Reasons Why local Family owned Enterprises (SATE Companies) have a competitive advantage over Multinationals in Pakistan?
When going into this very topic, we tend to think about many factors related to why this is the actual case within the Pakistan Market system or rather Desi Markets in General(South Asian Market systems).
- The first and foremost reason for that is the difference in Market Anthropology, As SATE companies have lines of generations of keeping in touch with the same vendors, suppliers and the trust ecosystem amongst them.
- While for multinationals the same economic ecosystem is filled with uncertainties and non-transparecy transactions and they are not in a position to negotiate on low rates which SATE companies thrive on.
- The second Major reason for that is that SATE companies are able to outdo Multinationals is because they hire labor that is familiar with the market system by mostly recruiting employees from Rural backgrounds or semi Urban locations as they are the majority of population in Pakistan thus hiring people from those zones makes sense to SATE companies in order to do business with majority of the population of Pakistan( The target market for SATE companies). While in the case for Multinationals they tend to hire extreme end skilled labor that is mostly compromised of the urban population who are extremely well equipped to execute high end tasks but lack knowledge of the market mechanisms of Pakistan as they are not part of the majority Market.
- Political factors include family members being placed at all top positions thus the element of a singular entity control over the entire company with the common objective of feeding wealth to the family members (Similar to the lions Pride concept) in comparison to Multinationals that have competitive employees in those same positions each have different objectives towards feeding more wealth to the shareholders with conflicting interests against each other.
- Economic factors over here benefit the SATE companies in terms of the trust mechanism between family members and share of wealth while its distributed amongst different shareholders in Multinationalals.
Social factors include family members complete understanding of each others and collective agreement towards common objectives, while in Multinationals there is alot of conflicts between board of directors and share holders over company future thresholds.
Let’s dive into a PESTEL ANALYSIS (Political, Economic, Social, Technological, Environmental, Legal) framework of a SATE company In comparison against a Multinational.
- Political factors include familiarity with market institutions as they know the which tribes and groups within which rural zones control most of the labor flow and occupation listings. Such as extended family heads, Village tribe leaders, Influential Spokesmen in Rural zones.
- Economic factors would be Cheap labour as they have majority of hiring from working class or lower middle class on low skills and thus have a higher retention rate and lower costs than Multinationals because Multinational employees are skilled before recruitment and also learn more skills during job training and gain higher market value as a return becoming a viable source of trained labor to external recruitments of other firms.
- We also cannot ignore the main factors that SATE companies being owned by families can afford taking large hits on company earnings as they dont have many shareholders to satisfy the way Multinationals do as most decisional interests of a SATE company are to satisfy the family members alone who own majority of the company and control all of the workflow within it.
- Social factors would be the societal mechanisms surrounding such family enterprises as they deal mostly with selected group of people for generations as vendors and client platforms thus have trust established within their economic ecosystems. While Multinationals have to pay higher fees to get quality vendors for their needed services and have to pay higher fees for it to keep their business reputation.
- Technological factors of SATE companies clearly can never be compared to a Multinational as they lack in use of machines in most cases and rely more on labor intensity. As a result of that day to day issues with electricity and gases in developing countries like Pakistan dont impact the production workflow in SATE companies as much as it does to Multinationals as they have to follow global standards of Manufacturing.
- Environmental factors of Multinationals and SATE companies vary Industry by Industry use cases and would be similar in most cases but SATE companies are able to to by pass environmental regulations as they dont need to comply with global standards of environmental protections as Multinationals have to.
- Legal matters of SATE companies including their regulatory frameworks only lie within Pakistans Jurisdiction. While Multinationals have to follow the laws of the country of its origin and the country its operating in as well, thus SATE companies have more relaxation towards legal matters than Multinationals.
Are SATE corporations better off than Multinationals in Desi Markets?
Its possible to analyze that the Market mechanisms of Desi Markets tend to support SATE family Managerial structures as Due to very low Corporate Governance in Place. It’s more efficient for an Autocratic based system of control to manage large scale enterprises than democratic chains of command.