialkot cluster which can be considered as a success in

terms of value it is providing to the export community of Sialkot which is the only privately run

dry port in the country. Please note that the government of Pakistan has provided land on lease

agreement to establish this facility.

SIDC, a common facility centre is a platform which has been funded by the government

with Rs. 420 millions whereas SCCI contributed almost Rs. 1 million. The project has already

taken three years after taking a start and still looking for funds from the government to purchase

machinery and equipment.

Initiatives related to child labor and decent work such as CSDO and IMAC are in low

profile at the moment due to the change of priority of the stakeholders and perception of different

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tiers of the soccer ball producers. That means either these platforms have done their job or they

are required only for a specific group of people to be used on as and when required basis.

Other joint actions such as primary education for the children of employees and micro-

credit financing through SCCI and NGOs, are required to be explored as an independent research

exercise linked with the dynamics of management in SCCI and Pakistan Sports Goods

Association (PSGA). The reason being, SSCI has always been the prime platform since its

inception whereas associations did not get due share of recognition in the past. Association and

chamber have been on the same page since last three years only. This is important to understand

why these two platforms working for the same cause could not collaborate in the past. On one

hand, chamber has been perceived as a platform of high level collective action and surprisingly

could not collaborate with the sports goods association working for the same cause.

Sialkotec Network initiative under UNIDO clusters and networks development

programme failed due to the nature of business, switching cost of this business, family business

dynamics and selection of network members. Network members were four brothers taking the

opportunity to network together to get benefits of this concept from the international donor and

local partner. The other issue was that senior people of the family businesses were strategic

heads whereas next generation was in the process of taking over the business as the

implementing wing. On one hand, the concept was not inculcated at all levels and on the other

hand, network members were not fully on board to take up this concept due to the dynamics of

family businesses in Sialkot and succession issue. As per business culture in Sialkot, if

information sharing is a question mark then it is difficult to build network based on information

sharing and transparency. Joint actions come at a much later stage after information sharing and

networking through strategic meetings which is a starting point of networking and trust building.

Another interesting aspect is the role of chambers and association in a vibrant cluster like

Sialkot, president of the chambers change every year and priority of the initiatives change with

the change of president. We need to explore what kinds of entrepreneurs have been taking up the

role of president or what can be learnt from the history. In the last decade, most of the presidents

of SCCI were representing either top tier or second tier of the entrepreneurs25

. We also need to

look at what kinds of initiatives they have taken during their tenures. If the president is not from

soccer business, priority of the president will be related to his own business. Even the initiatives

25

In some cases, next generation also became the president or took important positions in SCCI.

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taken by the predecessor might not have long term sustainability if the priority of new regime

changes. It is important to understand these dynamics to explore the joint action success or

failure in this cluster. It is also required to be explored that what is the role of recognition and

ego when a top tier or second tier entrepreneur takes an important position in SCCI and then take

some initiatives related to social responsibility either to take them as a pride or satisfy his egos

under status needs of Maslow Hierarchy.

If we look at the type of initiatives which have been successful, we need to see how many

of them were business cases and how many of them have been sponsored by the government.

Some initiatives taken as joint actions in Sialkot have been taken as low value addition for the 3rd

and 4th

tier of the producers such as city package, IMAC and thermo-molded balls production.

The reason being that technology up-gradation for the top tier will take time to have spillover

effect for the lower tiers. Secondly, as per perception of a major chunk of entrepreneurs, they

feel left out, having different business requirements than the top players in the market.

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Conclusion:

If we look at the core compliance standards in terms of management, child labor,

environment, safety and health, producers in Sialkot are in a complex situation where they were

able to deal with some of the compliance related issues through collective efficiency whereas on

others they are either not willing or not in a position to fulfill them. For example on Child

Labour, they were able to involve donors and public sector agencies to solve child labour issue

as a common problem whereas Nike came back to Pakistan after few months with a perceived

message for the exporters that it was more of a reputational issue for a brand like Nike rather

than an actual solution to the problem.

Sialkot sporting goods cluster, especially football manufacturers are known for their

business acumen, growth and sustainability in GVC through collective response as a cluster and

handling of buyers to solve CSR related issues.

Although bigger initiatives through joint actions can be considered as success but there

are few examples of collective failures such as Sialkotec and City Package. Manufacturers and

exporters in Sialkot go for collective action with visibility and reduced conflict of interest. Joint

export marketing is a missing link although they have some informal networking on supply side

for joint purchase of raw material, joint skill development or some joint intervention on

processes but beyond this point there is no active collective efficiency. SCCI is a prestigious and

the only active platform to work for the joint causes of Sialkot industry but it also depend upon

the President of Chambers and type of industry he/she is representing.

Another aspect of collective failure is lack of individual vision in the cluster as most of

the producers are not willing to build their own brands as they are earning enough while working

for the other brands. Football manufacturing looks like a service industry as opposed to

manufacturing with multiple outsourcing to complete the loop. This is why they might not be

interested to go for higher brands or launching their own brands as this would require extensive

compliance requirements and innovation on supply side to sustain and grow in GVC.

Entrepreneurs in Sialkot have a mind-set of SMEs with no vision to become part of a

corporate sector as they are service providers with extensive outsourcing culture. This is the

reason that they do not stick to one product or business, they have the leverage to diversify due

to lesser work load and lighter management issues. They have lower switching costs while

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producing or selling footballs in comparison to other businesses. This might be the reason of

diversification to other businesses while also pursuing the existing ones. Most of the

entrepreneurs might not be willing to work with bigger brands as they might feel lesser

motivation to invest in structured stitching centres and investment on the CSR issues. This is

where comes the issue of lack of collective action on CSR issue on personal or network basis as

they might feel the need for investment by the government to solve CSR issue. Most of the

entrepreneurs are willing to pay a small amount say Rs. 0.5 per ball to the government to cover

the labour related aspects of CSR issues. Some of the entrepreneurs are stressing to strengthen

the distribution channel and willing to establish joint buying houses instead of investing on CSR.

They are calling this as cluster development on demand side. They perceive that they can use the

concept of export clustering through buying houses concept, bringing 8-10 entrepreneurs on

supply side on board and having a power to become a one-stop shop for the buyers with better

bargaining power.

On almost all initiatives, government has some role to play depending upon the level of

mutual interest on both sides. Foot ball manufacturers and exporters in Sialkot are taking

collective action but not on the demand side and with lesser clarity of cluster vision. Some have

diversified to sportswear and some are planning to move in that direction. Entrepreneurs might

wait for the government to intervene and invest in the technology to produce mechanized balls to

align with the requirements of higher brands but this issue is also linked with the issue of

unemployment in the cluster if most of the entrepreneurs would be willing to diversify to the

mechanized ball. It is important to explore the fate of women, younger stitchers and adults in this

trade with stitching skills to change or align their talent with the introduction of technology in the

cluster.

Finally, Sialkot soccer ball cluster can be considered as an example of partial joint action

success as they have platforms to negotiate with the government and donor agencies to attract

funding for the development of the cluster and the city but they have partially failed in joint

actions as they do not have vision and clarity to become a corporate company. They need to

work on joint actions based on information sharing, networking and trust building to have

growth which could change their tier from lower middle to the top tier.

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End Notes:

i Pakistan Sports Goods Manufacturers & Exporters Association (PSGA) has 390 registered manufacturing

enterprises, out of which 300 are exporters. The estimated number of sports goods manufacturing enterprises is 500

firms which can be further categorized into 3 groups (as per definition of Small & Medium Enterprise Development

Authority Pakistan). There are 20 large enterprises, more than 50 medium enterprises and more than 400 small

and micro enterprises. More than 300 subcontractors are producing soccer balls and sports garments for large

manufacturers and exporters. Stitchers are most important stakeholder in the value chain of inflatable ball. As it is

completely a manual process, therefore it is highly dependent on the availability of the man power with unique skill

of stitching. In Sialkot, the skill of stitching is inherited and is considered to be the core competence of this cluster

(Source: UNIDO Diagnostic Study on Soccer Balls Cluster Sialkot, 2008).

ii Initially ILO was contributing to the running expenses of IMAC in which SCCI was also sharing for these services.

IMAC was providing services on subsidized rates. After ILO stopped sponsoring the IMAC, government of Pakistan

was requested to contribute and government committed to provide 60% of the investment for a period of 5 years.

Rest of the 40% was to be contributed by SCCI. Last year, government committed 60% funding for another 5 years,

the project has been approved but the funds have been provided for the first year only; funds for the rest of the 4

years are to be provided by finance department which are in pipeline so far. IMAC has an agreement with SCCI to

get 100% financial support for the center. The situation changes every year with the change of president of the

chamber having tenure of only one year. IMAC performs un-announced monitoring of each registered member once

after every 6 weeks. Sometimes visit to the facilities is before 6 weeks.

IMAC used to charge Rs. 10,000 as joining fee and Rs. 0.15/exported ball or minimum of Rs. 25,000 per annum

whichever is greater. Due to financial constraints being faced by IMAC, minimum amount has been increased from

Rs. 25,000 to Rs. 50,000 whereas the registration fee is same i.e Rs. 10,000. Charges on the balls exported have also

been increased from Rs. 0.15/exported ball to Rs. 0.35/ exported ball. These changes have been finalized in

consultation with- and approval from- SCCI. Manufacturers of promotional or street balls tried to approach the

President SCCI to reduce or eliminate the role of IMAC but have less influence in front of the major players of the

cluster. Some of the manufacturers and exporters have the perception that IMAC is relevant for some of the top tier

exporters and for the rest, it is policing and squeezing the middle and lower tiers of the cluster. IMAC‘s major focus

is on monitoring the child labor and decent work conditions required by ILO convention. Industry in Sialkot is not

responsive generally, less than 10 companies realize the importance of CSR issues and their impact on business and

community as whole (Interview with the representative of IMAC).

iii

Soccer ball industry helped the programme partners to establish CSDO in May 2000 which is a civil society

organization registered with Department of Social Welfare. Since its inception, CSDO has under-taken programmes

in collaboration with UNICEF and ILO-IPEC. In association with UNICEF, the CSDO has completed a project, on

the Elimination of Child Labour from Hazardous Occupations. This programme has benefited more than 3000

children. CSDO has also acted as a secretariat to review the progress of implementation of the Child Labour

Elimination Programme (CLEP) and liaisoning between the SCCI and the soccer ball manufacturers‘ participation

in CLEP. Presently CSDO in collaboration with FIFA and ILO, training young soccer players which were once

child stitchers under the project named Center of Excellence in Sialkot. (source: diagnostic study UNIDO 2008)

iv Value chain research focuses on the nature of the relationships among the various actors involved in the chain,

and on their implications for development (Humphrey & Schmitz, 2002b). To study these relationships, the concept

of ‗‗governance‘‘ is central to the analysis. At any point in the chain, some degree of governance or coordination is

required in order to take decisions not only on ‗‗what‘‘ should be, or ‗‗how‘‘ something should be produced but

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sometimes also ‗‗when,‘‘ ‗‗how much,‘‘ and even ‗‗at what price.‘‘ Coordination may occur through arm‘s-length

market relations or nonmarket relationships. In the latter case, following Humphrey and Schmitz (2000), we

distinguish three possible types of governance through networking: (a) network implying cooperation between firms

of more or less equal power which share their competencies within the chain; (b) quasi-hierarchy involving

relationships between legally independent firms in which one is subordinated to the other, with a leader in the chain

defining the rules to which the rest of the actors have to comply; and (c) hierarchy when a firm is owned by an

external firm.

v Although the value chain may be traced back to the influential work of Porter (1985), the term is not universally

defined. Usually the concept is used to describe the different components of value added generated by the different

actors that are complementary in the process of building or delivering a final good or service. Value judgments are

often added to the concept in many fields and so the topic merits further clarification (Global Value Chains (GVC)

by Johnson, C. 2005).

In the management literature and materials the term ―supply chain‖ refers to the whole network of relations – and

their management – that an enterprise has with its subcontractors and suppliers. The symmetric notion of

―distribution chain‖ starts to be used in discussions relating to processes and transactions that take place down-

stream of the production point. In other words, in management literature, the notion of ―value chain‖ has a relative

meaning, depending on the place of the enterprise that serves as the reference point of the analysis.

Rainbird (2004) has suggested that rather than seeking to merge the functions of two quite different concepts of the

supply and demand chains, it may be more fruitful for management to focus upon the catalytic effect between the

core demand and supply chain processes. Complex transactions, long-term subcontracting, partnerships and

cooperation are a permanent feature of any value chain. However, in each value chain, some segments or

enterprises have the capacity to organise and structure the working of the others that are either upstream or

downstream of the relevant value chain.

Global Value Chains (GVCs) are managed through information technologies which allow important players in the

GVC to achieve and capture productivity gains and respond to the pressure of financial markets for increased

return on invested capital. Strategic importance of the techniques and responsibilities related to GVC management

has grown significantly.

vi There are several definitions of CSR that have been put forward. The World Business Council for Sustainable

Development uses the following definition: ―Corporate Social Responsibility is the continuing commitment by

business to behave ethically and contribute to economic development while improving the quality of life of the

workforce and their families as well as of the local community and society at large (Holme et al).‖ Alternatively,

CSR is about how companies manage business processes to produce an overall positive impact on society

(Corporate Social Responsibility: News and Resources, Mallenbaker.net). According to Business for Social

Responsibility (BSR), CSR is defined as ―achieving commercial success in ways that honor ethical values and

respect people, communities, and the natural environment (Business for Social Responsibility).‖ Alternatively, CSR

is an action by a firm, which the firm chooses to take, that substantially affects an identifiable social stakeholder‘s

welfare (Frooman p. 227 (1997). The stakeholder concept is reiterated in another definition, which states: ―CSR is

concerned with treating the stakeholders of the firm ethically or in a socially responsible manner. Stakeholders exist

both within a firm and outside. The aim of social responsibility is to create higher and higher standards of living,

while preserving the profitability of the corporation, for its stakeholders both within and outside the corporation

(Frooman p. 227 (1997).‖

It is important to remind ourselves that social and environmental concerns form only a part of CSR. An important

component of CSR is profitability. Companies have to remain competitive, albeit in a sustainable manner, to be able

to generate employment and generate wealth. Generation of employment and wealth are especially important for

developing economies, which are trying to graduate from poverty.

The World Bank Group‘s CSR Practice has chosen to define CSR as ―The commitment of business to contribute to

sustainable economic development working with employees, their families, the local community, and society at large

to improve their quality of life, in ways that are both good for business and good for development (―Strengthening

Implementation of CSR in Global Supply Chains‖ World Bank Group, Oct 2003).‖ In all of these definitions, CSR is

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viewed as a comprehensive set of policies, practices and programs that are integrated into business operations,

supply chains and corporate decision-making processes to improve stakeholders‘ lives. All of our subsequent

discussions on CSR are based on this broad definition of CSR.

vii

To capture the positive impacts of these factors on the competitiveness of firms located in clusters, Schmitz (1995)

introduced the concept of ‗‗collective efficiency‘‘ (CE) defined as the competitive advantage derived from local

external economies and joint action. The concept of external economies was first introduced by Marshall in his

Principles of Economics (1920). According to Schmitz (1999a), incidental external economies (EE) are of

importance in explaining the competitiveness of industrial clusters, but there is also a deliberate force at work:

consciously pursued joint action (JA).

Such joint action can be within vertical or horizontal linkages. The combination of both incidental external

economies and the effects of active cooperation define the degree of collective efficiency of a cluster and,

dynamically, it‘s potential for fostering SMEs‘ upgrading. Both dimensions are crucial: Only incidental, passive

external economies may not suffice without joint actions, and the latter hardly develop in the absence of external

economies. Thus, our focus is on the role of intracluster vertical and horizontal relationships generating collective

efficiency.

viii The largest and most visible CSR initiatives worldwide evolved over seven years is the UN Global Compact. In

its institutional design, the Compact mirrors and reinforces the recent shift towards CSR and development in that it

almost solely relies on the voluntary engagement of its members in order to aim at a more sustainable and inclusive

global development. In contrast to previous attempts to regulate corporate behaviour, the current generation of CSR

instruments is of a more conciliatory tone, emphasizing voluntary actions and the formation of partnerships with

governmental and civil society actors (Barkemeyer, 2008). CSR has broadened its scope to include not only aspects

of corporate conduct that impinge on social, environmental and human rights issues, but also the role of business in

relation to poverty reduction in the developing world. So far, the debate has been dominated by the northern

perspectives of American and European multinational companies, NGOs, governments, trade unions and

academics. They believe the debate should be globalized by incorporating southern perspectives that reflect

experiences ‗on the ground‘ in developing countries. For a legitimate CSR initiative, content and implementation

should be adapted to the particular country or region in which they are taking place (Prieto-Carrón, M., Lund-

Thomsen, P., Chan, A., Muro, A. and Bhushan, C., 2006).

ix Responsible competitiveness is about making sustainable development count in global markets. It means markets

that reward business practices that deliver improved social, environmental and economic outcomes; and it means

economic success for nations that encourage such business practices through public policies, societal norms and

citizen actions.

The State of Responsible Competitiveness 2007 is a progress report that is global in scope. It assesses responsible

business practices in 108 countries. It illuminates which countries have social conditions and are advancing public

policies that encourage responsible competitiveness.

This report‘s bottom line is that responsibility can and does reinforce competitiveness, for countries at all levels of

development. Responsible competitiveness is partly delivered through market forces. At the micro, individual

business level, strategies that embrace the principles and practices of responsible competitiveness are increasingly

recognized as having extraordinary potential for creating economic value and profitable outcomes. Over the last

decade, ‗corporate responsibility‘ has evolved from a focus on what not to do towards a business innovation agenda

that translates today‘s social and environmental challenges into opportunities for creating economic value. At the

macro level, the global economy‘s dramatic growth over recent decades has brought hundreds of millions of people

out of poverty. Global markets foster international trade, now accounting for over 20% of Global Economic

Product, which has a crucial role in driving forward such positive outcomes of economic success.

x Nike‘s code of conduct prohibits the use of child labour, defined as a person under the age of 15 unless national

laws state that the minimum age for work is 14 or the age at which compulsory schooling has ended. They rely on

the system established by the Atlanta Agreement to monitor their child labour policy, in addition to any monitoring

they might conduct on their own [ILAB 2007]. The monitoring mechanism established by the agreement involves the

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transfer of all stitching from home-based workshops to stitching centres where external monitoring is carried out by

the ILO through unannounced visits [NEWS 2006]. In response, Nike created new stitching centres in order to

better ensure children are not stitching soccer balls [ILAB 2007].

As a result of the attention that has been devoted to the issue of child labour in Sialkot during the past 10 years, all

stakeholders, including workers, appear to be sensitised to the issue. Saga Sports was a signatory to the monitoring

system established by the Atlanta Agreement [NEWS 2006]. Most former Saga Sports workers stated that under-

aged children were not employed in the company‘s establishments. The same applies to the Silver Star management.

However, employment of child labourers was the stated reason for Nike‘s withdrawal of orders from Saga Sports

[Clark 2006]. Observers confirmed that children were stitching balls for Saga Sports. They were mostly located in

home-based workshops, though.

Nike‘s agreement with its new contractor, Silver Star, requires that workers have full rights to freedom of

association and collective bargaining. However, so far no trade union has been formed in its factory. According to

the management, workers‘ committees have been established with PILER‘s consent. PILER assumes that the newly

recruited workers‘ awareness regarding labour rights, including the right to association and collective bargaining

should be raised before they conduct elections [Shah 2007].

xi The business community and the Sialkot Chamber of Commerce & Industry in collaboration with other

stakeholders launched the ‗Universal Primary Education Programme‘ in Sialkot with the objective to enroll the

children between 5-7 years of age into primary schools.

xii

Open skies is an international policy concept which calls for the liberalization of rules and regulations on

international aviation industry especially commercial aviation - opening a free market for the airline industry. Its

primary objectives are: to liberalize the rules for international aviation markets and minimizes government

intervention — the provisions apply to passenger, all-cargo and combination air transportation and encompass both

scheduled and charter services; or to adjust the regime under which military and other state-based flights may be

permitted. For open skies to effect, a bilateral (sometimes multilateral) Air Transport Agreement has to be

concluded between two or more nations. Open Sky Policy means to involve private agencies in air transport, raise

the efficiency of aeroplanes, make air travel cheaper and make aeroplanes faster (www.caapakistan.com.pk).

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