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Why Kanati Company Hastily Exiting Pakistan May Have a Snowball Effect
Khan | 29 Jan 2015

Canadian menswear label and retailer Kanati Clothing Company announced its sudden exit from Pakistan citing profit loss, energy shortages leading to prolonged down times and corruption as reasons for the decision.

LAHORE – Last week Canadian menswear label and retailer publicly announced its sudden exit from Pakistan. The company cited substantial profit loss, energy shortages leading to prolonged down times and corruption as its reason for immediately halting operations.

Although the company claims only a small percentage of clients have experienced delays that small amount is more than they are willing to tolerate.

In a statement released January 19, 2015 co-founder Liam Massaubi said "As an organization that serves clients globally, we just can't afford the disruption and down time in Pakistan. Our clients depend on a fast and reliable service. We can no longer wait and hope for improvements in Pakistan"  and went on to say that by time you account for all the problems in Pakistan there is no real difference in manufacturing domestically and without the headache.

Massaubi also expressed "extreme disappointment" in the "lack of action" of the relevant authorities.

Loss to economy

Kanati Clothing Company not only runs its own successful menswear label but it offers a manufacturing program serving around a hundred other labels ranging from small startups to medium sized labels with retail distribution. Aside from all of those labels leaving with Kanati, other companies take note when something like this happens and they revaluate their own business plans.  

This is not the first notable company to leave Pakistan with the same problems. Walt Disney put an immediate stop to around $200M worth of textile production and labeled Pakistan as a risk to their flow of business.

"After much thought and discussion, we felt this was the most responsible way to manage the challenges associated with our supply chain," said Bob Chapek, president of Disney Consumer Products in a statement.

He added that the decision is based on a recent report from the World Bank, which assesses how countries are governed, using metrics like accountability, corruption and violence, among others.

Kanati announced it would now run all operations from its own facility in Waterloo, Ontario. They also followed Walt Disney's lead on putting Pakistan on a list of banned countries to import goods from.

Millions of dollars once committed to the Pakistan economy will now be spent elsewhere which has many wondering if all of these companies pulling out will create a snowball effect of western companies leaving and what Pakistan can even offer to compete in the long run. Other countries can beat Pakistan pricing and efficiency and offer companies better protection should they fall victim to corruption.

Instability drives production costs higher than competing countries.  Lack of energy has many parts of the country without power and communications for up to 13 hours every day and oil, gas and transportation are all serious concerns. 

Violence and terrorist attacks are becoming more and more common in many areas of the country creating further problems. Most recently we have seen the Peshawar school massacre and the attack on the countries power grid

Corruption in Pakistan

Transparency international labels Pakistan as one of the "most corrupt" countries.

"South Asia now is the worst region in the world when it comes to corruption based on our studies," said Srirak Plipat, Transparency International's regional director for Asia Pacific.

The watchdog group found serious problems with anti-corruption efforts in Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka.

All six countries have public bodies charged with stopping corruption, but "their hands are tied by political control over the staff appointments and budget," the group said in a report.

"The lack of political will on the part of the governments to make laws work means that government action to fight corruption is largely ineffective," the report added.

The World Bank puts Pakistan at a low 128 out of 189 countries for the "Ease of Doing Business" ranking.

Corruption plays a huge part in turning foreign investment. Many companies find it too difficult and avoid Pakistan all together because they have no protection.