The marble mining industry in NW Pakistan: an analysis of low-tech innovation in a developing country

Muhammad Nouman, IMSciences, PeshawarLorraine Warren, university of Southampton

BAM Conference, Liverpool, September 2013

Background

• Origins in split-site agreement with IMSciences, Peshawar INSPIRE project, http://ihe-pakistan.blogspot.co.uk/2012/09/supporting-smes-in-khyber-pakhtunkhwa.html, funded by British Council, Higher Education Commission in Pakistan (60k)

• TEDxSouthampton http://www.youtube.com/watch?v=ia2uLqif-_M

INSPIRE• www.blog.soton.ac.uk/inspire• www.soton.ac.uk/inspire• Research – International Research Group• Project – SME Development, extend ongoing work• 2 split site students, Javed Iqbal and Adnan Javed• International Research Methods Seminar Series• Curriculum Development• Outreach• Exchanges• International profile -> Going Global (Dubai) (British Council,

Internationalising Higher Education), Conference in Dubai in 2014

Research Aim, Objectives and Justification

• Pakistan government wish to improve performance in SME sector

• Low innovation, high natural resource wastage• RO1: To understand the phenomenon of innovation within a

low-technology sector (the marble industry in NWP), in terms of its constituents, key contextual factors stakeholders and actors, and

• RO2: through better understanding of the industry, develop recommendations for improvement, in line with Pakistan’s national policy.

Setting the ContextThe North-West Regions (N-WFP & FATA) of Pakistan

Setting the ContextThe North-West Regions of Pakistan

Setting the Context

• What is Marble Stone?• Two sub-sectors (a) marble mining & (b) marble

processing• Up to 70 % resource wastage due to poor mining

and processing technologies; exports are only 10% of total production, $ 60 – 70 million losses per year in exports only (SMEDA, 2007; IMS, 2007)

• Sector characterized by ‘low-technologies’ • ‘Non-dimensional’ stone extracted through

indiscriminate blasting• One of Pakistan’s three SME-based industries with

‘new potential for growth’ (Zia, 2007)• A sector characterized by competitive

disadvantage where policy/institutional actions can have the greatest positive impact (WB, 2006)

The Marble Sector of North-West Pakistan

A Marble Mine Blocks being transported from mine

Non-dimensional block/stone being shifted in processing factory using mechanical crane

Setting the Context

In order for the marble sector to improve and prosper we need to find out and explain

how firms in the sector can innovate. What is the current situation? How can things

improve? What needs to be done to reduce wastage and increase profitability?

Improvement of the sector in line with a regional development

agenda for the north-west regions of Pakistan that seeks to

enhance local industries by exploiting the area’s natural

resources.

A horizontal marble cutting machine

A worker operating on vertical cutter

A vertical marble cutting machine

Thin marble tiles Marble slabs used in flooring & stairs

Marble slab with rough

edges

Mosaic decorative

items

Reviewing Literature: The Approach

1. Placing Low-Tech (LT) on the Innovation Landscape

2. Developing the Conceptual Framework

3. Innovation in LT & LMT Sectors: Disciplinary Debates and Key Insights

Reviewing Literature:Placing Low-Tech on the Innovation Landscape

• Growing criticism of ‘high-tech myopia’ (von Tunzelmann & Acha, 2005)• Even in developed countries low-tech (LT) and low- and medium-tech (LMT)

comprise dominant portion of the economy (more than 90% of growth output), economic growth not possible only through HT innovation (Robertson et al. 2009; Hirsch-Kriensen & Jacobson, 2008; Bender, 2004)

• LT (R&D intensity 0 – 0.9 %), LMT (R&D intensity 0.9 – 5 %); LT the ‘forgotten sector’ (Hirsch-Kreinsen, 2008a)

• Innovation also possible in LT and LMT sectors; incremental product improvements, customer focus, ‘optimisation’ of processing technologies, tacit & experiential knowledge (Heidenreich, 2009), design, advance machinery, training, external sources (Santamaria et al., 2009)

• LT sectors mostly comprise of SMEs, have incremental innovation, process innovation more common (Hirsch-Kreinsen, 2008b)

• Difficult to develop conclusive list of innovation determinants; Innovation type, industry sector, firm size & firm’s context main causes of variation; Process & incremental innovation more common (Souitaris, 2002, 1999; Wolfe, 1994; Pavitt et al., 1989)

• Various characteristics of owner/manager influence innovation indirectly through mediating role of entrepreneurial processes within firm (Entrialgo et al., 2000); more direct influence (Akgun et al., 2009); very limited insights on individual-level as compared to firm-level and contextual determinants

• More studies needed from SI perspective to understand determinants (Edquist, 2005)

• Country-specific institutional frameworks affect labour markets thus influencing relative affect of innovation determinants (Casper & Whitley, 2004)

• More research needed to understand role of institutions (Faulkner, 2009; Malerba & Orsenigo, 1995)

Reviewing Literature:Innovation in LT & LMT Sectors: Disciplinary

Debates & Key Insights

Reviewing Literature:Developing the Conceptual Framework

• Innovation approaches; milieu, networks, clusters, systems (Todtling et al. 2009)

• Systems of Innovation (SI) – focus on relationships/interactions amongst firms, other organizations & institutions; include determinants of innovation including social, political, economic, institutional, organizational and other factors (Edquist, 2005, 1997; Freeman, 1987)

• SI – National (NSI) (Nelson, 1993; Lundvall, 1992); Regional (RSI) (Asheim & Gertler, 2005; Cooke, 2001, 1992); Sectoral (SSI) (Malerba, 2005, 2004, 2002; Breschi & Malerba, 1997)

• Sector: ‘a set of activities that are unified by some linked product groups for a given or emerging demand and which share some common knowledge. Firms in the sector have commonalities and at the same time are heterogeneous’ (Malerba, 2005, pp. 385)

• Elements & Structure of SSI: Products, agents (firms & non-firms), knowledge & learning processes, technologies, demand, institutions, interactions (Malerba, 2004)

MAJOR LT & LMT SECTORS STUDIED (Predominantly Manufacturing)

COUNTRY CONTEXTS

Agriculture, Food, Beverages, Chemical, Machinery and Equipment, Pharmaceuticals, Building Materials, Biotechnology, Semiconductor, Mineral (Metallic), Mineral (Non-Metallic), Steel, Metal Packaging, Wood, Medical Equipment, Rubber, Leather, Plastic, Paper, Food Machinery, Construction, Textile, Electronics, Tobacco, Housing, Furniture, Ferrous Ore mining, Non-Ferrous Ore Mining, Glass, Footwear, Printing/Publishing, By-Products, Graphic Arts, Bedding Mattress, Mechanical Engineering, Ceramic, Electronic Games, Games Software, Integrated Circuit, Vehicles Equipment, Transport, Fertilizer, Office Equipment

United Kingdom, Germany, France, Belgium, Portugal, Austria, Italy, Norway,Sweden, the Netherlands, Spain, Denmark, Finland, Ireland, Greece, Australia, USA, Canada, Brazil, Chile, Mexico, China, Japan, Korea, Taiwan, Turkey, India, Kazakhstan, Vietnam, Jamaica

o Many sectors studied including minerals.

o No exclusive research on marble.

o Dominant focus on developed country contexts (Europe, USA, Canada,

South America, Far East).

o Very limited work in developing country context.

Reviewing Literature:Innovation in LT & LMT Sectors: Disciplinary

Debates & Key Insights

The Conceptual Framework

Sectoral System of Innovation (SSI)

SSI Elements SSI Structure (Interactions)

Firm Non-Firm

Knowledgebase Technologies

Learning ProcessesDemand Institutions

Firm Owner or Manager or Entrepreneur

Representative ofNon-Firm Organization

Micro-Individual Level

Micro-Individual Level

Meso-FirmLevel

Meso-FirmLevel

Macro-Contextual Level

Macro-Contextual Level

Levels withinthe Marble Sector

• Traditional SSI approach mainly focuses on firms & their context• Marble companies are small firms with limited resources• Owner/manager a key individual• Studying his role extremely important also in order to have a better understanding of innovation

Why Sectoral System of Innovation (SSI)?

• Innovation at the centre of the system• More holistic – includes wider array of determinants• Focus on non-linear nature of innovation – an essential characteristic of LT

innovations, focus on interactions/relationships• Greater focus on understanding role of institutions (national, regional, sectoral

components)• Focus on ‘product groups’; Focus on firm• Suitable for studying innovation within a sector or industry• More flexible – ‘level of aggregation’ concept used to determine sector boundaries

& level of analysis applied by researcher (Malerba, 2004)• Focuses on industry/sector-specific nature of technological regimes; appropriate

for studying innovation in LT/LMT sectors (Evangelista and Mastrostefano, 2006)• Downside = neglect of entrepreneur/individual (Radosevic)

Deciding the Methodology & MethodsCase Study – Multiple (Two) Case Design (Embedded Type 4)

CONTEXTPeshawar-Mohmand Sectoral System

Product groups, technologies, knowledgebase, learning processes,

demand, institutions, non-firms, interactions/relationships

CASE 1PESHAWAR & MOHMAND AGENCY

Unit of Observation:Owner/Manager/Entrepreneur

Embedded Unit of Analysis 1‘Marble Mining Firm’

Embedded Unit of Analysis 2‘Marble Processing Firm’

CONTEXTBuner Sectoral System

Product groups, technologies, knowledgebase, learning processes,

demand, institutions, non-firms, interactions/relationships

CASE 2BUNER

Unit of Observation:Owner/Manager/Entrepreneur

Embedded Unit of Analysis 1‘Marble Mining Firm’

Embedded Unit of Analysis 2‘Marble Processing Firm’

A Marble Sector

Processing Unit

Processing Unit

Mining UnitMining Unit

Mining UnitMining Unit

Mining UnitMining Unit

SupplierSupplier

Intermediary or

Middleman

Intermediary or

Middleman

Public-oriented Sector Support Organization

Public-oriented Sector Support Organization

PrivateSector Support Organization

PrivateSector Support Organization

Mining UnitMining Unit

Other Stakeholder Organization

Other Stakeholder Organization

Processing Unit

Processing Unit Processing

UnitProcessing

Unit

Processing Unit

Processing Unit

SupplierSupplier

Intermediary or

Middleman

Intermediary or

Middleman

SupplierSupplier

Public-oriented Sector Support Organization

Public-oriented Sector Support Organization

Deciding the Methodology & MethodsData Collection (using Case Study Protocol) & Analysis

PHASE

STATUSPreliminary Phase: Semi-structured In-depth Interviews (April – May 2009)

Sample & Number of Respondents (Purposive Sampling - Heterogeneous) Total, Location, Time/Interview

•Owner/Manager Processing Unit (4 Interviews; 2+2, Case1 & Case2)•Owner/Manager Mining Unit (3 Interviews; 1+2, Case1 & Case2)•Supplier & Middleman/Distributor (2 Interviews; 1 supplier+1 distributor for Case1&2)•Sector Expert (1 Interview from consultant/academician)•Representative of Support Organization (2 Interviews; 1 SMEDA, 1 PASDEC)

12 Interviews, Peshawar (Warsak Rd., Industrial Estate, GT Road, Cantonment, Hayatabad), Buner (main city), Islamabad (main city) (1 - 1.5 hrs)

Complete

Data Analysis – Step I: Create Case Study Database, Translate & Transcribe Interviews, Conduct Initial Analysis, Inform & Formulate Structured Interviews & Questionnaires (June – December 2009)

Complete

Build-Up Phase: Questionnaires and Structured Interviews (January – March 2010)

Sample & Number of Respondents(Purposive Sampling – Homogeneous within each Sub-sector)

Total, Location, Time/Interview

•Owner/Manager Processing Unit (35+35 Questionnaires, Case1 & Case2)•Owner/Manager Mining Unit (6+12 Structured Interviews, Case 1 & Case 2)

70 Questionnaires, 18 Interviews

Peshawar (Warsak Rd., Industrial Estate, GT Road), Buner (main city, Chamla & Sunigaram, Dewanbaba, Karakar) (35 - 50 mins)

Complete

Data Analysis – Step II: Further Build Case Study Database, Conduct Data Analysis (April – July 2010) Complete

Closing Phase: Structured Interviews (August – September 2010)

Sample & Number of Respondents (Purposive Sampling – Heterogeneous) Total, Location, Time/Interview

Owner/Manager of Processing Unit (2 Interviews; 1+1. Case 1 & Case 2)

Owner/Manager of Mining Unit (1 Interview, Case 2)

Supplier/Middleman/Distributor (1 Interview)

Sector Expert (1 Interview)

Representative of Support Organization (1 Interview)

6 Interviews, Peshawar (Warsak Rd., Hayatabad, Cantonment), Buner (main city)

(35 - 50 mins)

Complete

Deciding the Methodology & Methods• Creating Codes (influence from Research Questions &

Conceptual Framework)• Splitting and Splicing• Descriptive Codes, assigning units of data, Pattern Coding• Memos

Description Code Research Question

Existing Marble Product Ex-Prod RQ1.1.1

Existing Marble Process Ex-Proc RQ1.1.2

Product Innovation Prod-Inn RQ1.2.1

Marketing Innovation Mark-Inn RQ1.2.3

Informal Learning Process Inf-L-Proc RQ2.3.2

Formal institution Form-Inst RQ2.4.1

Interaction b/w firm & non-firm Int-F-NF RQ3.1

Individual Innovation Determinant Ind-Inn-Det RQ3.5.1

Firm Innovation Determinant F-Inn-Det RQ3.5.2

FORMAT OF CASE STUDY REPORTCASE TITLE1. Introduction2. General Scenario in the Sector: Firm and non-firm context (RQ1.1) I. Nature and types of products II. Nature of production processes III. Nature of marketing practices IV. Nature of organizational structure V. Role of stakeholder organizations3. Existing Innovation Scenario in the Sector (RQ1.2) I. Manifestations of innovation: Firm-context4. The Sectoral System of Innovation: Elements I. Role of Agents (RQ2.1) A. Individuals & Firms A1.Mining Units A2. Processing Units B. Non-Firms B1.Suppliers B2. Middlemen/Distributor B3. Sector Support Organization II. Nature of Knowledge and Technologies (RQ2.2) III. Learning Processes (RQ2.3) IV. Nature of Demand (RQ2.3) V. Institutions and their role (RQ2.4)5. The Sectoral System of Innovation: Structure I. Interactions amongst Firms and Non-Firms (RQ3.1) II. Interactions amongst Firms and Institutions (RQ3.2) III. Interactions amongst Firms and Knowledge and Technologies (RQ3.3) IV. Interactions amongst Firms and Learning Processes (RQ3.4) V. Interactions amongst Firms and Demand (RQ3.4) VI. Logic Models and Discussions (RQ3.1-RQ3.4)6. Determinants of Innovation in the LT Sector: Categorization (RQ3.5) and Relative Importance (RQ3.6) I. Logic Models and Discussions (RQ3.5-3.6)7. Concluding Thoughts

Example

(Yin, 2003; Miles & Huberman, 1994; Dey, 1993)

• Replication Logic• Matrices & Networks, Logic Models• Within-Case Displays• Cross-Case Displays & Analysis• Two Case Study Reports (Case 1 & 2)

Outcomes 1• Dependence of processing sub-sector on mining sub-sector• All characteristics of SSI (elements & structure) found in the marble sector• Products: More than 20 main varieties of stone• Mining Phase: Irregularly shaped boulders & blocks, cracks• Processing Phase: Slabs, tiles, decorative items, mosaic, flooring

pebbles ‘chips’, poor quality (rough edges, small cracks)• Processes: Mining – indiscriminate blasting, limited use of mechanized

extraction (loader & extractor), no wire cutting, no dimensional stone extraction

• Processing – cranes for off-loading, vertical & horizontal cutters, some gang saws, polishers

• Marketing: Most finished product does not meet international standards, focus on domestic market, better understanding of local customer needs but not the case for international markets, limited evidence of packaging & labelling

• Organization: typical small enterprise structure (mostly 1 owner/manager, 10-12 employees, informal delegation of authority & responsibilities), leasing in the case of mines

Outcomes 2Zero R&D intensityContext-specific manifestation of innovationIncremental product & process innovation only, no significant

improvements (inline with LT sector characteristics)Some marketing innovation, targeting new markets at

national level (mainly Punjab), no international focusNo innovation at firm’s organizational levelInnovation supplier-driven (in line with Pavitt’s taxonomy)

especially supply of modern technology, improved imported machinery and better quality / dimensional raw marble

Process innovation strongly influencing product innovationInnovation in mining sub-sector (excavation processes)

strongly influencing innovation in processing sub-sector, importance of sub-sectoral linkages

Outcomes 3Technology changes very slow within the sector, most technologies

in use since last 15-20 yearsKnowledge search common at individual level (owner/manager) but

not at firm levelTechnologies are spillovers from LMT sectors like locomotivesWeak absorptive capacity due to unskilled workersKnowledge of domestic market only & not international market,

knowledge gained informally by learning about local customer’s requirements/tastes

Incremental knowledge accumulation but formal on-job training non-existent

Low knowledge appropriability as product too simple & easy to copy by competitor

Technologies used with a priority for production efficiency, compromise on product quality

Outcomes 4

Formal National

Formal Regional

Formal Sectoral

Weakening Effects of Formal

InstitutionsPolicy

Inconsistency

Marble Sector

Strong InformalInstitutions

Lack of Clarity

Weak Match

Risk-taking by owner/managerInnovations set by other businesses as examples to followSkill-level and training of worker (s)Education and awareness of owner/managerOwner’s formal business experienceOwner’s perception of and response to changeOwner’s satisfaction level with current sales/business performanceOwner’s focus on day-to-day survival versus long-term planningOwner’s perception about profitability of innovations

Risk-taking by owner/managerInnovations set by other businesses as examples to followSkill-level and training of worker (s)Education and awareness of owner/managerOwner’s formal business experienceOwner’s perception of and response to changeOwner’s satisfaction level with current sales/business performanceOwner’s focus on day-to-day survival versus long-term planningOwner’s perception about profitability of innovations

Stone/material wastage during blasting and cutting processesLocally manufactured machinery resulting in quality problems during processingEquipment/machinery maintenanceAvailability of finances and low profit marginsSmall size of businessNature of formal business planning and implementationLack of ownership due to separation between mine lease holder and mine operator/manager

Stone/material wastage during blasting and cutting processesLocally manufactured machinery resulting in quality problems during processingEquipment/machinery maintenanceAvailability of finances and low profit marginsSmall size of businessNature of formal business planning and implementationLack of ownership due to separation between mine lease holder and mine operator/manager

Nature of excavated marble (dimensional vs. irregularly shaped stone blocks)Uniqueness of marble stone varietiesNature of linkages among mining and processing sub-sectors/firmsAvailability or otherwise of machinery (local and/or imported) and with features that allow flexibility in product designsQuality of available machinery components such as blades, cutters, othersPresence of experts/technicians in the market who can install machinery properlyInfrastructure support such as electricity, roadsLeasing and loan services from banks and other organizationsQuality issues with excavated stone (impurities, hardness)Transportation costs of shipping stones from mines to processing unitsCost of fuel for mining units and electricity/taxes for processing units

Nature of excavated marble (dimensional vs. irregularly shaped stone blocks)Uniqueness of marble stone varietiesNature of linkages among mining and processing sub-sectors/firmsAvailability or otherwise of machinery (local and/or imported) and with features that allow flexibility in product designsQuality of available machinery components such as blades, cutters, othersPresence of experts/technicians in the market who can install machinery properlyInfrastructure support such as electricity, roadsLeasing and loan services from banks and other organizationsQuality issues with excavated stone (impurities, hardness)Transportation costs of shipping stones from mines to processing unitsCost of fuel for mining units and electricity/taxes for processing units

Access (direct/indirect) to national & international marketsAwareness & knowledge of international customer preferenceNature of product demand in local market (stagnant vs. dynamic)Demand for substitutes like ceramic & porcelain productsDemand for marble products from Balochistan region of Pakistan & China in national & international markets

Access (direct/indirect) to national & international marketsAwareness & knowledge of international customer preferenceNature of product demand in local market (stagnant vs. dynamic)Demand for substitutes like ceramic & porcelain productsDemand for marble products from Balochistan region of Pakistan & China in national & international markets

Role of marble support organizations (government & private sector)Role of marble union or associationInteractions among firms, non-firms & formal institutionsMarket distortion due to presence of non-professional individualsGeographical location of business and distance from marketsNature of informal institutions (collectivist culture, social pressures, tribal social system)Complexity of banks’ lending proceduresExploitative role of middlemen fetching greater profit marginsNature of application of formal institutional frameworks by government regulatory bodiesUncertainty about law & order, economic situation & government credibility

Role of marble support organizations (government & private sector)Role of marble union or associationInteractions among firms, non-firms & formal institutionsMarket distortion due to presence of non-professional individualsGeographical location of business and distance from marketsNature of informal institutions (collectivist culture, social pressures, tribal social system)Complexity of banks’ lending proceduresExploitative role of middlemen fetching greater profit marginsNature of application of formal institutional frameworks by government regulatory bodiesUncertainty about law & order, economic situation & government credibility

Micro-Individual Level

Meso-Firm Level

Macro-Contextual Level

Others

Demand-oriented

Supply-oriented

*Internal Determinants

*Contextual Determinants

Schematically87 Determinants (46 processing, 41 mining) of LT Innovation in marble sector of north-west Pakistan

*Becheikh et al. (2006)

Continuing…• At the micro-level, no overarching climate for innovation in the

industry in the community of firm owners; though entrepreneurial individuals can be influential, overall, there is a lack of role models

• At the meso-level, limited and informal interactions between firms in relation to knowledge and learning processes

• Meso-micro interactions between individuals and firms are role-dominated, often with weak connections between investment in innovation and reward

• At the macro-level, weak institutions combined with sector support organisations with a lack of trust, direction and purpose within a conflictual region result in non-existent access to international markets

• Macro-meso interactions result in the inability of firms to trigger new demand and weak knowledge creation and learning.

Conclusion

• The concept of innovation in a low-technology sector has been poorly understood especially within the context of a developing country

• This research addresses the lack of an exclusive and all-encompassing SSI perspective that focuses on innovation in a low-technology sector and integrates conceptual/theoretical aspects of SSI with empirical work conducted in a developing country

• The SSI approach has traditionally focused on the role of firms and their context explained through sectoral elements and structure. However, the understanding of sectoral structures is still weak. Also, using micro-meso-macro framework this research brings into focus not just the role of firms and context but also the role of individual within firm (a key component of small firms that has been ignored) in influencing LT innovation

Thank You