Competitiveness of Pakistan Textile Industry

Issues and Challenges

By. Syed Mumtaz Ali

 Presentation Structure

Competitiveness in Textile Trade

Globalization & Changing Scenarios

Competitiveness of Pakistan Textile Industry

Issues and Challenges
 Textiles and Apparel: Factors of Competitiveness

1. Business Climate
2. Infrastructure and Proximity to Markets
3. Market Access
4. Labor and Management
5. Raw Material Inputs
6. Level of Service Provided and Reliability of
Supplier
 Textiles and Apparel: Factors of Competitiveness
1. Business Climate
Political Stability
Safety of Personnel
Security of Production and Shipping
Transportation and predictable legal,
commercial and regulatory system
Minimal administrative burden and
corruption
Compliance with internationally
recognized health and labor
standards
Subsidies and tax credits
Free trade zones
Real exchange rates
Market demand and economic growth
2. Infrastructure and Proximity
to Markets
Roads, Ports, Rail and airports for
moving goods into and out of the
country
Shipping and other transportation
times and costs
Proximity to major markets
Access to reliable sources of energy,
water and telecommunications
3. Market Access
Preferential access in major markets
 Textiles and Apparel: Factors of Competitiveness
4. Labor and Management
Availability of workers and
competition for workers from other
sectors
Compensation rates
Labor Skills and productivity
Availability of qualified managers,
including middle management
5. Raw Material Inputs
Access to quality and cost
competitive domestic or regional yarn
and fabric production
Rules of origin for trade preferences
Cost and availability of capital to
invest in new machinery and
purchase raw materials
6. Level of Service Provided
and Reliability of Supplier
Reputation for quality and on-time
delivery
Existing business networks (supply
chain linkages, relationship with
customers)
Level of service provided (e.g. full-
package versus assembly)
Flexibility and variety in styles or
products and lot sizes offered
Lead time and flexibility to respond to
quick turnaround orders
 Globalization &
Changing Scenarios
 Global Trade is Growing
Projections of World Textile and Apparel Trade
CAGR
Textile: 5.8%
Apparel: 9.6% 655 Bn
583 Bn
482 Bn
US$ Bn

Source: ITC
Developed Countries will remain the Major
Consumers
PER CAPITA CONSUMPTION

Source: Werner Intl

Asian countries would gain in
US
Market Share of Total Apparel for USA Market - 2010

Source: KSA
As Well as in EU
Market Share of Total Apparel for EU-15 Market - 2010

Source: KSA
 Synthetic Fibers Filling the Gap

WORLD PRODUCTION OF TEXTILE FIBERS

CELLULOSIC SYNTHETIC WOOL COTTON

60

50
MILLION TONNES

40
Thousands

30

20

10

0
1965

1970

1975

1980
1900
'10
'20
'30
'40
'50
'60

'85

'90

'95

2000

2002
Source : Werner, CIRFS
Changing Requirements of Customers
Customers are
Focusing more on Retail end
and
Looking to Optimize Sourcing Costs

Therefore
Identifying Their Strategic Partners ..and
Increasing Direct Sourcing
Traditional VS Strategic Relationships

Past Future
80% Transactional
20%
Vendors
Relationship

80%
Strategic
Partnerships
20%
 Redefining Suppliers
Responsibilities
Present share of services and
responsibilities
Manu- Ware-
Design Sampling Shipping Distribution Retailing
facturing housing

Suppliers Clients
Responsibilities Responsibilities

Manu- Ware-
Design Sampling Shipping Distribution Retailing
facturing housing

...and for the future?

Buyers are looking for complete
Solutions

Convenience

Innovation Compliance

Buyer
Requirements

Speed Cost

Flexibility
Successful Suppliers would need to
build new competencies
In addition to price and quality buyers would
increasingly evaluate their supplier on:

Innovations
Cycle Time Reduction
Product Design & Development
Supply Chain Optimization
Service Levels
Strategic Partnerships with Buyers
 In a Nutshell the Effects of Globalisation
are..
Fully
Fully integrated
integrated textile
textile
Closures chain
chain becomes aa
becomes
Closures or
or reduction
reduction of
of textile
textile strategic
production
production capacities in high cost
capacities in high cost strategic asset
asset
countries, mainly EU, Japan,
countries, mainly EU, Japan, USAUSA

Reliability
Reliability in
in services
services and
and short
short
lead times being THE
lead times being THE KEY KEY
Equally
Equally easy
easy access
access to
to latest
latest purchasing
purchasing factors
factors for
for buyers
buyers
technologies
technologies for
for all
all players.
players. Capital
Capital not
not initiating
initiating partnership
partnership and
and
technology
technology isis the
the only
only restricting
restricting factor
factor alliances
Globalization alliances
to set up new capacities
to set up new capacities

The Exchangeability
Exchangeability of
of the
the products,
products,
The strategic
strategic choice
choice for
for textile
textile
manufacturers price
price becomes
becomes major
major factor
factor of
of
manufacturers isis between
between high
high volume
volume low
low
cost products or niche products differentiation
differentiation
cost products or niche products
Competitiveness of Pakistan Textile Industry
Issues and Challenges
 Pakistan Textiles & Apparel industry

1. Generates about 64 % of total exports

2. Constitutes 46 % of Manufacturing
Industry
3. Employs 40% of Countrys working
population
4. Contributes 11% of the total GDP
5. Pakistani clothing export growth slowed to
8% in 2006, following three years of double
digit increase.
Pakistans Textile & Apparel
Industry
% Share in Global trade
Pakistan Textile Exports Major
Categories
 10,117
8,926

Textiles include raw cotton, yarn, fabrics, made ups, towels, tents etc
 Pakistan Export Performance
1995-2006
Year Textile Apparel Total Export Performance of Textile and Apparel Industry in
Pakistan
1995 4.26 1.61 5.87

1996 4.92 1.87 6.79

1997 4.61 1.81 6.42

8
1998 4.3 1.84 6.14

1999 4.26 1.85 6.11

V lu e in b illio n
6
4
2000 4.53 2.14 6.67 2

2001 4.53 2.14 6.67 0

1994 1996 1998 2000 2002 2004 2006 2008
2002 4.79 2.23 7.02
Years
2003 5.81 2.71 8.52
Textile Apparel
2004 6.13 3.03 9.16

2005 7.09 3.6 10.69

2006 7.47 3.91 11.38

 Pakistan vs Major Competitors

120
Countries Textile Apparel Total
100

Value in billion US $
Pakistan 7.47 3.91 11.38 80
Textile
60
China 48.68 95.39 144.07 Apparel
40
20
India 9.33 10.19 19.52
0

Bangaladesh 0.23 7.18 7.41

Veitnam 0.63 4.9 5.53

Countries
Indonesia 3.6 5.7 9.3
 Pakistan vis--vis Bangladesh, Indonesia, Egypt, China, India and Vietnam
Factor
FactorCosts:
Costs: Labour
Labourwages
wages

Labour costs still differ greatly in the reference countries and range considerably within the reference
countries. Based on industry sources we estimate the hourly average wages as follows:

Factor Cost - Labour wages including all benefits (US Cents per hour)
Cost parameter Pakistan India China Bangladesh Indonesia Egypt Vietnam

Average Labour wages

39 47 57 27 52 60 29
including all benefits

INDEX 100 120 146 70 133 154 74

Although labour costs in Pakistan are low, due to

a lower labour productivity in many mills, this
advantage is neutralized.
Source: Country data / Gherzi analysis
 Pakistan vis--vis Bangladesh, Indonesia, Egypt, China, India and Vietnam
Factor
FactorCosts:
Costs: Power
Power

In most of the reference countries, power costs show an upward trend as a result of the increased oil prices

Factor Cost Power (US Cents per kWh)

Cost parameter Pakistan India China Bangladesh Indonesia Egypt Vietnam

Power cost
from grid 6.0-7.0 6.0-7.0
10.0 8.5 6.3 4.0 6.0-7.0
captive 5.0-6.0 3.0-4.0
-- --
(gas) (gas)
Power rate taken for the
6.1 10.0 8.5 5.0 6.3 4.0 6.5
study

INDEX 100 164 139 82 103 66 106

India has by far the highest power cost compared

with the reference countries, but some state
subsidize power cost.
Source: Country data / Gherzi analysis
 Pakistan vis--vis Bangladesh, Indonesia, Egypt, China, India and Vietnam
Factor
FactorCosts:
Costs: Raw
Raw Water
Waterand
and Steam
Steam

In Bangladesh and Indonesia most mills use ground water from their own wells, which
results in low water costs
Factor Cost - Raw water (US Cents per m3) 2006
Cost parameter Pakistan India China Bangladesh Indonesia Egypt Vietnam
Ground River water,
Raw water cost 18.2* 14* water, only only
46**
42.0
treatment treatment 0.23 24.0
US Cents per m3 60***
costs costs

India and China have the highest water rates of the reference countries

Factor Cost - Steam (US Cents per kg of steam) 2006

Cost parameter Pakistan India China Bangladesh Indonesia Egypt Vietnam

US Cents per kg of steam 2.0 2.0 0.8 1.0 2.0

1.1 1.6
Furnace Furnace
Generated from Oil Coal Coal Gas Oil Furnace Oil Furnace Oil

Compared with Pakistan and China, India has a lower cost of steam
* Borewell
** Industrial Development
Source:Gherzi analysis Corporation
***Tanker Water (Karachi)
 Pakistan vis--vis Bangladesh, Indonesia, Egypt, China, India and Vietnam

Raw Material and Power Costs are the key cost drivers

Key Cost drivers and Pakistans position

* Key cost drivers Raw
material Power * Wages Exchange
* Rate
Pakistan AA AAA AAA AA

Bangladesh A AAAA AAAA AAAA

Indonesia A AAA A A

AA
Egypt (Long Staple only)
AAAA A A

China AAA A AA AAAA

AAAA
India (Short and Long staples)
A AAA A

Vietnam A AAA AAAA AA

BIG ADVANTAGE AAAA ADVANTAGE AAA MEDIUM ADVANTAGE AA NO ADVANTAGE A

Pakistans Textile & Apparel Industry
SWOT
Strengths Weakness
Low Price Image
4th largest Cotton producer
Lower marketing initiatives
64% of countrys export volume
Limited use of modern technology
1.4 Mn people employed with 50% in
Confusion in political / religious
apparel
scenario
Low labor cost at US$ 0.39 per hour
Low levels of managerial capabilities

Opportunities Threats
Better laid down factories on best
Rising Cotton Prices
practices
China and India being considered as
Potential of improving confidence in
countries for high value added garments
buyer by working directly & closely
Price Pressures
Home Furnishing from Pakistan have
made a big name worldwide
Womens wear has a huge potential
What Needs to be done
 Improve capabilities in key
performance areas

Collaboration in Use of
Product Technology
Development

Increase Consistent
Efficiency and Manufacturing
Productivity Standards
 What Needs to be done
Build capabilities in the following areas:
Productivity Improvements across Supply Chain
Consolidating Operations
Building Logistic Capabilities
Developing long term relationships with Clients
Collaborating with buyers on forecasting and
inventory management
Investing in IT infrastructure and compliance
 What Needs to be done
Think Value Not Price
Be on the Cutting Edge of Performance
Reduce Cycle Time, Improve Flexibility
Redefine Strategic Partnerships
Align With a Few Truly Strategic Partners
Thank You