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Textile

Industry
For Strategic Management

Rattar Pulisher

Muhammad Azam
S/o Muhammad Qasim
Mircolony Tandojam
Mircolony
Federal Urdu university

Table of Contents
Overview of Textile Industry.............................................................................. .....2
The Manufacturing Process....................................................................................4
Industry Structure..................................................................................... .............5
Economic Contribution of Textile industry..............................................................8
World Cotton Production........................................................................................9
Cotton Production in Pakistan................................................................................9
Performance & Competition.................................................................................10
Cost Structure........................................................................................... ...........13
Fertilizers & Pesticides...................................................................................14
Petrol prices........................................................................................... ........14
Gas and electricity tariff................................................................................15
Import of textile machinery...........................................................................15
Polyester staple fibre imports........................................................................16
Increase in margin requirements for LCs.......................................................16
Increase in discount rates..............................................................................16
Impact of inflation and concern over monetary policy .................................. 16
Technology................................................................................................... .17
Role of Government............................................................................... ........18
SWOT Analysis.................................................................................... .................19
Strengths....................................................................................... ...................19
Weaknesses....................................................................................... ...............21
Opportunities........................................................................................ ............23
Recommendations...............................................................................................25
Improvement in irrigation system..................................................................25
Import Export Finance Banks.........................................................................25
Role of Agriculture Banks/ADB (Asian Development Bank)............................26
Check and balance on subsides.....................................................................26
Role of R&D...................................................................................................26
Innovation in Technology...............................................................................26
Government incentives.................................................................................27

Overview of Textile Industry

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Pakistan is the 4th largest producer of Cotton Yarn and Cloth in the World.
It is the 2nd largest exporter of yarn and 3rd largest exporter of cloth. The
Textile Industry is the most important export oriented industry in Pakistan
contributing more than 64 percent towards the total export revenue. It
also contributes 8.5 percent towards total GDP and provides employment
to 38% of the work force which is around 15 million. Textile sector
composes 46% of the large scale manufacturing. Pakistan has emerged as
one of the major cotton textile product suppliers in the world with a
market share of about 28% in world yarn trade and 8% in cotton cloth.
Currently 380 mills are working in the industry. The textile industry relies
heavily on the cotton production in Pakistan.

The domestic need for Pakistan is 15 million bales while the annual
production varies from 11 to 12 million bales creating an annual shortage
of 3 to 4 million bales. The government has fixed $ 11.40 export target for
07-08 as compared to $ 10.4 billion for last fiscal year. To cater export
market and decrease import bills the government has come up with Vision
in 2015 under which Pakistan is to produce 20 million bales of cotton till
year 2015.

The textile industry of Pakistan on the wake of increased competition has


been facing mixed scenario since on the one hand profitability of the
industry has shown a declining trend, on the other hand, the composition
of export growth represented a structural shift.

Overall, large firms in the industry have been able to sustain their
Operational profitability, however smaller players of the industry are going
through challenging times following the elimination of quota in 2005.
Pakistan has comparative advantage over most of the other textile firms
in the international market since it has an abundance cotton crop
production in the country. This gives the local textile industry a natural
price advantage over most of the other competing countries that have to
import cotton at higher prices. However, the production processes

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employed by the textile industry of Pakistan not as efficient as compared
to those of China and India.

The Manufacturing Process

Cotton is the most important input for the textile industry therefore it
depends a lot on the production of cotton. The process starts with the
cultivation of cotton and goes through several stages before the final
product is finished and ready for export or sale in the local market.

The first step where the cotton fibre is separated from the cotton seed is
called ginning. In a cotton gin the cotton is vacuumed into tubes that
carry it to a dryer to reduce moisture and improve the fibre quality. Then
it runs through cleaning equipment to remove leaf trash, sticks and other
foreign matter. Ginning is accomplished by one of two methods. The raw
fibre, now called lint, makes its way through another series of pipes to a
press where it is compressed into bales (lint packaged for market).

Textile mills purchase cotton and start with raw bales of cotton and
process them in stages until they produce yarn (fibres twisted into
threads used in weaving or knitting) or cloth (fabric or material
constructed from weaving or knitting).

Spinning is the process during which yarn is produced from fibre. Yarn is
turned into fabric through the weaving process. The yarns are then
wound onto a loom beam which is placed on the loom (a machine used to
interlace yarns to form cloth). The woven cloth from the loom is called
grey, is whitish but has a natural yellow tint. This cloth is further treated
by various means to improve its appearance and feel then it is either
bleached, dyed or printed to produce the fabrics used in various products
seen on store shelves. There are three basic weaves that are used plain
weave, twill weave and satin weave.

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Knitting is another method of turning yarn into fabric. Knit fabric is
constructed of yarns made into loops (stitches) which are linked together
by the use of needles. There are two basic types of knitted fabric, weft
knit and warp knit.

Finally the product is packaged and exported or sold in the local market.

Raw Cotton Bundles


Cotton
cultivatio Ginning
n

Grey
Cloth
Weaving

Finishing Cotton Thread Spinning

Knitting
Knitwe
ar
Figure 1- Manufacturing Process

Industry Structure

There are around 1221 ginning factories located all over Pakistan, with
majority of them in Punjab and Sind. Pakistan is one of the major cotton
textile product suppliers in the world with a market share of about 30
percent in world yarn trade. The spinning sector is the largest sub-sector
in Pakistan’s textile sector, comprising of a number of very large-scale
units. There are 422 textile units (50 composite units and 372 spinning
units) with 11.809 million spindles in operation and capacity utilization of
84% during 2006-07. Most of the large-scale units now fall into this
category. The textile industry of Pakistan has a total established spinning
capacity of 1550 million kgs of yarn, weaving capacity of 4368 million

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square metres of fabric and finishing capacity of 4000 million square
metres. The industry has a production capacity of 670 million units of
garments, 400 million units of knitwear and 53 million kgs of towels. There
are around 124 large units that undertake weaving and 425 small units.
There are around 20600 power looms in operation in the industry. The
industry also houses around 10 large finishing units and 625 small units.
Pakistan’s textile industry has about 50 large and 2500 small garment
manufacturing units. Moreover, it also houses around 600 knitwear
producing units and 400 towel producing units. The total exports from the
weaving sector have decreased from FY04 to FY07.Annualized figures for
July-March 2007 show a decrease of 2% comparing fiscal year 04. The
finishing sector includes bed linen, garments, knitwear and other made-ups. This
sector has seen the most investment in recent years, and is the driver for
increased local demand for fabric/yarn. The bulk of recent investment in this
sector has been geared towards the export markets. The finishing sector
captures a large chunk of export. Since last four year, the export of finishing
product remained constant i.e. 62% of total textile export.

Figure 2- Yearly export of major textile products

Pakistan textile industry has substantial potential for growth as the


international demand of textile is expected to increase by 2.5%, with the

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increasing demand of textile, the ministry of textile industry has set the
target of USA $ 13 billion for fiscal year 2007-08, however, set target has
been revised by $ 11.40 billion whereas TDAP provisional data, the textile
export till June 2008, is $ 9.44 billion, showing a decline of 10.6%. The
major decline was shown in textile yarn, knitwear and textile made ups.
The snapshot of Pakistan textile export and per cent change is given
below:

Figure 3 - Total Exports

Export Of Textile 2004-05 2005-06 2006-07 2007-08


RAW COTTON 1.25% 0.68% 0.48% 0.69%
COTTON YARN 12.04% 13.84% 13.55% 12.60%
YARN OTHER THAN COTTON YARN 0.35% 0.37% 0.64% 0.49%
COTTON CLOTH 21.23% 21.10% 19.23% 19.31%
KNITTED CROACHED FABRICS 2.13% 0.51% 0.60% 0.70%
READY-MADE GARMENTS 12.40% 13.11% 13.14% 14.00%
KNITWEARS 18.64% 17.53% 18.61% 17.96%
TEXTILE MADE UPS. 27.77% 30.46% 29.12% 29.52%
TENTS AND CANVAS 0.76% 0.39% 0.66% 0.69%
ART SILK AND SYNTHETIC TEXTILE 3.42% 2.00% 3.98% 4.05%

100 100
100 100

Due to political instability and unfavourable business opportunities to the


foreign investors caused a decrease in foreign direct investment in textile
sector.

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DFI in textile
industry
(million $)
2000-01 4.6
2001-02 18.5
2002-03 26.1
2003-04 35.4
2004-05 39.3
2005-06 47
2006-07 59.4
2007-08 30.1

Figure 4 - DFI in textile industry

The ban of cotton import has also been lifted that will help in bridging the
gap of demand and supply of Pakistan textile industry.

Economic Contribution of Textile industry

2007-08Exports 62.1% OF TOTAL EXPORTS (US $ 9.448 BILLION)


Manufacturing 46% OF TOTAL MANUFACTURING
Employment 38% OF TOTAL LABOUR FORCE
GDP 8.5% OF TOTAL GDP
Investment US $ 0.771 BILLION
Market Capitalization (Listed 5.11% OF TOTAL MARKET CAPITILIZATION
companies)

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World Cotton Production

There is substantial increase in the demand of cotton; however the supply


has not increased proportionally to the demand. The data for the last
three years of the major cotton producing countries is as under.

Figure 5 - World Production

Cotton Production in Pakistan

The government’s target of cotton production this year of 14.12 million


bales will probably receive a downfall due to pest attack especially mealy
bug, while the last year target was 14 million bales, which was missed by
17% due to pest attack. This year area under the cultivation had dropped
to 15% due to some profit making crop alternatives. This year the national
output will be around 12.5 million bales and 3million of cotton will have to
be imported to meet the requirement of textile industry, which cost
around US$ 500- 600 millions. Following are the major factors for the
reduction in production.
1. Reduction in area of cultivation
2. Water scarcity at the time of sowing
3. Absence of support prices
4. Drastic decline in the use of fertilizers due to non availability and
hike in prices

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5. 50% up of BT cotton of unreliable origin
6. Poor agronomics practises
7. Attack of pests

Because of above factors, there is substantial decrease in the cotton


production which might result high import bills and deprivation of foreign
earnings due to depreciation of worth of rupee and inability to meet
export targets. Government needs to take some initiatives in form of
support price ahead of sowing of crop so that farmers and growers get
motivation and disincline towards alternative crops. Due to scarcity of
water, growers have turned from production of Nayab78 toward BT,
though BT cotton requires less water yet per acre yield is low as compare
to Nayab78. On the other hand, import of less quality breed of BT have
both decreased yield as well as brought a migrant pest i.e. mealy bug
through this seed.

Performance & Competition

The country is expected to produce 1 million less bales of cotton against


the government’s figure of 12.8 million. The export target of $19.2 billion
would also not be achieved.

The main competitors of Pakistan are China, India and Bangladesh. Due to
economies of scale these countries are catering a large portion of
international market. Due to change in the cost structure of Pakistan,
Pakistan is not able to compete with these countries. Competition in the
international textile market has intensified and textile products from
Pakistan and other developing countries can find access to EU and U.S.A
only on the basis of competitive prices and quality.

In Pakistan an import duty of 9.6% is imposed on all categories of textile


products whereas Bangladesh and Sri-Lanka enjoy duty free access to the

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EU markets. India and China have also started discussion with EU for
finalizing FTA, while the prospective of such discussions are not looking
fruitful.

Although there has been an increase in dollar value of export, comparing


the performance of the last five years export has shown a declining trend
in value of export. If we compare the last year figures with that of our
neighbouring competitors, it is manifest that Pakistan performance in
textile sector is not looking satisfactory. Last year the growth was only
5.27%, in contrast, Indian textile export has doubled while Sri-Lanka and
Bangladesh export have tripled. China has also shown exponential growth
in textile export and their exports quadrupled. Pakistan should focus on
value-addition to increase textile exports. The incentives given by the
government, the role of import and export financing banks, Lower LC
margins, increase in yield per acre, improvement in quality and
implementation of advance innovative technology have made major
competitors penetrating and creating good market all over the world.
Pakistan being the fourth largest producer of cotton has a potential
opportunity to make the most of replacement of textile quota system.
However due to the shortage of crop production, inconsistencies and lack
of support of government this has not been possible.

Pakistan’s performance in technical textile products lag far behind as


neither the government nor the textile industry has taken any steps
towards matching the demand of textile products with the emerging
needs of world market. These days when the use of textile fibrous
materials is becoming an integral component of bridges, architecture,
combat vehicles, automotives, aeroplanes, medical implants, protective
wears against bullets, shock, radiation and heat, the idea of textile
perceiving just as apparel or home textile shorten the scope and
versatility of this industry.

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At present world consumption of this sector is 19.6 million tonnes worth
US $ 75 billion in 2006 and will rise to 33.8 million tonnes worth US $ 130
billion by 2010, hence the potential of technical textile and growth is
substantial and Pakistan need to focus both conventional and technical
textile products.

Besides this, cotton provide 40,000 tons of edible oil to the oil industry,
due to shortage of cotton crop, we have to import palm oil from Malaysia
and Indonesia which has also caused trade deficit. Live stock industry has
also suffered due to less output of cotton cake and thus increases in its
cost.

Performance of textile industry at KSE:

The textile sector composes over 30% of listed companies on Karachi


Stock Exchange; however the performance in form of returns is not
satisfactory. More than 85% companies have not paid dividend at least for
last three years. The PE ratio of 65% is negative. Due to leniency of SECP,
having taken any major action due to losses for non payment of dividends,
otherwise lots of companies will be under the verge of delisting.

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Cost Structure

High cost of inputs has badly affected all industry, however the major
impact has been shown on the textile industry as it is a major export
oriented industry. Due to increase in cost of input Pakistan has not been
able to compete, as the result of which it has missed export targets and
foreign earnings. As the cotton production is the integral factor in textile,
substantial increase in cotton production per acre has caused a big
difference in profit margin. Motivation of the growers and textile industry
has also been effected.

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Figure 6 - Average Rate per maund

The major incremental cost of the following inputs indicates the cost of
cotton production and performance of textile industry.

Fertilizers & Pesticides

The major increase in the prices of fertilizer and the shortage has de-
motivated the growers to meet the requirements and to increase the yield
per acre. The price of urea has approximately doubled from Rs. 650 to
1100 per sack, while the prices of DAP has fluctuated from 950 to 2300
per sack. The same is the case with the prices of pesticides and sales
taxes, which have added burden to growers fighting mealy bug and white
fly and has badly affected the cotton crop. Due to high cost of production
and pest attacks growers have shifted towards other profit making crops
such as red chillies, rapeseed, sugarcane and sunflower.

Petrol prices

The increase in petrol prices has badly affected both cotton and textile
industry. The ever increasing price of petrol US $147/barrel has increased
the production and processing of cotton. From raw material to finished

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product, the soaring oil prices has added the cost at every stage which
has made Pakistani market less competitive as compare to other
competitors. The price hike has shown its effects globally, however the
economies of scale of other textile players have helped to offset the effect
of oil prices and maintain the profitability margin to the greatest extent.

Gas and electricity tariff

31% increase in gas prices is adversely affecting the textile industry in


which gas is used as a vital input. The average power generation cost of a
captive power plant is Rs. 3.50 a unit that would go up to more than Rs 6
a unit pushing gas prices by 68%. At 31 percent increase in gas prices, the
average power generation cost would be cost Rs. 5 a unit. The WAPDA
/KESC are also set to increase power tariff in near future, hence there
would be not much difference in WAPDA/KESC power tariff and that of
captive power plant in textile mill.

Import of textile machinery

The capital budgeting cost of textile machinery is substantial due to


imports of machinery. In Pakistan, there is no major manufacturing plant
serving the needs of textile machinery. PECO (Pakistan Engineering
Company Ltd) manufactures of power looms and Spinning machinery Co
was set up in 1977 to produce ring spinning frames, however both plants
had been closed down and we have to import all sort of textile machinery
and its equipment majorly from Germany and Japan.

Year Import of machinery (US$ in


millions)
2003-04 597.9
2004-05 928.6
2005-06 817.2
2006-07 502.9

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Due to no manufacturing facilities, we have to bear extra expenses while
India and China have low cost of capital budgeting due to their
manufacturing facilities.

Polyester staple fibre imports

The reduced import tariff from 6.5% to 4.5% on polyester staple fibre that
will hit the domestic staple polyester industry will have a negative impact
of US$ 250 million on country’s foreign exchange reserve and will lead to
increase in unemployment in the country.

Increase in margin requirements for LCs

As the textile sector is facing lots of problems such as shortage of


electricity and gas, raw material crisis, inflation and high cost of doing
business, now the requirement on 35% margin on import will result in
cash flow problems thus blocking of funds will create severe liquidity
problem.

Increase in discount rates

The high prevailing interest rates i.e. 13.25% which is 150% increase in
interest rates since last four years. Comparing it with Bangladesh, the
prevailing interest rates of 8.5 to 9 per cent, in India market rate is 10.25
percent, however 5 per cent exemption to the textile industry while in
China, the prevailing rate is 5.58 per cent. Comparing the above figures,
the high interest rates have essentially crippled the small textile owners,
while affecting the growth of textile tycoons.
There is need of strategic planning to give some sort of concession and
setup import export banks to facilitate the export oriented industries.

Impact of inflation and concern over monetary policy

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Tightening monetary policy by increasing discount rates, cash reserve
requirements will further squeeze the lending ability of banks, eventually
hamper in lending finance to industrial units. As increasing rate of interest
would in turn increase the cost of production and hence, the end
consumer will suffer from the high inflation rate. Inflation and instability in
the exchange rate have the power to deplete any economy and these two
factors are currently ailing Pakistan. Rupee depreciating is hampering the
textile industry. The country is facing inflation due to increase in
government expenditures as it fuels extra cost. Due to depreciation of
rupee value, we have to pay extra amount for the import of raw material.
Economies of Scale

The increase in the cost of production in form high gas and electricity
tariffs, raw material, import bills etc has created a question mark for the
survival of small textile firms and growth of large players of this sector in
the competitive markets. The increasing tough competition in view of
direction of economy under free trade and globalization has put great
pressure to the textile industry of Pakistan towards consolidation as
Pakistan could not able to increase efficiency.
Dr Shamshad Akhtar, State Bank Governor, while addressing APTMA
emphasized on the merger and acquisition to face the turmoil of this
sector. As the poor law and order situation has also tarnished the image of
Pakistan in the international market which has further created hindrance
in trade. The implementation of consolidation scheme would cost a lot. It
would take a lot of resources to merge infrastructure and bridge the gap
to improve efficiencies. However tax statute does provide maximum tax
incentives to encourage small or loss making company into the absorbing
of other companies so that to develop a strong cooperate sector to
compete the international market.

Technology

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To improve efficiency, the processing plants in textile industry play a vital
role. Pakistan lacks technical human resource. The majority labour force in
textile industry is unskilled; we have less innovative technology which is
the reason for low performance levels and quality of products. The most of
the textile units work on conventional technology i.e. relay logic systems
which has less efficiency and high cost of maintenance as compare to PLC
(programmable logic controllers), AVR and microcontrollers. The rigidity of
conventional textile units creates a time lag in implementation of new
market products in the manufacturing plants, while the more efficient and
flexible system of PLC help much in innovation, however it calls for more
technical human resource therefore government should take initiative for
good engineering and textile schools. Besides this, government should
take stringent steps for the import of obsolete technology more than 10
years. USA, Israel and Australia are using machinery for the picking of
crops, which reduces the time of picking and expenses of labour hours.

Role of Government

Current goals formulated by the Ministry of Textile Industry, created in


2006, are for production to increase to 20 million by 2015, and for reduced
reliance on cotton, given rising trends towards using synthetic and
blended fabrics, by raising the share of man-made fibres from 18% to
50%; tariffs, of up to 35% in 2007/08, are the main border measure
assisting the industry, and they may have hindered production of non-
cotton textiles.
However, despite on-going policy priority, minimal export diversification
away from the traditional quota-protected EC and U.S. markets has
occurred. Other measures include incentives to upgrade technology, such
as income tax concessions, and gradual lowering of tariffs on imported
textile machinery and parts to encourage investment for balancing,
modernization, and rehabilitation, along with various tariff and sales tax
concessions/exceptions on raw materials.

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Research and development grants based on exports to most markets also
apply, and coverage has been expanded. The State Bank provides long-
term financing for export-oriented projects at concessionary rates.
Labour law amendments in 2006 benefited the industry, especially by
fixing minimum labour wages on an hourly basis. The Textile Garment
Skill Development Board, created in 2006 under the Ministry of Textile
Industry, promotes worker training.
The Federal Textile Board has been reactivated to develop programme
support for the sector. A major government initiative is the establishment
of textile and garment cities, based on private-public partnership in
Karachi, Lahore, and Faisalabad, to promote value-added production by
providing modern infrastructure and clustered development based on
foreign investment.

SWOT Analysis

Strengths

Availability of raw material

The availability of cotton as basic raw material has played the principal
role in the growth of Pakistan’s textile and clothing industry. By having
access to raw material, Pakistan has a chance to produce textile products
of better quality and more by being more economical by saving freight
costs and avoiding supply shortages as well as time lags. Pakistan has
comparative advantage over most of the other textile firms in the
international market since it has an abundance cotton crop production in
the country giving the textile industry a natural price advantage over
most of the other competing countries that have to import cotton at
higher prices.

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Lower labour costs

Labour cost is one of the most important strength Pakistan has. Labour
costs per hour are lower than the costs for the two main competitor; India
and China. This gives Pakistan a comparative advantage, although
Bangladesh’s labour cost is lower than that of Pakistan’s.

Relocation of Industries

The government shares 50% of the cost for relocation of export oriented
industry to Pakistan. This includes freight expenditure,
machinery/equipment transfer cost, handling costs, inland transport,
offloading, insurance, and agency charges.

Growing domestic market

Pakistani regional market is large enough for the survival of the medium
size firms as it is a growing market. Domestic market is extremely
sensitive to fashion fads and this has resulted in the development of very
responsive garment industry.

Diversified segments

Industry has large and diversified segments that provide wide variety of
products like;
• Silk
• Man Made Fiber
• Wool
• Dyes
• Clothing accessories
• Leather Garments

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So we can cater the demand for various segments in the domestic and
international market.

Weaknesses

Industry is highly dependent on Cotton

Cotton production is the inherent comparative advantage of the textile


sector of Pakistan, the success or failure of cotton crop has a direct
bearing on textile production. Shortage of cotton and the increase of price
have a direct impact on the competitiveness of the Pakistan’s textile
industry. If the domestic production does not match the domestic and
international demand, spinners have to import cotton to meet their orders
and therefore whole of the cost structure is disturbed.

Lower productivity

Pakistan, being producer of good quality medium to medium long staple


cotton varieties, suffer from low standards, bad ginning practices and poor
management. The machinery being used is locally made and is very old.
Hence the efficiency and productivity of the process is one-fifth of that of
machines currently being used in USA or in other competing countries.

Lack of technology

The lack of technological development, that affects the productivity and


profitability has lagged far behind in Pakistan’s case as neither the

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government nor the textile industry has taken any steps towards
improving upon technology that in turn would help match the demand of
textile products with the emerging needs of world market. Technology
obsolescence has resulted in the need for significant technology
investments to achieve world class quality. This has also resulted in low
value addition in the industry. The capital budgeting cost of textile
machinery is substantial due to imports of machinery. In Pakistan, there is
no major manufacturing plant serving the needs of textile machinery.
PECO (Pakistan Engineering Company Ltd) manufactures of power looms
and Spinning machinery was set up in 1977 to produce ring spinning
frames, however both plants had been closed down and Pakistan has to
import all sort of textile machinery and related equipment, majorly from
Germany and Japan.

Failure to generate Economies of Scale

The increase in the cost of production in form high gas and electricity
tariffs, raw material, import bills etc has created a question mark for the
survival of small textile firms and growth of large players of this sector in
the competitive markets. The main competitors of Pakistan; China, India
and Bangladesh are catering a large portion of international market using
the economies of scale to their advantage. Due to the change in the cost
structure of Pakistan’s textile industry, Pakistan is not able to compete
with these countries.

Malpractice of industrialists

Over the years the textile industrialists have been involved in the real
estate business. Many leading business persons in readymade garments
had also closed down their units and shifted all their investments to the
real estate business. Bank loans, which actually were borrowed for the
textile sector, were used for the real estate business. Hype in the business

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of real estate sector attracted many among the textile sector and they
started investing in real estate at the cost of their textile business.

Opportunities

Market Development

The post-quota regime has brought many challenges and opportunities for
the textile sector of Pakistan. Pakistan can compete on the basis of price
and quality. It can also capture the great chunk of global demand by
improving efficiency of its textile industry.

R&D and Product development

R&D is required to meet international quality standards and to find new


ways of adding value to the products. Market is gradually shifting towards
Branded Readymade Garments therefore companies need to focus on new
product development in order to move up the value chain and capture a
greater global market share. The following two steps must be taken
• Investing in design centers and sampling labs
• Investing in trend forecasting to enable the growth of the industry

Threats

Competition in domestic market

Every firm has its own cost structure, so some firms can offer lower prices
for the same quality while competing with other domestic firms in the
national and the international market. Therefore it is often a threat for the
survival of the small and the medium sized firms.

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Global Competition

Due to the disproportionate increases in cost of production, the Pakistani


Textile firms are unable to compete with their regional competitors.
Competition in the international textile market has intensified and textile
products from Pakistan and other developing countries can find access to
EU and U.S.A only on the basis of competitive prices and quality. High cost
of inputs has badly affected all industry, however the major impact has
been shown on the textile industry as it is a major export oriented
industry.

Balancing the demand and the supply

In the past the firms could easily determine the expected demand and
keep their production according to it due to the quota system, however
after the end of the quote system the firms are uncertain about the
demand and supply because they have to compete on the basis of price
and quality.

Balancing price and quality;

The cost of production has been increased by more than 50% therefore it
is a big challenge for the producers to maintain the quality while keeping
the price in the competitive range.

Monetary policy

The tightening of the monetary policy by increasing discount rates and


cash reserve requirements will further reduce the lending ability of banks,
making it more difficult for the financial institutions to finance the
industry.

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Political and economic Stability

Due to political economical and financial instability investment is very low.


Although Pakistan has many strengths and opportunities without the
political and economic stability it would fail to attract the investment
required to utilize these opportunities.

Recommendations

Improvement in irrigation system

Proper irrigation system will help in managing and distribution of water so


that equitable water should be distributed and increase cultivation area by
improving water course system and decreasing HP level.

Import Export Finance Banks

Pakistan should start import export banks to facilities trading and


manufacturing community as these banks have shown fruitful result in
other countries. China, India and Bangladesh have helped much in
managing fund raising and cash flows.

Prepared By:
Muhammad Azam Rattar
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Role of Agriculture Banks/ADB (Asian Development Bank)

Pakistan agriculture banks haven’t shown any positive results regarding


boosting the motivation and helping small growers. They need to take
imperative steps to enhance the small growers. ADP(Asian Development
Bank) has emphasising to reduce the policy of continuous subsidies to
support our ecnomy.ADP is of the view that external cushion of relief given
by subsidies will no longer help in stabilizing the national economy ,hence
ADP has reduce the loans to Pakistan. We need to create stability of our
economy by the implementation of consistent policies towards the growth
of national economy which directly correlate the performance of textile
industry.

Check and balance on subsides

The government has decided to allocate Rs 30 billion towards


procurement of domestic acquired inputs, including taxes paid on gas and
electricity. This support is against WTO agreement; however government
has trying to support this suffering industry. To make allocation and
distribution of subsidy fair, it is necessary that there should be an
independent body handling such kind of government incentives.
Alternative use of power generation

Role of R&D

In textile and cotton industry, the role of research and development is


very passive. Government and private sectors should help in this
discipline so that we can make the most of this emerging industry.
Introducing high yield cotton breed, efficient pesticides, bridging gap
between academia and industry etc will help boosting textile industry.

Innovation in Technology

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Muhammad Azam Rattar
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Use of innovative machinery in textile industry, automatic spray system,
machine picking system of cotton etc will help in increasing efficiency and
reducing cost of product.

Government incentives

support price prior of sowing, decrease in discount rate, negotiations for


duty free access to European market, sustainability of economic policies,
improving law and order situation etc will help in boosting the confidence
of investor and improving the overall textile sector

References

• www.goole.com
• Strategic Management Book by David Fred
• Economy of Pakistan by Amin Khalid
• www.ask.com
• Survey of Economy of Pakistan 2007

Prepared By:
Muhammad Azam Rattar
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