Daily Times

Pakistan’s ranking on the Ease of Doing Business index, according to media reports, has improved an enticing 11 points from 147 to 136 for the year 2019. The observation has been made on the basis of the World Bank’s 2019 Doing Business report, comparing business regulation for domestic firms in 190 economies across the globe. Pakistan’s Board of Investment (BOI) Chairman has reportedly said that the government has set an ambitious target to bring the index further down to less than 100 within the next two years. The government is rightly moving towards e-integration of different institutions as suggested in some of our earlier articles. For this purpose, the Securities and Exchange Commission of Pakistan (SECP) will reportedly be integrated with the Sind Portal and Employees Old-age Benefits Institution (EOBI) by March this year with a view to improving the risk management system thus bringing the number of physical audits down to 75 per cent.

The World Bank’s ease of doing business evaluation is generally based on nine major indicators including construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. These indicators are not exhaustive in nature as there are several other indicators that the World Bank does not take into account. This suggests that the ease of doing business ranking does not entirely depend on these nine indicators further suggesting a deeper analysis of the factors that improve ease of doing business. For this purpose, in my opinion, Pakistan’s doing business indicators can be broadly divided into two categories: hard determinants and soft determinants. The hard determinants generally describe the core procedures to improve the doing business ranking while the soft determinants address more deeper, cryptic and chronic issues not covered by the hard determinants. The aforementioned nine indicators, suggested by the World Bank, may be treated as hard determinants. However, soft determinants are purely contextual in nature and will be determined in the specific business environment of Pakistan. This is the area requiring extensive research. In this regard, gender based business participation and cultural ethos play a significant role in addressing ossified cross-cultural challenges particularly in the aftermath of the China Pakistan Economic Corridor (CPEC).

There is a need to conduct exclusive comparative studies between the business environments of Pakistan and China to effectively check cultural nihilism

When the Chinese economy was growing exponentially, some of its researchers conducted research to compare the business environment of the West with that of China. The purpose was to identify the deep determinants of doing business in the peculiar business environment of China. It was because China had to deal with the Western economies, such as the US, more frequently than the rest of the world. For this purpose, they needed to understand their braggart counterparts in the Western world. For instance, Zang Zigang’s 2004 paper, published in Singapore Management Review, presents a comparative cross-cultural analysis between the business environments of the US and China. The paper notes that cross-national businesses are facing great challenges on the cultural front. A business survey was conducted in which it was asked from the respondents ‘what is the biggest barrier in doing business in the world market’. Out of the eight indicators given to the respondents, cultural narcissism ranked first as the most significant impediment in doing business with other nations. Within cultural differences, gender parity in business carries great importance. The other indicators included language, foreign currency, law, price competition, information, time differences, delivery and cultural differences. The paper also notes that most failures faced by cross-national companies were due to their sluggard response to cultural differences. Hofstede in his 1980 book “Culture’s consequences: International differences in work-related values” suggests four dimensions of culture-based values systems: power distance, individualism/collectivism, masculinity/femininity, and uncertainty avoidance. Here ‘power distance’ refers to the extent to which the lower strata of society accept and expect unequal distribution of power whereas the masculinity/femininity dimension indicates the importance of gender parity in doing business.

Based on these dimensions, some interesting comparative cultural observations were made between the West and China. Firstly, the Western countries generally had lower score on power distance, reflecting better inequality level, vis-à-vis China. Secondly, the Western economies were generally more inclined towards individualism while the Chinese business model had a greater focus on collectivism. This suggests that individual success matters more than collective success in the Western world as against the Chinese business concept of collective success. Thirdly, on the gender front, the Western world had a higher masculine value than China. Similarly China had an adoringly higher feminine value than the Western world. This suggests that the female business class and work force are more agile in China as compared to the Western economies. Fourthly, the Western economies had a lower score on uncertainty avoidance as compared to China reflecting that Western business people are more likely to take risks than Chinese business people.

Pakistan also needs to follow a similar approach in determining its soft determinants of doing business. By following the World Bank’s ease of doing indicators, Pakistan can improve its index to a certain level but really needs to identify the soft determinants of doing business. That means Pakistan will have to strategically plan it’s doing business indicators both on the hard and soft fronts. Similar to the studies carried out between the business environments of the Western economies and China, there is a need to conduct exclusive comparative studies between the business environments of Pakistan and China to effectively check cultural nihilism. For this purpose, Hofstede’s four adorning dimensions can still be used to circumvent the cultural differences between the two countries. This kind of study is particularly important in the post-CPEC scenario where Pakistan will have greater influx of Chinese business people. Furthermore, considering CPEC as a trade route to Central Asia and China, Pakistan also needs to plan ‘beyond China business perspectives’. For this purpose, four main economic regions may be identified that include but are not limited to: the US and Europe, Middle East, Central Asia and China. Similar sporadic cultural studies may be carried out between Pakistan and all four economic regions so that Pakistan could effectively identify its soft determinants of doing business. While the World Bank’s ease of doing business indicators can improve Pakistan’ index to a certain level, achieving significantly higher scores on this front requires greater focus on soft determinants. The somersault applicability of hard determinants is general in nature whereas the soft determinants are context-specific indicators yielded by the local entrepreneurial environment and business cultures.

The writer is Additional Commissioner, FBR, holding PhD in Economic Planning from Massey University, New Zealand. The views expressed are his own. Email: babarchohan21@gmail.com

Published in Daily Times, February 5^th 2019.