ENHANCING THE

COMPETITIVENESS
O F PA K I S TA N ’ S
SURGICAL
INSTRUMENTS
I N D U S T RY
APRIL 2022

A Joint Study By

The Pakistan Business Council (PBC)

The Engineering Development Board (EDB)
Surgical Instruments Manufacturers Association
of Pakistan (SIMAP)
ENHANCING THE
COMPETITIVENESS
O F PA K I S TA N ’ S
SURGICAL INSTRUMENTS
I N D U S T RY

APRIL 2022

A Joint Study By

The Pakistan Business Council (PBC)

The Engineering Development Board (EDB)

Surgical Instruments Manufacturers Association

of Pakistan (SIMAP)
 i

AUTHORS

Samir S. Amir Shahan Arshad

Team Leader Senior Analyst

CONTRIBUTION OF FOLLOWING FROM

THE EDB IS ACKNOWLEDGED

Mr. Almas Hyder Mr. Raza Abbas Shah Ms. Raazia Shakir
Chairman-EDB CEO-EDB GM-EDB

Engr. K.B. Ali Ms. Sidra Bilal

GM-EDB Intern-EDB

Disclaimer
DISCLAIMER

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

The findings, interpretations and conclusions drawn in this Study are those of the author(s) and do not necessarily
reflect the views of the Board of Directors and Members of the Pakistan Business Council, or the companies they
represent. Similarly, the findings, interpretations and conclusions drawn in this Study do not necessarily represent the
views of the Engineering Development Board or the Government of Pakistan. Although every effort has been made to
cross-check and verify the authenticity of the data used, the Pakistan Business Council, or the author(s), do not
guarantee the data included in this work. All data and statistics used are correct as of 11th August, 2021 and may be
subject to change.

For any queries or feedback regarding this report, please contact

samir@pbc.org.pk or shahan@pbc.org.pk
 ii

T H E PA K I S TA N B U S I N E S S C O U N C I L :
AN OVERVIEW

The Pakistan Business Council (PBC) is a business policy advocacy platform, established in 2005 by 14 (now 89) of
Pakistan’s largest private-sector businesses and conglomerates, including multinationals. PBC businesses cover
nearly all sectors of the formal economy. It is a professionally-run organization headed by a full-time chief
executive officer.

The PBC is a not-for-profit entity, registered under Section 42 of the Companies Ordinance 1984. Though it is not
required under the law to do so, the PBC follows to the greatest extent possible, the Code of Corporate
Governance as applicable to listed companies.

The PBC is a pan-industry advocacy group. It is not a trade body nor does it advocate for any specific business
sector. Rather, its key advocacy thrust is on easing barriers to allow Pakistani businesses to compete in regional and
global arenas. The PBC conducts research and holds conferences and seminars to facilitate the flow of relevant
information to all stakeholders in order to help create an informed view on the major issues faced by Pakistan.

The PBC works closely with relevant government departments, ministries, regulators and institutions, as well as
other stakeholders including professional bodies, to develop consensus on major issues which impact the conduct
of business in and from Pakistan. The PBC has submitted key position papers and recommendations to the
government on legislation and other government policies affecting businesses. It also serves on various taskforces
and committees of the Government of Pakistan as well as those of the State Bank, the SECP and other regulators
with the objective to provide policy assistance on new initiatives and reforms.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 iii

THE PBC’S FOUNDING OBJECTIVES

To provide for the formation and exchange of views on any question connected with the conduct of business
in and from Pakistan.

To conduct, organize, set up, administer and manage campaigns, surveys, focus groups, workshops, seminars
and fieldwork for carrying out research and raising awareness in regard to matters affecting businesses in
Pakistan.

To acquire, collect, compile, analyze, publish and provide statistics, data analysis and other information
relating to businesses of any kind, nature or description and on opportunities for such businesses within and
outside Pakistan.

To promote and facilitate the integration of businesses in Pakistan into the World economy and to encourage
in the development and growth of Pakistani multinationals.

To interact with governments in the economic development of Pakistan and to facilitate, foster and further
the economic, social and human resource development of Pakistan.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 T H E P B C ’ S M E M B E R C O M PA N I E S
iv

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 v

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 vi

TA B L E O F C O N T E N T S

1. Background 01
2. Objectives 01
3. Methodology 01
4. Executive Summary 03
5. Parameters of Competitiveness 09
6. The Global Surgical Instruments Industry 09
7. Pakistan’s Surgical Industry 13
8. Items produced by Pakistan’s Surgical Industry 17
8.1 Existing products 17
8.2 Products and Technology 18
8.3 International standards compliance 18
9. Pakistan’s Surgical Industry Competitiveness 19
10. Pakistan’s Competitive Edge 19
10.1 Surgical Goods Manufacturing in Pakistan 19
11. Value Chain Analysis 21
11.1 Raw materials 25
11.2 The role of SIMTEL 26
11.3 Machinery 26
11.4 Process 26
11.5 The role of the Technical Education & Vocational Training Authority (TEVTA) 27
11.6 Financial & financing facilities 29
11.7 Logistics 29
12. Top export Destinations 30

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

13. Analysis of concentration risk 31
14. Dollar Per unit value analysis 33
15. International Competitors 34
15.1 Germany 35
15.2 China 38
15.3 Malaysia 40
15.4 Poland 41
16. The emerging Challenge from 3D printing 42
17. Pakistan’s Current Policies Regarding Surgical Instruments 43
17.1 Manufacturing Bond Scheme 43
17.2 Duty and Tax Remission for Exports (DTRE) Scheme 44
17.3 Export Oriented Units (EOU) 44
 vii

17.4 Duty and Tax Remission for Exports (DTRE) Scheme 44

17.5 Temporary Importation Scheme 45
17.6 Export Processing Zones 45
17.7 Minimum Export Price 45
17.8 Existing SROs: 46
17.9 Redundant SROs: 47
18. Performance Under SROs 47
19. Price war 49
20. Need for Increased Marketing and Branding Activities 50
21. Perception Issues 51
22. Compliance with New European Rules 51
23. Infrastructure 51
24. Cost of Doing Business 51
25. Labor Shortages 52
26. EPZ Policy 52
27. Common facility center 52
28. Surgical City 53
29. Other issues 53
30. Discussion 54
31. Recommendations 56
31.1 Fair Trade in Bananas and Coffee; Why not in Surgical Instruments? 56
31.2 Consultants for MDR compliance 56
31.3 Joint Ventures for increasing exports 57
31.4 A Surgical City as proposed by SIMAP 58
31.5 A new Common Facility Centre proposed by SIMAP 58

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

31.6 Absence of Made-in-Pakistan on Export Products 58
31.7 Product presentation matters 59
31.8 Ensuring Quality – standards 59
31.9 Exploring new markets 59
31.10 Disposable vs non-disposable Items 60
31.11 Using E-commerce platforms 60
31.12 Reduce documentary compliance 61
32. References 62
33. Appendix 64
33.1 Pakistan’s Overall Competitive Position 64
33.1 List of interviewees 66
 viii

LIST OF FIGURES

Figure 1: Surgical Instruments Exports 2016-2020 03

Figure 2: Medical Device categories and their relative technological complexity 10
Figure 3: Life Cycle Assessment of Single-use vs multi-use instruments as tracked by researchers 11
Figure 4: Major Global Surgical Instruments Manufacturing Clusters 12
Figure 5: Pakistan's Surgical Instruments Top Destinations 12
Figure 6: Types of Surgical Instruments Manufactured in Pakistan 14
Figure 7: Pakistan Surgical Instruments Exports 2016-20 14
Figure 8: Pakistan's Exports of Surgical Instruments Quantities 16
Figure 9: Advantages of clusters 20
Figure 10: Logistics Chain Mapping 21
Figure 11: Core Processes and Responsibilities in the Logistics chain 22
Figure 12: From Order-to-Export Timeline to fulfill commercial and regulatory requirements of 22
Surgical Instruments export business processes

Figure 13: Key elements of Surgical Instruments sector 23

Figure 14: Key processes in the manufacturing process 24
Figure 15: Pakistan Dollar-per-Quantity cost of imported steel from 2012-20. 25
Figure 16: Processes in making Surgical Instruments 27
Figure 17: Functions of TEVTA 27
Figure 18: MIDC jobs and Surgical Instruments Exports from 2016-2021 28
Figure 19: Top Destinations for Pakistan Surgical Instruments Exports 2016-2020 30
Figure 20: Quantity-wise exports of Surgical Instruments from Pakistan 2016-2020 32
Figure 21: Map of dollar-per-unit obtained via exports 2016-2020 33
Figure 22: Pictorial representation of Surgical Instruments made by Germany 36

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Figure 23: Branding Example by German Manufacturer 36
Figure 24: Tuttlingen cluster value chain mapping 37
Figure 25: A Surgical Instruments manufacturing plant in China 38
Figure 26: Application of 3D printing in medical fields 42
Figure 27: Examples of 3D printed instruments 42
Figure 28: CAGR before and after Product Development Incentive Order 48
Figure 29: Pakistan's Exports of Surgical Instruments - Quantity-wise 54
Figure 30: Surgical Instruments manufacturing plants in China 55
Figure 31: Market size for Surgical Instruments in Pakistan 57
Figure 32: A representation of Surgical Instruments toolkit 59
Figure 33: One-stop shops in China for all medical instruments 59
 ix

Figure 34: E-commerce platform to sell Surgical Instruments 60

Figure 35: Process flow at Sialkot Dry Port Trust (SDPT) 61
Figure 36: Comparative cost of documentary compliance 61
Figure 37: Pakistan's score in Doing Business Indicators 64
Figure 38: Pakistan's score on each pillar of the Global Competitiveness Index 65

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 x

L I S T O F TA B L E S

Table 1: Comparative costs of electricity and labor 04

Table 2: Surgical Instruments exports of World and Pakistan with market share 15
Table 3: Comparative Electricity and Labor Costs 19
Table 4: Volume handled by Sialkot Dry Port Trust 2018-20 29
Table 5: Pakistan Surgical Instruments Exports, market share, CAGR 2016-20 31
Table 6: Countries which receive 80 percent of Pakistan's Surgical Instruments Exports – in unit terms 32
Table 7: Top 20 countries that fetch highest dollar-per-quantity 33
Table 8: HS-901890 Surgical Instruments Exports – Major Destinations: Germany vs Pakistan 2018-20 37
Table 9: HS-901890 Surgical Instruments Exports: China vs Pakistan 2018-20 39
Table 10: HS-901890 Surgical Instruments Exports: Malaysia vs Pakistan 2018-20 40
Table 11: HS-901890 Surgical Instruments Exports: Poland vs Pakistan 2018-20 41
Table 12: CAGR of Pakistan’s SI exports vs Pakistan’s total exports 47
Table 13: CAGR of exports of various industries in Pakistan 54
Table 14: Pakistan's score for each indicator 64
Table 15: Comparative economies' Doing Business score 66
Table 16: List of interviews 66

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 01

1. BACKGROUND

The Surgical Instruments industry contributes 1.6% to Pakistan’s exports. Being one of the five designated export
sectors, the Surgical Instruments industry is an important contributor to Pakistan’s exports with a potential to increase
its contribution to the country’s overall exports. It is felt by the industry’s major players that the industry will be able
to achieve its full potential if it is provided with a policy framework which allows it to compete on a level-playing field
with its global competitors – in other words if the policy framework supports enhancing the industry’s
competitiveness.

To help improve the competitiveness of various sub-sectors of the engineering industry – including the Surgical
Instruments sector, the Pakistan Business Council (PBC) and the Engineering Development Board (EDB) have entered
into an MOU to jointly carry out sector competitiveness studies. This study on Pakistan’s Surgical Instruments industry
is the second joint study carried out by the two organizations.

2. OBJECTIVES

As per the terms of the PBC-EDB MOU, the objective of this study is to establish a general framework to facilitate
cooperation between all stakeholders to promote development of the Surgical Instruments Sector of Pakistan. To
accomplish this objective, this Study proposes – in consultation with all industry players, and a detailed review of
literature, a set of policy recommendations aimed at making Pakistan a competitive hub for the manufacture of
Surgical Instruments.

3. METHODOLOGY

A joint team from the PBC and EDB conducted a series of field interviews of the major players in the Sialkot cluster to
obtain first-hand knowledge about the current state of the Surgical Instruments industry in Pakistan. Exporters were

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

also encouraged to share their views on global trends and emerging competitors. The fieldwork was supplemented
with desk research to better understand the strategies being followed by other countries for promoting their Surgical
Instruments industries.

The Engineering Development Board (EDB) was established in 1995 with the primary objective to promote growth of
Pakistan’s engineering sector. The primary mandate which is assigned to the Board is policy formulation and putting in
place a mechanism for implementing these policies. The objective being facilitating and encouraging the development
& growth of Pakistan’s Engineering Industry.

The EDB is organized under four operational groups: Tariff Group, Policy Development Group, Sector Development
Group and Business Development Group. The key objective as stated above is to formulate and implement strategies
for developing the engineering sub-sectors. This objective is planned to be achieved by integrating Pakistan's
engineering sector into global supply chains by focusing on tariff rationalization, promoting indigenization, vendor
development, giving international exposure to industry, handholding of industry, creating a comprehensive databank
of industry capabilities through benchmarking, trainings etc.
 02

EDB provides policy advice and technical support to Ministry of Industries and Production. It also engages with the
Ministry of Finance / FBR on fiscal policy, the Ministry of Commerce / NTC for tariff rationalization, and with the
Ministry of Science & Technology for standards, testing and quality.

EDB maintains an export directory of local engineering companies for dissemination of information. It also identifies
local manufacturing capabilities in each sector and verifies manufacturing capabilities / facilities through field visits.

Regular sector studies are carried out by the EDB to identify sectoral needs for technological upgradation, especially for
entering export markets. As part of this function, the EDB in collaboration with the PBC, has carried out this study on
the competitiveness of Pakistan’s Surgical Instruments Sector which in 2020 provided export revenues of USD 360 Mn.

The process followed in conducting this sector competitiveness study consisted of collection of secondary data from
the Pakistan Revenue Automation (Pvt) Limited (PRAL), the Pakistan Bureau of Statistics (PBS), the International Trade
Centre (ITC), a detailed review of previous studies conducted on the sector along with physical interviews of major
stakeholders in the sector.

PRE-PROCESSING D ATA
E VA L U AT I O N
D ATA A N A LY S I S

Data integration Exploratory data analysis Selected dimensions of

Data filtering Containerizing qualitative industry improvement
Field visits analysis
Industry interviews Theme identification
Insight discovery
Contextual reasoning

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 03

4 . E X E C U T I V E S U M M A RY

Surgical instruments are one of the many sub-sectors that fall under the umbrella of medical instruments and
appliances. These include a wide assortment of products ranging from electrical and electro-mechanical items such as
X-ray machines and CT scanners to non-electrical hand-held items such as forceps, scalpels, scissors etc. The US FDA
has classified medical devices into three categories: Class I, Class II and Class III depending on their risk and criticality.
Examples of Class I devices are tongue depressors, bandages, gloves, bedpans, and simple surgical devices. Examples
of Class II devices are wheelchairs, X-ray machines, MRI machines, surgical needles, catheters, and diagnostic
equipment. Class III devices are used inside the body and include heart valves, stents, implanted pacemakers, silicone
implants, and hip and bone implants.

Pakistan’s Surgical Instrument manufacturers mainly produce Class I and some Class IIb instruments. Surgical
Instruments can also be classified under two major usage categories: disposables and non-disposables. Examples of
non-disposable devices include machines and instruments, diagnostic equipment, surgical and dental instruments,
prostheses, and implants.

Most of the world’s surgical instruments are made by firms in selected cities & towns in Europe and Asia—these
locations include Tuttlingen (Germany), Sialkot (Pakistan), Penang (Malaysia), Debrecen (Hungary), and Warsaw
(Poland).

The Surgical Instruments industry of Pakistan is a highly fragmented industry with approximately 3,900 units (as per
records of SIMAP1) operating in the city of Sialkot, in the Punjab province of Pakistan. The industry consists of a
multitude of small and medium sized manufacturers with a few large units. The market is characterized by a high
degree of fragmentation as well as a strong export orientation. The industry operates on an OEM (Original Equipment
Manufacturer) model. Orders and specifications are received from buyers, mostly from Germany and the USA. Local
manufacturers construct the product according to specifications and export these to the overseas buyers who mostly
brand the instruments and supply them to distributors overseas. The industry follows the Pareto principle with roughly
80 percent of the industry's revenue being contributed by 20 percent of its players. Pakistan's market share of surgical
instruments has remained nearly static at 0.7% over the last 10 years suggesting a strong correlation of 0.96 with world
demand.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

405.51

375.51

361.14

361.3
326.03

2016 2017 2018 2019 2020

Figure 1 Surgical Instruments Exports 2016-2020

Source: (International Trade Center, 2020)

1
SIMAP – Surgical Instruments Manufacturers Association of Pakistan
 04

The Sialkot cluster reportedly manufactures over 25,000 different types of instruments including precision
instruments. These instruments are mostly made from medical grade stainless steel, and are used in surgical, dental
and veterinary work. Items produced by the surgical sector includes various types of scissors, forceps, scalpels, needle
holders, surgical knives, specula, stethoscopes, clamps, retractors etc. The instruments are categorized into two
distinct quality differentiated market segments: higher quality reusable ‘operation theatre’ instruments and lower
quality disposable ‘floor’ instruments used mainly for clinical purposes. The sector in Pakistan remains mostly
restricted to the low technology end of the medical instruments segment with a few firms having the capacity to
produce high-technology, precision-based, electromechanical instruments. There has been very low product or
process innovation in the Sialkot cluster in the last 5 years. The surgical instruments manufactured in Pakistan are
required to be compliant with the regulations of its main customers, namely the US and the EU. Pakistan needs to
initiate efforts to comply with the new EU Medical Devices Regulations (MDR).

As can be seen from Table 1 below, Pakistan’s surgical industry is highly competitive at the lower end of the technology
scale due to its low labor costs.

Table 1 Comparative costs of electricity and labor

Country Electricity cost USD per kWh Labor cost USD per hr.

Germany 0.235 43.15 (EU average = 27.4)

USA 0.121 39.09

Pakistan 0.163 0.809

China 0.103 4.11

Vietnam 0.077

The German SME surgical instrument manufacturers, who are the world leaders in surgical instruments, have mostly
outsourced the lower technology intermediate and end products to the Sialkot cluster. While Pakistan’s surgical
instruments industry remains competitive in the low-tech end of the product scale, its exports are highly concentrated
in a few geographical areas primarily because of established supply chains and the difficulties in entering new markets.

There are four distinct channels through which Sialkot’s producers currently export their products:

Foreign buyers who purchase both floor and theater instruments and supply medical wholesalers, retailers and

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

medical end-users in the European, North American and East Asian markets. These also include large US
‘kit-packers’.
Foreign, particularly German, producers who subcontract all or part of their production of instruments to Sialkot
based firms.
Independent foreign-based Pakistani buyers, especially in the US market, these deal primarily in low quality floor
instruments.
Foreign sales offices of Sialkot manufacturers. These nominally independent concerns, usually managed by family
members, purchase instruments from the parent firm in Sialkot and sell to specialized wholesalers, retailers and
hospitals.

Majority of firms operating in the sector are family-owned. Some specialize in certain instruments or a particular
branch of surgery. The vast majority are small firms employing less than 20 people. Larger firms have contracts mostly
with German SMEs who outsource the manufacturing process to them. Small firms subcontract all but the final stages
of production while large firms internalize most activities, using specialist subcontractors only for specific tasks and
specialized items.
 05

The top 3 destinations for Pakistan’s surgical instruments are the USA, Germany and the UK. Nearly 80% of surgical
instruments made in Pakistan are exported to only 15 countries. This limits Pakistan’s export potential and increases
concentration risk.

A recent development i.e., the advent of 3D printing is set to revolutionize many industries. 3D printing brings the
ability to manufacture anything at a fraction of the current cost. Once commercialized, it is expected to change the face
of industry as we know it. 3D printing has begun to play a significant role in the field of medical devices. The Pakistani
Surgical Instruments manufacturing industry remains competitive due to its low labor cost. Currently the developed
economies are using 3D printing for prototyping only. While Pakistan remains a global OEM supplier for the time being,
the industry might face an existential risk in the future if commercial applications of 3D printing significantly reduce the
cost of the final product negating Pakistan’s labor cost advantage.

There is some evidence of minor growth in exports due to support given to the sector under various SROs. From 2016
to 2018, the exports of surgical instruments increased at a CAGR of 7.3%. This was in line with Pakistan’s overall growth
in exports which increased at a CAGR of 7.6% during the same period. Impact from support under SRO 578(I)/2016,
“Product Development Incentive Order”, saw an increase of 1.4% in CAGR for exports of surgical instruments. It may be
noted that this CAGR was also impacted by other factors such as demand variation in global trade. After SRO 578 came
into effect in 2016, the CAGR of surgical instruments exports grew from 5.9% to 7.3%.

There is intense competition within the sector. A majority of the local producers cite other domestic producers as their
major competitors. Although local rivals claim to compete on the basis of product quality, the primary basis of
competition appears to be price. This has been fueled by the growth in the number of manufacturers in Sialkot since
the early 1980s and through competition between Pakistani sales agents in the USA. Firms try to obtain their rivals'
price quotes, and the practice of 'poaching' foreign clients from competitors is not uncommon.

Sialkot has numerous service providers including printers who publish sample brochures and product catalogs. The
manufacturers also often take part in foreign exhibitions. Apart from that, there is little marketing activity.

Buyers in the Middle Eastern market prefer to buy Pakistani instruments from US or European suppliers but not directly
from Pakistan. This is because of their trust in European and American brands. Industry players in Sialkot need to
appreciate the importance of brand building which can allow them to charge a premium. In addition to strong brands,
country-of-origin association between Pakistan and Surgical Instruments will also facilitate Pakistani suppliers to enter
new markets.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Manufacturers cite hurdles to online sales such as those associated with using PayPal and Amazon Pay. In both PayPal
and Amazon Pay, buyers have the option to cancel payments within 7 days if they feel the delivery does not meet
expectations. PayPal protects buyers therefore buyers trust the PayPal mechanism.

The Pakistani Surgical Instruments industry will face a new challenge in the form of the Medical Device Regulation
(MDR) to be mandatorily introduced in the EU beginning 2024. All instruments destined for the EU will have to be
compliant with the new European regulations on biocompatibility. The new regulations are expected, at least in the
initial period to hinder exports of Surgical Instruments to the EU.

Sialkot suffers from infrastructure deficiencies. It is plagued with bad roads, inadequate power supply & distribution
and poor communication links. In addition, increasing energy costs are making firms uncompetitive by squeezing
margins and profitability.

The Surgical Instruments industry is a labor-intensive industry, heavily dependent on highly skilled labor to deliver
outputs. However, recent years have witnessed a rapid de-skilling of labor in the sector. The phasing out of child labor
from Pakistan has resulted in the collapse of the conventional ustad-shagird (apprentice) system, resulting in a dearth
 06

of a trained and skilled workforce. Several attempts have been made to resurrect formal training programs, but the
industry does not appear satisfied with the quality of trainees, citing that the nature of the skills is such that they have
to be acquired at a young age.

The Export Processing Zone in Sialkot was set up at Sambrial on the Sialkot-Wazirabad Road in 2002. Despite the scale
of the Zone, the adoption of the facility has been limited because of its distance from the current locus of
manufacturing, which lies within the city. Manufacturers claim that the EPZ is too far from Sialkot and it would not be
feasible for the stakeholders currently operating in the industry. Another factor for dissuasion to moving to the EPZ is
the location of vendors and contractors who are mostly in the vicinity of existing units. Finally, manufacturers cite that
raw materials and in-process semi-finished instruments would have to be moved in and out of the gated EPZ on a
continuous basis as these are sent to sub-contractors for any number of processes.

The industry stated that they required a 'Common Facility Centre' (CFC) which would provide a common processing
facility for manufacturers. The Surgical Instruments Manufacturers Association of Pakistan (SIMAP) has proposed that
the CFC may be run by the Association itself thus ensuring the provision of advanced high-tech facilities on cost basis
to firms. It should be noted that a CFC already exists in the form of the Metal Industries Development Centre (MIDC) in
Sialkot. It is a government-established CFC with complete setup for all processes involved in manufacturing Surgical
Instruments.

Surgical Instruments manufacturers also proposed that the government establish a 'Surgical City' at a prime location
for all manufacturers to pool their production processes. The “City” is intended to house all manufacturing units of
Surgical Instruments. However, the problems of fragmented vendors and outsourced sub-contractors being away from
the proposed Surgical City remain. The provision of a new Common Facility Centre within the Surgical City can increase
the attractiveness of the new location.

Other issues identified during the course of this Study include a deteriorating business climate, low managerial
capacity, and lack of technology and modernization.

Our findings indicate that the surgical industry, despite being in existence for a long time, is not performing to its full
potential. Compounded Annual Growth Rate from 2016-2020 was 2.6%. Despite the lack of fiscal space, the
Government of Pakistan has been giving incentives to the industry to grow, however, the full development and export
potential of the industry is yet to be realized. It is becoming increasingly clear that the government and industry need
to come up with a joint strategy which encompasses product and process innovation if the industry to going to achieve
its potential.

Pakistan's market share in the global trade for surgical Instruments is 0.7%. The low market share in terms of value Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry
appears to be primarily due to the absence of continuous product & process innovations aimed at producing products
which fetch higher prices in global markets.

The primary raw material used in the manufacture of surgical instruments in Sialkot is imported medical grade stainless
steel. The industry is unable to source quality steel locally making it dependent on imports. The quality of the imported
steel varies depending on the source. Imports of prime steel are expensive, and for the SME sector time consuming. A
few of the bigger players are supplied steel directly from Germany in an effort to ensure both delivery time and quality.
Though the industry claims to be supplying most of the world's Surgical Instrument requirements, data shows that
their top customers are buying a bulk of their requirements from other countries. As an example, the USA is buying a
majority of its requirements of HS-901890 Surgical Instruments from Mexico while Germany is buying the bulk of its
requirements from China. Evidence from Chinese videos posted on YouTube also shows that the Chinese are engaged
in the manufacture of surgical instruments.

The local industry is having difficulties in moving into higher value electromechanical instruments such as EEG, ECG,
 07

and other sophisticated equipment. Since buyers only give orders for low-end instruments such as scalpels, scissors,
forceps etc., the industry is manufacturing those items. There have been no significant orders for new items in the last
5 years, clearly indicating that suppliers in Sialkot lack technology and capacity to produce high precision instruments
– both these factors can be addressed through close industry – government linkages.

Since Pakistan’s surgical instrument industry works at the low end of product sophistication, the market is
characterized by intense price competition among the suppliers. In the absence of product differentiation, branding or
a country-of-origin advantage, most exports don’t carry a Make-in-Pakistan marking. With narrow margins, the
industry is hoping to offset its future expenses e.g., upcoming MDR compliance expenditure through public funding.

On the positive side, the industry has made some marginal progress. Recently exports grew to USD 405mn in 2019 but
a global slowdown in trade due to COVID-19 saw a slump in Surgical Instruments exports to USD 361.3mn in 2020.
Government facilities, such as MIDC for the training of skilled workers and SIMTEL, are present for entrepreneurs and
small manufacturers who cannot afford in-house production like the larger manufacturers. With its current product
mix and near saturation in existing markets, the next logical step for the industry is to explore new products and new
markets.

Major Issues Confronting the Industry & Some Recommendations:

Issue Industry Proposal PBC recommendation

Only a few new products of any Some of the larger players are There is potential for Pakistani
major export significance have been concerned about this stagnation and manufacturers to enter into JVs with
developed in the last five years. suggest Joint Ventures with China for German or Chinese firms. The country
knowledge and technology transfer. has a population base of 220 million
and approximately 2,000 hospitals,
which offer a potential market for 17
million surgeries per year, these JVs
can rapidly build, scale and enter
export markets.

Upcoming MDR compliance: The industry recommends hiring The Government may bring in foreign
Surgical Instruments exports into the foreign consultants for 3 to 5 years consultants for a limited time period
EU will face a new challenge in the for MDR compliance. They also to assist in MDR compliance. Any cost
form of the requirement for suggest that a lab be setup for of hiring consultants, building a lab

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

compliance with Medical Devices testing biocompatibility as per the etc. should be reflected in the pricing
Regulation (MDR) beginning 2024. Medical Devices Regulations and of the instruments that need
All instruments entering the EU will that the government should bring in compliance with MDR. If prices don’t
have to be compliant with new foreign certification bodies to reflect the costs associated with
European regulations on provide test reports acceptable to compliance with MDR, the Pakistani
biocompatibility. The new foreign buyers. taxpayers might end up subsidizing
regulations are expected to hinder consumers in the EU.
exports of Surgical Instruments from
Pakistan to the EU.

Inconsistent Product Quality The industry is concerned about the The industry will need to self-regulate.
Impacting Exports. damage done to its image when Some options could include: provision
sub-par instruments are supplied at of raw materials from a central SIMAP
extremely low prices quoted by warehouse, SIMAP approved
some manufacturers. Some propose certification requirements for
ISO9000 standards compliance as a exporters, lobbying with the
way to ensure consistent quality. government to ensure that minimum
export prices reflect costs of inputs
etc.
 08

Issue Industry Proposal PBC recommendation

Minimum Export Prices for Some players in the Surgical The minimum export price may only be reduced for
disposable instruments are a Instruments industry feel that disposable instruments, not reusable ones. To
hindrance. the minimum export price prevent misuse of the proposed change, one option
imposed on instruments is could be the implementation of Global Devices
hurting the disposable Medical Nomenclature (GMDN) for identification of
instruments industry as instruments. GMDN is a system of internationally
disposable instruments cost agreed generic descriptors used to identify all
less than non-disposable ones. medical device products.

Absence of Made-in-Pakistan Industry is of the view that if Pakistan could learn valuable lessons from the
on export products, no major government mandates a Turkish "TURQUALITY" Program through which the
Pakistani Brands & hence no Made-in-Pakistan requirement Turkish government has been funding the
Country-of-Origin advantage. their buyers will stop buying development of 10 worldwide Turkish brands. A
from them. “PAKQUALITY” initiative may be promoted under the
Public Private Partnership model to ensure that
Pakistani brands also become regional global icons.
The industry does not seem to appreciate that the
segment that they operate in – low technology, low
price, has no major competitors to Pakistani
suppliers.

Concentration Risk: The industry’s view varies on PBC has identified that the East African nations and
Exports are highly potential markets. Suggestions South Africa are potential markets where TDAP may
concentrated in markets of the have been made including look to hold more exhibitions.
EU & USA. Russia, African nations and Other potential markets include Canada and the
China. ASEAN region.
EDB needs to work with the Association to create
awareness regarding compliance requirements in
new markets, and help manufacturers comply with
these requirements.

Common Facility Center (CFC) The Surgical Instruments A CFC in the form of MIDC already exists from where
industry is proposing that the many manufacturers get part of their processes
government build a new done. PBC proposes upgradation of the existing

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Common Facility Centre Common Facility Center.
equipped with the latest
machinery that manufacturers
cannot afford on their own.

Expansion is a major issue due The SMEs of the industry The same problems that impeded the Sialkot EPZ
to shortage of land in existing suggest construction of a might also be present in the case of the proposed
clusters. ‘Surgical City’ which will be Surgical City. The challenge will be to ensure that the
closer to Sialkot and will have outsourced processes are also made available in the
a raw materials storage facility new cluster.
along with all other facilities in
the existing cluster.
 09

5 . PA R A M E T E R S O F C O M P E T I T I V E N E S S

Competitiveness is a broad concept and there is no definitive agreement on how to measure it precisely. However,
there is more or less a consensus on which measures could be used to assess competitiveness (Pedraza, 2014).

At the firm level, the OECD (1992) defines firm level competitiveness as the “capacity of firms to compete, to increase
their profits, and to grow”. It is based on cost, prices, technology, quality and performance of products.

At the sectoral level, the European Commission cited Momaya’s (1998) definition of sectoral competitiveness as “the
extent to which a business sector offers potential for growth and attractive returns on investment”.

At the economy-wide level, the European Commission defines the economy-wide or macroeconomic level of
competitiveness as “an economy is competitive if its population can enjoy a high standard of living and high rates of
employment while maintaining a sustainable external position”.

Competitiveness can be looked at from 2 angles:

a) Price Competitiveness: price competitiveness refers to comparable export performance in terms of value. This is
affected by a number of factors including relative inflation, the real effective exchange rate, and input costs.

b) Quality Competitiveness: Two broader notions here are the structure of an industry (such as the structural
composition of the manufacturing sector which can be broken down into value addition, input sophistication, etc.) and
its capabilities, for instance, innovation and the supporting players such as the education system, logistics system and
government. The quality of non-price competitiveness includes a variety of aspects including product quality & design,
R&D, brands, effective marketing, dynamic efficiency of the industry, labor productivity and others.

Measuring Competitiveness:
This study compares other countries with Pakistan on various metrics such as export value, revenue per unit of export,
quantity etc. as well as metrics at the industry level such as Profit Analysis and Cost-Benefit analysis on subsidies. Since
most surgical instruments manufactured in Pakistan don't have any comparable industry in other parts of the world,
this study focuses on interviewing manufacturers and aggregating their inputs at the industry level, with the aim of
finding out why the industry has not yet corporatized.

6 . T H E G L O B A L S U R G I C A L I N S T R U M E N T S I N D U S T RY Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Surgical instruments are one of the many sub-sectors that fall under the umbrella of medical instruments and
appliances. These include a wide assortment of products ranging from electrical and electro-mechanical items such as
X-ray machines and CT scanners to non-electrical hand-held items such as forceps, scalpels, scissors etc. Medical
devices are classified into three categories: Class I, Class II and Class III depending on their risk and criticality. Examples
of Class I devices are tongue depressors, bandages, gloves, bedpans, and simple surgical devices. Examples of Class II
devices are wheelchairs, X-ray machines, MRI machines, surgical needles, catheters, and diagnostic equipment. Class
III devices are used inside the body. Most implants are Class III devices, examples include heart valves, stents,
implanted pacemakers, silicone implants, and hip and bone implants.
 10

Diagnostic Equipment High tech

Devices that are characterized by complexity and technological sophistication and

includes capital equipment (e.g. computed tomography scanners and magnetic
resonance imaging devices).

Therapeutics
Medium tech
Devices of varying complexity that can be implantable (e.g. cardiac pacemakers and
orthopedic implants) or non-implantable (e.g. ventilators and infusion pumps). This
category also includes intravenous diagnostic kits.

Surgical Instruments

Devices that assist in various surgical procedures, such as cosmetic and endoscopic
surgeries. Examples include forceps, scissors and dental drills.

Disposables

The lowest tech category of devices. These goods are mostly hospital supplies, such as
bandages and rubber gloves, but also basic intravenous diagnostic technologies. Low tech

Figure 2 Medical Device categories and their relative technological complexity

Source: (Torsekar, 2018)

Pakistan’s Surgical Instrument manufacturers mainly produce Class I and some Class IIb instruments.

Surgical Instruments can be classified into two major usage categories: disposables and non-disposables. Examples of

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

disposable devices include bandages, gloves, blood bags, colostomy bags, catheters, syringes, IV kits and tubing.
Examples of non-disposable devices include machines and instruments, diagnostic equipment, surgical and dental
instruments, prostheses, and implants. Materials used in non-disposable applications typically must meet long-term
durability and stringent physical and mechanical properties. They may need to have chemical and/or lipid resistance,
be resistant to specific sterilization methods, and may need to be biocompatible and nontoxic.

Disposable instruments are increasing in demand in the US markets, and as such Pakistani manufacturers are beginning
to see increasing orders coming in for disposable or ‘single-use’ instruments.

Reusable instruments such as scissors are sterilized after each usage and periodically sharpened. This allows for
multiple-use cycles during their 3-to-5-year operating lives. Single-use instruments are shipped in a sterile packaging.
They are meant for one-time usage, especially in environments where re-sterilization is unavailable, e.g., emergency
ambulances, military and disaster aid etc. Due to a significant price differential, there is also a competition between
single-use and multi-use products for regular hospital applications as single-use instruments have a significantly lower
price.
 11

Figure 3 shows the Life Cycle Assessment of Single-use vs multi-use instruments as determined by a Joint
German-Australian Research Group in Sustainable Manufacturing who tracked the two sets of instruments throughout
their entire lifecycle.

Raw material production Raw material production

Transport of raw materials Transport of raw materials

to a manufacturing plant to a manufacturing plant

Making of 3,000 pairs of Making of 3,000 pairs of

scissors incl. packaging scissors incl. packaging

Transport of scissors to Transport of scissors to

AESCULAP AG AESCULAP AG

Distribution of the scissors Distribution of the scissors

to a customer to a customer

Use of the 3,000 scissors Repair (every 750

in 12 years use cycles)

Washing, Use of the scissors

disinfection and (3,000 times in 12
sterilisation years )

Transport of used scissors to Transport of used scissors

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

a disposal/recycling site to a recycling site

Disposal/recycling process Recycling process of the

of the used scissors used scissors

Figure 3 Life Cycle Assessment of Single-use vs multi-use instruments as tracked by researchers

Source: (Schulz, et al., 2011)

Historically, surgical instruments were manufactured in regions that traditionally forged and worked metals,
particularly knives, swords, weaponry and then stainless-steel products. The range of distinct production tasks within
the industry promoted a division of labor whereby small firms began to flourish and local cluster began to emerge.

Sialkot is one of the five major global hubs for surgical instruments manufacturing. The other four being, Tuttlingen
(Germany), Penang (Malaysia), Debrecen (Hungary), and Warsaw (Poland) (Bhutta, 2006).
 12

Figure 4 Major Global Surgical Instruments Manufacturing Clusters

Of these, Tuttlingen and Sialkot are the largest centers of production. Companies in Tuttlingen represent manufacture
of surgical instruments in the developed world, these firms rely on specialist technologies to produce endoscopes and
implants in addition to more traditional instruments.

Companies in Sialkot represent manufacturing of surgical instruments in the developing world, a practice that stems
from the production of swords in the Punjab during the Mughal era. Production methods are more traditional and
labor intensive with most instruments manufactured and finished by hand.

Trade of surgical instruments fall under Chapter 90 of the Harmonized System (HS) codes. HS codes are the
standardized classification of all items traded under World Trade Organization (WTO) rules.

The majority of Pakistan’s exports of surgical instruments are covered under the 6-digit HS code: 901890 - Instruments
and appliances used in medical, surgical or veterinary sciences, not elsewhere specified. The global trade for this HS
code category was worth USD 58.1bn in 2020, of which Pakistan’s exports were approximately USD 361.3mn, indicating
a market share of 0.7%. While most manufacturing occurs in the clusters mentioned above, trading of surgical
instruments takes place all across the world.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Avg. Export Value (USD)

0.00M 103.75M
Figure 5 Pakistan's Surgical Instruments Top Destinations
Source: (International Trade Center, 2020)
 13

7 . PA K I S TA N ’ S S U R G I C A L I N D U S T R Y

Majority of the instruments manufactured are of mechanical nature

and only few instruments are of electro-mechanical nature with very
basic electrical components.

The surgical industry of Pakistan is a highly fragmented industry with the Surgical Instruments Manufacturers
Association reporting more than 3,500 units clustered in the city of Sialkot. The industry consists of a multitude of small
and medium sized manufacturers with a few large units. The sector is characterized by a high degree of fragmentation

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

as well as a strong export orientation. The industry operates on an OEM (Original Equipment Manufacturer) model.
Orders and specifications are received from buyers, mostly from Germany and the USA. Local manufacturers construct
the product according to the OEMs specifications and hand it over to the buyer who then does quality assurance,
branding, repackaging and then supplies the product to his distributors.

The industry follows the Pareto principle with roughly 80% of the industry’s revenue being generated by 20% of the
firms. The bigger players are mostly descendants of Mr. M.F. Elahi who managed to secure orders from German buyers.
The largest players, who are running on full-capacity are operating on the OEM model. Their orders and specifications
come from international buyers along with technical assistance when required; the smaller players however are in
need of marketing and technical support if Pakistan is going to significantly increase exports from the sector.

A pictorial representation of some of the types of instruments manufactured in Pakistan is given in Figure 6. Majority
of the instruments manufactured are of a mechanical nature and only a few instruments are of an electromechanical
nature with very basic electrical components.
 14

Figure 6 Types of Surgical Instruments Manufactured in Pakistan

Source: Surgical Instruments manufacturers’ online catalogs

Pakistan’s Surgical Instruments industry has witnessed modest growth over the last 5 years, as shown in Figure 7.

405.51

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

375.51

361.14

361.3
326.03

2016 2017 2018 2019 2020

Figure 7 Pakistan Surgical Instruments Exports 2016-20

Source: (International Trade Center, 2020)
 15

A cursory analysis of Surgical Instruments exports reveals that Pakistan’s market share of the global surgical equipment
market has remained static at 0.7% over the past 10 years suggesting a strong correlation with world demand.

Pakistan's market share in the

global market: 0.7%

Correlation with world demand:

A strong correlation
0.96

Pakistan's growth or decline only

shifts with changes in world demand

Analysis of data over the last 10 years for world exports of HS-901890 Surgical Instruments and Pakistan’s exports of
the same revealed a correlation of 0.96. This means Pakistan’s exports of surgical instruments increase or decrease at
almost the same rate as the world’s exports of surgical instruments. When the world demand for surgical instruments
moves up or down, Pakistani manufacturers receive their orders accordingly.

Table 2 Surgical Instruments exports of World and Pakistan with market share

Exports of HS-901890 Surgical Instruments

Value in USD Mn 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

World 34,126.5 36,883.9 41,192.9 42,414.5 45,181.5 47,765.0 45,796.2 47,605.5 50,005.7 54,619.2 57,825.3 58,112.2

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Pakistan 233.0 219 271.7 291.4 296.8 319.5 332.6 326.0 361.1 375.5 405.5 361.3

%age share 0.7% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6%
of Pakistan

Source: (International Trade Center, 2020)

This finding indicates that while exports of surgical instruments from Pakistan have grown at a higher CAGR than overall
national exports, Pakistan has been unable to increase its global market share.

Looking at the quantity-wise data as shown in Figure 8, it is evident that the quantity of items exported peaked in 2014
at over 238 million units and then saw a dip in volume in 2015, 2017 and 2019. The decline in 2015 can be attributed
to a decline in global trade during the year. While the global trade recovered in 2017, Pakistan’s exports of surgical
instruments in volume terms declined during the year.
 16

Pakistan's Exports of Surgical Instruments - Quantity wise

500,000,000

450,000,000
Number of Units

400,000,000

350,000,000

300,000,000

250,000,000

200,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Figure 8 Pakistan's Exports of Surgical Instruments Quantities

Source: (UN Comtrade, 2020)

This also shows that while the dollar-value of exports of Pakistan’s surgical instruments have been crawling upwards,
the quantity of items exported have been declining post-2014.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 17

8 . I T E M S P R O D U C E D B Y PA K I S TA N ’ S

S U R G I C A L I N D U S T RY

8.1 EXISTING PRODUCTS

The Sialkot cluster is capable of manufacturing over 25,000 different types or surgical instruments; however, majority
of trade is in approximately 2,000 SKUs. Surgical instruments produced in Sialkot are mainly produced from medical

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

grade stainless steel, and are used in surgical, dental and veterinary work.

Items produced by the surgical sector include various kinds of scissors, forceps, scalpels, needle holders, surgical
knives, specula, stethoscopes, clamps and retractors. Most instruments are differentiated by function (e.g., incision
scissors, operating scissors, stitch scissors, neuro-scissors, epistome scissors, eye scissors, tonsil scissors, uterine
scissors etc.). Further differentiation is done on the basis of by size, metal composition and end-user requirements.

The instruments are widely categorized into two distinct quality differentiated market segments: higher quality
reusable “operation theatre” instruments and lower quality disposable “floor” instruments used only for clinical
purposes.

The sector in Pakistan remains restricted to the low technology end of the medical instruments sector with only a few
firms having the capacity to produce high-technology, precision-based, electromechanical instruments.

Manicure and pedicure products are included under cutlery; however, they are exported as surgical instruments. Their
annual export value is estimated at 50-60 Million USD.
 18

8.2 PRODUCTS AND TECHNOLOGY

There have been few significant product or process innovations in the industry in the last 5 years. Manufacturers work
on the OEM (Original Equipment Manufacturer) model similar to the textile industry. Orders are obtained from foreign
buyers along with specifications and requirements. Local manufacturers make the instruments with little or no
branding of their own and sell to buyers at competitive prices.

The surgical instruments industry today is at a crossroads. The shortage of labor, coupled with the increasing cost of
energy, necessitate productivity and efficiency improvements in the sector.

The desire to climb up the value chain will open doors to new and exciting areas such as orthopedic and orthodontic
devices and instruments, beauty and cosmetic instruments, and electro-mechanical medical devices and instruments.
However, to materialize these opportunities that will open up, it will require considerable investments in capacity,
technology, and training and very few firms (no more than 10 to 25) are currently in a position to make such
investments.

Creating higher quality surgical instruments will require investments in automation through the deployment of CNC
lathes and other advanced machinery, such as multi-axis machining centers, and 3D printers and plotters. The move
will also require an investment in the forging and steel industry, to allow for better quality local steel to be available as
an input for the final products.

8.3 INTERNATIONAL STANDARDS COMPLIANCE

To ensure the safety of users/patients, Surgical Instruments must conform to certain standards. There are several
regulations in force for testing depending on the markets for which the instruments are destined. There are differences
in the regulatory systems and the required documentation for registration in different countries. There are around
60–65 countries which have implemented regulations for medical devices including Surgical Instruments or will be
doing so soon (Ramakrishna, Charlene, Tian, Liao, & Teo, 2015). The local manufacturers identify their target markets
and comply with the regulations accordingly. For example, a medical device that has been approved by the US FDA may
not be able to enter the Chinese market without the CFDA’s approval, even though it has undergone the most stringent
procedures in the world as mandated by the US FDA.

Surgical instruments manufactured in Pakistan are required, at the minimum to be compliant with regulations of its Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry
main customers namely the US and the EU. Pakistani manufacturers depending on requirements need to comply with
either CE marking, GMP, ISO 9001, ISO 13485, and ISO 10993. In 1994, the US imposed restrictions on the import of
surgical instruments from Pakistan by requiring compliance with FDA regulations. This forced the industry to improve
its manufacturing and management systems along with acquiring certifications, such as GMP, ISO, and CE.

Recently the European Union has enacted the Medical Devices Regulations (MDR) with which Surgical Instruments
imported in the EU will have to eventually comply with. Pakistani manufacturers are currently in the process of
complying with the requirements of the new MDR regulations.
 19

9 . PA K I S TA N ’ S S U R G I C A L I N D U S T R Y C O M P E T I T I V E N E S S

Pakistan’s surgical industry is highly competitive at the lower end of the technology scale e.g., forceps, scissors, clamps,
stethoscopes etc. due to its low manufacturing and labor costs. In fact, German SMEs in the surgical sector have
outsourced most of these low technology products to the Sialkot cluster (Jacobsson, Klutsch, Kang, & Probst, 2017).
The German companies now focus on continuous innovation, broadening of product portfolio within the existing field
of mechanical surgical instruments and on looking for an increased global footprint. They have formulated their own
business strategies and have moved towards product innovation and sophistication.

While Pakistan’s surgical instruments industry remains competitive in the low-tech end of the product scale, their
exports are highly concentrated within a few geographical areas because of established supply chains and a difficulty
in identifying and entering new markets.

1 0 . PA K I S TA N ’ S C O M P E T I T I V E E D G E

Pakistan’s competitive edge lies in its low cost of production. The average price of a surgical instrument depends on the
type and category. Average unit prices for exports range from USD 0.5 to USD 7.0 (derived from PBS data).

10.1 SURGICAL GOODS MANUFACTURING IN PAKISTAN

To minimize overhead costs, most of the production process is subcontracted. Most firms subcontract the initial
production of instruments to workers employed in small workshops or working from their own homes, with finishing
and quality checking of the product being in-house.

Electricity costs are lower in China but labor costs are lower in Pakistan. Since low level instruments have a large labor
component especially in polishing, Pakistan is able to produce instruments at a cheaper cost than China. China
meanwhile focuses more on Class III instruments.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Table 3 Comparative Electricity and Labor Costs

Country Electricity cost USD per kWh Labor cost USD per hr.

Germany 0.235 43.15 (EU average = 27.4)

USA 0.121 39.09

Pakistan 0.163 0.809

China 0.103 4.11

Vietnam 0.077

Source: (www.GlobalPetrolPrices.com, 2021) (International Labor Organization, 2021)

 20

Specialist subcontractors generate economies of scale for local producers with savings on cost, space and skills in
capital intensive processes, such as forging and heat treatment. This spares smaller firms from investing in expensive
machinery (such as mechanized drop and pneumatic hammers, high temperature forges, eccentric presses, die-making
equipment, dies, and vacuum heat furnaces).

In labor-intensive and product-specific tasks, the sub-contractors ensure that firms do not need to maintain large pools
of specialized labor. Before the product is exported, quality is checked against the European Union or US standards.

There are benefits derived from Sialkot being a surgical instrument cluster. Clustering generates agglomeration
economies and facilitates vertical and horizontal linkages between local participants. This enhances possibilities for
local cooperation and raises the prospect of cluster-wide gains (Sengenberger & Pyke, 1991). Clusters offer the
following potential gains:

A local and
specialized local
market

A division of labor leading to firm

specialization and encouraging core
competence

A presence of numerous allied and subsidiary sectors,

providing cheaply and readily available supply of specialist
inputs, machinery, transport and services.

An easy access to specialized trade and technical knowledge and the rapid
dissemination of information.

Figure 9 Advantages of clusters

Joint action within vertical linkages, including backward ties with suppliers and subcontractors and forward ties with

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

traders or buyers allows for the ability to absorb and transmit skills and knowledge within vertical production chains.
This joint action promotes competitiveness, accelerates innovation and enhances prospects of growth for the cluster.

The concentration of highly skilled labor within the cluster generates further advantages for Sialkot based firms. Firms
are able to find skilled workers at short notice within the cluster. Similarly, labor is able to seek work with little difficulty.
This is facilitated by the easy availability of information within the cluster on the employment history and credentials
of specific artisans.

The skill base is reinforced by the traditional pattern of informal apprenticeship (the ustad-shagird system), a common
basis of training in the sector. This results in the skills associated with the industry remaining concentrated in Sialkot.
The presence of large numbers of skilled workers and subcontractors ensures competition. Wages and process task
rates for each activity are well known and uniform across the cluster.

All these advantages are particularly crucial for SMEs who despite their more limited resources are able to produce a
wide range of products and compete in the same global markets as larger firms.

For a sector largely dependent on imported raw materials and producing almost exclusively for distant foreign markets,
 21

Sialkot is poorly located. Although it has its own international airport, and is in proximity to Lahore International
Airport, surgical instruments made in Sialkot are normally shipped using shipping lines to keep freight charges low. It is
over 1,000 km from the nearest seaport, and also does not lie on Pakistan’s main north-south road and rail artery.

There have been attempts by some investors in the past to shift the sector to Karachi, however they have not fared
well. One unit tried to move to the port of Karachi, Pakistan’s industrial and commercial hub, in the mid-1950s in search
of lower transport and trading costs. Shifting to Karachi, however, meant operating in isolation. The firm in relocating
to Karachi, lost access to the specialized labor market and the sector specialized support network taking shape in
Sialkot. It tried to entice skilled artisan labor from Sialkot to Karachi with the prospects of higher wages. Some moved,
but most returned to Sialkot where living expenses were lower, a greater volume of work was available and family
support networks were present. Unable to compete with Sialkot based producers, the firm ceased producing surgical
instruments in the late 1960s.

1 1 . VA L U E C H A I N A N A LY S I S

There are four distinct channels through which Sialkot’s producers trade in global markets:

Foreign buyers who purchase both floor and theater instruments and supply medical wholesalers, retailers and
medical end-users in Europe, North America and the East Asian markets. These also include large US “kit packers”.
Foreign manufacturers, particularly German manufacturers who subcontract all or part of their production of
particular instruments to Sialkot based firms.
Independent foreign-based Pakistani (usually from Sialkot) buyers, especially in the US market, who deal
predominantly in low value floor instruments.
Foreign sales offices of Sialkot manufacturers. These nominally independent concerns, usually managed by family
members, purchase instruments from the parent firm in Sialkot and sell to specialized wholesalers, retailers and
hospitals.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Figure 10 Logistics Chain Mapping

 22

Core process

Insurance Company
Freight Forwarder

Pakistan Customs
Exporter’s Bank

Clearing Agent
Cargo Carrier
SIMAP
1. Buy

1.1. Conclude sales contract and trade terms x

2. Ship

2.1. Arrange transport x x

2.2. Obtain cargo insurance x x

2.3. File Goods Declaration x x

2.4. Prepare cargo for shipment x

2.5. Transport cargo x

2.6. Customs clearance of cargo and loading x x x

2.7. Prepare documents required by importer x

3. Pay

3.1. Establish payment guarantee x

3.2. Claim payment for goods x

Figure 11 Core Processes and Responsibilities in the Logistics chain

It takes, on average, 13 days for stakeholders to fulfill commercial and regulatory requirements of Surgical Instruments
export business processes (Trade Related Technical Assistance (TRTA II) Programme, 2016).

Day

20

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

15 2 Days

1 Day
3.2
1 Day
10 4 Days 2.1 2.2 2.3
2.4 2.5 2.6 2.7

3.1
5 Days
5
1.1
Procedure

1.1 Conclude sales terms and contract 2.5 Transport cargo to Airport
1.2 Arrange transport 2.6 Customs clearance and loading of cargo
2.2 Obtain cargo insurance 2.7 Prepare documents required by the importer
2.3 File Goods Declaration 3.1 Establish payment guarantee
2.4 Prepare cargo for shipment 3.2 Claim payment for goods

Figure 12 From Order-to-Export Timeline to fulfill commercial and regulatory requirements

of Surgical Instruments export business processes
 23

Other countries such as the US and Germany offer complete supply chain management with streamlined distribution
and warehousing. Some of the bigger exporters in Germany store their goods in bonded warehouses or Free Trade
Zone (FTZ) warehouses. In Bonded warehouses, no duty is collected until the products are withdrawn for sale. If the
importer cannot find a buyer, goods can be re-exported without paying duty. In FTZ warehouses, goods do not go
through an official Customs entry process when first stored in the warehouse. Goods can be inspected, repaired and
repacked within a FTZ warehouse. This allows a business to remove damaged products and withdraw them before
going to market. Merchandise can remain in a FTZ warehouse indefinitely, whereas bonded warehouses have a
five-year time limit.

Figure 13 shows the key elements of the Sialkot surgical instruments sector that interact with the Surgical instruments
manufacturers in the value chain process.

Suppliers of:

Other inputs Steel Machinery

Transport

Communications

Cargo handling Financial Bodies:

Insurance Banks and other

Accounting Surgical Instruments financial
Legal Manufacturers institutuions

Leasing Firms
Repair units and
other ancillary
services

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Institutional support and common services:

Trade associations: SIMAP

Metal Industries Development Corporation

Engineering Development Board

Sialkot Dry Port Trust

Trade Development Authority of Pakistan

Figure 13 Key elements of Surgical Instruments sector

 24

Key process activities in the

manufacturing process include: Forging and
die making

Electroplating Filing and

grinding

Surgical
Instruments

Milling and
Polishing
box fitting

Heat
Treatment

Figure 14 Key processes in the manufacturing process

Most of the firms are family-owned. Some specialize in particular instruments or a particular branch of surgery. The
vast majority are small firms employing less than 20 people. Surrounding Sialkot’s producers are an array of satellite
units including suppliers of inputs and machinery, specialized subcontractors and ancillary service providers.

Manufacturers face an efficient market for supplies in which prices are well known and products and services
standardized and easily available. Relations with suppliers, despite being long-term, are essentially arms-length in
nature. Ties between producers and input suppliers are rarely anonymous, with majority of the firms using the same
suppliers for the past 5 years. Suppliers assist when problems arise and seek technical advice and suggestions from
manufacturing enterprises. Yet dialogue with input suppliers is largely centered on price, availability and source of
inputs.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Where quality concerns are paramount, the industry as a whole has successfully exerted pressure on local suppliers to
upgrade. for example, disposable surgical instruments are usually manufactured from locally available medical grade
steel. Quality issues led to Pakistani surgical instruments being barred from the US market in 1989. Following that
crises, Sialkot's producers, particularly their trade body, successfully pressurized local medical grade steel suppliers to
improve quality.

The industry is highly labor intensive with over 20 stages in production, each requiring distinct skills and tools. Some
subcontractors are product as well as process specialists. In addition to suppliers and subcontractors, there are a
number of public and private institutions geared to meet cluster needs. These include the government-run Trade
Development Authority of Pakistan (TDAP) which specializes in exhibitions and the technology support and common
services facility of the Metal Industries Development Centre (MIDC) operated by the provincial government; the
privately run Sialkot Dry Port Trust provides Customs and Port handling facilities locally and there are representative
trade bodies such as the Surgical Instruments Manufacturers Association of Pakistan and the Sialkot Chamber of
Commerce and Industry.
 25

11.1 RAW MATERIALS

Important raw materials for surgical instruments manufacturing include stainless steel, processing chemicals etc. A
specialized laboratory, SIMTEL (Sialkot Material Testing Laboratory), has been established since 2000 to test the quality
of raw materials and finished products. SIMTEL, however, needs upgradation as it lacks facilities for wet analysis.

Wastage of raw Medical Grade Stainless steel: Steel is the most important raw material
required for the production of surgical instruments. Imported steel is used
material can be up in the manufacture of Surgical Instruments to conform to health standards,
particularly in the case of reusable surgical instruments. Fluctuating prices
to 75% depending on of steel in the international market makes it difficult for manufacturers to
which part is used accurately forecast their cost of production.

1.66B
1.57B
Scrap iron and steel import

1.45B 1.50B
(USD)

1.03B
0.93B
0.84B
0.59B 0.65B
4.86M 4.68M 4.57M
3.95M 3.94M
Quantity (MT)

2.36M 2.45M

1.56M 1.68M

4,696 4,798
4,591
4,521
USD per unit imported

4,412
4,242
4,048
3,588
3,184

2012 2013 2014 2015 2016 2017 2018 2019 2020

Figure 15 Pakistan Dollar-per-Quantity cost of imported steel from 2012-20

Source: (Derived from Pakistan Bureau of Statistics data)

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Wastage of raw material can be up to 75% depending on quality of steel used [data derived from: (Engineering
Development Board, 2020)]. The wastage is however recycled. Average fault rate is 30% vs Germany’s average fault
rate of 4% indicating that either the local craftsmen are not as skilled as advertised, or there are issues with the
materials or processes.

Processing Chemicals: Most chemicals used are available locally or can be imported easily. The application of these
chemicals, mostly acids, on the instruments being manufactured requires skilled labor to obtain the desired results.

Titanium: Because it is biocompatible (non-toxic and not rejected by the body), titanium is used in a number of medical
applications including surgical implements and implants, such as hip balls and sockets (joint replacement) which can
stay in place for up to 20 years. Titanium is often alloyed with about 6% aluminum and 4% vanadium. In Pakistan, since
the import of titanium is banned, most of the required metal is acquired from ship breaking.

Other metals: A number of other metals and alloys are required by the industry for their properties. However, in
Pakistan, there is a severe scarcity of expertise and technology linked to metallurgy (Trade Related Technical Assistance
(TRTA II) Programme, 2014).
 26

Ceramics: Some instruments such as scalpels are ceramic coated to make them chemical resistant and add stiffness and
thermal stability. Ceramics also have excellent wear resistance. Examples of ceramic materials include oxides of
aluminum and zirconium, inorganic carbides, nitrides, borides, silicide, phosphates, and some zirconates and titanates.

Plastics: Some Surgical Instruments may be coated with plastics or made entirely from plastics. The increased use of
disposable devices is leading to an increased use of plastics over metals, ceramics, and glass. With an increase in
infectious diseases around the world, disposables are becoming the product of choice to prevent the spread of
infections. Shorter hospital stays and an increase in home healthcare have also increased the use of disposables. The
changes in sterilization technologies from steam sterilization to radiation and high-energy sterilization has increased
the use of plastics, since these are more amenable to gamma and electron beam radiation sterilization.

11.2 THE ROLE OF SIMTEL

Sialkot Material Testing Laboratory (SIMTEL) is a venture of the Export Development Fund (EDF) to assist manufacturers
in the testing of raw materials used in making surgical instruments. Manufacturers can get their stainless-steel sheets
tested and graded by SIMTEL and Surgical Instruments exporters can then show this certification to buyers to assure
them that quality steel has been used. The most frequently used grades of Stainless Steel are SS Alloy 304, 410 and 420.
SIMAP has however reported that SIMTEL is not fully operational and that SIMTEL’s certification is normally not
acceptable to international buyers.

11.3 MACHINERY

Machinery is sourced from outside Sialkot. Smaller manufacturers mostly use machinery from the 1950s era, while
larger manufacturers use machinery from the 90s and 2000s. Most machinery used is second-hand / reconditioned.
Some machines such as CNC laser cutters are newer but these are only affordable by the bigger players. Sialkot also has
service providers such as machinery repair units. The 5-axis CNC machines cannot be used in Pakistan due to its role in
making weapons, hence, the most Pakistani manufacturers can use are 4-axis and (usually) 3-axis CNC machines.

The government-run institution MIDC also provides machining services for smaller manufacturers. Smaller

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

manufacturers can outsource production jobs to MIDC which then utilizes its own on-site machinery to produce the
end product for the manufacturer to export.

11.4 PROCESS

The process of producing a surgical instrument comprises of an array of small steps, meticulously performed over a
small piece of metal as it moves from one process to another. The process usually relies on extensive human interaction
and involvement. Even with many of the steps being automated, the overall process is manual, making this an
extremely labor-intensive method of production, and thus not easily amenable to automation. Figure 16 illustrates an
approximate production flow diagram. The steps involved for manufacturing reusable instruments are larger in number
compared to those required for disposable instruments (Trade Related Technical Assistance (TRTA II) Programme,
2014).
 27

Figure 16 Processes in making Surgical Instruments

11.5 THE ROLE OF THE TECHNICAL EDUCATION &

VOCATIONAL TRAINING AUTHORITY (TEVTA)

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

TEVTA is an initiative of the Government of Punjab to provide free-of-cost technical education to the workforce and to
help create skilled labor for the industrial sector. In essence, it provides apprenticeships thereby replacing old
ustad-shagird (master-apprentice) system of the foregone era. By providing apprenticeships to a larger number of
people, it reaches out to a larger audience. In Sialkot, TEVTA has 2 functions:

Institute of Surgical Technology

TEVTA

Metal Industries Development Centre

Figure 17 Functions of TEVTA

 28

Institute of Surgical Technology (IST) provides the academic part of the technical training. There are different courses
available each with its own duration. The course details obtained from TEVTA are given below:

S.N. Name of Course Duration Entry Level

1 Machinist (Specialization in Surgical) 2 years Matric with Science

2 Industrial Electronics 2 years Matric with Science

3 Fitter General (Die Maker) 2 years Matric

4 Draftsman / AutoCAD 1 year Matric

5 Inspection & Quality Control 1 year Matric with Science

6 Material Testing & Heat Treatment 1 year Matric with Science

7 Post Diploma CNC Machinist 6 months DAE (Mech)

8 Forging & Press Work 6 months Middle school pass

Source: (Shehzad, 2021)

Metal Industries Development Centre (MIDC) provides on-the-job training to students. The MIDC section of TEVTA has
all the machines and processes required to manufacture instruments. It also provides end-to-end services for
entrepreneurs who bring in the raw materials (e.g., stainless steel) and MIDC does all the manufacturing jobs thereby
creating the finished products in their facility.

The Common Facility Centre provided by MIDC greatly eases the manufacturing process for manufacturers who do not
have sufficient capital to purchase expensive machinery or hire labor. They can easily outsource all the manufacturing
processes to MIDC and sell the finished product to their own buyers.

Figure 18 shows that the number of process jobs at MIDC has declined since 2018, suggesting maybe a move towards
greater in-house production as entrepreneurs become more established and prefer to have more control over the
production processes. The decline in exports and process jobs in 2020 are attributed to the global slowdown due to the
COVID-19 pandemic and lockdown.

405M

378M Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

364M

362M

345M

720 2,184 2,220 1,188 927

2016 2017 2018 2019 2020

Figure 18 MIDC jobs and Surgical Instruments Exports from 2016-2020

Source: (MIDC, 2021)

It is however worth mentioning that SIMAP members, during the course of this Study, mentioned that neither TEVTA
nor the government institutes launched any training programs aimed specifically towards meeting the needs of the
surgical industry.
 29

11.6 FINANCIAL & FINANCING FACILITIES

Sialkot has banks and leasing companies to provide ancillary and financial services. Manufacturers have access to SBP’s
Export Refinance Facility (ERF) and Long-Term Finance Facility (LTFF). ERF is regularly used whereas LTFF is rarely used
due to small manufacturers not being able to meet the eligibility criteria as well as due to lack of awareness (Asad,
2021). According to SBP, loan default is almost nil for ERF. Letters of Credit (L/Cs) are also availed from banks and
discounting facilities are easily available to exporters.

Manufacturers also provide assistance to subcontractors by offering credit, advance payments, transport,
lending/repairing of machinery, training of workers and helping organize production.

11.7 LOGISTICS

Various agents facilitate exports. These include global couriers that ensure firms can send samples and small
consignments safely and rapidly to existing and potential buyers, haulage firms which provide transportation to ports
and airports, and cargo handling agents who undertake shipping arrangements and customs handling formalities. Prior
to the mid-1980s, Sialkot’s exporters had to travel to Lahore or Karachi to handle customs formalities, a costly and
time-consuming exercise, especially for smaller firms. To offset this, leading exporters from all major sectors in Sialkot
resolved to ‘bring the port to Sialkot’. Based on their efforts, and initial investment, the Sialkot Dry Port Trust (SDPT)
was set up in 1985 as a self-financing private trust to provide a range of trade-related services. It serves as a customs
collectorate undertaking customs valuations and levying import duties, which ensures that all customs formalities and
disputes are handled within Sialkot. It also provides cheaper warehousing for both imports and exports and a more
reliable haulage service for transporting goods to and from airports and seaports. Running costs are met through
handling charges and transport services.

Table 4 Volume handled by Sialkot Dry Port Trust 2018-20

2018 2019 2020

Containers handled 3,938 6,848 6,293

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Value (PKR M) 19,319 34,182 24,431

Weight (MT) 8,482 10,558 9,038

Source: (Sialkot Dry Port Trust, 2021)

 30

1 2 . T O P E X P O R T D E S T I N AT I O N S

Figure 19 shows the top destinations of Pakistan’s exports of HS 901890 Surgical Instruments from 2016 to 2020.

Avg. Export Value (USD)

0.00M 103.75M

Figure 19 Top Destinations for Pakistan Surgical Instruments Exports 2016-2020

Source: (International Trade Center, 2020)

The top 3 export destinations for Pakistan’s surgical instruments are the USA, Germany and the UK with average annual
exports for the last 5 years being USD 103.8mn, USD 50.9mn and USD 33.3mn respectively. Figure 19 reveals the
concentration risk of Pakistan’s exports as Surgical Instruments exporters are providing a majority of their supplies to a
limited number of countries. Table 5 shows the average Surgical Instruments exports of Pakistan to its top 20
destinations, the percentage share of each destination in total exports and the CAGR for the 2016 to 2020 period.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

 31

Table 5 Pakistan Surgical Instruments Exports, market share, CAGR 2016-20

Countries Average PK Exports of Surgical Instruments % Share of Pakistan's CAGR (%) 2016-2020
in USD Mn over last 5 years total SI Exports

USA 103.8 28.5% -0.2%

Germany 50.9 14.0% 3.4%

United Kingdom 33.3 9.1% -1.2%

China 17.5 4.8% 19.1%

France 13.4 3.7% -2.8%

United Arab Emirates 9.9 2.7% 23.9%

Brazil 8.9 2.5% 4.6%

Japan 8.5 2.3% 5.9%

Australia 7.7 2.1% 1.5%

Italy 7.4 2.0% 7.9%

India 6.7 1.8% -75.8%

South Africa 5.2 1.4% -1.6%

Netherlands 5.1 1.4% 10.7%

Russian Federation 5.0 1.4% 12.1%

Rep. of Korea 4.8 1.3% 1.0%

Mexico 4.7 1.3% 6.6%

Belgium 4.6 1.3% -2.1%

Turkey 4.5 1.2% 4.8%

Poland 2.8 0.8% 22.4%

Philippines 2.7 0.7% -2.4%

Source: data derived from (UNComtrade, 2020)

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

1 3 . A N A LY S I S O F C O N C E N T R AT I O N R I S K

One of the possible reasons for Pakistan’s low exports of surgical instruments could be Pakistan’s continued reliance on
a limited number of export destinations. Nearly 80% of surgical instruments made in Pakistan are exported to only 15
countries. This limits Pakistan’s export potential and increases concentration risk. TDAP sponsored trade fairs and
exhibitions continue to be held primarily in the USA and the EU countries. Although there have been limited attempts
in recent years to hold exhibitions in a few African countries.

Figure 20 shows the quantity-wise exports of Pakistan’s surgical instruments.

 32

Figure 20 Quantity-wise exports of Surgical Instruments from Pakistan 2016-2020

Source: (UN Comtrade, 2020)

The data of quantity-wise exports of surgical instruments also reveals the concentration risk, with a majority of surgical
items going to the USA, Germany, the UK and France. Pakistan’s lack of diversified destinations also hinders its ability
to achieve a higher per-unit price.

Table 6 shows the countries where 80% of Pakistan’s exports go in unit terms.

Table 6 Countries which receive 80 percent of Pakistan's Surgical Instruments Exports – in unit terms

Countries Average SI Quantity of last 5 years (units) % of Total

1 USA 53,698,285 29.1%

2 Germany 26,098,057 14.1%

3 United Kingdom 18,456,013 10.0%

4 China 9,743,043 5.3%

5 France 6,186,695 3.4%

6 Brazil 4,703,828 2.5%

7 Australia 4,297,800 2.3%

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

8 United Arab Emirates 3,852,115 2.1%

9 India 3,514,353 1.9%

10 Japan 3,197,247 1.7%

11 Italy 3,061,128 1.7%

12 South Africa 2,805,416 1.5%

13 Turkey 2,652,817 1.4%

14 Belgium 2,631,765 1.4%

15 Russian Federation 2,608,157 1.4%

Source: derived from (Pakistan Bureau of Statistics, 2019)

Exporters also do not appear to be keen on exporting to other countries new markets, citing difficulties in finding leads,
travel costs, difficulties with local languages, registration of their products, obtaining L/Cs, payment guarantees etc.
However, this doesn’t fully explain the reluctance of exporters regarding exports to countries such as Japan, Turkey,
Singapore etc.
 33

1 4 . D O L L A R P E R U N I T VA L U E A N A LY S I S

According to the data on export values and quantities from PBS, the highest per-unit price is fetched from African
countries such as Malawi, Suriname, Mali and non-African countries such as Macao, Luxembourg and Cyprus.

The map below shows the per-unit price obtained from different markets.

Figure 21 Map of dollar-per-unit obtained via exports 2016-2020

Source: (UN Comtrade, 2020)

The lowest per-unit price obtained in the last 5 years was USD 1.4 per item and the highest was USD 9.2 per item.
Taking into consideration, average per-unit price, it appears that the highest value, per-unit wise, is achieved in exports
to African countries.

The table below shows the top 20 per-unit prices fetched from exports to various countries.

Table 7 Top 20 countries that fetch highest dollar-per-quantity

Countries Avg unit price USD

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

China, Macao SAR 9.223

Malawi 8.016

Dominica 7.438 East African nations fetched the highest

Luxembourg 7.308 in terms of per-unit dollar value while
Suriname 7.016
China, Canada and Sub-Saharan Africa
Sierra Leone 5.923
fetched the lowest per-unit dollar value.
The map also shows that Pakistan’s
Togo 5.525
supply of surgical instruments to the rest
Mali 5.502
of the world is at a low price.
Cyprus 5.445

Botswana 5.164

Aruba 5.045

Gabon 5.002

Angola 4.899
 34

Table 7 Top 20 countries that fetch highest dollar-per-quantity

Countries Avg unit price USD

Niger 4.840

Cameroon 4.835

Côte d'Ivoire 4.786

Bosnia Herzegovina 4.706

Somalia 4.695

Namibia 4.650

Burkina Faso 4.561

1 5 . I N T E R N AT I O N A L C O M P E T I T O R S

Most of the world’s surgical instruments are made by firms in towns in Europe and Asia—Tuttlingen (Germany), Sialkot
(Pakistan), Penang (Malaysia), Debrecen (Hungary), and Warsaw (Poland).

In developed countries, most of the production processes are mechanized. Another important feature is that surgical
instruments production in developed countries does not form an isolated industry, constituting, instead, a small part
of the much larger medical equipment industry.

Developed countries have achieved considerable advances in metal-related technologies, thereby guaranteeing
uninterrupted availability of specific materials. Research and development are a continuous process for them,
innovative materials, with augmenting properties, are researched and tested in collaboration with the surgical
instruments industry. Moreover, quality raw materials are locally available. Availability, and use, of superior raw
materials gives German instruments a long and trouble-free usage cycle.

In places like Germany, most of the designing is done using CAD (Computer Aided Design) techniques. These drawings
are then fed to the Computer Numerical Control which automates the entire manufacturing process. CNC machines are

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

equipped with several tools for manufacturing highly sophisticated instruments, including:

Laser or plasma cutters Surface grinders

High pressure forging Cylindrical grinders
Milling machines 3D printing
Induction hardening machines Knife cutting

With the availability of these tools, the CNC machines can manufacture high-tech products in large numbers, without
requiring a great deal of human intervention.

The CNC machines are integrated with fully automated tools that clean and polish the manufactured products. These
tools clean manufacturing residues using customized brushes, polish metal surfaces using polishing pastes, and sterilize
instruments by using radiation.
 35

15.1 GERMANY

Germany is considered a global powerhouse in the manufacture of all types of engineering products including surgical
instruments. German surgical instruments are associated with features such as precision, accuracy and performance.
Large investments in business sophistication are key drivers of this preeminent position. Since the 19th century,
Germany has been a hub for research and innovation in medical technology (MedTech). The German surgical
instruments cluster consists mostly of SMEs as well as some well-known global surgical manufacturers such as
Aesculap, Karl Storz, KLS Martin and Smith & Nephew. For German SMEs, competition has intensified mostly from
low-cost clusters such as Sialkot.

Germany leverages its GI (Geographical Indication) “German Engineering” to great effect. Germany is known for
exceptional quality and precision engineering. In addition, German firms have worked to shorten lead times to
streamline their supply chains.

Germany enjoys a 12.5% share in the global exports of HS-901890 Surgical Instruments, including those products
originally made in other countries such as Pakistan, Malaysia, and Poland. Most of its industry is concentrated in the
South Western town of Tuttlingen, which serves as a global manufacturing and marketing hub for surgical instruments.
The three major types of instruments being exported from Germany are:

a) Reusable Stainless-Steel Instruments: Most of these instruments are manufactured by German firms based in
Tuttlingen using high-quality stainless steel. German firms also operate in Malaysia or have subcontractors based in
Pakistan, Poland and Hungary. These instruments are expensive with a lifespan of several years.

b) Disposable Stainless-Steel Instruments: Pakistan enjoys a near monopoly in the manufacture of high-quality,
disposable surgical instruments made from stainless steel. German firms subcontract or import these instruments from
Pakistan, and after testing them for quality, sell them under their own brand names. China produces a large number of
such disposable units at cheaper prices, however, reportedly because of quality issues, they have failed to obtain
significant market shares in developed markets.

c) Disposable Plastic Instruments: These instruments are manufactured mostly by German companies operating in
Malaysia, and then sold, either directly or via Germany, to end users. These instruments have demonstrated a potential
for their reusability and eco-friendliness (Trade Related Technical Assistance (TRTA II) Programme, 2014).

A pictorial representation of some of the instruments manufactured is given in Figure 22 for a better understanding.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

These are manufactured in Germany for use in surgical and operation theaters.
 36

Figure 22 Pictorial representation of Surgical Instruments made by Germany

Some of the instruments such as electro-mechanical appliances are made in Germany and these are normally branded.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Figure 23 Branding Example by German Manufacturer

 37

Even in high-quality equipment, some low-end items such as stainless-steel clamps and forceps are outsourced to
Pakistani manufacturers to save costs. German companies do the designing and then outsource manufacturing to
Pakistani suppliers. After the basic shaping is done in Sialkot, quality inspection and assurance will usually be done in
Germany. Batch sizes are small as surgical equipment are highly specialized. The Tuttlingen cluster relies on
specialization and sophisticated supporting industries:

Figure 24 Tuttlingen cluster value chain mapping

Table 8 HS-901890 Surgical Instruments Exports – Major Destinations: Germany vs Pakistan 2018-20

Importing country Germany HS-901890 Pakistan HS-901890

avg exports 2018-20 (USD Mn) avg exports 2018-20 (USD Mn)

USA 1,225.6 107.8

China 510.5 20.8

Netherlands 386.6 5.6

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

France 383.9 13.5

Italy 322.2 7.3

Switzerland 297.5 2.4

Russian Federation 274.7 5.8

United Kingdom 261.9 33.6

Spain 212.9 1.5

Japan 171.5 9.1

Austria 162.7 0.8

Belgium 148.5 4.5

Poland 147.6 3.4

Czechia 113.3 2.5

Sweden 107.5 0.5

India 100.9 3.8

 38

Table 8 HS-901890 Surgical Instruments Exports – Major Destinations: Germany vs Pakistan 2018-20

Importing country Germany HS-901890 Pakistan HS-901890

avg exports 2018-20 (USD Mn) avg exports 2018-20 (USD Mn)

Rep. of Korea 94.7 4.8

Turkey 88.7 4.7

Saudi Arabia 84.5 1.1

Brazil 84.3 9.9

Source: (UN Comtrade, 2020)

Table 8 above shows Germany’s Surgical Instruments average exports to their top destinations, from 2018-20,
compared to Pakistan’s Surgical Instruments exports during the corresponding period for the same destination
markets.

15.2 CHINA

Local specialized markets and industrial clusters have been a driving force in China's transition from a rural to a market
economy. These local clusters have provided a means for small local producers to access domestic and international
markets.

China has not focused on developing its Surgical Instruments industry in the same way as Pakistan has, however
manufacturing plants do exist that make many different instruments.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Figure 25 A Surgical Instruments manufacturing plant in China

 39

Since China’s shift towards more eco-friendly industries, the pollution causing work of making Surgical Instruments has
been reduced. However, suppliers from China still exist and trade in large volumes especially with the EU market. China
promotes its products based on quality certifications, advanced production standards, facilities based on Corporate
Social Responsibility (CSR) and compliance with Environment Health & Safety (EHS) standards along with an experience
of complying with Food & Drug Administration (FDA) audits.

Table 9 shows China’s Surgical Instruments average exports to their top destinations, from 2018-20, compared to
Pakistan’s Surgical Instruments exports during the corresponding period for the same destination markets.

Table 9 HS-901890 Surgical Instruments Exports: China vs Pakistan 2018-20

Importing country China HS-901890 Pakistan HS-901890

avg exports 2018-20 (USD Mn) avg exports 2018-20 (USD Mn)

USA 746.3 107.8

Germany 198.5 53.1

Japan 125.1 9.1

China, Hong Kong SAR 120.1 1.5

India 65.5 3.8

United Kingdom 62.8 33.6

Netherlands 59.2 5.6

Brazil 59.0 9.9

Italy 56.5 7.3

Russian Federation 55.5 5.8

Rep. of Korea 50.0 4.8

Singapore 36.7 1.9

France 36.6 13.5

Turkey 34.3 4.7

Australia 29.3 7.8

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Iran 24.6 0.2

Poland 24.6 3.4

Indonesia 24.2 1.8

Spain 22.3 1.5

Mexico 22.1 4.9

Source: (International Trade Center, 2020)

 40

15.3 MALAYSIA

The medical devices industry in Malaysia is dominated by companies engaged in the production of medical gloves,
other disposable products, as well as several high value-added items. Malaysia continues to maintain its position as the
world's leading producer and exporter of medical gloves and catheters, catering to 60 and 80 percent of the world’s
demand for gloves and catheters respectively (Trade Related Technical Assistance (TRTA II) Programme, 2014).
Currently, there are more than 180 medical device manufacturers in Malaysia, including some major MNCs who are
involved in the production of high value items such as orthopedic products, dialyzers, surgical instruments, medical
electrodes, catheters, diagnostic radiographic equipment, safety intravenous cannula, sutures, and ophthalmic lenses.
A German MNC has set up a plant in Malaysia to manufacture disposable surgical instruments from plastics and
reusable stainless-steel instruments.

Table 10 shows Malaysia’s Surgical Instruments average exports to their top destinations, from 2018-20, compared to
Pakistan’s Surgical Instruments exports during the corresponding period for the same destination markets.

Table 10 HS-901890 Surgical Instruments Exports: Malaysia vs Pakistan 2018-20

Importing country Malaysia HS-901890 Pakistan HS-901890

avg exports 2018-20 (USD Mn) avg exports 2018-20 (USD Mn)

USA 312.5 107.8

Germany 96.5 53.1

Belgium 81.2 4.5

Netherlands 68.0 5.6

Japan 66.5 9.1

China 34.3 20.8

Australia 32.2 7.8

Singapore 31.9 1.9

Ireland 12.8 0.6

Hungary 8.2 1.3

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Rep. of Korea 8.0 4.8

Indonesia 6.4 1.8

India 6.4 3.8

France 6.3 13.5

Thailand 5.5 2.4

Philippines 3.6 2.5

Viet Nam 3.4 2.3

Switzerland 3.0 2.4

China, Hong Kong SAR 2.9 1.5

Source: (International Trade Center, 2020)

 41

15.4 POLAND

The major export products manufactured by the Polish medical equipment industry includes bio-electronic apparatus,
operation theatre equipment, rehabilitation equipment, furniture for medical facilities, surgical instruments and
devices using medical imaging technologies. One of the most thriving branches of the industry consists of producers of
bio-electronic equipment which is used for ‘vital functions monitoring’ (including patient monitors; defibrillators with
the function of monitoring and transmitting data; ECG equipment; Holter recorders; and spirometers). Most of the raw
materials, such as stainless-steel forgings etc., are imported from Germany to manufacture high-quality health grade
instruments. These are then either sold directly to end consumers or to German firms in Tuttlingen.

Table 11 shows Poland’s Surgical Instruments average exports to their top destinations, from 2018-20, compared to
Pakistan’s Surgical Instruments exports during the corresponding period for the same destination markets.

Table 11 HS-901890 Surgical Instruments Exports: Poland vs Pakistan 2018-20

Importing country Poland HS-901890 Pakistan HS-901890

avg exports 2018-20 (USD Mn) avg exports 2018-20 (USD Mn)

Germany 208.7 53.1

USA 40.4 107.8

Ukraine 27.3 1.1

France 26.0 13.5

United Kingdom 23.1 33.6

Russian Federation 20.6 5.8

China 14.0 20.8

Switzerland 12.3 2.4

Romania 8.8 1.0

Australia 7.3 7.8

Netherlands 7.1 5.6

Denmark 6.8 2.6

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Mexico 6.8 4.9

Italy 6.4 7.3

Spain 6.0 1.5

Austria 5.8 0.8

Tunisia 5.6 0.3

Estonia 5.3 0.1

Czechia 4.8 2.5

Hungary 4.7 1.3

Source: (International Trade Center, 2020)

 42

16. THE EMERGING CHALLENGE FROM 3D PRINTING

Recent developments in the field of 3D printing promises to revolutionize many industries. 3D printing brings the
potential ability to manufacture anything at a fraction of the current cost. Once commercialized, it can potentially
change the face of manufacturing as we know it.

3D printing has begun to play a significant role in the field of medical devices. The Pakistani surgical instruments
manufacturing industry currently remains competitive primarily due to its low cost of production.

While Pakistan remains a global OEM supplier at the current time, the local industry may become redundant in the
future if the commercial application of 3D printing leads to the production of surgical instruments at competitive prices
in the developed world.

3D printing is opening the doors to a new approach in the production of medical devices, which allows the complexity
of their designs to be pushed to the limit. With 3D printing technology, a computer-aided design (CAD) model can be
directly transformed into a 3D object, built layer-by-layer, in a relatively short time and with a low cost, avoiding the
long processes of conventional fabrication methods.

Figure 26 shows the classification of medical fields where 3D printing has been applied.

Additive Manufacturing in Medicine

Figure 26 Application of 3D printing in medical fields

These includes drug delivery systems, laboratory equipment, customized cutlery, implants and medical equipment for Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry
diagnostics and surgery (Culmone, Smit, & Breedveld, 2019). 3D printing has been used to create both conventional
and non-conventional instruments. Conventional instruments are devices where the basic design is based on
traditional instruments used in diagnostics and surgery such as surgical tweezers. Non-conventional instruments are
those where a completely new design is made using CAD (Computer Aided Design) before manufacturing. Examples of
3D printed instruments are shown in Figure 27.

Figure 27 Examples of 3D printed instruments

 43

1 7 . PA K I S TA N ’ S C U R R E N T P O L I C I E S

REGARDING SURGICAL INSTRUMENTS

The following government policies have an impact on the surgical instruments sector.

17.1 MANUFACTURING BOND SCHEME

Manufacturing Bond Scheme provides warehousing facility without payment of import duty, sales tax, FED, WHT on

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

import of raw materials required for the manufacture of export goods.

The scheme allows manufacturers-cum-exporters to import duty free inputs for subsequent export of value-added
products.

The Licensee is required to operate in a licensed customs bonded area and is required to obtain a certificate called
“Analysis Certificate” which allows him to import duty free inputs as per the product’s Analysis Certificate. Application
for this certificate is filed online and similarly approval is granted online.

To further facilitate exporters under this scheme, up to 40% of manufactured goods can be sold in the local market
after payment of duties and taxes.

Customs has the option to check at any time the status of the imported materials, balance quantities and the quantity
of goods already exported.
 44

17.2 DUTY AND TAX REMISSION FOR EXPORTS (DTRE) SCHEME

DTRE Scheme provides refund of import duty, sales tax, FED, WHT on acquisition through import and local purchase of
input goods required for the manufacture of output goods meant for exports.

This facility is available on imported inputs, locally purchased duty/tax-paid goods and taxable/excisable services
including gas, electricity, diesel, furnace oil, coal.

This scheme can be availed by a wide range of businesses i.e., Sales Tax registered exporters, commercial exporters,
contracted vendors of foreign manufacturers and persons engaged in value-addition in export goods, supplies made
against international tenders, EPZs, projects entitled to duty/tax-free inputs and supplies made by indirect to direct
exporters.

17.3 EXPORT ORIENTED UNITS (EOU)

EOU scheme provides exemption from payment of customs duty, sales tax, FED, WHT on imports and local purchase of
raw materials required for the manufacture of export goods as well as plant & machinery, equipment, apparatus &
capital goods used solely in the manufacture of goods for export. Licensing of the applicant is required to avail the
facility. The utilization period for raw materials is 24 months and the retention period for the machinery / spares is 5
years in the EOU. The unit is required to export at least 60% of its annual production, another 20% in the form of
indirect exports against securities or on payment of duty / taxes and the remaining 20% can be sold in the local market
on payment of duty / taxes.

EOU scheme is most frequently availed by manufacturers cum exporters. This scheme, not only allows import of duty
free and tax-free input materials but also allows duty free and tax-free import of plant, machinery, equipment,
apparatus, including capital goods.

All types of input and output ratios are made available online, resultantly credit and debit of material is also online
which greatly facilitates exporters at the time of import/export.

Exporters can supply their goods to other exporters availing other export facilitation schemes like EOU, Manufacturing
Bond and DTRE.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

17.4 DUTY AND TAX REMISSION FOR EXPORTS (DTRE) SCHEME

DTRE Scheme provides refund of import duty, sales tax, FED, WHT paid on the acquisition through import and local
purchase of input goods required for the manufacture of output goods meant for exports.

This facility is available on imported inputs, locally purchased duty/tax-paid goods and taxable/excisable services
including gas, electricity, diesel, furnace oil, coal.

This scheme can be availed by a wide range of businesses i.e., Sales Tax registered exporters, commercial exporters,
contracted vendors of foreign manufacturers and persons engaged in value-addition in export goods, supplies made
against international tenders, EPZs, projects entitled to duty/tax-free inputs and supplies made by indirect to direct
exporters.
 45

17.5 TEMPORARY IMPORTATION SCHEME

This scheme entails suspension and exemption from duties and taxes for the import of accessories used for
manufacture of exportable goods.

This facility is also available for duty-free imports of components and sub components for assembly of machinery,
electrical equipment, bicycles, aluminum, steel ware, kitchen utensils, surgical instruments, toys, decorative items,
stationery items meant for exports etc.

17.6 EXPORT PROCESSING ZONES

Export Processing Zones have been established with the objective of boosting industrialization and augmenting the
country’s exports by creating facilities for investors to enable them to set up export-oriented units which would create
job opportunities, bring in new technology and expertise and attract foreign investment.

All types of goods including machinery, equipment, materials can be imported duty and tax free. Local sales of up to
20% has also been allowed.

Investors at EPZ can avail facilities of vendors in the tariff area (Sustainable Development Policy Institute, 2019).

17.7 MINIMUM EXPORT PRICE

Surgical Instruments are subject to a minimum export price due to intense competition in the Sialkot cluster which was
leading to price wars with manufacturers apparently selling below cost of production to secure international buyers.
The table below lists the minimum export price for surgical instruments. The Association worked closely with the
Ministry of Commerce to revisit the minimum export price for single use surgical instruments and these have now been
exempted from MEP provided they are clearly marked as “single use” and have been certified by SIMTEL.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Name of Items HS Codes FoB prices in USD

1 Adson Dressing Forceps 4 ¾” 9018 0.45

2 Adson Tissue Forceps 1*1 4 ¾ “ 9018 0.45

3 Allis Tissue Forceps 6” 4*5 teeth 9018 1.50

4 B.P. Handle Number 3 and 4” 9018 0.35

5 Dressing Forceps 4 ½ to 5 ½ “ 9018 0.50

6 Dressing Forceps 5 ½ “ 9018 0.50

7 Dressing Scissor 4 ½ “S/B – B/B 9018 0.55

8 Dressing Scissor 5 ¼ “S/B – B/B 9018 0.70

9 Iris Scissors 4 ½ “ 9018 0.50

10 Kelly/Crile/Rochester Pean/Artery Forceps 5 ¼ “Mosquito Forceps 5” 9018 0.75

11 Lister Bandage Scissors 5 ½ “ 9018 0.75

 46

Name of Items HS Codes FoB prices in USD

12 Lister Bandage Scissors 7 ½ “ 9018 1.25

13 Mayo Hegar Needle Holders 5” – 6” 9018 1.0

14 Mayo Scissors 9018 0.85

15 Probes & Explorers, Scalars/Filing Instruments, Excavators 9018 0.60

16 Speculum Grave Large Cusco Medium Small 9018 2.50

17 Sponge Holding Forceps 7” 9018 2.00

18 Sponge Holding Forceps 9 ½ “Forceps/Ramplay/Bozeman 9018 2.50

Uterine/Dressing/Teneculm

19 Stitch Scissors 4 ½ “ 9018 0.65

20 Tooth Extraction Forceps S/Joint, B/Joint 9018 3.5

21 Towel Clamp 3 ½ “to 5 ¼ “ 9018 0.90

22 Webster Needle Holders 5” to 6” 9018 1.0

Baumgartner Needle Holder 5 ½ “

Source: (Ministry of Commerce, Government of Pakistan, 2020)

Update: As per SRO 1275(I)/2021 dated 30th September 2021, Minimum Export price has been revoked and now there
is no MEP applicable on the aforementioned items.

17.8 EXISTING SROS

SRO Department Policy

211(I)/2009 FBR Repayment of custom duties on importation of raw materials used in manufacture of
scheduled goods including surgical instruments

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

711(I)/2018 MoC DLTL. Was applicable June 2021. 50% drawback without condition of increment in
exports. Remaining 50% drawback to be provided if the exporter achieves annual
increase of ≥ 10% in exports. The finance minister has recently announced continuation
of this scheme. The EDB has requested that the DLTL scheme be continued beyond June
2021 and the rate be increased from 3 to 5%

492(I)/2009 MoF Exemption of custom duty and sales tax on temporary importation of goods for
subsequent export of components for assembly of surgical instruments.
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17.9 REDUNDANT SROS

SRO Department Policy

578(I)/2016 MoC Product Development Incentive Order to provide 50% matching grant up to a max of
PKR 5mn for specified plant and machinery

579(I)/2016 MoC Brand and Certification Development Support. Government to provide matching grants
on intellectual property registration, including trade and services marks certification
and accreditation.
According to SIMAP, this SRO never came into effect.

582(I)/2016 MoC DLTL. Remained in force till June 2018. Superseded by SRO 711(I)/2018.

1065(I)/2005 MoF Exemption of custom duty and sales tax on temporary importation of goods for
subsequent export of components for assembly of surgical instruments. Superseded by
492(I)/2009.

580(I)/2016 MoC Technology Upgradation Fund. 20% investment support up to max of PKR 1Mn per
annum per company available for import of new plant and machinery. 50% markup
support on upgradation of technology provided for import of new plant and machinery
subject to max PKR 1mn per annum per company. The industry has requested that this
SRO be revived to help boost investment in the sector

18. PERFORMANCE UNDER SROS

There is some evidence of minor growth due to the support given to the sector under various SROs. From 1st July 2016
to 30th June 2018, the export of surgical instruments increased at a CAGR of 7.3%. This was in line with Pakistan’s
overall exports which increased at a CAGR of 7.6% during the same period.

Table 12 CAGR of Pakistan’s SI exports vs Pakistan’s total exports

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Value in USD Mn 2015 2016 2017 2018 2019

PK Total Exports to world 22,089.0 20,533.8 21,911.6 23,778.6 23,818.8

CAGR of Total Exports- 2016-18 7.6%

Surgical Instruments Exports from PK to world 332.6 326.0 361.1 375.5 405.5

CAGR of SI Exports – 2016-18 7.3%

Impact of support from SRO 578(I)/2016, Product Development Incentive Order, was an increase of 1.4% in CAGR for
export of surgical instruments. It may be noted that this was impacted by other factors as well, such as demand
variation in global trade.

After SRO 578 came into effect in 2016, the CAGR for surgical instruments exports increased from 5.9% to 7.3%.
 48

CAGR of Surgical Instruments’

exports from 2016-2018
(After SRO 578): 7.3%

CAGR of Surgical Instruments’

exports from 2013-15 (Before
SRO 578): 5.9%

Figure 28 CAGR before and after Product Development Incentive Order

MAJOR FINDINGS

German suppliers have sourced instruments from Pakistan for several years. Historically, contractual relationships were
developed whereby the German firms would use one Pakistani manufacturer. This achieved mutual benefit. For the
Pakistani firm it guaranteed regular work and (arguably) a fairly negotiated price for its goods, whereas for the German
supplier there was the security that the quality of instruments would be up to the standard stipulated in the contract.

Whereas under this system there may still have been questions over the fairness or otherwise of prices that were paid
to Pakistani firms, the situation was complicated by new US legislation in 1994 requiring surgical instruments that were
imported into the US to comply to international quality standards (a requirement subsequently endorsed by the EU).
Manufacturers complied with these standards to remain in business, but this created a shift in their relationships with

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

suppliers in the developed world.

Now that the buyers knew that all surgical instruments would be manufactured to comply with international standards,
they were free to award short term contracts based on the cheapest price without the need to continue with one
manufacturer.

This eventually drove down profits for manufacturers in Pakistan and resulted in cost-cutting in labor costs and safety
standards. Furthermore, in such a competitive environment, buyers of instruments can stipulate unreasonable terms
within their contracts.

Manufacturers rely on subcontractors to meet delivery schedules and quality stipulations, while the latter need
manufacturers to provide them a continuous stream of work. Closer technical ties between the two has increased the
possibility of improvements in products and processes.

Small firms subcontract all but the final stages of production, while large firms internalize most activities, using
specialist subcontractors only for specific tasks and specialized items. Subcontracting lowers costs but implies a loss of
control over the monitoring of quality. This trade-off determines both the extent of subcontracting and the relationship
 49

that a firm maintains with a subcontractor. The quality of forging, filing, polishing and heat treatment is particularly
important to the overall quality of the finished instrument. Where the stages are subcontracted, firms need to ensure
that subcontractors meet the necessary quality standards.

Subcontractors rarely receive support for the supply and upkeep of machinery and tools, or for labor training. However,
most manufacturers frequently make advance payments for working capital, and regularly assist subcontractors
through detailed discussions and feedback on manufacturing processes, product quality and production organization.
Help in organizing production, along with technical and quality related feedback, is especially important in the quality
critical processes.

Despite the relative closeness of such ties, there is little sign of process or product innovation. Where firms move up
the value-added chain, such advances often lead to the internalization of key processes. This ensures stricter quality
control and limits the leakage of valuable technical knowledge. Moreover, where product innovation has occurred, it is
usually the result of collaboration in forward linkages. Product innovation in surgical instrument-making requires close
interaction with end-users - surgeons and health care professionals. Most instruments are developed on the basis of
requests, suggestions and feedback from the medical profession. In Sialkot, where few producers have direct links with
end users, product designs are specified by external buyers or they follow widely accepted international specifications.

The use of subcontractors became common in the mid-1970s after a period of labor unrest and strikes. Subcontracting
minimizes company overheads and lowers costs, but, because subcontractors are not employees of the company and
competition is fierce, it drives down wages and health and safety standards.

Subcontracted manual labor has no job security or guarantee of income and no medical insurance or provision of
education for their children. Nearly all subcontractors are forced to seek wages in advance from the firms that employ
them, further disadvantaging these workers’ position in arguing for a fair wage (Bhutta, 2006).

1 9 . P R I C E WA R

There is intense competition in Sialkot. The majority of local producers cite each other as their major international
competitors. Although local rivals claim to compete on the basis of product quality, the primary basis of competition
appears to be price. This has been fueled by a growth in the number of manufacturers in Sialkot since the early 1980s

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

and because of competition among Pakistani sales agents in the USA. Subsequently, while manufacturers reported
rising sales volumes over the past five years, most of them also reported that product prices had fallen in this period.

Local competition is also predatory. Firms try to obtain their rivals' price quotes, and the practice of 'poaching' foreign
clients from competitors is common. Producers attempt to keep marketing and technological information as closely
guarded secrets. Strategic information is often withheld from those within the firm, such as hired managers or key
foremen, who could emerge as potential threats. The need to keep information from outsiders is even more important.
Visits by producers to each other’s units are rare, usually restricted to close friends or family members. Most of the
producers do not allow others to see their production facilities.
 50

20. NEED FOR INCREASED MARKETING AND

BRANDING ACTIVITIES

Sialkot has numerous service providers including printers who publish sample brochures and product catalogs. The
manufacturers also often take part in exhibitions arranged by the Trade Development Authority of Pakistan (TDAP).
Apart from this, there is little marketing activity for promotion of exports. Very few manufacturers brand their
instruments. Most Surgical Instruments are sold to foreign buyers who then use their own brand to sell at a premium
in international markets. It is not known whether final buyers are aware of Pakistani manufacturers. German and
American buyers buy from Pakistani manufacturers and ensure quality. After providing quality assurance, German and
American importers sell within or in other countries.

Foreign buyers place emphasis on quality and provide access to technical knowledge. In contrast, independent
Pakistani sales agents have weak quality standards, rarely provide technical feedback for support, and are highly price
focused. Trading patterns and marketing channels vary by firm size. Large firms are more likely to trade with technically
advanced foreign manufacturers, leading US kit packers or major international buyers. Small firms sell to less
specialized and less quality-conscious foreign buyers and foreign-based Pakistani agents, foreign clients are the most
important sources of technical and market related information. Many producers obtain technical insights and ability
from visits to surgical instrument manufacturers abroad.

The industry is making all out efforts in cementing ties with foreign buyers, and in seeking out new clients in existing
and new markets. Almost all manufacturers have been dealing with the same foreign buyers for over 5 years. Contacts
are frequent. Buyers visit Sialkot regularly while local manufacturers make frequent trips abroad to consult clients and
seek new buyers.

Requirement for maintaining quality comes primarily from buyers who also provide assistance to improve product
quality and on new products and refinement to existing instruments. They send drawings and instrument specifications
for producers to follow and give feedback on finished products.

In the mid-1980s, German firms began to subcontract to Pakistani firms. They sent metallurgical engineers to Sialkot to
train partner firms on quality control and production engineering. This was followed by regular visits from technical
advisory and inspection teams. In a few cases such collaboration led to joint ventures. In this more formal relationship,
the foreign producer provides access to new technology, knowledge and markets, as well as stipulating production
guidelines and quality control specifications with regular on-site inspections and training missions.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

From the buyer's perspective, visits to Sialkot and close ties with particular firms help ensure punctual deliveries.
Buyers are the leading conduit for new information on technologies and methods. They are also the key agents forcing
producers to maintain and upgrade quality standards. Here again the relationship varies by firm size, larger producers
are more likely to have ties with technically advanced buyers and foreign producers.

The industry cites its lack of advanced marketing and branding activities as a source of concern in selling its goods.
Marketing is limited to exhibitions organized by TDAP and using sales brochures. Manufacturers own branding is
practically non-existent. There are few large manufacturers who brand their instruments but most of them only put
their label or ‘Made in Pakistan’ label on the packaging box and not on the instruments themselves.

Manufacturers seem to be reluctant in branding instruments, citing that only the USA asks for a ‘Made in Pakistan’
stamp due to their rules regarding Technical Barriers to Trade whereas other buyers e.g., Germany insist that Pakistani
manufacturers not mark their instruments as ‘Made in Pakistan’. Fearing loss of trade, Surgical Instruments
manufacturers are subdued and readily comply with European buyers’ demands. This is despite the fact that these
manufacturers are the OEM suppliers for these Surgical Instruments.
 51

While European buyers appear to have a good image of Pakistani Surgical Instruments manufacturers, buyers in the
Middle East prefer not to buy directly from Pakistani suppliers. Middle Eastern buyers prefer to buy Pakistani
manufactured instruments from US or European suppliers but not directly from Pakistan. This is because European and
American buyers sell Pakistani-origin Surgical Instruments under their own well known international brands and this
gives comfort to the buyers.

21. PERCEPTION ISSUES

Other than in its traditional markets, Pakistan’s surgical instruments industry suffers from a perception issue in
international markets. This phenomenon has more to do with the perception of Pakistan being a manufacturer of
low-quality products especially engineering goods. As a result of this negative country perception, international buyers
prefer to pay higher prices to middlemen/companies in the West who are willing to give an assurance regarding quality.
The surgical instruments sector will have to replicate the model of the sport goods industry also based in Sialkot on
how to ensure that their output also commands a premium price in international markets.

22. COMPLIANCE WITH NEW EUROPEAN RULES

The Pakistani Surgical Instruments industry will face a new challenge in the form of Medical Devices Regulation (MDR)
compliance beginning 2024. All instruments manufactured will have to be compliant with new European regulations
on biocompatibility. The new regulations are expected to impact exports of Surgical Instruments. The industry is asking
the government to help with MDR compliance by providing consultants for five years who would help in meeting
regulatory standards. They also want a publicly-funded testing lab established for the purpose of complying with these
regulations.

23. INFRASTRUCTURE

Sialkot suffers from infrastructure deficiencies. It is plagued with bad roads, inadequate power generation and

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

distribution and a poor communications network. The export boom has led to everyone purchasing private vehicles.
This has led to an increase in traffic in Sialkot which the current narrow roads cannot bear. The lack of public transport
services has also exacerbated the traffic problems of the city.

24. COST OF DOING BUSINESS

The increasing energy costs are making firms uncompetitive by compressing margins and profitability. The production
of surgical instruments is an energy-intensive process, with sub-processes, such as annealing that uses specialized
furnaces that run on gas, and rely on the continuous use of machines with heavy electrical loads. The industry,
therefore, requires a reliable supply of electricity and gas at relatively cheap prices to remain competitive. The issue of
rising energy costs has become a serious challenge in recent years, as the energy situation has been identified as a
major reason for slowing down investments in the industry.
 52

2 5 . L A B O R S H O R TA G E S

The surgical instruments industry is a labor-intensive industry, heavily dependent on skilled labor to deliver outputs.
Sialkot has traditionally been endowed with a skilled workforce that operates much of the industry. However, recent
years have witnessed a rapid de-skilling of the labor present in the sector. The phasing out of child labor, and rightly so,
from Pakistan has resulted in the collapse of the conventional ustad-shagird (apprentice) system, resulting in a dearth
of a trained and skilled workforce especially in the process of polishing. The visually dirty work does not appeal to the
younger generations who prefer to work in relatively cleaner environments.

The disruption of the apprenticeship system has led to the drying up of the pipeline of relatively young people
interested in undergoing a fairly long — at times 5 to 7 years — apprenticeship to acquire the skill-set required to
produce surgical instruments.

Several attempts have been made to resurrect formal training programs (such as at the Sialkot Surgical Training
Institute), but the industry does not appear satisfied with the quality of trainees, citing that the nature of skills is such
that they have to be acquired at a young age. Another challenge in recent years has been the emergence of contracting
as an alternate way of forming an association with a firm. Contractual agreements, which are partly the result of
cost-cutting initiatives undertaken by larger firms, has resulted in the unintended consequence of the loss of affiliations
with the workforce. Some critics also identify the lack of appropriate salaries (sometimes even lower than the
minimum wage) as one of the key reasons as to why the industry is losing its appeal, especially with the next generation
of workers in Sialkot.

26. EPZ POLICY

Efforts have been made to provide an incentive package to Sialkot through the establishment of an Export Processing
Zone (EPZ). The Zone was set up at Sambrial on the Sialkot-Wazirabad Road in 2002 with an investment of around PKR
184 million, primarily from private entrepreneurs. The EPZ is spread over an area of 238 acres, with 881 plots ranging
from 4 kanals to 10 marlas in size, and the land being priced at USD 5.21 per sq. meter. Despite the large size of the
establishment, the adoption of the facility has been limited because of its distance from the current locus of
manufacturing, which lies within the city. Repeated attempts by the Government, to encourage factory owners to
establish new factories in this EPZ, have not yielded the kind of results that were expected. Manufacturers report that

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

the EPZ is too far away from Sialkot and would not be feasible for the stakeholders in the industry. Employees also are
reluctant to travel such long distances.

Another factor for dissuasion of moving to the EPZ is the location of vendors and contractors who are at a distance from
the EPZ location. Manufacturers cite that raw materials and in-process semi-finished instruments would have to be
moved in and out of the gated EPZ continuously as they are sent to sub-contractors for any number of processes.

2 7 . C O M M O N FA C I L I T Y C E N T E R

The industry stated that they required a “Common Facility Centre (CFC)” which would provide a common processing
facility for manufacturers. SIMAP proposed to the authors of this report that the CFC be run by the association and be
able to provide advanced high-tech facilities on cost basis to the firms (which is a prohibitive investment that many
firms are unable to undertake individually). A proposal was sent to the Export Development Fund (EDF) to establish the
CFC. Since firms contribute to the EDF (0.25% Export Development Surcharge (EDS) is levied on all exports from
Pakistan) run by the Ministry of Commerce, the industry is of the opinion that this is a common need for the sector and
would help propel exports.
 53

28. SURGICAL CITY

Surgical Instruments manufacturers are suggesting that the government construct a ‘Surgical City’ at a prime location
for all manufacturers to gather their production processes. The Surgical City may have a tax holiday option for
interested manufacturers. The “City” is proposed to house all manufacturing units of Surgical Instruments. However,
the problems of fragmented vendors and outsourced sub-contractors being located far away from the Surgical City
remains.

29. OTHER ISSUES

Finally, there are a host of other issues such as:

Cut Throat Competiton

There is a need to create a culture of cooperation and trust, agreeing upon a code of ethics to manage cut
throat competition in the industry so that companies do not undercut each other needlessly

Low capacity

The firms are not large enough to achieve economies of scale and have the ability to offset their fixed costs.

Lack of innovation

Lack of access to quality universities and colleges, absence of international collaborations, shortage of
research facilities and design units within organizations, and the inability to use multidisciplinary
knowledge in order to graduate to higher value equipment (for example medical electronics or
electro-mechanical devices).

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Absence of modern machinery

Machinery in small firms is from the 70s and 80s era. Production processes are also outdated. In some
cases, wastage can be as high as 75%.
 54

30. DISCUSSION

So how does Pakistan fare in terms of competitiveness?

Our findings indicate that the surgical industry, despite being operational for a long time, is not performing to its full
potential.

Compound Annual Growth Rate (CAGR) from 2016-2020 was 2.6%. CAGR for other industries is also given in Table 13
as a comparison.

Table 13 CAGR of exports of various industries in Pakistan

CAGR of various industries in Pakistan 2016-2020

Surgical Instruments Bedwear Leather Auto parts Cement Chemicals Electrical Goods Sports Goods

2.6% 3.1% -1.6% 0.4% -3.4% 5.9% 14.6% -5.2%

Government subsidies in the form of rebates has failed to move the industry to the next level of business development.

Pakistan's Exports of Surgical Instruments - Quantity wise

500,000,000

450,000,000

400,000,000
Number of Units

350,000,000

300,000,000

250,000,000

200,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Figure 29 Pakistan's Exports of Surgical Instruments - Quantity-wise
Source: (Pakistan Bureau of Statistics, 2019)

Pakistan’s market share in global trade of surgical instruments is 0.7%. One of the reasons for this low market share is
buyers buying Pakistani origin instruments at low prices and then selling these at higher prices to other countries by
doing some value-addition as well as being guarantors of quality. The industry has yet to reach the “1-billion-dollar
club”, an informal term used for sectors that have reached the USD 1Bn mark in exports such as textiles, rice and ICT
services. In fact, the industry has not even reached USD 500Mn in terms of exports.

The raw material used is medical grade steel and because the major source of this steel are commercial importers, it is
very difficult to ensure consistency in steel quality. In the absence of a large domestic supplier of medical grade steel,
consistency of steel will remain a problem for the industry. SIMAP should consider forming a consortium to buy medical
grade steel directly from foreign steel mills and they sell to their members, this would at least address the issue of
consistency. Some of the bigger players are supplied steel directly from Germany to ensure quality.

Though the sector’s exporters claim to be manufacturing all of the world’s Surgical Instruments, data shows that their
 55

top customers are buying a majority of their instruments from other countries. The USA is buying a majority of
HS-901890 Surgical Instruments from Mexico and Germany is buying the same from China.

Evidence from Chinese videos posted on YouTube also shows that Chinese firms are engaged in the manufacture of
surgical instruments.

Figure 30 Surgical Instruments manufacturing plants in China

The local industry is so far not moving into electro-mechanical items such as the manufacture of EEG, ECG, and other
sophisticated equipment. Since buyers only give orders for low-end instruments such as scalpels, scissors, forceps etc.,
the industry is only manufacturing those. There have been few significant orders for new items in the last 5 years.

Buyers mostly dictate prices in negotiations. The industry is embroiled in a price war where each seller is trying to get
customers by quoting the lowest possible price thus leading to a lower aggregate number in sales value.

Sellers are not stamping / labeling their products as ‘Made in Pakistan’ which is hampering their marketing ability.
Instruments are sold as a commodity, not as a category since there is no branding.

The industry states that moving to the EPZ is not feasible, therefore they are looking to negotiate with the government
for a nearby location which will be designated as a ‘Surgical City’. The industry is also looking to offset its future
expenses e.g., upcoming MDR compliance expenditure through public funding.

On the positive side, the industry has made some progress. Recently exports grew to USD 405mn in 2019 but a global
slowdown in trade due to COVID-19 saw a slump in Surgical Instruments exports, with exports clocking in at USD

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

361.3mn in 2020. Government facilities, such as MIDC and SIMTEL, are present for entrepreneurs and small
manufacturers who cannot afford in-house production like the larger manufacturers.

The next step the industry needs to take is to increase its market share by exploring newer markets and venturing into
new products.
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3 1 . R E C O M M E N D AT I O N S

31.1 FAIR TRADE IN BANANAS AND COFFEE; WHY NOT IN

SURGICAL INSTRUMENTS?

Issue: Manufacturing firms in Pakistan rarely have the infrastructure or marketing presence to allow direct trade with
end users in the destination countries. Most therefore sell to suppliers and retailers in the developed world with a low
profit margin. These “middle men” (mostly in Tuttlingen, Germany) then trade with end users, predominantly in the US
or Western Europe, usually after adding a large mark up. Inadequate renumeration and labor standards compound the
underlying problems of the absence of skilled labor.

PBC Proposal: The solution lies in final purchasers insisting on fair and ethical trade when sourcing instruments.
Increasingly, people in the developed world consider ethical issues when they purchase groceries, clothing, and various
other products. Yet they know relatively little of where and under what conditions medical commodities like surgical
instruments are manufactured. The UK based NHS Purchasing and Supply Agency has developed a sustainable
development policy. The stated aims of this policy include encouraging NHS (National Health Service) suppliers to
ensure compliance with international labor standards and to act in an ethical business manner. Yet at present the
health service is not meeting such obligations; there is no systematic assessment of the origin of the products it uses
or the conditions under which they were produced. Similar to the purchase of agricultural products, the developed
nations may move towards insisting on fair trade for purchase of surgical instruments as well. The issue of fair-trade
practices in surgical instrument procurement may be discussed with the EU.

31.2 CONSULTANTS FOR MDR COMPLIANCE

Issue: Surgical Instruments exports into the EU will face a new challenge in the form of the requirement for compliance
with Medical Devices Regulation (MDR) beginning 2024. All instruments entering the EU will have to be compliant with
new European regulations on biocompatibility. The new regulations are expected to hinder exports of Surgical
Instruments from Pakistan to the EU. Compliance with MDR is estimated to cost over 5% of annual sales (Yeo, 2020).

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Industry Proposal: The industry suggests hiring foreign consultants for 3 to 5 years for MDR compliance. They also
suggest that a lab should be setup for testing biocompatibility as per the Medical Devices Regulations and government
should bring in foreign certification bodies to provide assurances to foreign buyers.

PBC Proposal: The Government may bring in foreign consultants for a limited time to assist in MDR compliance. Any
cost of hiring consultants, building a lab etc. should be reflected in the pricing of the instruments that need compliance
with MDR. If prices do not reflect the costs associated with ensuring compliance with MDR, the Pakistani taxpayers may
end up subsidizing consumers in the EU.
 57

31.3 JOINT VENTURES FOR INCREASING EXPORTS

Issue: Pakistan holds 0.7% market share in HS-901890 Surgical Instruments. The industry claims to be the OEM
manufacturer of Surgical Instruments such as scissors, scalpels, forceps, clamps etc., which are shipped to the USA and
European markets from where they are further sold to the rest of the world after quality assurance and some
value-addition such as ceramic coating. Few new products of any major export significance have been developed in the
Sialkot cluster in the last five years.

Industry Proposal: Some of the larger players are concerned about this stagnation and suggest Joint Ventures with
Chinese companies for knowledge and technology transfer. The smaller players are content with the status quo of
receiving continued orders for the same equipment.

PBC Proposal: Joint Ventures with firms in Germany and China will certainly help Pakistan in taking the next step
towards evolution of the Surgical Instruments industry. Pakistani manufacturers can move from making simple
stainless-steel instruments to complex machines used in EEG/ECG, radiology, CT scan and much more. As JVs with
Germany helped the industry in upgrading production in the past, further technology and knowledge transfer with
firms either in Germany or China can enable the industry to start creating complex engineering machinery that can
bring in higher export revenues. The Government may look into the possibility of inviting Chinese or German FDI in this
industry to enable knowledge transfer. Leveraging a domestic population base of 220 million and approximately 2,000
hospitals (Khan, 2019), which offer a potential market for 17 million surgeries per year (The Aga Khan University, 2019),
these JVs can rapidly build, scale and enter export markets.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Figure 31 Market size for Surgical Instruments in Pakistan

 58

31.4 A SURGICAL CITY AS PROPOSED BY SIMAP

Issue: The current location of the EPZ is not feasible for many manufacturers. Labor has to travel longer distances. The
vendors are located far away and the nature of sub-contracting of processes will mean that there will be too much
movement in-and-out of the EPZ for raw materials and semi-finished goods. Expansion is also a major issue due to
shortage of land in existing clusters.

Industry Proposal: The industry suggests development of a ‘Surgical City’ closer to Sialkot and which will have a raw
materials storage facility along with all other facilities in the new cluster.

PBC Proposal: A location closer to Sialkot may benefit workers and to ensure there is minimum disruptions in
production, a Common Facility Centre for laboratory testing plus any outsourced production processes be setup within
the Surgical City.

31.5 A NEW COMMON FACILITY CENTRE PROPOSED BY SIMAP

Industry Proposal: The Surgical Instruments industry is proposing that the government may either upgrade or build a
Common Facility Centre which will contain latest machinery that manufacturers cannot afford on their own.

PBC Proposal: A CFC in the form of MIDC already exists from where many manufacturers already get part of their
processes done. PBC proposes upgradation of the existing facility e.g., newer heat treatment furnaces, newer model
CNC laser cutting machines etc., & if that is not possible in the existing setup a new CFC run by SIMAP may be set up.

31.6 ABSENCE OF MADE-IN-PAKISTAN ON EXPORT PRODUCTS

Issue: There is an absence of stamping of Made-in-Pakistan on export products, no major Pakistani Brands & hence no
Country-of-Origin advantage. The industry is neither branding nor stamping instruments with the ‘Made in Pakistan’
label when exporting to Europe. Only instruments sent to the US are stamped because of US regulations. While
exporting to Europe, exporters sometimes put the ‘Made in Pakistan’ label on the carton but not on the instruments.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

The industry, by and large, does not believe in its own strengths.

PBC Proposal: The reluctance to stamp ‘Made in Pakistan’ or their own brand name minimizes the potential to get a
premium price or to sell to new markets. Pakistan could learn valuable lessons from the Turkish 'TURQUALITY' Program
through which the Turkish government has been funding the development of 10 worldwide Turkish brands. A
“PAKQUALITY” initiative may be promoted under the Public Private Partnership model to ensure that Pakistani brands
also become regional / global icons.

Launched in 2005, TURQUALITY® is a scheme developed to promote Turkish brands. It is a project associated with
bringing the concept of Turkey and Quality together. TURQUALITY® was initiated by the Ministry of Economy, Turkish
Government, Turkish Exporters Assembly (TIM) and Istanbul Textile and Apparel Exporters Association (ITKIB).
 59

31.7 PRODUCT PRESENTATION MATTERS

Issue: The current product mix is sold as

orders come in and kit packers in the US
and Europe create the kit packages before
further selling.

PBC Proposal: Figure 32 shows what a kit

package looks like. By assembling and
creating kit packages themselves,
Pakistani manufacturers can charge a
higher price for being able to sell a
ready-made solution. Figure 32 A representation of Surgical Instruments toolkit

China is able to clearly display all of its

products at a one-stop shop, giving buyers
the ease of shopping. This makes them
want to buy from China. All hospital
products are easily lined up for buyers
making it a one-stop shop for all things
used in a hospital.

Figure 33 One-stop shops in China for all medical instruments

31.8 ENSURING QUALITY – STANDARDS

Issue: Inconsistent product quality is impacting exports, this is primarily due to the absence of standards

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Industry Proposal: : The industry is concerned about the damage done to the industry’s image when sub-par quality
instruments are supplied at extremely low prices quoted by some manufacturers. Industry proposes ISO9000
standards compliance as a way to ensure consistent quality.

PBC Proposal: The industry will need to self-regulate and work for common minimum standards. Some options could
include: provision of raw materials from a central SIMAP warehouse, SIMAP approved certification requirements for
exporters, lobbying with the government to ensure that minimum export prices reflect costs of inputs etc.

31.9 EXPLORING NEW MARKETS

Issue: Currently exports are highly concentrated in markets of the EU & the USA. Concentration of exports in a few
markets’ limits revenue potential. This problem is hampered by the fact that every country has its own regulations
regarding medical devices and instruments. US has its own FDA regulations, Europe has its own CE and the upcoming
MDR rules, China has its own NMPA.
 60

Industry Proposal: The industry’s view varies on potential markets. Suggestions have been made including Russia, the
African nations and China.

PBC Proposal: The problem is twofold and the solution lies with two government bodies. First, different countries have
different regulations, complying with each countries regulations requires investments in product, production and
processes. EDB needs to work with SIMAP to sensitize the industry regarding regulations as they apply to individual
countries. Second, as this report identifies, there are potential markets which can be explored in the medium to
long-term. TDAP needs to partner with SIMAP to hold exhibitions in these potential markets.

31.10 DISPOSABLE VS NON-DISPOSABLE ITEMS

Issue: Disposable Surgical Instruments are increasingly being used in the US market. The minimum export prices
imposed on instruments are a hinderance for the disposable instruments industry as disposable instruments cost less
than non-disposable ones and the industry is requesting for a review of the minimum export price mechanism.

Industry Proposal: Some of players in the Surgical Instruments industry feel that the minimum export price imposed
on instruments is hurting the disposable instruments industry as disposable instruments cost much less than
non-disposable ones.

PBC Proposal: The minimum export price should only be reduced for disposable instruments, not reusable ones. To
prevent misuse of the proposed change, it is recommended that the Global Devices Medical Nomenclature (GMDN)
may be used for identification of instruments. GMDN is a system of internationally agreed generic descriptors used to
identify all medical device products.

31.11 USING E-COMMERCE PLATFORMS

Issue: Traditional channels are preferred by suppliers who either don’t understand the e-commerce channel well
enough or don’t think that e-commerce can be a viable alternative to the traditional model.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

PBC Proposal: Sellers in other
countries such as China and
Vietnam use e-commerce
platforms such as Alibaba, Amazon
etc. Use of alternative selling
channels also reduces
over-reliance on exhibitions and
commercial counsellors, many of
whom are not subject experts on
Surgical Instruments when dealing
with foreign buyers.
Figure 34 E-commerce platform to sell Surgical Instruments

Manufacturers may be made aware of the benefits of e-commerce channels. It would open new sales channels which
can potentially lead to increased revenue.
 61

31.12 REDUCE DOCUMENTARY COMPLIANCE

Issue: Currently Pakistan has one of the highest documentary compliance rules compared to other countries. The
government also supports this practice in contrast to the rest of the world. Figure 35 shows an example of the
complexity of documentation required by the Sialkot Dry Port Trust for export.

At SDPT HeadOffice (FCL)

Figure 35 Process flow at Sialkot Dry Port Trust (SDPT)

PBC Proposal: Increased documentation hurts business and therefore revenues. This is the reason most countries have
reduced documentation requirements to promote business-friendly environments. Figure 36 shows the cost of
documentary compliance and export to GDP for Pakistan and other countries (Ahmed, 2017).

120 Pakistan needs to simplify its Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Vietnam
documentation process and do
100
away with needlessly
complicated bureaucratic
Export to GDP

80
Thailand procedures. Other nations
60 require far less documentary
Ukraine compliance and as a result have
40
Jordan
Philippines less cost to export which
Turkey
20 India Indonesia Bangladesh promotes an export-friendly
Nigeria
Argentina
Brazil Pakistan environment.
0
0 50 100 150 200 250 300 350
Cost to Export: Documentary compliance (USD)

Figure 36 Comparative cost of documentary compliance

 62

32. REFERENCES

Ahmed, V. (2017). Pakistan's Agenda for Economic Reforms. Karachi: Oxford University Press.

Asad, M. (2021, April 6). Officer SBP-BSP. (S. Arshad, Interviewer)

Bhutta, M. F. (2006, August 5). Fair Trade for Surgical Instruments. BMJ, pp. 297-299.

Culmone, C., Smit, G., & Breedveld, P. (2019). Additive manufacturing of medical instruments: A state-of-the-art
review. Additive Manufacturing, 461-473.

Engineering Development Board. (2020, October 19). Determination of Input/Output Ratios and Wastages For the
manufacture of Laryngoscope (Blades & Handles). Sialkot, Punjab, Pakistan.

International Labor Organization. (2021, June). Statistics and Databases. Retrieved from ILO:
https://www.ilo.org/global/statistics-and-databases/lang--en/index.htm

International Trade Center. (2020, March 4). Trade Map. Retrieved from Trade Map:
https://trademap.org/Bilateral_TS.aspx?nvpm=1%7c586%7c%7c%7c14719%7cTOTAL%7c%7c%7c2%7c1%7c1%7c2%7
c2%7c1%7c1%7c1%7c1

Jacobsson, L., Klutsch, J., Kang, N., & Probst, R. (2017, January 4). The "world centre of surgical equipment"? The
medical technology cluster in Tuttlingen. Retrieved from Stockholm School of Economics:
https://www.hhs.se/contentassets/f51b706e1d644e9fa6c4d232abd09e63/sse-tuttlingen-medical-instrument-cluster.
pdf?_t_id=1B2M2Y8AsgTpgAmY7PhCfg%3D%3D&_t_q=chloe+le+cocq&_t_tags=language%3Asv&_t_ip=66.249.76.81
&_t_hit.id=Sublime_Site_Models_Media_DocumentData

Khan, A. A. (2019, November). Healthcare Resource Guide: Pakistan. Retrieved from Export.gov:
https://2016.export.gov/industry/health/healthcareresourceguide/eg_main_108609.asp

MIDC. (2021). MIDC job order data. Sialkot, Punjab, Pakistan.

Ministry of Commerce, Government of Pakistan. (2020, September 25). Statutory Notifications S.R.O. Retrieved from
Ministry of Commerce Government of Pakistan:

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https://www.commerce.gov.pk/wp-content/uploads/2020/09/Export-Policy-Order-25-09-2020.pdf

Pakistan Bureau of Statistics. (2019). External Trade Statistics. Retrieved from Pakistan Bureau of Statistics:
https://www.pbs.gov.pk/trade-tables

Pedraza, J. M. (2014). Re: How to evaluate competitiveness? Which economic indicators can we use for the
evaluation of competitiveness of agricultural food companies? Retrieved from ResearchGage:
https://www.researchgate.net/post/How-to-evaluate-competitiveness-Which-economic-indicators-can-we-use-for-th
e-evaluation-of-competitiveness-of-agricultural-food-companies/532647e2d685cc11258b45de

Ramakrishna, S., Charlene, W., Tian, L., Liao, S., & Teo, W. E. (2015). Global harmonization of medical devices. In S.
Ramakrishna, L. Tian, C. Wang, S. Liao, & W. E. Teo, Medical Devices (pp. 207-213). Woodhead Publishing.

Saleem, S. (2018). Introduction Surgical industry of Pakistan. Retrieved from Academia.edu:

https://www.academia.edu/31543517/Introduction_Surgical_industry_of_Pakistan?auto=download&email_work_ca
rd=download-paper
 63

Schulz, J., Pschorn, J., Kara, S., Hermann, C., Ibbotson, S., Dettmer, T., & Luger, T. (2011). Environmental Footprint of
Single-Use Surgical Instruments in Comparison with Multi-Use Surgical Instruments. Glocalized Solutions for
Sustainability in Manufacturing, 623-628.

Schwab, K. (2019). The Global Competitiveness Report. Geneva: World Economic Forum.

Sengenberger, W., & Pyke, F. (1991). Small Firms Industrial and Local Economic Regeneration: research and policy
issues. Labour and Society, International Institute for Labour Studies, Geneva.

Shehzad, K. (2021, 03 04). Project Director. (S. Arshad, Interviewer)

Sialkot Dry Port Trust. (2021, March). Surgical Cargo. Sialkot, Punjab, Pakistan.

Sustainable Development Policy Institute. (2019, December 20). REVIEW OF EXPORT PROMOTION & EXEMPTION
SCHEMES. Retrieved from think-asia:
https://think-asia.org/bitstream/handle/11540/11523/A-REVIEW-OF-EXPORT-PROMOTION-and-EXEMPTION-SCHEME
S.pdf?sequence=1

The Aga Khan University. (2019, February 2). Pakistan has an annual backlog of 17 million surgeries, experts say.
Retrieved from The Aga Khan University: https://www.aku.edu/news/Pages/News_Details.aspx?nid=NEWS-001745

Torsekar, M. P. (2018). China's Changing Medical Device Exports. United States International Trade Commission.

Trade Related Technical Assistance (TRTA II) Programme. (2014). POLICY FOR TECHNOLOGY UP-GRADATION IN
SURGICAL INSTRUMENTS AND PHARMACEUTICAL SECTORS. Islamabad: Trade Related Technical Assistance (TRTA II)
Programme.

Trade Related Technical Assistance (TRTA II) Programme. (2016). Export Supply Chain Analysis for Rice and Surgical
Instruments. Trade Related Technical Assistance (TRTA II) Programme.

UNComtrade. (2020, October 5). UNComtrade. Retrieved from UNComtrade: https://comtrade.un.org/Data/

World Bank Group. (2020). Doing Business 2020. Washington DC: World Bank.

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www.GlobalPetrolPrices.com. (2021, June). Pakistan electricity prices. Retrieved from Global Petrol Prices:
https://www.globalpetrolprices.com/Pakistan/electricity_prices/

Yeo, A. (2020, September 03). EU MDR Compliance Will Cost More Than 5% Of Revenues For Half Of Medtechs,
Survey Says. Retrieved from Medtech Pharma Intelligence:
https://medtech.pharmaintelligence.informa.com/MT142687/EU-MDR-Compliance-Will-Cost-More-Than-5-Of-Reven
ues-For-Half-Of-Medtechs-Survey-Says
 64

33. APPENDIX

33.1 PAKISTAN’S OVERALL COMPETITIVE POSITION

Figure 37 shows Pakistan’s rankings in Doing Business indicators with an overall score of 51 out of 100. Its worst score
is 25 out of 100 in ICT (information and technology) adoption and its best score is 71 out of 100 in Market size. Further
details are given in Table 14 below.

Figure 37 Pakistan's score in Doing Business Indicators

Pakistan made notable improvements in Doing Business Indicators 2020 (Schwab, 2019). With an overall rank of 110
out of 141 worldwide, Pakistan lacks international competitiveness. Figure 38 shows Pakistan’s score and ranking for
each pillar of the Doing Business Indicator.

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Table 14 Pakistan's score for each indicator

Global Competitiveness Index Score /100 Rank / 141 Best Performer

Enabling environment 49.3 118 Singapore

1st Pillar: Institutions 47.7 107

2nd pillar: Infrastructure 55.6 105

3rd pillar: ICT adoption 25.2 131

4th pillar: Macroeconomic stability 68.7 116

Human capital 48.5 119 Switzerland

5th pillar: Health 56.3 115

6th pillar: Skills 40.8 125

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Table 14 Pakistan's score for each indicator

Global Competitiveness Index Score /100 Rank / 141 Best Performer

Markets 55.8 77 United States

7th pillar: Product market 45.5 126

8th pillar: Labor market 51.3 120

9th pillar: Financial system 55.0 99

10th pillar: Market size 71.2 29

Innovation ecosystem 49.5 70 United States

11th pillar: Business dynamism 63.3 52

12th pillar: Innovation capability 35.8 79

Pakistan Global Competitiveness Index

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Figure 38 Pakistan's score on each pillar of the Global Competitiveness Index

Pakistan ranks very low in terms of Information and communications technologies (ICT) adoption (131st out of 141)
as well as Innovation capability (79th out of 141) and high in terms of Market size i.e., the size of the domestic and
foreign markets to which a country’s firms have access (29th out of 141).

Pakistan ranks midway in Doing Business indicators (World Bank Group, 2020) with a rank of 108 out of 190 and
Doing Business score of 61. Table 15 shows a comparative ranking of Pakistan along with its peers in the surgical
instruments industry and its regional peers.
 66

Table 15 Comparative economies' Doing Business score

Rank Comparative Economy Doing Business score

12 Malaysia 81.5

22 Germany 79.7

63 India 71.0

108 Pakistan 61.0

168 Bangladesh 45.0

33.1 LIST OF INTERVIEWEES

Table 16 List of interviews

Company visited Interviewee Interviewee

SIMAP Sajid Mirza, M. Zeeshan Vice Chairman, Chairman

Dental Devices Waseem Yousaf CEO

Medical Devices Pvt Ltd Rizwan Khalid Sales Manager

SITEC Irfan Farooq Director Sales & Marketing

TriMed Gohar Iqbal Director Sales

Surgical Sources Ind. Rizwan Bajwa CEO

Bullan Surgical Co. Iftikhar Ahmad CEO

Hilbro Instruments Pvt Ltd Imran Ashraf CEO

Moses Enterprises Rohail Deura Partner

TEVTA Khurram Shahzad Awan Project Director MIDC

Elmed Instruments Hinan Humayun Director International Sales

Enhancing The Competitiveness Of Pakistan’s Surgical Instruments Industry

Hospimed Aamer Mahmood CEO

Tecno Instruments Haseeb Bhatti Marketing Director

CS Clinical Surgical Khurram Iqbal Managing & Marketing Director

NST Zone Sajid Mirza Partner

Polivitte International Ayub Suddle Managing Partner

Sialkot Dry Port Trust Navid Iqbal Sheikh Chairman

SBP BSC Ansar Iftikhar Butt Chief Manager

Richbolt Enterprises M. Akbar Partner

Mhay Industries M. Ishfaque Mhay Proprietor

ALM Surgicare Fiaz Bukhari Chief Executive

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