Analysis of Textile Industry of Pakistan

Research Paper on Analysis of Textile Industry of Pakistan – A Comparative Advantage

By Ch. Azhar Hayat Fayyaz Ahmed Sohrab Khan Irfan Ahmed MBA-II SECTION- B

Analysis of Textile Industry of Pakistan

Table of Contents 



Introduction – Textile Industry and Pakistan o

Historical Background

o

Current Situation

Competitive Competitive Advantage o



Literature Review o



Diamond Porter Model

Competitive Competitive factors Confronting Pakistan’s Textile Industry

Conclusion o

SWOT Analysis of Pakistan’s Textile Industry



Policy Implications



Reference

Introduction Over the years, Pakistan is said to be the single crop economy i.e. cotton and textile that claims the lion's share in terms of the contribution in the national economy of Pakistan. Despite efforts to bring in diversification diversification in country's overall economic get-up the textile sector continues to be the most important segment of the national economy. Its share in the economy, in terms of GDP, exports, employment, foreign exchange earnings, investment and revenue generation altogether placed the textile industry as the single largest determinant of the economic growth of the country. Despite harsh international economic conditions, Pakistan's textile industry has weathered the storm by coming out of the international crisis in a very 225


positive manner. During the year 2006-2007 exports were controlled from falling and significant investment was made in value-added expansion and in Balancing-Modernization- Replacement (BMR) (Latif, 2000). About 10 percent of the world cotton crop is produced in Pakistan, making it the fourth largest producer in the world. The textile industry currently accounts for almost 67% of Pakistan's exports, 20% of value-added production and employs 35% of manufacturing labor. Made of premium quality Cotton, the textile fabrics of Pakistan are distinguished for their quality, texture, lustrous colour and rich combination of superior designs and competitive prices. That is why this sector have been chosen to analyze what are the obstacles that are affecting the textile industry of Pakistan in achieving competitive edge over other economies of the world. Textile Industry and Pakistan – The innate relation: Textiles, all fabrics made by weaving, felting, knitting, braiding, or netting, from the various textile fibres. Textiles are classified according to their component fibers into silk, wool, linen, cotton, such synthetic fibers as rayon, nylon, and polyesters, and some inorganic fibers, such as cloth of gold, glass fiber, and asbestos cloth. They are also classified as to their structure or weave, according to the manner in which warp and weft cross each other in the loom. Value or quality in textiles depends on several factors, such as the quality of the raw material used and the character of the yarn spun from the fibers, whether clean, smooth, fine, or coarse and whether hard, soft, or medium twisted. Density of weave and finishing processes are also important elements in determining the quality of fabrics. The weaving of carpet and rugs is a special branch of the textile industry1. Since its inception, Pakistan has its roots in being an agrarian state with indigenous cotton supply. In 1947, two textile mills were established in the country as a colonial heritage. However, the Pakistani textile industry has

1

‘Textile Industry of Pakistan – An Overview’

325


played a crucial role in the country’s industrial development. Pakistan’s Industrialization began in 1950 with the textile industry at its centre2. Over the time, textile industry have depleted due to various complexities. The difficulties faced by textile industry were partly due to limited focus of the players and partly due to globalization. (Meier, 2007) During 1984-1990 many of the spinning mills did not go for upward integration as raw cotton suppliers were adamant in bringing down the prices. And so with the globalization and ease of trading these intermediaries find it more profitable for themselves to export primary goods. Having a look at the exports composition of that time we can see it mainly comprised of yarn, unbleached fabrics, and low quality made-ups that did not create much demand in the international market. Ideally, Globalization was a mean to reallocate units and resources, get maximum advantage, and highest value addition, to attain competitive edge. Nevertheless, Pakistan failed to attract much investment while other countries reallocated their units to cheaper countries such as Indonesia and Thailand. Current Situation 3: Pakistan is the world’s 4th largest producer and 3rd largest consumer of cotton. The Textile and Clothing Industry has been the main driver of the economy for the last 50 years in terms of foreign currency earnings and jobs creation. The Textile and Clothing Industry will continue to be an important engine for future growth of the economy; there is no alternative industry or service sector that has the potential to benefit the economy with foreign currency earnings and new job creation, especially if synergy is developed amongst different sub‐sectors and efforts are made to aggressively grow the Ready‐Made Clothing Sector. Pakistan’s Textile Industry had proved its strength in global market during the last four decades. It has proved its strength even in post quota era by not only sustaining its position but, also showing growth during 2005 to 2007, but declined to $11.1 billion in 2008 due to financial and economic melt‐down globally. The Garment Sector & especially the Knit Garment Sector need special focus in future policies. 2

3

Economic Survey of Pakistan (2010)

425


It has an overall integrated structure with an important indigenous cotton crop, increasing man-Made Fibre production, large spinning, weaving, and knitting, dyeing/printing and finishing capacities as well as expanding garment and home textile industries. Structure of Textile Industry of Pakistan Source: Textile Commissioner Organization (July 2006) The Textile & Clothing trade has increased, from US$ 212 Billion in 1990 to US$ 612.1 Billion in 2008. The clothing trade is growing at a faster rate. Pakistan exported textiles worth $7.19 Billion and clothing worth $3.9 Billion in 2008. The year 2009 was dismal period. The industry was confronted with problems of multiple natures. The global economic crisis in Oct. 2007 had impacted the trade badly. Weaker demand in the developed economies limited the expansion of global trade. The 12% drop in the volume of world trade in 2009 was larger than most economists had predicted. World trade

and output are currently in a recovery phase. The WTO Secretariat estimates that in year 2010 world exports in volume terms will grow by 9.5%, developed economies’ exports will expand 7.5%. The current decline in exports of all manufactured goods including Textile & Clothing is visible in the quarterly data.

525


Source: Economic Survey of Pakistan (2010) US imports of textiles and clothing fell for the second year in succession in 2009, by 7.5% to 46.6 billion square meters equivalent (SME), following a 5.2% drop in 2008—which was the first decline since 2001. Within the 2009 total, fabric imports fell by 5.4%, imports of apparel by 6.1%, imports of made‐up textiles by 8.5% and yarn imports by 18.4%. Of these four categories, apparel continued to account for the highest share of total imports. The average price of US textile and clothing imports fell for the first time in three years in 2009, to a new low of US$1.74 per SME. The period of heavy investment boom in most Textile Industry segments between 2003 and 2007 came to an abrupt end in 2008. This investment boom until 2007 was due to the phase out of traditional quota regime under WTO – Agreement on Textile and clothing and China’s integration into WTO structures. Global yarn and fabric productions were continuously falling since the second quarter of 2008. Despite challenges, there are fundamental aspects that promise a bright future for the textile industry in general. Competitive Advantage: Theory of Competitive Advantage can be traced back to the initial development of Economics as a separate discipline. Classical Economist such as Adam Smith, Thomas Malthus, and specially David Ricardo gave immense attention to producing what the nation is best at and then take advantage of that edge through free trade. However, all these economists talked about factor endowments (such as Land, Labour, and Capital) and macroeconomics for the growth and development. Using these factors effectively would give a country an edge over others. With the further development of study of Economics and overall economic condition of the world with massive industrialization and liberalization of trade, classical macroeconomic theory was insufficient to explain the growth and development of some countries that lacked the availability of the 625


factors, of the kind mentioned in the theories. Some economists of that time started to take into consideration other factors that could play pivotal role in a country’s growth such as Technology, capital-labour ratio etc. Still, no one thought about giving it a micro level look. This is what Michael Porter discovered and came up with the six forces model, through which any country can determine its strengths, weaknesses, opportunities and threats (SWOT) and then put these into consideration before making any decision. The Diamond Porter Model so called because the six factors collaboratively work together to give a country a picture of where it is standing. Diamond-Porter Model: Diamond Porter Model is presented by Michael Porter in his book ‘The Competitive Advantage of Nations’. It helps in understanding the competitive position of a nation in the global world. Michael Porter integrated some knowledge of industrial economics and business strategy to come up with a comprehensive solution to complex problems in competitiveness. He believed that macroeconomic stability itself does not guarantee prosperity and so tried to give competitiveness a constantly evolving micro framework unlike macro overview of traditional theories. He clearly distinguished between the competitiveness of the firms from that of nations. In contrast to traditional theories of comparative advantage which focuses on country’s factor endowments of land, labour and capital, the diamond porter theory attempts to look at factors affecting immediate business environment and productive capacity of firms; factor input conditions, demand conditions, firm strategy and rivalry, and the presence of related and supporting industries. According to this theory, the process of economic development is about improving this diamond so as to achieve higher and sustainable productivity.

725


The traditional theories talk about labour specialization and efficient use of available sources and economies of scale through large scale production; however in view of diamond porter model the process of specialization cannot be done with one firm, a cluster is needed that results in efficiency gains. He gave examples of many cluster initiatives that has driven competitiveness to a new level including Silicon Valley, Financial Services in New York, and the Hollywood entertainment cluster. Regarding the role of government in this model is to act as a catalyst, establishing macroeconomic stability and providing stable political, legal and social institutions to help companies improve their competitive position. To

measure

level

of

competitiveness,

Porter

introduced

Business

Competitiveness Index (BCI) and Growth Competitiveness Index (GCI). BCI captures a country’s standard of living and a broad perspective about quality of microeconomic environment where as GCI sketch out economic dynamism pointing

towards

quality

of

public

institutions

and

macroeconomic

environment. Both indices though highly correlated are individually critical to the measure of quality of micro and macro dimension of the economy.

825


Hence from the diagram it can be clearly seen what six forces have comprised the Diamond Porter Model: i)

Factor Conditions – Factors of Production such as physical resources, human

resources,

capital

resources

and

Infrastructure

(Special

resources can be created to compensate for factor disadvantages) ii) Demand Conditions – both in the domestic and foreign market iii) Related and Supporting Industries – Supply chain industries (Upward

and Downward linkages e.g. providers of raw material, distributors etc) iv) Firm Strategy, Structure, and Rivalry – Organizational goal and

presence of intense rivalry v) Government – Government interventions can affect all of the above factors at local, regional, national and supranational or international level vi) Chance – factors that are outside the control of a firm

“A firm is profitable if the value it commands exceeds the costs involved in creating the product. Creating value for buyers that exceeds the cost of doing so is the goal of any generic strategy. Value, instead of cost, must be used in analyzing competitive position ...” (Ibid)

To attain the competitive advantage, Michael Porter has catalogued three types of generic strategies through which competitive advantage can be pursued. These strategies are: a) Cost Leadership – Firm sets out to become the lowest cost producer in

the particular industry (price wars) b) Differentiation – Firm seeks to be the best performer in the industry

(having a special attribute in the product or service that others do not offer)

925

Analysis of Textile Industry of Pakistan c) Initiative Focus – Firm looks to exploit a niche market (targeting a

group within the market of that industry and create loyalty) The strategies vary according to the position of the industry in the diamond analysis besides its organizational structure and culture. For example if a country’s industry is lying in the factor conditions that is it has advantage over factors of production, then cost minimizing strategy proposed by the Porter would be the plan to maintain its competitive edge.

Literature Review In this section, the reviews have been organized according to the factor forces of the Diamond Porter Model. Diamond

Competitive

factors

Confronting

Pakistan’s

Textile

Industry: i) Factor Conditions: As Textiles and Apparel cluster involves diverse set of activities requiring different of inputs, a detailed analysis of factors conditions across the value chain is required. The recently announced increase in the minimum wages of the workers has left the industries with higher cost of production. Once having an edge over cheap availability of labour, Pakistan no longer holds this competitive advantage since labour in Bangladesh and Vietnam are more low-priced

1025


(Hoekman & Winters, 2005). And so the costs faced by the industry have largely offset the advantage of cheap labour. The following diagram4 pictures the factor conditions over the value-chain. According to a study of Pakistani textile and apparel sector (Raptis, 2009) some of the garment units were over-staffed by 57 per cent. That was an internal negative factor whereas external factors included no duty-free market access to the EU and negative image and perception of Pakistan abroad. “Labour productivity is very low. Our regional competitors take 75 minutes to complete and produce one piece of cloth whereas we take 133 minutes for the same work. We also waste 30 percent in finishing and 12 percent in washing.” (Mirza Ikhtiar Baig) Moreover, the textile looms and other equipments have become obsolete due to insufficient timely investment and modernization. One of major reason might be the rising interest rate which has crippled the small investors and made them risk-averse (Mukhtar, 2008). So, with inadequate capital, textile industry is unable to equip efficient machineries for effective production. Although in the current fiscal year, investments in the import of new textile machineries have shown a gradual increase5 (14.2%), showing better trend for future. The companies are downsizing, production units are shutting down; around 500,000 of the workers have already lost their jobs. After surviving from the load-shedding scenario the industry has yet to survive the gas load shedding scenario. LESCO has informed the industry that it would not supply power for the additional load and only the sanctioned load will be supplied during the winter months (Fayyaz, 2008). According to Pakistan textile industry association, 90 percent of Pakistan's textile industry is losing money losses and facing closure. More than two months of production has been lost due to power cuts and gas shortages. 4

5

Economic Survey of Pakistan (2010)

1125


The lack of Research and Development in the cotton sector of Pakistan has resulted in low quality of cotton as compared to rest of the South Asia (Mehta, 1996). Subsequently, due to low profitability in cotton crops, farmers are shifting to other high return cash crops such as Sugarcane. In Punjab alone, the cotton sown in 2008 was less by 1.14 percent relative to that of last year. Gaps in skill set of labour force only add to the problem of low productivity. Informal apprenticeship mechanism (Shagirdi) is the dominant

form

of

skill

transfer

which

eventually

leads

to

inconsistencies in product quality. Ultimately, these inhibiting factor conditions, such as low quality of raw material, poor technology and insufficient skills, lead to low value addition and high defect rates. For example, 40% of exported fabric was grey in 2000—an indicator of low value addition. Similarly, the defect rate at the processing/printing stage was 10% (SMEDA, 2000). ii) Demand Conditions: Due to higher costs of production in Pakistan relative to Bangladesh and India, Pakistan has lost much of its market since it was unable to provide good quality cheaper raw material. Yet, Pakistan has cheaper inputs of production as compared to other countries of the world. Owing to the undiversified value added textile goods, Pakistan does not have a vast network of trading partners. Only a limited number of markets have been explored with limited number of customers. Some of its trading partners are: USA, European countries, Middle-East, Hong-Kong, Singapore, and Thailand etc. Pakistan has a very low share of the international textile market. China tops the US market with a share of 36 percent followed by Bangladesh 21 percent, India 18 percent, and Pakistan 13 percent. Additionally, in the European market, China tops again with a share of 29 percent, Vietnam 28 percent, India 19 percent, and Pakistan only 1.5 percent (Baig, 2009).

1225


However, on the bright side of current events, because of a global shortage in availability of cotton, largely due to a shortfall in Chinese crop, the foreign demand for Pakistan’s cotton yarn has risen exceptionally in the current fiscal year of 2009-10. Chinese, in particular, have procured huge quantities of yarn from Pakistan, even though they are the fiercest competitor of Pakistan in the world market. Textiles are exported in the form of Yarn, Fabric, Readymade Garments, and Bed Wear & Made Ups. Past Global Export performance of Pakistan’s textile can be viewed in following table.

Export of Textile and Clothing (Us $ millions) 1990 2000 2004 2005 104,35 157,29 195,54 202,65 World Textile 4 5 1 7 World 108,12 197,72 260,56 276,80 Clothing Total Pakistan Textile Pakistan

2006 220,36

2007 240,36

2008 250,19

7 309,14

4 345,83

8 361,88

9 212,48

2 355,01

9 456,11

2 479,47

2 529,50

0 586,19

8 613,08

3

7

0

9

9

4

6

2,663

4,532

6,125

7,087

7,469

7,371

7,186

2,144

3,026

3,604

3,907

3,806

3,906

6,676

9,151

10,691

11,376

11,177

11,092

1.88%

2.01%

2.23%

2.15%

1.91%

1.81%

1,014 Clothing Total 3,677 % of World 1.73% Trade

Source: Ministry of Textile After the reduction in the quota in March 2010, local production and demand has been improved but that has not contributed in the windfall gain due to rising costs of production and loss of production units due to laying-off of workers and load shedding. 1325

Analysis of Textile Industry of Pakistan iii) Related and Supporting Industries:

The growth of related industries in the textile cluster has largely taken place in the informal sector in a very haphazard manner. There are examples of organic clustering but a conscious effort on the part of industry players or government to promote a cluster based approach have always lacked. Generally, the capacity of related and supporting industries is often weak with some exceptions. Such as, Faisalabad— one of the largest textile producing cities in Pakistan gives a good examples of organic clustering and interconnection amongst the members. The upward and downward linkages of the textile firms come under this caption. Spinners, weavers, looming sector, jute etc are examples of the downward linkages of the firms that provide raw materials to the firms; whereas Apparels Garment, Towels, Hosiery etc are all examples of the upstream (textile made-ups) industries that add value to the yarn. These industries play a vital role in providing employment opportunities for minority (women). Some of these ancillary industries are operational at both large scale, and small and medium scale level (Rehman, 2010). Source: (Islam, 2006) 1425


A few of these industries can be briefly discussed as follows: a.

Cotton Spinning Sector: The Spinning Sector is the most important segment in the hierarchy of textile production. At present, it is comprised of 521 textile units (50 composite units and 471 spinning units) with 10.1 Million spindles and 114 thousand rotors in operation with capacity utilization of 89 percent and 60 percent respectively, during July – March, 2008‐ 09.

b.

Cloth Sector: The objective is to convert yarn into grey cloth that can be later dyed according to the demand. However, this often has resulted in weaving of low quality cloth due to variety of problems including poor technology, scarcity of quality yarn, lack of communication facilities, and lack of institutional financing for its development from unorganized sector to an organized one.

c.

Textile Made-up Sector: This is the most dynamic segment of Textile Industry. The major product groups are Towels, Tents & Canvas, Cotton Bags, Bed‐Wear, Carpets and Hosiery & Knitwear & Readymade Garments including Fashion Apparels. If efficiently functioned, this sector can earn huge profits for Pakistan through value addition.

iv)Firm Strategy, Structure, and Rivalry: Most of the firms are operating at small and medium level also termed as cottage industries, making the textile industry highly fragmented. Another important characteristic of the textile industry is that firms are largely dominated by family owned businesses which although may ensure trust and cost minimization but it also adheres that government supports may rest in the hands of selected few who has the power to control major part of the textile products (Islam, 2006). Additionally, some lobbyists exist in the current systems, who are engaged in practises that would give them discretionary power to control input prices, making it expensive for the firms. They can deliberately form a cartel to create artificial shortages to raise the prices for higher 1525


windfall gains. Firms do not only face competition from rival firms, rather rivals also include smuggled goods. Most firms in the textile industry of Pakistan have adopted cost cutting strategies so that they could charge competent prices. Major players6 of the textile industry of Pakistan are as follows: a.

b.

Pakistan Major Textile Industries – •

Abdullah Apparels (Pvt.) Ltd

•

Gul Ahmed Textile (Pvt.) Ltd

•

Lucky Fashion industries (Pvt.) Ltd

•

Afroze Textile Industries (Pvt.) Ltd

•

Al-Karam Textile Mills (Pvt.) Ltd

•

Kohenoor Textile Industries (Pvt.) Ltd

•

Crescent Garment Industries (Pvt.) Ltd

•

Baig Spinning Mills Ltd

•

Dawood Cotton Mills Ltd

•

Dewaan Textile Mills Ltd

•

Al-Ameen Denim Mills (Pvt.) Ltd

•

Ishaq Towel Factor

•

Feroze Textile Mills (Pvt.) Ltd

Textile Industry Associations – •

All Pakistan Textile Mills Association-APTMA

•

Pakistan Cotton Ginners Association

•

All Pakistan Cloth Exporters Association

•

6

Towel Manufacturers Association

Extracted from the website of APTMA (www.aptma.org.pk)

1625


•

Pakistan Readymade Garments Manufacturers and Exporters Association

c.

d.

Agriculture Universities and Colleges – •

Pakistan Agricultural Research Council/ National

•

Agricultural Research Centre

•

Nuclear Institute for Agriculture and Biology

•

Central Cotton Research Institute Multan

•

National Textile University

•

Textile Institute of Pakistan

•

Pakistan Institute of Fashion Design

•

Garment Weaving and Finishing Institute

Textile specific Research and Development Institutes – •

•

•

Pakistan Central Cotton Committee Textiles Commissioners Organization Pakistan Cotton Standards Institute

v) Government: Due to imposition of high duties, Pakistan’s textile has no choice but to raise its prices. Pakistan is purchasing cotton at higher prices with the additional 15% duty on its import. And then along with the rising costs of production and government’s contemplation, to charge export duty to ensure local availability of yarn, have made it impossible for Pakistan to compete against other major players of textile in the global market such as China, Nepal, Bangladesh and India. As a result of this, 50 textile units have been shut down because of the declining and negative profits of the textile firms (Ahmed, 2010).

1725


Despite of this, the tightening on monetary policy and corresponding expansion of the fiscal policy have drastically increased the interest rates, due to which firms are lacking the availability of capital and credit. And for up gradation of the obsolete textile units, more capital investment is needed. Subsidies provided by the government are inefficient to bring a trickledown effect to the lower level workers. This could be the reason of inefficient, un-willing and un-authoritative role of government, and high levels of corruption. According to the current status, government has taken some initiatives to reduce the cost of doing business by introducing export loan scheme by the name of Long Term Financing of Export Oriented Projects (LTF-EOP); marketing and business facilitation through Expo centre and exhibitions by Export Promotion Bureau to attract potential buyers from all over the world; and for infrastructural development Special Export Zone has been setup in Karachi called as Textile City, Garment city has been established in Lahore, Faisalabad and Karachi, and Skill development institute have been initiated to train workers in the production of contamination free cotton (Meier, 2007). vi)Chance: Pakistan’s textile industry has had many opportunities to explore new markets and penetrate into largest market segments than the current concentrated one. However, what seems to be lacking is the will power of the firm owners. They always have this opinion that government should provide them tax credits and subsidies so that they could have more capital at hand for re-investments. By improvising on the quality of cotton yarn and fabric, Pakistan can reduce its costs, improve its exports and gain its comparative advantage over other countries.

Conclusion

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SWOT analysis of Textile Industry of Pakistan: It can be inferred from the literature that Pakistan is laying at the first force, i.e. Factor Conditions with limited or insufficient focus on other forces. And so, to attain competitive advantage the appropriate strategy according to Porter Model would be Cost minimizing Strategy. By Cost-minimizing strategy the textile industry of Pakistan would be in a better position to compete in the world market and can then proceed to the next level i.e. product differentiation strategy to increase the product and market base. For further examination of what can be inferred from the study about the textile industry of Pakistan, SWOT analysis is done. SWOT will draw a picture of the industry

as

a

whole

about

its strengths,

weaknesses, threats

and

opportunities. i) Strength •

Largest foreign exchange earner

•

Largest employer of Labour force

•

Availability of low-cost Labour and Land

•

Abundant in raw material (particularly Cotton)

•

Availability of low-cost machinery

•

Major part of textile goods are from man-made fibre rather than synthetic one

ii) Weakness •

low-price image and reliability

•

Incompetent marketing

•

Noncompliance to Environmental and social regulation

•

Inadequate infrastructure, including power, water

•

Poor road network not able to provide foundation for a dynamic industrial sector 1925


•

Deficient technology and outdated machinery leading to low productivity and poor quality

•

Lack of considerable up gradation of human resource skills

•

Poor coordination among cluster players

•

Lack of finance and capital to small enterprises

iii)Opportunities •

The state-of-the-art facilities at the Textile City which is being set up at Karachi, is a good opportunity to help increase production and competitiveness of textile products

•

Enhanced market accessibility for Pakistan Textile products in the Global Market

•

Rising cost of China’s cotton due to excess of demand, is an opportunity for Pakistan to take advantage of high priced world market price

•

With technological advancements, the textile industry can ensure uncontaminated good quality cotton and cloth

•

Pakistan is abundant in man-made cotton fibre that assures good quality cloth. But the firm owners and investors must think of ways synthetic textiles can be made so as to control the rising prices of raw material

•

The Textile Asia Exhibition provide opportunities to SMEs, especially who instead of having the need to go abroad and see various markets themselves are able to interact with all foreign delegates, industrialists present here and showcase their products

•

Textile engineering sector will generate employment opportunities. There is ample scope for qualified engineers in mechanical, electric and electronics disciplines to boost this sector

iv)Threats 2025


•

Declining world share in export of textile products means Pakistan is losing some markets in the hands of others

•

Limited Value Addition and low product differentiation

•

Endemic issue of Political and Social volatility in the country

•

Poor governance would repeal the Foreign Direct Investments

•

India and China are giving hard time to Pakistan in terms of advancements in technological innovation with strong engineering process

•

Insufficient investment in infrastructure and workforce would result in efficiency loss and create impediments in future as well

•

Lack of quality production would make customers switch to other countries reducing the market segment

•

Rise in prices of inputs due to IMF policies, would further deteriorate the condition

Policy Implications The need for improving business environment cannot be overemphasized. Without improving the country’s image, enhancing the effectiveness of legal and regulatory institutions, and upgrading the physical infrastructure, direct incentives to local and foreign investors are less likely to yield desirable results. The current government is well cognizant of this need and has shown some visible progress in the macroeconomic management to restore the confidence of investors and businesses. However, there is need to do more on improving the governance side.

Key Challenges faced by Textile Cluster

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Factor Conditions • Availability of quality raw material • Lack of skills • Poor technology Demand Conditions • Increasing sophistication of demand e.g. product and process standards • Increasing global competition Related and Support Industries • Gaps in the quality of local supplies • Poor coordination among cluster players • Lack of finance to small enterprises Context for Firm Strategy i) Addressing the Country Level Challenges: Following steps are needed to address the critical issues that the country as a whole is facing: •

Restore the autonomy of legal institutions

•

Bring reforms in government agencies

•

devise and launch a global communication program with the help of international media to improve the image of the country

•

Encourage private sector, increase public expenditure, and work with international institutions such as the World Bank and Asian Development Bank to improve the infrastructure particularly Energy by exploiting the huge hydroelectricity and coal-power potential available in the country

•

Diversify the export portfolio by facilitating the development of multiple

clusters

particularly

in

the

areas

of

logistics

communication, medical devices, horticulture, and tourism 2225

and


ii) Addressing the Cluster Level Challenges:

As noted before, the current government has taken some very important steps to upgrade the Textiles and Apparel cluster in Pakistan. •

The emphasis of newly instituted policies and programs is to increase the productivity and unit value realization through increase uptake of better technology

•

Greater value addition and product diversification

•

Need for greater involvement of other actors by developing a shared vision such as supporting industries and IFCs to accelerate the progress

iii) Involvement of Private Sector and other IFCs: •

A transition from the existing low-end product concentration towards a more diversified one

•

High unit value product portfolio through easy access to quality raw material, technology up gradation, skill development, and R&D in product and process development

•

A further shift towards facilitative role of government through enhancing its role in financing R&D in product and process development, promoting public-private partnerships, and reducing the barriers to trade

•

As textile sector is the major foreign exchange earner, therefore we should increase our exports by improving both the quality and quantity to meet the challenges of the post quota era

•

We must increase the quantity by increasing the capacity of the existing mills and also by opening new textile mills. We should also improve the quality of the existing machines

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•

APTMA and the government should join hands for bridging the skill gap as there was a need to promote public-private partnership in this regard to achieve the desired results

•

Regular National Exhibitions can be very helpful in bringing out the skills,

the

range

of

products

and

opportunities

of

group

collaboration. It will help the planners and large scale engineering industry in defining the way for developing skills in order to make this sector strong and viable •

The Ministry of Textiles Industry needs to be founded on active private-public collaboration. It should be consumer-friendly and services-oriented

•

The Pakistan Government also needs to focus on the country’s image building in the global market and Pakistan Consulate in various countries need to play their pivotal role rather than enjoying the Foreign Service benefits at the cost of the tax payers

•

Another resolution demanded that knitwear classes should be introduced in the National Textile Engineering College, Faisalabad, so that hosiery products of international standard could be produced

•

Stressed is

laid

upon

the

government

to

direct

authorities

concerned for installing master treatment plants in industrial areas so that effluent released by factories could be utilized for irrigation purposes •

The tariffs should be reduced to control the prices of textile goods

Reference

2425


•

Ahmed, S. (2010, July 16). Pakistan - Over 50 Textile Units closed in 2

Months. (T. Nation, Interviewer) •

Baig, M. I. (2009). (T. News, Editor)

•

Fayyaz, A. (2008). Overview of the Textile Industry of Pakistan.

•

Hoekman, B., & Winters, L. A. (2005). Trade and Employment: Stylized

Facts and Research Findings. Washington D.C.: World Bank Policy Research Working Paper no. 3676. •

Islam,

F.

U.

(2006).

Clustering

in

Pakistan's

Textile

Industry:

Comparative Analysis of Clustered and Non-Clustered Firms. PhD Working Paper Series. •

Latif, M. M. (2000, October 16). Textile industry has the largest

potential to boost Pakistan's exports. (S. H. Kazmi, Interviewer) •

Mehta, R. (1996). Textile and Apparel Trade: Impact of 'New

Regionalism'. Economic and Political Weekly, Vol. 31, No. 23. •

Meier, R. (2007, September 26). Textile Industry of Pakistan. (C. G.

Karachi, Compiler) Business Network Switzerland. •

Mukhtar, A. (2008, April 17). Insight into the Problems facing Pakistan’s

Textile Industry. Lahore. •

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