B-2-B Landscape
“Yesterday’s home runs don’t win today’s games.” – Babe Ruth
This piece has been based on the information that has been most prevalent across business forums, LinkedIn articles and chatter across the economic landscape of Pakistan. I must warn the reader that the following collection of thoughts are my own and are purely written in light with the Pakistan business backdrop in observance.
Let us establish a few known facts, as of recently, Pakistan - which has about 60% of its 200 million population in the 15 to 29 age group, represents an enormous human and knowledge capital. Pakistan has more than 2000 IT companies & call centers and the number is growing every year. Pakistan has more than 300,000 English speaking IT professionals with expertise in current and emerging IT products and technologies, 13 Software technology parks, More than 20,000 IT graduates and engineers are being produced each year coupled with a rising startup culture [1]. The government policy further strengthens the growth by offering the following:
? Zero income tax on IT & ITS exports
? Zero Income tax for PSEB registered IT start-ups
? 100% foreign ownership of IT & ITS companies
? 100% repatriation of profits to foreign IT & ITS investors
? Tax holiday for venture capital funds till 2024.
As a result of this, Pakistan’s IT exports grew by 70% in the last few years. Based on an educated estimate there are roughly 2,000 IT companies operating in Pakistan which includes the old guards such as NeT Sol (which generated US$ 20 million worth of exports in 2016 alone), Systems Limited (US$10 million in IT exports) and i2c but the focus of my article is not on the old guard but on the new age of digital revolution that has accelerated in the past few months.
The Tech startup boom, which recently generated US$58 million of funding between the top ten startups, with 75% of the funding coming from foreign investors is a clear indication of the focus and interest that Pakistan is generating.DW.com was recently quoted as saying that - Pakistan was named one of the fastest-growing economies in Asia in McKinsey & Co's latest report on the Pakistani ecosystem. The same report revealed that 720 startups had been created since 2010 — 67% of which are still in operation — with 100 successfully raising funding.
Now that the facts and foundations have been established, to pen what I think about the matter, the startups are primarily focused on disrupting the B to C model of operations in the country and I don’t disagree that there is massive room for change and improvement in that space, however I see very little focus or interest by the startups in understanding, analyzing and addressing the issues that are in the B to B space, which will eventually have an economic or pricing impact on the B to C solution providers. I understand that by stating what I have just said I have opened a multi-faceted debate but I do strongly believe that the vertical integration of the B 2 B model with similar disruption will be an eminent necessity if the ecosystem is to sustain itself after a certain point.
I am going to try and explain my view point with a very simplistic approach, let’s take the home delivery model, in the last few months multiple app based services have cropped up providing a similar solution to the end user, get stuff delivered to your doorstep. What are the obvious key components for this solution to work – A warehouse or store that has the desired product, a delivery mechanism – which is a person with a motorbike and a willing patron who is using the service. This space was previously occupied by only a handful of players, Bykea and foodpanda to name the most common ones, suddenly there are close to a dozen players trying to fight for the same share of wallet of the patron, while providing a lucrative income model of the rider (so that they do not drift towards a rival app) and work out a price point which is profitable for the startup and the warehouse or store. This is further aggravated by the fact that the number of stores or suppliers of goods is not growing and the overall spend ability of the patrons is shrinking. In summary of what I am saying is that the space is crowded, the customer base is not growing and the supplier base is stagnant with a currency that fluctuates often and negatively impacts pricing on a frequent bases.
That was the problem statement, now for a viable solution (one of many, but one that has my vote of confidence) – somebody has to expand their line of sight to what is prior to the store owner/ warehouse - the other half of the supply chain that is as lucrative and profitable (if not more because of the untapped market) space. The space that is dominated by the small, medium and large truck operators (yes I know that Keep Truckn / and potentially Airlift at some point will operate in this space) that space is untapped virgin market that needs some grunt work and education but will prove to be as lucrative as the other end of the supply chain.
We are only one of three diesel economies left in the world which means that our entire goods transport system is dependent on trucks and roads. The opportunity at hand is immense and the overall efficient impact of the digital change in Pakistan will only come fully circle when both ends of the supply chain are in sync. Furthermore as the cellular networks grow and accessibility to online content keeps growing on an unprecedented pace, the first movers who take on this segment will virtually control the second and third tier city supplies that are solely dependent on the road network.
In conclusion, there more to the delivery model and that equal focus needs to be exercised on the B to B model and there is enormous room for innovation, growth and profitability in that sector of the supply chain model.