RASTA: Local Research, Local Solutions: Business & Markets, Volume Xi
ABSTRACT
This project scrutinizes the industrial ecosystem in the Daroghawala industrial cluster of Lahore. The project’s scope primarily encompasses the examination of the emergence and growth of this industrial cluster, and the investigation into the dynamics of its small and medium enterprises (SMEs), their growth determinants, and their distinctive economic transaction patterns.
The initial phase of the research delves into the spontaneous evolution of Daroghawala into a vibrant and diverse industrial ecosystem. Influencing this development are factors such as urbanization trends, increasing growth in the automobile, steel, and iron industries, the ease of conducting business, and infrastructural accessibility. The study uncovers a historical record of the industrial units developed in this area making up an industrial cluster. Notably, the research emphasises the role of collective industrial entrepreneur associations in spearheading representation and negotiations within this area. This part of the research calls for more in-depth investigations into Lahore’s unique industrial typologies and ecosystems.
The second part quantifies the causal effect of subcontracting from original equipment manufacturers (OEM) on the growth of SMEs operating within Daroghawala. The study finds that the enterprises which had higher OEM permanent clientage ratios grew rapidly in comparison to others. Interestingly, however, the study could not find significant evidence to suggest the nature of the relationship between SMEs’ growth and their access to corporate loan availability and their research expenditures. It diverged from previous mainstream research but resonated with some studies in the Pakistani context. This divergence underscores the need for further exploration across diverse sectors and geographical regions in the country.
In the final phase, the research grapples with understanding formality/informality. Enterprises that develop outside planned industrial zones are usually labelled ‘informal’. Through Daroghawala’s economic flows, the study develops a robust transaction table showing intraregional commerce, international trade linkages, and considerable tax contributions by firms in informal clusters. These findings challenge conventional perceptions of their informality, further demonstrating their effective integration with formal economic sectors. The evidence of substantive financial flows lends credence to the structuralist school of scholarship on informality.
INTRODUCTION
This research explores a specific spatial phenomenon that routinely plays out in large Pakistani cities – unanticipated, spontaneously-formed industrial clusters that mostly comprise SMEs and ancillary land uses. These specialised urban districts house economic activities of various kinds but are mainly centered on manufacturing units of light industrial and consumer goods. Examples include farm implements, surgical instruments, leather products, automobile parts, and sports equipment. Most importantly, these places serve as organic economic centers providing many jobs and livelihoods even if developed in contravention of land uses specified by statutory master plans.
Punjab is Pakistan’s most populous province and earns an estimated 22% of its GDP from the industrial sector which also employs 24% of the workforce in the province. Moreover, nearly 80% of the industries in Punjab are located in or near a city. The government has prepared formal industrial estates for planned spatial planning, but only 3.5% of the industries are located in these formal zones (The Urban Unit, 2018). A majority of industrial units, i.e., 96.5%, are developed in cities but outside any industrial zone presents a challenge for spatial planning of cities. However, official planning documents have missed any opportunity to prepare a policy for industrial clusters formed outside formal industrial zones. Since not identified as planned industrial districts in land use plans and government records, these clusters developed without direct support from the government (Haynes, 2012).
Even though industries develop in clusters outside the planned industrial zones, these industries still develop due to multiple supporting factors as this research will show. Therefore, we argue that location outside the formal zones must not mean that these places develop without any planning. The literature suggests that such places are a result of wide-ranging planning efforts carried out by multiple stakeholders that operate beyond the state.
Pakistan’s industrial policy aims to harness employment generation opportunities in SMEs. However, the government’s efforts are simultaneously limited by financial challenges to actively support SMEs through public funds and by the constraints of legal government operations (Ajmal et al., 2020; Hull, 2012). Urban experience in Pakistan suggests that the country has ubiquitous cases of ingeniously developed industrial areas that originated and continued to operate without direct government support. This research argues that comprehending the planning and organization of such industrial clusters can help pave the way for a locally grounded approach to industrial policy coordinated with the on-ground reality.
Lahore, with the fastest population growth rate in the country, has seen organic development of industrial clusters in and on the peripheries of the city. These clusters, though not developed to the perfect industrial standards, have been generating business and employment opportunities. These clusters present a great starting point for exploring the factors that have supported the establishment and survival of these SMEs. Furthermore, the investigation of these industrial clusters is an opportunity to explore and document the flows and linkages that tie these economic activities with the larger economic structure. Such investigation could provide an economic history of development in Lahore on a pattern similar to that noted by Cronon (1991) for Chicago’s development as a regional trade hub, and Gandy (2002) for the role of New York’s public infrastructure in the spatial organization of the city.
To document the factors that have caused the development of industrial clusters in Lahore, this study aims to provide insights for policymakers interested in encouraging SMEs in Pakistan. Moreover, the development of such enterprises in large Pakistani cities is an organic process taken up by the actors involved in their setup and organization. This study explains this process to enable the readers to better understand the spatial organization of Pakistani cities. Lastly, this study quantifies the monetary flow of the industrial clusters in Pakistani cities at four spatial scales, namely, intra-cluster, inter- cluster, regional, and international scale.
