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Textile Industry Analysis

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					Textile Industry
Analysis
Security Analysis




Ali Khan            MBA II/III
Chandan Kumar       MBA II/III
Harris Mukarram     MBA II/III
Vishal Parsad       MBA II/III
Table of Contents
Overview of Textile Industry ................................................................................................................... 3
The Manufacturing Process .................................................................................................................... 4
Industry Structure ................................................................................................................................... 5
Economic Contribution of Textile industry ............................................................................................. 8
World Cotton Production........................................................................................................................ 8
Cotton Production in Pakistan ................................................................................................................ 9
Performance & Competition ................................................................................................................. 10
Cost Structure ....................................................................................................................................... 13
       Fertilizers & Pesticides .................................................................................................................. 13
       Petrol prices .................................................................................................................................. 14
       Gas and electricity tariff ................................................................................................................ 14
       Import of textile machinery .......................................................................................................... 14
       Polyester staple fibre imports ....................................................................................................... 15
       Increase in margin requirements for LCs ...................................................................................... 15
       Increase in discount rates ............................................................................................................. 15
       Impact of inflation and concern over monetary policy ................................................................ 16
       Technology .................................................................................................................................... 17
       Role of Government ...................................................................................................................... 17
SWOT Analysis....................................................................................................................................... 18
   Strengths ........................................................................................................................................... 18
   Weaknesses ...................................................................................................................................... 20
   Opportunities .................................................................................................................................... 21
   Threats .............................................................................................................................................. 22
Recommendations ................................................................................................................................ 24
       Improvement in irrigation system ................................................................................................ 24
       Import Export Finance Banks ........................................................................................................ 24
       Role of Agriculture Banks/ADB (Asian Development Bank) ......................................................... 24
       Check and balance on subsides .................................................................................................... 24
       Role of R&D ................................................................................................................................... 25
       Innovation in Technology.............................................................................................................. 25
       Government incentives ................................................................................................................. 25




                                                                                                                                                          2
Overview of Textile Industry

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




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production processes 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.


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.

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




                         Raw Cotton Bales                     Bundles
        Cotton                                Ginning
      cultivation




                          Grey Cloth
                                            Weaving
                          Bundles


       Finishing                                                                Spinning
                                                        Cotton Thread /
                                                        Yarn
                                            Knitting
                                                        Bundles
                           Knitwear

                           Bundles
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
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

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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 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:




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  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.

                                   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


                                                                                                    7
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 companies)   5.11% OF TOTAL MARKET CAPITILIZATION




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.




                                                                                             8
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
    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

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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 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

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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.


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




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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.




                                                                                         12
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.




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



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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 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.



                                                                                              14
Year                                             Import of machinery (US$ in millions)
2003-04                                          597.9
2004-05                                          928.6
2005-06                                          817.2
2006-07                                          502.9


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.

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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


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.




                                                                                                 16
Technology


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.
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.

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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.



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.




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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


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




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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 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

                                                                                                 20
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
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.




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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.



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


                                                                                               22
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.



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.




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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.



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




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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


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




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