Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Pronto Promo – Pakistan
Prepared by Syed Zahoor Hassan and George Foster
Pronto Promo (Private) Limited is the leading promotional products company in Pakistan. It has grown from a home-based business to a case-study small and medium-sized company (SME) cited as a role model for Pakistan’s promotional products industry.
With a client portfolio comprising more than 30 Fortune 500 companies, Pronto Promo has been a partner of choice for leading brands for more than a decade. High client retention and tremendous goodwill are an endorsement of its consistent contribution to clients’ objectives.
A company built on an outsourcing model with a highly flexible and scalable assembly line, Pronto Promo has backward integrated in some of its core industries, namely wirework, fabrication and wood working. With a projected turnover of 500 million Pakistani rupees (PKR) in 2013 and 120 permanent employees, Pronto Promo’s peak-time workforce reached 300 in 2010.
Pronto Promo is the only socially compliant supplier of Coca-Cola, Nestlé and PMI in Pakistan’s merchandising/promotional products industry. In the words of the auditor, “This is the first time across industries that anyone got a Green in its first attempt in a region comprising 22 countries.”
Today Pronto Promo’s name is synonymous with quality. It has a 19-year track record of delivering quality products at highly competitive prices. With a focus on capacity building and capability enhancement, Pronto Promo is ready for a new era of growth and success.
Aftab Ahmed joined Pronto Promo in 1996 after a brief stint at Ammar Textile. Until 2010 he was responsible for all in-house production as well as setting up production at all vendor locations. Since 2010 he has managed the development department, overseeing the development and sampling of roughly 250 new product ideas every year. In 2013 he took on the additional charge of compliance, making him accountable for Pronto Promo’s conformity with all regulatory and social responsibility requirements. Ahmed has a BA from Bahauddin Zakariya University, Multan.
Amir Anis has been director of business development since 2009. He is responsible for managing most of company’s client portfolio as well as for developing new clients. From 2002, as General Manager Anis was responsible for the day-to-day operation of the company. From 1998 to 2002 he headed the sourcing department, responsible for finding new vendors, managing outsourced production and purchasing. He joined the company as sourcing executive after completing a BSc in 1995.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
Salahuddin: “Returning to Pakistan after my jobs in Morocco and the US, I started working as a freelance marketing consultant. A survey that I carried out for one of my consulting projects helped me identify an opportunity in the giveaways market. This niche was occupied by unorganized players who just brought ready-made products from China, and clients were receptive to a formal sector entity that could provide custom-designed solutions.
“I realized my first sale in March 1994 by selling 5,000 pyramid clocks to Glaxo Welcome. We successfully completed the deliveries by September. I hired Pronto Promo’s first employee and set up an office in my room. The next few orders also came from the pharmaceutical sector.
“Our strategy revolved around outsourcing major components and then doing the final assembly in-house. Over the years, Pronto Promo developed a large pool of vendors and suppliers to whom it was lending active managerial and financial support to ensure timely execution of the product. Najaf set up the assembly line in a manner that made it one of our core strengths. It was a very flexible and scalable assembly line that could accommodate a variety of products and deliver efficiently, based on time and motion study notwithstanding any manpower constraints.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Salahuddin: “I can identify three major factors:
Our client base comprised blue-chip companies only. Coca-Cola, Nestlé, Unilever, Gillette, Servier and Schering Asia were some of our early clients. This was a thought-out strategy that was clearly pronounced when I started Pronto Promo. This strategy was the key takeout of my one-year consulting experience with the 2nd- and 3rd-tier companies. It took forever to get consulting fees out from them. It was with this background that I decided to sell to multinational corporations (MNCs) only where, once the purchase requisition is raised and budget approved, all you are dependent upon is your performance against the agreed-upon deliverables. This strategy opened the doors to a huge market for Pronto Promo. The energy was spent on selling ideas and not worrying about the fate of receivables. Additionally, these clients were keen to explore and work on new ideas that could be scaled up. Their previous suppliers were shy of taking up big quantities whereas we thrived on large quantities.
Our outsourcing model allowed us to deliver large quantities. This was the only barrier to entry as the other players in the industry did not possess the capability to deliver on large orders. At Pronto Promo, we constantly identify and build the best source for different processes, components and products. Through constant management support, Pronto Promo is able to add value to its suppliers. Our suppliers have benefited in terms of enhanced operations management skills and have delivered to quantities that they never thought was possible. Our flexible and adaptable production capability has enabled us to establish quality-conscious, cost-effective manufacturing set-ups that can deliver to a deadline.
Our highly flexible and scalable assembly line, based on time and motion study and where we can run multiple projects in parallel, has been our unique feature.
“At a time when piece rate was prevalent all over Pakistan, we instituted hourly wages. The philosophy behind this was to pass on the ownership of the project and quality to management and not leave it to workers. We have never had quality-control inspectors at Pronto Promo; quality is built into our processes.”
Khan: “An in-house scalable finishing line permitted great flexibility in delivery schedules as we could increase capacities by over 200% in a matter of weeks, and that too for a short duration of time, still staying very cost competitive. It also provided quality assurance and certainty about what we were delivering.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Salahuddin: “Of the factors listed above, the three that helped Pronto Promo most to grow were:
Availability of accessible markets: With many leading MNCs operating out of Pakistan, all I had to do was identify the buyer, think of a product and get them excited about the value that our product could add to their campaign and help them attain their goals. We always got orders wherever we went. At times it felt like a seller’s market.
Availability of workforce: Contrary to the plight of entrepreneurs and small businesses, who constantly complain of workforce-related issues, we have been extremely lucky, as this has never been a constraint for us. It is actually one of our biggest strengths. Due to the very nature of our business, a dynamically changing product line, varying workforce requirements that are highly dependent upon order quantities, timing of the campaign and the lead time available, we always had a very large component of temporary workers. Our production model is geared to hire, train and assimilate fresh workers and get quality production from them. It takes us between 3 and 4 days after induction to reach optimal production target on our assembly line. With a permanent workforce of 35, our peak-time temporary workforce has gone as high as 300.
Availability of mentors: This is another factor that has helped me chase my dream. My teacher and MBA project adviser at LUMS has been a great mentor. Every time I thought I had reached a dead end, he was someone I turned to. He gave me ideas, insight and considered opinion that helped me take up the challenges head on. The physical proximity of the school also helped me reach out to him easily and frequently. My husband has been a coach and mentor to me for the past four years. Having been at the helm of affairs of large organizations, he played a pivotal role in Pronto Promo’s restructuring and helped me to focus more on the bigger picture. He has been my biggest constructive critic and supporter.”
Ahmed: “Though we had access to a healthy stream of workforce, none of it was skilled particularly in the context of our industry. Even now when we are able to find skilled workers, universities still fall short on courses and degrees that are relevant to our industry. With regard to this, we make it our personal mission to train and develop the skills of the work force we hired.”
Anis: “We were bringing about a new kind of business and in the business world we invoked a sense of curiosity and envy. This got us respect and support from the business sector.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Salahuddin: “Pronto Promo’s biggest challenge has been the lack of funding. There are very limited financing options available to entrepreneurs in Pakistan. There is no cash-flow-based lending in this economy. Here, you have to be born in money to make money. There was never enough running finance (R/F) available to support our operations. We have historically given between 10 to 15 times turnover against the R/F facility available. Despite all this, we can never get funds on time.
“Government regulations fuelled the problem. Prudential regulations of the State Bank of Pakistan (SBP) do not allow cash-flow-based lending. There can be no clean line of credit. The only time the SBP allows companies to export against purchase order (PO) is when the payment is made against documents. No multinational is interested in taking this headache.
“Another challenge is the lack of trained workforce and management personnel. Labour is not cheap in Pakistan; it is actually very expensive. The lack of education and poor vocational training make them very expensive. It is very difficult to train people without basic literacy and numeracy. On the workforce end, we have been successful in implementing an effective training system particularly when it comes to assembly-line products but there are serious gaps in technical areas. The poor quality of training imparted at vocational training institutes is a serious handicap. A bigger challenge is capacity building at managerial levels. The quality of education does not equip people coming in at executive positions for any form of critical thinking. They do not possess the right skill sets and domain knowledge that can help them grow in an organization.”
Anis: “A sales tax law was enacted in 1996. Pronto Promo was the first company to voluntarily register with the authorities. The implementation of the law was at nascent stages across industries with a lot of resistance from suppliers, and here we were, a company giving attention to these things along with a new business model which truly posed a challenge.
“There were not many reforms or frameworks for businesses in the days when Pronto Promo started out. We decided to make most of our payments through cross checks. This policy was met with a lot of resistance from suppliers and vendors who demanded payment in cash.
“Skilled labour as well as qualified management were absent in our industry. There are no courses or degrees even today that cater specifically to our industry requirement. We overcame this by educating our vendors and suppliers about the importance of such steps and bringing them on board. The concept of documentation and processes was alien to the market we were operating in.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Salahuddin: “2006 was a benchmark year for Pronto Promo. We were able to pay off all our losses and were profitable again. It was at this stage that I decided to pursue Coca-Cola Atlanta for a social compliance audit so that I could pursue international orders. I resolved to convince our key vendor to move to Pronto Promo’s purpose-built premises and run their businesses from there. No one even entertained the idea. They were not willing to, nor ready for any form of structuring that could have led them to the path of compliance. I, who was a strong proponent of outsourcing and who resisted being a manufacturing set-up for years, finally decided to backward integrate some of our core processes. Pronto Promo invested everything it had earned since its financial turnaround in its facility, which earned Coca-Cola Social Compliance Audit certification on its first attempt on 5 November 2009. Following compliance certification, the scale and the scope of our work changed altogether. Now as we look forward to breaking into the export market, it seemed very logical and possible.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Salahuddin: “With a socially compliant status, I felt like a five-star general. The irony of it all is that we lost the very client for whom we had undertaken the audit, namely Coca-Cola. Our sales to CCBPL (CCEC’s bottling partners) dropped from PKR 90 million in 2008 to PKR 7.5 million in 2009, post compliance certification. With 15 years of track record of delivering good quality and innovative products to Coca-Cola, being their key merchandising partner ever since Coke started its retail merchandising drive in 2006, being showcased as a success story in Coca-Cola’s picture of success in a four-day session where 10 countries of the region participated, being the only socially complaint supplier in our industry, we lost Coke who had been our biggest client since 2006. Contracts were given out to a new stream of non-compliant local suppliers and to this day I wonder why we were thrown out. It turned out that social compliance was not mandatory; it was just a façade for these MNCs and a good selling point in front of the international audience. In a country rampant with corruption, not many cared if the laws of the land were adhered to or if the health and safety of the workforce were their key consideration.
“The next challenge is to sustain this growth and meet our 2015 target of PKR 1 billion in sales. For this we have to bring in international collaboration along with exports. Pronto Promo has to partner with international companies that are key players in the international merchandising industry, servicing similar clients, if it plans to stay in a leadership role and grow. This has not proven easy so far. The companies are very reluctant to even talk to someone from Pakistan. Their generic response is ‘it is not in our plans for now.’
“I met with the vice-president of one of the leading merchandising companies two years back. They are present in more than 100 countries across the world and share a lot of common clients with us. The meeting went well and I was successful in convincing him to allow us to take some of their products to Pakistan for manufacturing under license but then the board did not grant permission. As the saying goes, ‘you have to kiss many frogs before you find your Prince Charming’. We will keep searching until we find a partner of choice to collaborate with.”
“I am very hopeful that these companies will come to Pakistan, given the history of multinationals that are operating successfully in Pakistan, most of which are posting double-digit growth and investing heavily despite the security threats and poor international image. The ground reality is very different from the perception or else MNCs would not be investing in Pakistan.”
Q7:What major role, if any, did key aspects of the ecosystem in the country(countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Salahuddin: “Some of the buyers at multinationals believe that those suppliers who have set up proper production facilities through organic growth have done it through over-pricing. There is also a general perception that being socially compliant translates into higher labour cost and hence a dent to their pocket. They totally overlook the benefits that such a set-up brings in terms of cost efficiency and order processing. A lot of these companies have a very short-term and transactional approach, working from order to order. They do not look at their vendors and suppliers as strategic partners. They are not interested in helping their supplier develop core capabilities that would make them long-term partners.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Salahuddin: “The high moment was obtaining the international social compliance certification but it also led to the darkest moment when the customer pulled back their business for no valid reason. They wanted us to be complaint and yet they wanted us to compete head on with those who openly do gross violations and cut corners. If compliance is important, then why is everyone not judged against one standard? It is the double standards of the multinationals that is a major challenge for companies from developing countries to do work with these organizations on a sustainable basis.”