January 3, 2009

Sports Industry in Pakistan

A Brief Review
Sports Industry in Pakistan
A Brief Review

Definition & History

According to the COMPASS project carried out by European Union sports federations
in 2003, the
definition of sports is:

“Sports' are all forms of physical activity which, through casual or organized
participation, aim at
expressing or improving physical fitness and mental well-being, forming social
relationships or obtaining
results in competition at all levels”.

The first record of manufacturing of sports goods in Sialkot can be traced back to
1883 when Sardar
Bahadur Singh and Sardar Ganda Sigh Oberoi built a factory to produce sports goods
for the British Army
soldiers stationed in the northern sub-continent. The products manufactured were
wooden, such as
cricket bats, hockey sticks, polo sticks, etc.

In 1918, a British Army soldier for repairs at Oberoi’s factory, where a Muslim
artisan known as Syed
Sahib was assigned the task, brought a football. Syed Sahib not only re-stitched
the football to the full
satisfaction of army personal but also “reverse engineered” it in his own small
manufacturing unit. British
soldiers were astonished to play with the local version and they praised Syed Sahib
for his skills.

Subsequently Syed Sahib started catering to the needs of local troops. In 1922,
Syed Sahib was awarded
the first Export Award from the British Empire for his outstanding venture to
supply footballs to the
British Army camped in Singapore.

The sports goods sector bravely passed through the turmoil at the time of
independence in 1947 when
most factory owners, who were Hindus, migrated to India. The craftsmen, who were
mostly Muslims, took
over and greatly expanded the businesses.

Present status of the sports goods sector

Today the sports goods sector of Sialkot is at its zenith. It has acquired an
important place in the
international trade of sports goods. Currently it is supplying products to almost
every country of the
world, directly or indirectly. The products are mostly made for international
markets and have received
worldwide recognition because of the care that goes into the selection of raw
material, design,
manufacturing and shipping.

The product range includes soccer balls, volley balls, rugby balls, beach balls,
exercise balls, cricket balls,
hockey balls, baseball balls, tennis balls, shuttle cocks, nets, gloves, hockey
sticks, cricket bats, baseball
bats, protective guards, pads, sportswear, etc. Adidas, Nike, Micassa, Puma, Mitre,
Select, Umbro, Lotto,
Diadora, Decathlon, Wilsons, etc, are some of the world renowned brands sourcing a
large portion of their
supplies of sports goods from Sialkot; further enhancing the credibility of the
city as an internationally
acknowledged quality manufacturing and exporting centre.

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The entrepreneurial spirit of the city has been further strengthened and cemented
by the second and third
generations of entrepreneurs. More than 200,000 people are directly employed in the
sector exporting
goods worth US$450 million annually from around 2,400 companies of various sizes.
These companies
fall into five categories:

Large manufacturers-cum-exporters (more than 250 employees)

Medium manufacturers-cum-exporters (100–250 employees)
Small manufacturers-cum-exporters (10–100 employees)
Commercial exporters (1–9 employees)

Most companies fall under the commercial exporters’ category. These are trading
companies, having
minimal staff (often only one — the owner himself). They depend totally on vendors
for the production of
goods. Operating with a short-term orientation, the failure rate is very high.
Large manufacturer-cum-
exporters are suppliers of internationally known brands, whereas medium-sized
manufacturers-cum-
exporters cater to mid and lower segments of the market. Commercial exporters
usually rely on successful
designs of large/medium firms and try to sell low-priced versions to small
importers who primarily deal in
low-end markets. In some instances it has been observed that small manufacturers-
cum-exporters and
commercial exporters are supplying high quality customized products to the 1st and
2nd division football
clubs.

Type of Products

Inflatable soccer balls

Sialkot caters to around 70% of total world demand for hand-stitched inflatable
soccer balls (footballs),
which translates into around 40 million balls annually worth US$210 million. During
the peak season,
which repeats after 4 years on the occasion of FIFA World Cup, the production of
inflatable balls exceeds
60 million per annum. These balls are produced by a workforce of around 60,000.
More than 1,000
entrepreneurs are engaged in different parts of the value chain, the majority of
which fall into the MSME
(micro, small, medium sized enterprises) category.

Composite-based sports goods

Unfortunately the city is lagging far behind in manufacturing composite (graphite)
based sports goods. At
the moment only half a dozen companies are engaged in the manufacture and export of
composite-based
field hockey sticks. Sialkot used to be a major supplier of wooden (mulberry)
hockey sticks (including
field, ice, and roller hockey) in the world, but as the technology shifted towards
composites, the local
industry failed to embrace it, resulting in the loss of a very lucrative market.

Sports gloves
The sector also has a very strong international presence in the market for gloves
in general, and sports
gloves in particular. Before China’s massive entry into international trade a few
years ago, Pakistan was
the world’s largest exporter of gloves. Pakistan is now second to China but the
difference between the two
is growing every year. Overall, the gloves sector, especially non-sports gloves, is
under stress and is
shrinking. The sector is famous for producing both high- and low-end natural and
artificial leather sports
and non-sports gloves. The former category includes gloves for motor bikers,
goalkeepers, baseball,
boxing, shooting, etc. These gloves are usually exported as part of a ‘combo’
package with other products,
such as sportswear, inflatable balls, etc.

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Sportswear
The sportswear business developed as an offshoot of the sports goods sector. At the
outset international
buyers used to buy inflatable balls from Sialkot and sportswear from South Korea,
Taiwan, the USA,
Germany, the UK, Spain, Portugal, Turkey and elsewhere. As the apparel industry
diminished or in some
cases totally disappeared from some countries, buyers who were already satisfied
with the quality of
sports goods from Sialkot asked the local exporters to produce sportswear as well.
This helped
international buyers to reduce their sourcing overheads.

A skilled stitching force, imported fabrics and accessories, high profit margins,
entrepreneurial skills of
businessmen and responsive government policies all resulted in the sports sector’s
successful entry into
the international sportswear market within a very short span of time. Today a
skilled workforce of more
than 10,000-strong is directly engaged in this production and the numbers are
growing rapidly. Articles
exported include track suits, football, boxing, cycling; motto sports uniforms,
shorts, T-shirts, wind
breakers, judo/karate kits, casual wear, stockings, etc.

Production Process
Below are pictorial illustrations of the production processes of soccer balls and
cricket bats.

Plastic/Lamination Drying

Stitching Printing
Cutting

Last Stitching Inspection

Packing

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Cricket

Inflatable balls

Wood for handle Seasoning of handle wood Blade slitting

Handle joining Rounding of handle Cutting in shape

Rasping Sanding/buffing

Finishing Painting Thread winding over

Grip over handle Lamination Packing

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Economic Review – Local and Global

National Sector Data

Around 97% of sports goods production is exported. The export performance and
calculated total output
of the sector from 2000 to 2005 is given in Figure 2.10 below. The total amounts
include various types of
sportswear, as well as sports equipment/gear. The growth in output has been mainly
from the sportswear
segment, which, according to sector sources, has grown at an average of 16% per
annum in recent years.

Total output and exports of Pakistan’s sports goods sector, 2000

2000-2005

Value in US $ ( Million)
2000 2001 2002 2003
2004 2005
Total output 343 348 412 422
428 448
Exports 333 338 400 410
415 435

1000
900
800
700
600
500
Exports
400
Total output
300
200
100
0
2000 2001 2002 2003 2004 2005

A reason for fluctuation in output is the cyclic nature of the inflatable balls
export market. The crest
begins one year before the FIFA World Cup, which is every four years. Similarly
there is a peak in
business, six to nine months before the UEFA Euro Cup. There is a two two-year
year
lag between these two
tournaments. The period (around nd 1 year) immediately after these tournaments is
extremely slack,
especially after the FIFA World Cup.
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Pakistan’s sports goods exports

Pakistan’s sports goods exports amounted to US$319 million in 2005, up from US$276
million in 2001
but showing growth stagnation since 2002. As a percentage of Pakistan’s total
exports, the sector is still
relatively small but has vast potential. Inflatable balls dominate the export
sector, making more than 50%
of the sector’s exports. These are mostly exported to Germany, the United States
(US) and the
Netherlands. Inflatable balls account for a 22% share of total world exports of
inflatable balls. Pakistan
ranks 2nd in world exports of inflatable balls. These are followed by articles and
equipment (24%) for
sports and outdoor games. For this product category Pakistan’s exports account for
2% of world exports
and the country ranks 11th. The main destinations are the US, Germany and the
United Kingdom (UK).
Special sports gloves are the third important export product
product,, accounting for 10%
of the sector’s exports.

Pakistan’s sports goods exports and imports, 2001

2001–2005*

Value in US $ ( Million)
2001 2002 2003 2004
2005
Exports 276.5 326.9 325.6 317.5
318.8
Imports 1.7 2.2 4.5 6.4
9.6

* Source: ITC’s www.trademap.org.

340
330
320
310
300
290
Imports
280
Exports
270
260
250
240
2001 2002 2003 2004 2005

Above table refers to sports goods equipment/gear only and does not cover
sportswear, like t-shirts,

t
sweatshirts, shorts, sports shoes, etc. The export of sportswear products alone
from Sialkot is around
US$120 million annually.

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Pakistan’s exports – Major destinations by sports goods category.

Category Value ($ 000) Quantity Main

destinations
(MT)
Special sports gloves, of 30,358 809 US,
Germany, UK
leather or composition
leather
Ski-suits, Knitted or 307 17 US,
Germany,
crocheted
Netherland
Men's or boys' swimwear of 214 5 US,
Germany,
synthetic fibres, knitted or
Netherland
crocheted
Men's or boys' swimwear 173 7
US, Italy, UK
(excl. knitted or crocheted)
Women's or girls' swimwear 124 2 US,
Australia, Belgium
(excl. knitted or crocheted)
Ski suits (excl. knitted or
crocheted)
Ski suits (excl. knitted or 18 1
Finland, Austria,
crocheted)
Belgium
Ski-boots, snow-board boots, 94 4
France, UAE, Canada
uppers of leather
Golf balls 394 35 UK,
Spain, Algeria
Tennis rackets 123 -
Badminton rackets 179 11
Ireland, UK, Germany
Tennis balls 29 3
Germany, Australia,

Austria
Inflatable balls 185,641 22,016
Germany, US,

Netherlands
Hockey, cricket and 23,621 3,745
Netherlands,
baseballs
Germany, US
Articles and equipment for 111 20
Afghanistan, UAE,
general physical exercise and
Australia
other sports
Article and equipment for 75,793 11,479 US,
Germany, UK
sports and outdoor games
Canada, Spain, Sweden, Italy, Saudi Arabia, the United Arab Emirates (UAE) and
Belgium. Germany, the
US and the Netherlands are major destinations for exports of inflatable and cricket
and hockey balls. For
exports of ski suits and men’s/boy’s swimwear, the US, UK, Germany, the Netherlands
and Finland are
main markets.

Other products exported by Pakistan include golf balls (35 tons), ski suits,
knitted or crocheted (17 tons)
and plastic (12 tons). The United Kingdom, the United States and various Middle
Eastern countries are
key destinations.

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Pakistan’s sports goods imports
Sports goods imports have also increased significantly since 2000, from US$1.6
million to US$9.6 million
in 2004-05. Dominant imported sports goods are articles and equipment for sports
and outdoor games.
This category includes workout equipment for fitness gyms, cricket and polo
equipment (excluding balls).

World overview

The major producers of sports goods globally are China, Indonesia, Thailand and
Hong Kong. These Asian
suppliers have taken over significant proportions of the world’s production as a
result of lower labour
costs.

China is now a massive producer and, in terms of export, dominates all other
producers. It is the top
exporter of all the sports goods items exported by Pakistan. Italy is also a major
exporter of ski suits and
swimwear, as is Thailand of tennis and golf balls.

Looking at the sports goods sector as a whole (as per the classification above),
global imports added up to
over US$17 billion in 2005, up sharply from US$12 billion in 2001. The US is the
world’s major buyer
followed by the UK, Germany and Hong Kong. France, Japan, Korea, Italy and Norway
are also important
markets at the global scale.

Major sports goods items traded around the world include gym fitness equipment
(US$4.4 billion
imports); articles and equipment for sports and outdoor games (US$3.6 billion
imports); golf equipment
and balls (US$3 billion imports); snow skis, equipment and wear (US$1.9 billion
imports) and inflatable
balls (US$0.9 billion imports).

Special sports gloves of leather or composition leather

Global exports were estimated to be around US$406 million in 2005. In both value
and quantity, the
world’s major supplier is China, representing a quarter of world exports and
experiencing 8% average
growth over the last five years. Other major suppliers are also Asian – Indonesia
Thailand, the Philippines
and Pakistan are the top five along with China. Together, the top five suppliers
make up 68% of world
exports. Indonesia, Thailand and the Philippines have a very strong focus on the US
market (over two-
thirds of their exports) while China is more focused on Japan and Europe. Pakistan
essentially supplies to
Europe.

On the import side, the US swallows up just over half of world imports. As another
country that takes
baseball seriously along with its purchasing power, Japan is the second largest
buyer of sports gloves,
representing 10% of world imports. Hong Kong is also an important buyer. The
largest markets for sports
gloves are not necessarily the most dynamic. Smaller, emerging markets are showing
a different picture,
especially in the new members of the European Union. Poland has shown an average
31% growth per year
over the last five years and Slovakia has shown 25% growth per year over the same
period.

Inflatable balls
This is an important category globally; total world exports in 2005 were estimated
to be worth US$841
billion (FOB) showing a significant annual average growth (17%) in value over 2001-
2005. Major
suppliers in this market are China, Pakistan and Thailand, with the world exports
share of 32%, 22% and
7%, respectively. China leads the way and is gaining market share rapidly with
growth rates averaging
30% over the last five years. Competition is strong, as seen by all three suppliers
collect the same average
price per unit FOB. The US is an important destination for Chinese inflatable
balls, taking 44% of China’s
exports, while Pakistan’s exports are more diversified across the globe.

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While the US is still the largest individual importer of inflatable balls, its
dominance is less strong than for
most other sport goods items. The US buys one-fifth of world imports, but Europe
and Asia also have a
20% share of world imports. Within Europe, Germany and the UK are the main buyers,
while in Asia
Japan is the main buyer. Mexico is also an important importer.

Pakistan’s inflatable ball exports are well positioned in the fast growing German
market, having a 40%
market share as well as being top supplier. The German inflatable ball market has
shown solid growth in
imports over 2001-2005, averaging a 22% increase per year in value and 16% per year
in quantity. This
upward trend is likely to be related to the run-up to the 2006 World Cup. Other
smaller markets showing
rapid import expansion include Turkey (37% p.a.) Czech Republic (25% p.a.), Brazil
(33% p.a.) and Peru
(28% p.a.).

A more detailed analysis of trade in inflatable balls is presented in the case

study below.

Cricket, hockey, polo and baseballs China is the world’s leader for this sports
goods category, holding 50%
share of world exports while Pakistan and India have a mere 8% and 6%,
respectively. China’s major
markets are the US and Japan, while Pakistan supplies more to Europe, and India to
both the US and
Europe, with the UK its major buyer.

Pakistan is not well positioned in this sense since the US represents 40% of the
US$300 million import
market while the Netherlands and Germany, Pakistan’s main export destinations for
this product,
represent a mere 4% of world imports together. The UK, Korea Rep. and Japan each
represent 5% of
world imports. In terms of growth, the US is not the leader and in fact its 40%
market share is reducing.
Markets showing very rapid growth include Ireland, Poland and Honduras.

This product is of major significance in the world trade in sports goods,

representing a US$3.8 billion
import market. Therefore, it is important to get a clear understanding of how the
major buying countries
interpret the definition of this product category. Their interpretations have to go
way beyond mere wicket
stumps and pads to be a billion dollar business. China, Taiwan and the US are the
major players in this
market. Global exports of this category were estimated at $3.4 billion in 2005.
China’s exports are geared
towards the US, France and the UK. Taiwan is supplying to the US, Japan and the UK,
and the US is
supplying to Canada, Japan and the UK.

The world’s main importers are the US, France and the UK. Total value exported in
2005 was US$3.8
billion (CIF) and reported an annual growth rate of 10%.
SWOT analysis
Strengths
Dynamic and reliable linkages in international markets due to long history of
exports.
Entrepreneurial culture directed towards exports.
Flexibility in production runs with short lead times due to multi-skilled
labor force.
Focus on “basket of products”.
Strong vendor network.

Weaknesses
Small-sized companies with weak management skills and structures coupled with
fierce price
competition.
Absence of internationally accredited testing laboratories.
Limited product innovation, main focus as CMT producers.
Electric power outages during summers.

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Opportunities
Low rate of mark-up on working capital loans (7%).
Very low income tax rate (1% of total annual exports).
Better trade access in EU and USA (under GSP scheme).
Attitude of end consumers changing towards health and fitness (local and
international).
Closure of textile garments sector in EU/USA.

Threats
Imposition of social, environmental, technical and compliance barriers to
trade.
Introduction of thermo-molded (mechanized) ball by Adidas.
Inroads made by China in gloves market.
Licensing requirements by international producers of raw materials
(especially in sportswear).

Recommendations
The situation regarding information flows is not satisfactory. A proactive
role is indicated on the
part of Ministry of Commerce and the TDAP. The TDAP should provide leadership and
collaborate efforts
with other relevant agencies, e.g. Chambers of Commerce, trade associations, SMEDA
and provincial
government’s WTO cells and trade associations. Funds are not an insurmountable
problem because the
Ministry of Commerce and TDAP have resources in the form of Export Development Fund
(EDF). The
real challenge is to organize a system that is user friendly and available in
virtual real time. Technical
assistance from the ITC to set up/improve such an information system would be very
welcome. TDAP
should intensify its activities for capacity building, specifically for the better
use of opportunities and
coping with challenges emanating from the WTO system. Among other things, the
following measures are
recommended:

• A comprehensive plan for dissemination of sector-specific information

should be prepared by
TDAP, in consultation with stakeholders.
• A helpline, professionally manned, should be established in TDAP. Sector
specific experts should
be available to callers.
• Special meetings/workshops/seminars for educating entrepreneurs about WTO
issues should be
organized by the TDAP, preferably in partnership with concerned trade
associations, at least four
times a year at different places.

The following recommendations are based on the findings and interpretations made
during preparation
of the sector study:

• It is recommended that a comprehensive national level strategy document is

prepared. The said
document should have a holistic approach and include all stakeholders of
the sector.
• Whatever interventions are made, the most important criteria for selection
should be the
 magnitude of potential value addition. Projects leading to low value
addition should not be
encouraged.
• Competitiveness of the sector should be ensured and reliance on subsidies
and monetary support
be discouraged. This will result in sustainable development of the sector.
• The ever-increasing number of small and tiny firms should be controlled
through regulatory
interventions. Only those firms that have a certain minimum amount of
capital investment should
be allowed to export.
• The focus should also be diverted to product diversification within the
sports goods products
family for instance sports socks, water sports, snow sports, hunting,
fishing, etc. The government
should provide assistance in skill development, technology assimilation,
awareness seminars, etc.

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 Eventually it’s the entrepreneur himself who should take the lead in setting up
new production
facilities, exploring markets and developing new products.

• The roles of the Chamber of Commerce (Sialkot) and the Pakistan Sports Goods
Manufacturers’
and Exporters’ Association need to be redefined. A radical shift from current
political roles
towards more pragmatic business supportive roles is needed. They should be
strengthened so that
they can provide business development services to their respective members and
can protect
business interests through effective networking at the national level.
• Awareness about international agreements and their implications must be
disseminated on real
time basis. A mechanism within the sector should be established to monitor
various challenges
and threats faced by the sports goods sector and interventions should be
planned accordingly.
Special emphasis is needed in the areas of social, environmental, health and
safety compliance
issues.
• All hard infrastructure interventions by the public sector (for instance
training centres, common
facilities centres, product display facilities, etc) should actively involve
private sector
stakeholders. Ideally these infrastructures should be financially supported by
the Government
and run by the private sector. Efforts are needed to strengthen trust between
public and private
sector organizations.
• Public sector organisations providing export services need to be strengthened.
Ideally their role
should be delegated to the private sector (chamber and association), provided
the latter has
capacities to handle such task.
• Human resources with better skills, both at managerial and technical levels,
should be developed
to cater the needs of the sector.

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