Assignment 2

Financial Statement Analysis

Submitted to: Mam Sana Saleem

Submitted by: Wasim Cheema
70057284
BBA 7th
LBS

University of Lahore (Chenab Campus)

Business cycle of textile industry Pakistan

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Recovery
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Expansion
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Macro analysis of Textile industry Pakistan

Inflation, interest rate, electricity crisis and yarn price have a negative relationship with the
growth of textile industry tells that 98% variation in the production of textile industry is
explained by electricity crisis interest rate, inflation and yarn prices. These variables affected the
production of Pakistan’s textile industry very badly. The high cost of production resulting from
electricity crisis inflation, high interest rate, has been the primary cause for negative growth of
the textile industry. The above factors increase the cost of production which decreases the
exports. Although the sector consists of lot of weaknesses but as a cash cow of the economy it
commands some strengths like cheap labor force, self-production of raw material, skilled
engineers, boom in fashion designing etc, given the fact that the industry still provides the major
share of export and employment opportunities so there is a more than a greater need for steps in
right direction by Government to provide subsidies to the survival of the industry.

Economics variables on textile industry Pakistan

1. Political Implications: Pakistan has been facing the problem of political instability since its
birth in 1947. From 1947 until 2010, the governments have failed to maintain political stability
in Pakistan. There is an uncertainty in government’s structure and we all know when a ruling
party faces this sort of uncertainty they fail to do well for public. The opposite parties tend to
take advantage of the situation. As one of the fastest growing industrial sector of Pakistan, the
government is paying high attention to the apparel industry. One measure taken is the Balancing,
Modernization and Replacement (BMR) program under which loans are provided to the new
businesses under concessionary rates. Added to it, the Chamber of Commerce provides the
following incentives.
Establishment of Textile City at Karachi and Garment Cities at Karachi, Lahore & Faisalabad.
Gradual reduction of import duty on textile machinery and parts to 5%.6% R & D support to
garment exporting businesses. Reduction of import duty on ginning presses to 5%. Reduction of
turn over tax on retailers of specified textile fabrics and articles of apparel including readymade
garments or fashion wear to 1% and reduction of sales tax from 15% to 2%. Both these taxes will
be their final tax liability. Long term financing for export oriented business.
Looking ahead, the apparel industry in Pakistan faces some serious challenges from the growing
political tensions and issues. The policies regarding foreign exchange, imports, exports and
investments have been consistently unpredictable due to the political instability in the country. In
short, the constantly changing regulations and instability in the policies of the government have
greatly hampered the overall apparel industry in achieving its optimum potential.
2. Economic Factors: Economic stability of any country is a very essential part, which needs to
be considered when it comes to the growth of a business firm. It is like a core ingredient around
which all other factors of an organization are revolving. The Pakistani economy is in a desperate
state, and the causes are long-term, structural fluctuations. The new Zardari government in
Pakistan and especially in Islamabad has inherited high inflation, large income inequality and a
chronic lack of spending for infrastructure. In the last two decades, economic depression is
witnessed all over the world. This has caused a huge sudden change in the purchasing power of
the customers. Poverty level, Foreign Direct Investment and export are on high-speed decline.
Many garment industries have been shut down today due to all these factors. With frequent price
fluctuations, garment industry is forced to increase the prices of their products which customers
are not willing to purchase.
Finally, yet importantly, Pakistan depends heavily on the bilateral and multilateral support to
close its financing gap and avoid serious balance of payment stress. Due to weak institutions and
governance, economic development is slow and heightened risk will continue to linger.
3. Technological Factors: Rapid changes and developments in technology have increased the
competition. The machinery used by the industries in Pakistan is obsolete and outdated.
Government fails to provide the funds and loans to the owner of garment industries hence they
cannot install new machinery, which can perform tasks in an easier and faster manner. Power
failure is another big issue which garment industry is facing these days. Long duration electricity
load shedding without any schedule; instable prices of electricity, per unit price of electricity
rises after every few month, shortage of gas supplies in winter, increased rated of petroleum
products, lack of CNG, as well as water shortages are some of the prominent causes of garment
industry downfall in the last two or three years.
In addition, lack of research-oriented attitude leads to lack of improvement in the industry. New
and Innovative products are introduced by the garment industries of other countries but Pakistan
is lacking behind in this context.
4. Socio-Cultural Factors: Society and Culture are very important factors that any organization
cannot ignore. There should be a perfect match between the production and social systems in a
specific area. This match will help us in gaining high goodwill. Therefore, we need to examine
the socio-cultural environment of a country before entering its markets, in order to know the
demands and requirements of the target consumers.
Following Factors must be considered when launching a new product such as Victory Tees:
 Population Growth- Population is growing rapidly in Pakistan. There is a gap between
the demand and supply of labor, which can be exploited to take advantage of low labor
costs. The labor is usually unskilled and amateurish hence a significant amount of money
and time has to be spent on their training.
 Customer Behavior is varying rapidly. People are more aware about quality issues now
hence want to spend their money on high quality products. This is the reason imported
products are much preferred over local. but inflation has caused a compromising change
in behavior of consumers from the lower class.
 Religion and Culture- It is very important to have an understanding of the religious
principles and concepts existing in a country, in order to gain good will and popularity.
Pakistan is an Islamic country hence business firms have to take appropriate and suitable
steps in every aspect so that nothing is against the Islamic culture
 Advertisements and Marketing have to be done by keeping in the demands and
requirements of the people of the specific culture in a country.
 Age Distribution-Pakistan has the highest number youth and since Victory Tees is
targeting youth this factor can be used to increase sales and earn high profits. Youngsters
of our country are attracted highly towards the western culture and are brand conscious
thus; there is a greater chance of satisfying the needs of the targeted customers.