The Garment Industry of Pakistan
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Textile and Garments is considered the most important sector of Pakistan's economy and the largest industry with a 46% share of total manufacturing. Accounting for 67% of exports, employment for 40% of the workforce and a 10.20% share in GDP confirms the importance of this sector. Pakistan's large available human resource pool offers an important incentive for further growth of this labor intensive industry.
Contribution of Textile &Garment Sector
Employment for Workforce
Total Share in GDP
Although Pakistan is the fourth largest cotton producer in the world with strong spinning and weaving infrastructure, the value added sector (cotton products) has a small share in exports. The main reason is shortage of training facilities able to enhance skills and produce competent middle managers having in-depth knowledge of processes and hands-on experience in contemporary technologies.
Garment manufacturing is a major growing sub-sector of the textile value chain. It consumes the majority of the workforce in Pakistan's textile and garments industry and has been contributing towards the high growth-rate in exports as figures shows it is 67% contributing in export of Pakistan.
However, the garment industry is now suffering from some acute problems - in productivity, in quality, in management & marketing skills - and thus facing a serious threat of a reduced share of international markets.
According to the World Bank's report on the impact of Quota Elimination in Pakistan, the effect on apparel exports from Pakistan will be negative due to stronger competition from other countries. The implication would be serious if no action is taken to improve productivity and efficiency.
In the garments sector, Pakistan's productivity is estimated to be only 37% of the benchmark established by China. Compared to this, India's garments sector productivity is better, at 46%. For Pakistan, raising productivity by improving production process efficiency is key to reap benefits after the Multi-Fibre Agreement was abolished. If Pakistan is able to increase its productivity in textiles and clothing by 60% and reach China's productivity level, the gain would likely be over US$ 1 billion per year.
Keeping in view the emerging trend in the global market, there is a huge potential for Pakistan's garment sector. However, to be competitive in the global market after the removal of the 'quota regime' in January 2005, it is imperative to have efficient and cost effective production systems with minimum wastages to attract buyers. The TUSDEC need assessment which included discussions/interviews with the key garment exporters clearly revealed the need for urgent reforms in the textile industry and especially in garment manufacturing and exporting as this is the most value added sector. This need had never before been felt as intensely as now, in the major garments clusters located in Lahore, Karachi, Sialkot, Faisalabad and Multan. In unison they expressed that the existing infrastructure of textile & garments institutes in the country is not able to fulfill the requirement for skilled human resources to meet the immediate demand.
The need assessment showed that an intervention for fast-track capacity building of the garment industry to meet the challenges posed by the ever-changing demand of international markets was justified. To cope with this dire need, it was proposed to hire foreign experts on long term basis to upgrade the knowledge and skills of the workers employed in the garment industry.
As quoted by Chairman of All Pakistan Textile Mill Association, Textiles are the most important industry in Pakistan. It accounts for approximately 40 percent of manufacturing employment, over 60 percent of total exports, and over 30 percent of value-added production. Pakistan's textile industry, based on locally grown cotton, produces cotton yarn, cotton cloth, and made-up textiles and apparel.
Industry Facts and Figures
As data cited at web published edition of aptma, Pakistan had a total of 503 spinning mills with an installed capacity of 10,437,000 spindles and 155,104 rotors. The weaving industry has 53 integrated units (composite units with spinning and weaving in one unit) with an installed capacity of 14,130 looms; 512 shuttle less weaving units with an installed capacity of 13,340 1ooms; and approximately 30,000 units in the power loom (shuttle loom) sector, with an estimated 225,253 looms. In PFY-97 it additionally had 670 finishing units with a production capacity of 3,460 million sq. meters of fabric per annum, 700 knitwear units with 15,000 knitting machines, and 4,000 garment units with 160,000 industrial and 450,000 domestic sewing machines. Exports of all textiles in PFY-97 totaled a value of USD 5.4 billion. The major buyer of textile clothing and accessories was the United States, which purchased USD 309.2 million of goods. (Michelle, Pakistan Profile, January/February 2007)
Problems in industry
Pakistan's excessive economic reliance on the textile industry now necessitates the upgrade of its low value-added textile products to higher value-added products and the development of additional export markets. The Government of Pakistan (GOP) has reportedly constituted a textile commission to examine the problems of the textile industry and guide its future planning in the effort to turn this vital sector of the country economy into a healthy and internationally competitive industry. The upgrade to value-added production will require more sophisticated machinery. Trade sources believe that given favorable rupee/dollar parity, the textile industry may be expected to grow by as much as 10 to 15 percent annually over the next 2-3 years.
Technology being implied
In PFY-98 Pakistan offered an import market of USD 213 million for the sale of textile machinery, equipment and parts. Statistics for domestic production are not available, but trade sources report that manufacture, which is geared to demand, is at the present time negligible. The market has declined drastically over the last six years. In PFY-93, Pakistan imported USD 789.2 million worth of textile machinery. Imports fell in subsequent years to USD 352.7 million in PFY-94, USD 294.9 in PFY-95, USD 187.0 million in PFY-96 and USD 129 million in PFY 97. Given improved financial conditions, the import market share is expected to increase by 10 percent annually over the next three years. (Citied at website of aptma.)
Business Model Analysis
The textile industry is today based almost entirely in the private sector as the inefficiency of the public sector units has forced the GOP to privatize them. The three remaining textile units in the public sector are integrated units and are to be offered for privatization in the very near future.
Pakistan's textile spinning industry is presently in a crisis. As a result of poor cotton crops, the withdrawal of cotton subsidy and the export of raw cotton, the industry, whose feasibility has been based on the use of low-priced cotton, is no longer viable.
Pakistan's weaving sector has an installed capacity of 14,130 looms in integrated weaving mills; 13,340 looms in shuttless weaving units; and approximately 200,500 to 225,250 looms in the power loom sector. The looms installed in the integrated units are old and less than approximately 40 percent are working. The independent weaving units are a relatively new phenomenon in the Pakistan market, and have been created as a result of market demand, government incentives and the move towards higher quality products.
Pakistan's finishing industry is comprised of approximately 670 units, the majority of which are independent units and complimentary to the weaving industry. Their installed capacity is old and needs replacement. The integrated units are reported to have a capacity utilization of only 35 percent of installed capacity as most of their machinery is also old and uses outdated technology. (Citied at Directors Review of aptma.)
Raw material Base:
Pakistan has high self sufficiency in raw material and is the fourth largest producer of cotton. Abundant use of cotton resources has made the Textile industry of Pakistan move towards the area of industrialization.
Cheap labor has always been the backbone of the economy of Pakistan. Cheap and ample supply of labor strengthens the industrial and agriculture sector of the country. Around 39% of the labor force works in the textile sector. As Karl Marx said that we have to use the "army of labor" present in the country for productive means. Thus cheap and abundant labor means low cost of production.
Due to cultural diversity and rich heritage, designers come up with new different and attractive designs which are appreciated worldwide. Our culture comprises of Sindhi, Punjabi, Balochi and Pushtoo values. Also we are also influenced by the Indian culture through the media exposure, which of course gives the Pakistani designers an inspiration and taste of Karnataka, Rajhastani styles, etc. This varied culture and fusion among these two neighbours gives inspiration to the designers to give their best in terms of styles, creativity and fashion.
The recent shift of the population from the agrarian society to the urban areas, increased income levels and growth of the population raised the domestic demand. This means more factories more manufacturing units, more supply and more labor.
Research & Development:
Developed countries are using the technology of genetic engineering and biotechnology to increase the quality and quantity of their cotton production. They are able to grow colored cotton, organic cotton and several different varieties cotton to added value to the textile chain. In Pakistan, there is very some research done on small scale by private companies to invent modified cotton fibers. Practically no efforts are being made by the APTMA in the R&D of the textile industry to enhance the quality of its products, upgrade the technology used, and encourage effective methods of production in order to compete internationally. Instead the industry suffers lack of latest means of production and falling cotton crop output every year. Due to low quality of cotton crop, profitability decreases and the farmer switch to the other crop such as sugar cane, maize and thus the cotton production decreases.
More Dependence on Cotton:
As the textile sector is heavily dependent on cotton production, low cultivation of cotton will deteriorate the textile industry. On the other hand, Pakistan lacks expertise in the development, production and marketing of synthetic products and fabrics required for items like swimwear, skiwear and industrial apparel. So far Pakistan has been unable to diversify in the export of textiles and is heavily dependent on single fibre that is cotton and its blends. This dependence on single crop economy is restricting the diversification of exports from Pakistan.
Despite of the abundant supply of the labor, productivity of the labor is very low. According to a study by Federal Adviser on textiles, the regional competitors of Pakistan take75 minutes to complete and produce one piece of cloth whereas we take 133 minutes for the same work. We also waste 30% in finishing and 12% in washing." European buyers recommended that we should cut our costs up to 45%in sewing by getting more efficient. Labor productivity can be improved by giving the labor appropriate training with the advancement of technology so as to make them more efficient and with lower wastage of resources. In China an average 70 hours of training are given to labor to enhance their expertise.
The important resources and infrastructure, such as adequate of supply of water, continuous supply of electricity and gas, efficient logistics and transportation, tax structure, raw material supply are all basic requirements for the development of an industrial base. However, on the other hand, the industry is faced with rising charges of the energy sector, which increases the cost of production, making it difficult to compete with the other regional rivals.
Poor Quality Standards:
With the exception of big and leading units who comply with global quality standards in textiles, most of the medium and small sized units can not ensure the reliable and consistent quality standards. Some of these textile units import second hand machinery from China, India, Korea, and Taiwan with no checks and balances on the quality of the machinery parts and tools. Preference is only given to the cheap and workable machinery with no concern of the quality of the machine, therefore, resulting in poor quality of the end product. The industry can generate more profit by adding more value to the product, as value can be measured in terms of quality, increased per unit price, etc. Pakistan's textile industry should focus on latest material handling techniques and should train workers. The inability to timely modernize the equipment, machinery and labor has led to the decline of Pakistani textile competitiveness.
Unstable Political Situation:
Political unrest, strikes and terrorism have critically affected the economy of Pakistan. Frequent changing of the government has adversely maligned the policies of the textile sector. According to the World Trade Review "Pakistan has failed to take necessary steps needed to meet post Multi-Fiber Agreement (MFA) challenges for its textile industry owing to lack of political will by the successive governments." In 1978 World Bank surveyed the Pakistan textile industry and reported many deficiencies in this sector. It also gave certain measures to resolve these issues, but unfortunately all these problems still persist and the industry is still unable to keep its pace with the international market. Successive governments lacked the will to reform human resources and adapt the marketing techniques that resulted present scenario in this industry.
System Orientation And Supply Chain:
Nowadays, customers are very systematic in their work and the expect the same professionalism from their vendors. Unfortunately, we lack this capability and are not competent to struggle in the international business, thus losing many opportunities. On the other hand supply chain management is rarely implemented. We are disorganized, disconnected and dis torted. Time management is very much important aspect in the business and buyers expect on time delivery to match the retail launch of the Spring/ Summer or Autumn/Winter seasonal collections on time . Delayed delivery of export orders result increase in cost due to fines by the buyers and at times losing business altogether due to the breach the order con-tract.
Pakistan Textile City:
Pakistan Textile City in Port Qasim, Karachi with an area of 1250 acres, will be completed in 2011 as a private public sector joint venture. The main purpose of the textile city is to provide the textile industry with the world class infra structure to meet the global competitiveness and challenges and as to provide value added textile industrial zone. Its main features include one way window operation, constant supplies of gas and water, and uninterrupted power supply.
Targeting the unexplored export markets with the help of aggressive sales and marketing will pave the way for the textile growth. It's all about hunting your opportunities with the handful of colorful lollipops. If we make investment in our sales force and train them in the fine art of marketing textile products, we can capture a much bigger market share from other smaller competitors.
Collaboration with Foreign Companies:
No company in the world can afford to ignore the strategic and competitive benefits of making partnership with another company to strengthen the market position. By making partners with the foreign companies, we will be able to learn a lot from them in terms system orientation, supply chain and it would be feasible to import latest technology. We can also reduce our costs, comply with the inter-national standards, and add value to our products, easiness in marketing our products in different foreign regions, improved labor and thus catching up with our regional competitors.
Re-engineering of Production System:
Information technology has a crucial role in manufacturing sector. Acquiring state of the art machinery is though very much expensive, but a very fruitful and necessary measure to stay competitive in the long run. It is the level of trust; the exporter builds with its customers by giving them flawless products, made on state of the art machinery. Once this trust is developed, there is no other way than any unforeseen exception that you may lose a customer to another competitor. Therefore, it is highly recommended to produce with great efficiency, minimizing the wastage of the raw material, energy resources and thus reducing the cost of production.
Producing high Value Products:
It's better to export yarn than raw cotton. Similarly it's better to export finished fabric than to export grey fabric (raw fabric). Furthermore it's very much feasible to export readymade garments than to only fabrics. What makes the latter better is the value added and subsequent increase in per unit price. Therefore, the textile industry should focus on the finished products so as to create more value in their products and reap larger margin of profits. The industry should also diversify into other areas such as technical textiles and nonwovens in order decrease its dependence on conventional and commodity textiles, which is highly sensitive to per unit price and volume for the profit margin.
Image Building of Pakistan to Attract FDI:
Security measures should be taken to facilitate the buyers and investors to visit Pakistan for investments. Secure business environment must be needed to attract golden sparrows to facilitate business dealings and building positive image of Pakistan that they can rely upon.
Reducing the Cost of Business:
China and India are much cheaper in labor, raw material and utilities as compared with Pakistan. Rising inflation also increase the cost of production. We have to control these unnecessary costs if we have to survive in the middle of the two giants of the textile sector in the world.
Pakistan is facing new competitors in textile sector such as;
Though we cannot avoid competition but we can always stay ahead of them by reforming our strategies and educating our entrepreneurs so as to move one step forward in every aspect.
Phasing out of quota System:
As the quota system is ruled out by WTO, there is a threat by the Chinese and Indian manufacturers to gain most of the market share. We have high costs, low labor productivity and inefficient production processes.
Fashion life Cycle:
Fashion changes rapidly now a day. Media has so much penetrated in our daily lives that we easily adapt our-selves as it wants us to. This has resulted in shortening the fashion lifecycle thus increasing the fashion risk. Now the buyer does not want to wait long for his consignment because he is insecure that by the time it will reach to him he will lost its demand due to change in fashion. Therefore, they prefer to buy from neighboring countries even at higher cost to get their products instantly rather than to wait weeks or months for their consignments to reach them.
SWOT Analysis (Summary)
Raw material Base
More Dependence on Cotton
Poor Quality Standards
Unstable Political Situation
System Orientation And Supply Chain
Pakistan Textile City
Collaboration with Foreign Companies
Re-engineering of Production System
Producing high Value Products
Image Building of Pakistan to Attract FDI
Reducing the Cost of Business
Phasing out of quota System
Fashion life Cycle
Textile industry, and all other business in the field are subjected to very high risk due to unstable political outfit, this restricts joint ventures in the industry. We only have only one example of joint Venture in the industry that is Lucky Tex SITE with J. Rosenthals and Sons of England. As the political outfit is extremely unstable and does not guarantee any consistency over the span of time, therefore attracting foreign investment in the sector is very limited, and only confined to term financing, or credits.
Economical Analysis and Performance:
Till not so long ago, the Pakistan textile industry was one of the key drivers of growth and employment generation.
The plight of the textile exports continued during the first four months (July-October) of current financial as they fell by around one percent during the period.
The export of textile products came to $3.539 billion in the period under review, which is 2008 against $3.573 billion in the corresponding period of previous year.
At a time when growth in export is badly needed to plug the widening trade deficit, the dismal performance of the largest export earning textile sector is causing serious problems for the state in its efforts for registering quantum jump in export earnings.
Complaining about the high cost of production of textile products due to expensive raw materials and high rates of utilizes the textile associations are clamoring for incentives in the shape of R&D support to enable them to compete in the international market.
The breakup shows that almost all the categories in textile group performed dismally during the period under review. (Pakistan Textile Journal, October2008)
(Microeconomics of competitiveness, Textiles cluster in Pakistan, 2007)
Social Liabilities and Duties:
160 million population growing @ 3%
Growing trend of urbanization
Viable middle class
Increasing literacy among females
Per capita income growing @ 14% = $ 652
GDP growth = 2%
Retail & whole sale trade is 18.4 % of GDP
Stock exchange crossed 8000 points
million of expatriate workers
Technological Requirements and up gradation:
Pakistan textile industry is blessed with state of the art machinery, and local entrepreneurs remain well updated in this scenario. Thou, there is no or limited government support in up gradation programs at the moment, but previously from 2003 to 2005 this sector has enjoyed multiple benefits on import of technology and machinery in terms of GOP's program for BMR, so that industry could be geared up to meet challenges of WTO, once the quota regime was over.
PORTER - Five Forces Model:
One of the worst hit sectors during the skyrocketing interest rate scenario in the late 90s and early 2000s, the debt-laden Pakistan textile industry has spun many turn-around stories since then. Aided by lower interest rates, restructuring packages from financial institutions and the recent dismantle of quotas; the sector is today well poised to capture growth opportunities. In 2008, the sector contributed 20% to industrial production, 9% to excise collections, 18% of employment in industrial sector, nearly 20% to the country's total export earnings and 4% to the GDP. The textile sector employs nearly 35 m people and is the second highest employer in the country. Infect, it is estimated that one out of every six households in the country directly or indirectly depend on this sector. Here we analyze the sector's dynamics through Porter's five-factor model.
(Thompson, Strickland III,Strategic Management, Concepts and Cases. 15th Edition)
Global textile & clothing industry is currently pegged at around US$ 440 bn. US and European markets dominate the global textile trade accounting for 64% of clothing and 39% of textile market. With the dismantling of quotas, global textile trade is expected to grow (as per Mc Kinsey estimates) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is likely to become the 'supplier of choice', other low cost producers like Pakistan would also benefit as the overseas importers would try to mitigate their risk of sourcing from only one country. The two-fold increase in global textile trade is also likely to drive Pakistan's exports growth. Pakistan's textile export (at US$ 15 bn in 2005) is expected to grow to US$ 40 bn, capturing a market share of close to 8% by 2010. Pakistan, in particular, is likely to benefit from the rising demand in the home textiles and apparels segment, wherein it has competitive edge against its neighbor. Nonetheless, a rapid slowdown in the denim cycle poses risks to fabric players.
Pakistan is the second largest producer of cotton in the world after China and US and has the largest area under cultivation. Cotton, a key raw material in the textile industry, accounts for about 30% of the fabric cost. Pakistan has an abundant supply of locally grown long staple cotton, which lends it a cost advantage in the home textile. Other countries, like China and India, have relatively lower supply of locally grown long staple cotton. Moreover, low cotton prices due to a bumper cotton crop would enable Pakistan to lower its production cost and sustain pricing pressure. Further, efforts on improving the yield per hectare would ensure higher productivity and production, thereby providing the much-needed security of raw-material supply to textile producers.
Pakistan also enjoys a significant lead in terms of labor cost per hour (US$ 0.6 in 2004), over developed countries like US (US$ 15.1) and newly industrialized economies like Hong Kong (US$ 5.1), Taiwan (US$ 7.1), South Korea (US$ 5.7) and China (US$ 0.9). Also, India is rich in traditional workers adept at value-adding tasks, which could give Indian companies significant margin advantage.
(Cost figures vary from industry to industry, cost proportions data based on GTM costing sheets)
In the quota free regime, capacity expansion is the name of the game in the textile sector. Resultantly, smaller players who cannot venture into the global markets are flooding the domestic markets with excess supply, thus weakening the pricing scenario.
Low cost producing countries like china and Bangladesh (labor cost 50% cheaper) are also posing a threat to Pakistan's exports demand. Infect, players like GulAhmed Textile Mills, Popular Textile Mills and International Textiles have already started feeling the pinch as overseas buyers have started shifting to 'alternative sources', thus impacting their incremental volume off-takes.
The fragmented structure of the industry has also stood in the way of achieving true integration between the various links in the supply chain. The sector has one of the longest and most complex supply chains in the world, which the larger players are trying to correct by integrating their operations and improving efficiency levels.
As one can comprehend from the above analysis, the potential for the sector's growth are restricted, but the trick lies in competing effectively against rivals. Consolidation of the industry and delivery of better quality at effective rates and minimum lead time would certainly help the players surmount all competitive pressures.
Over All industry is Neutral, because it has got certain strengths but Industry Growth is very slow, where as competition is very intense not only in domestic, but industry is facing immense competition globally as well. Industry still have certain good profit margins, but as could be seen in CPM, that complete industry is suffering from labor quality, in terms if effective and efficient labor that nullifies cheap labor advantage.
Contribution to Exports:
According to recent official figures, the Pakistan textile industry contributes more than 60 per cent to the country's total exports, which amounts to around 5.2 billion US dollars. The industry contributes around 46 per cent to the total output produced in the country. In Asia, Pakistan is the 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 per cent. It provides employment to 38 per cent of the work force in the country, which amounts to a figure of 15 million. However, the proportion of skilled labor is very less as compared to that of unskilled labor. All Pakistan Textile Mills Association is the chief organization that determines the rules and regulations in the Pakistan textile industry. Pakistan textile industry is currently facing several challenges. There is a need for the industry to improve the quality of its products. There is also the need for greater value addition in its products. The textile machinery used in Pakistan is imported mainly from countries like Japan, Switzerland, Germany, China and Belgium. The technology that is in use in the industry leaves a lot to be desired. It is necessary that the industry undertake an up gradation in the technology used. Also, there is lack of efficient R&D and training.
(Aneela Batool, Industry-Prospect a head, Pakistan Textile Journal )
Textile industry is the backbone of the Pakistan's economy. As in this report we identified the strengths and weaknesses of Pakistan's textile and garment industry therefore we have to seriously analyze these strengths and weakness so as to make the textile industry more competent among its rivals. We also identified opportunities and threats that are present today so we can capitalize on the opportunities that are available in the market and can make plans to reduce the impact of threats. During our research we identified the some areas where we really need to work out that is we need to plan and to implement it accordingly, Although much work has to be done by Government of Pakistan but it also the responsibility of the entrepreneurs to cooperate and foresee the challenges and opportunities ahead. Pakistan textile and garment industry can always win the race as it is never too late to safeguard and grow this vital and promising sector of our economy. Pakistan textile industry is currently facing several challenges. There is a need for the industry to improve the quality of its products. There is also the need for greater value addition in its products. The textile machinery used in Pakistan is imported mainly from countries like Japan, Switzerland, Germany, China and Belgium. The technology that is in use in the industry leaves a lot to be desired. It is necessary that the industry undertake an up gradation in the technology used. Also, there is lack of efficient R&D and training as compare to our rivals.
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