The downfall of the Textile Industry

The textile industry of Pakistan has been facing the worst crises for the last two years and suffering from serious problems including, high energy cost, shortage of electricity, high cost of borrowing, utility bills, poor off-take of products, decreasing quotas, high oil prices, high transportation costs, low quality raw material, high tax rates, less international market access, global economic slowdown, adverse travel advisories, restoration of payments against R & D and deterioration of local economy and border security situation has effected the industrial production adversely.

More than two months of production has been lost due to power cuts and gas shortages. Hence, this is another reason for Pakistan’s textile industry to be uncompetitive in the international market.1

However, beside all these problems our main focus will be on two very core problems that are being faced by Pakistan’s Textile Industry i.e. incurring high cost of production and incompatible in exporting its finished goods.

1.2 Research Objectives

The main purpose of conducting this research is to identify the factors that caused the downfall of our textile industry and to find out suitable solutions that can help our industry to come out of these problems.

1.3 Research Question

Following are the research questions on which we have focused throughout this project:

Why Pakistan’s textile industry incurring high cost of production, even if it is the 4th largest producer of cotton?

Why Pakistan is unable to compete with its neighboring countries, even they are facing the same problems too?

1 Ehsan Mansoor, Power tariff goes up while Petrol comes down, Dawn, Oct 1st, 2009

2. RESEARCH METHODOLOGY

2.1 Research Methodology

Several techniques have been used in order to get a clear picture of the topic which further supported the content, since the aim of doing this research is to give an overall perspective of how Pakistan’s textile Industry can overcome the severe crisis. Following are the methods of research, we have used in conducting this study

2.2 Exploratory Research

For conducting this project; we used secondary source of information.

2.2.1 Secondary Data Analysis

The secondary data used here is the information collected from newspapers, Pakistan Textile Journal, magazines and Internet. The quantitative approach is also used in the shape of statistical data that we gathered from different official sites of Pakistan Government and other sources including World Bank and IMF sites etc.

3. SWOT ANALYSIS

3.1 SWOT Analysis

Following is the SWOT analysis of Pakistan’s textile industry which will tell us about the strengths, weaknesses, opportunities and threats of our textile industry while our main focus will be on weaknesses because it will help us in finding out the factors which are the main cause of downfall for this industry.

3.2 Strengths

3.2.1 Raw Material Base

Pakistan is the fourth largest producer of cotton and is highly dependent on raw cotton for its production as well as for its export. The abundant production of cotton has helped textile industry of Pakistan to move towards the area of industrialization. Following table shows the list of top ten cotton producing countries of the World; according to their production size:

3.2.2 Cheap Labor

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 38% of the labor force works in the textile sector. Thus cheap and abundant labor means low cost of production.

3.2.3 Domestic Market

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 caused more factories, more manufacturing units, more supply and more labor.

3.2.4 ISO Certification

Almost all the textile industries are ISO 9000 and ISO 14000 certified from internationally renowned ISO auditors. This is a big strength of Pakistan textile industry because the existence of non-harmonized standards for similar technologies in different countries or regions can contribute “technical barriers to trade”.

3.2.5 Dealing with High Quality International Brands

Many textile industries have linkages with high end international brands like IKEA, Nordstrom and Nautica. The organizations behind these brands use the superior quality of fabrics in their product line.

3.3 Opportunities

3.3.1 Pakistan Textile City

Pakistan has allocated an area of 1250 acres near Port Qasim, Karachi as the Textile City which will be completed in near future as a private-public-sector joint venture. The main purpose of establishing textile city is to provide a world class infrastructure for meeting the global competitiveness and challenges as to provide a value added textile industrial zone.

3.3.2 Marketing

Targeting the unexplored export markets with the help of aggressive sales and marketing will pave the way for the textile growth. 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 our competitors.

3.3.3 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.

3.4 Threats

3.4.1 New Competitors

Pakistan is facing new competitors in textile sector such as Bangladesh, Vietnam and Turkey. 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.

3.4.2 Fashion Life Cycle

As life expediting day by day, fashion lifecycle shortening as well, thus caused buyer not 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. 37%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.

3.5 Weaknesses

Whereas weaknesses are the reasons/factors on which we have focused more because our emphasis is to identify those factors that caused the downfall of Pakistan’s Textile Industry.

3.5.1 WTO Related Challenges for Pakistan’s Textile Export

With the commencement of WTO, world markets will be open for free trade and all quota restrictions will be abolished. However, the criteria for the sale and export of textile and other products will be quality and competitive price.

Pakistan is a developing country. Like most of the other developing countries, it is also critically dependent on textile and clothing exports for its foreign exchange earnings. The government of Pakistan is fully aware of the importance of textile exports to the economy of Pakistan and has been providing incentives to the textile industry for up-gradation and modernization of its production facilities.2

The textile vision statement for 2005 envisages open, market driven, innovative and dynamic textile sector which would be internationally integrated, globally competitive and fully equipped to meet the challenges and exploit the opportunities created by MFA phase out, which will enable Pakistan to be among the top 5 textile exporting countries in Asia.

2Memon Ahmed Noor, Pakistan Knitwear Industry: Post Quota Challenges, Pakistan Textile Journal, Apparel & Knitwear Section.

3.5.2 Focus on Quality or Price?

For a product to be successful or profitable, there are two bases on which one can compete i.e. price and quality. As cotton is our silver crop while textile is our golden industry, more than 55% of our exports are accomplished by this sector. Thus this sector must provide quality products to the importing countries at competitive prices for competing in this cut throat environment created by its rival countries.

4. Reasons for the downfall

As we mentioned earlier that there are many reasons that weaken our textile industry but the main reason that causes Pakistan’s textile industry to downfall is the “high cost of production” which makes it uncompetitive from its rival countries. Thus; the remaining report is focused on the point: why the cost of production is so high in Pakistan or why the cost of doing business (especially textile) in Pakistan is so high which makes it uncompetitive in the world?

Hence; following are the factors/reasons that will clarify the above question.

4.1.1 Lack of Research & Development (R&D)

Developed countries are using biotechnology and genetic engineering to increase the quality and quantity of their cotton production. They are able to grow colored cotton, organic cotton and several different varieties of cotton for adding value to textile chain. However, in Pakistan, there is very little research done on small scale by private companies to invent modified cotton fibers.

4.1.2 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 fiber i.e. cotton and its blends.  This dependence on single crop economy is restricting the diversification of exports from Pakistan.

4.1.3 Low Labor Productivity

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 take 75 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.3

4.1.4 Poor Infrastructure

The important resources and infrastructure, such as adequate 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.

3 Akhlaq Ather Mohammed, SWOT analysis of the textile industry of Pakistan, Pakistan Textile Journal, Machines Statistics 2007.

4.1.5 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 cannot 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.

4.1.6 No System Orientation & Supply Chain

Nowadays, customers are very systematic in their work and they 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.

4.1.7 Boss or ‘Seth’ Culture

The work culture in most of the textile industries is like that of a traditional ‘Seth’ owned company. There is no little formal documentation in the offices, the people are hired on an ad-hoc basis. However, additional qualifications are not taken into account while selecting the people for the jobs. The growth of the company is dependant on the wishes and whims (the personal vision) of the ‘Seth’. In these cases, it is hard to separate the owner from his company. Hence, it the personality of the ‘Seth’ which decides the future path of the company.4

4.1.8 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

4 Weaknesses of Textile Industry, Yunus Textile Mills (Ltd), Skyrocketers, Feb 2009

4.1.9 Lack of Qualified Experts/Skilled Labors

Lack of human resource is one of the key issues faced by the textiles and clothing industry of Pakistan. In a country of 160 million people, non-availability of educated human resource calls for serious policy implications. Thus more often, the textile manufacturers were complained about lack of textiles professionals and skilled workers. They complained about the lack of relevant education to impart appropriate expertise and skills. Professionals and skilled workers get on-job training and leave the respective employers on getting better opportunities. Therefore, the gains from providing quality training are limited from employers’ point of view.5

4.1.10 Inadequate Supply of Electricity & Gas

The textile sector is experiencing depression and stagnation since the last year, continuously, due to the energy crisis of gas and electricity load shedding. The Government had agreed that load shedding would not exceed 2 hours for the industry, but in practice, more then 6 hours of irregular and frequent load shedding is being implemented. Resultantly, the production program of mills is totally disrupted and productivity has been reduced significantly, which in turn, caused a decline in the exports of textile products.

4.1.11 High Cost of Borrowing

Another problem which Pakistan’s textile industry is facing currently, is the higher mark up rates by the banks as they are charging highest spread of 7.7 percent between their average deposit and lending rates. Thus a large number of textile units have been closed down due to global recession and financial crisis and they laid off thousands of employees in this regard, causing many of the industrialists to move from Pakistan to China, India and Bangladesh.

5 Prof. Dr Akhlaque, Pro-Vice Chancellor University of Karachi, Pakistan facing shortage of qualified experts in textile industry, March 24.

4.1.12 Hike In Oil Prices Increases Transportation/Shipment Cost

The further rise in the price of petroleum products has feared the textile industry with the increase in cost of doing business. The basic textile industry has termed the government decision as a blow to the already inflated transportation cost in the middle of high cotton season. The value-added sector has called it stabbing in the back in a situation when energy and cotton prices are touching the ceiling.

5. CONCLUSION

5.1 Conclusion

The textile industry of Pakistan plays an important role in the economic development of the country. It contributes 8.5% in the GDP; generating employment for 38 percent of the manufacturing labor forces which produces 46 percent of the total manufacturing output of the country and constitutes 60 to 65 percent to the total value of exports of Pakistan. Thus, it is the single largest manufacturing sector of the country.

However, Pakistan’s textile industry which is contributing such a prestigious figures in the growth of country; is currently passing through the phase of depression as it is facing many problems including less amount of subsidy, antidumping duties and recession, which has affected the performance of Pakistan’s economy very badly all over the world. Other factors which downgraded the performance of this sector includes high cost of production and worsening law & order situation have contributed towards the decline in Pakistan’s textile exports.

Whereas some specifications for boosting up Pakistan’s textile industry, are as follows:

To improve the supply chain, availability of clean cotton at competitive rates.

To review infrastructure, consistent supply of water, power & gas to the textile industry at affordable rates.

Value addition in textile sector by converting raw material into value added products and to develop new products.

To reduce the cost of doing business in textile sector by enhancing productivity, human resources and skill development.

To broaden the export base to non traditional new markets.