Light engineering industry: Regressive pay system holding fan industry back

Lahore School of Economics’ survey reveals failure of middle management

LAHORE: Pakistan’s fan industry has failed to evolve as per global standards and has instead settled on low quality and low exports because its workforce refuses to change.

Workers fear that if they succumb to the changes, they might end up earning lower wages and may even lose their jobs, according to a survey conducted by the Lahore School of Economics.

Fan manufacturers belong to the light engineering industry. Due to resistance from the workforce, they manufacture fans under the traditional batch system.

The industry has historically focused on the domestic market. However, it started serving international clients in the last 15 years, with exports reaching $40 million in 2012, a figure which could be further enhanced.

The survey identifies the problems faced by the middle management of companies in the fan industry. These include inordinate expenses on monitoring quality, worker absenteeism and regressive wage practices.

Gujranwala and Gujrat are the two key cities that comprise a cluster which produces 98% of fans in the country. The sector is dominated by small and medium-sized firms, which according to the Trade Development Authority produces around 8 million fans annually valuing Rs20 billion. These firms have a total installed capacity of 10 million fans.

Much of the responsibility for the day-to-day management of production and quality is delegated to supervisors on the factory floor who have little or no formal training.

The survey says due to the weak middle management, the sector pays wages on the basis of number of units produced, which is called piece-rates. This is not considered best practice for a variety of reasons. The industry believes that such payment is responsible for quality issues because of which a large number of quality inspectors are hired.

However, the managers face a quantity-quality trade-off and they think they cannot get workers to complete export orders on time unless they use piece-rates to incentivise the workers.

The piece-rates may have other consequences, such as higher costs and hindering the adoption of new technologies. The survey says the workers are very comfortable with the piece-rate system and resist any changes to it.

For example, when one large fan manufacturer attempted to move from the out-dated manufacturing process to an assembly line to reduce both costs and defects, the workers refused to adapt to the new system. One reason was that it meant they would be reimbursed with periodic salaries instead of piece-rates.

The combination of piece-rates and batch production made it easier for the workers to take breaks during the day or even take days off for family commitments, odd jobs or seasonal agricultural work in villages.

Firms in the sector believe that if more women enter the workforce and take salaried jobs, the quality problems will be resolved. Under these circumstances, international buyers can also play a role in making changes to labour or wage practices as the firms in Pakistan have been responsive to buyers’ rules and regulations, the survey says.

Published in The Express Tribune, November 4^th, 2016.

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