Pakistan Textile and Garment Sector Issues, Prospects and Strategic Recommendations By: Salman Fahad Shawana Zeeshan Ovais Hina Sohail & Hafsa Saadia James William Lang, Australia For the Ministry of Finance

A case study approach: Understand and estimate Pakistan’s performance in chosen SITC sectors Investigate persistent decline in Performance & Sophistication Analyze the factors that hinder the high levels of high quality (sophisticated) exports Analyze the impact of govt support & subsidies & Recommend Strategies for improvement The Intro. Pakistan Textile & Garment Sector

Data Collection and Characteristics: 9 SITCs chosen on the basis of their level of sophistication and considers them more or less as equal 18 companies and 4 representative industry bodies were formally visited Discussion intentionally steered away from macro economic factors Micro issues specific to firm or product that are challenges or concerns for the firm towards better and sophisticated export performances.

Elite – Large scale, fully integrted and efficiently producing and exporting high value products; Middle Rank – Producing low to middle value product and some higher value products but see their future in exports of higher value items; and Low Rank – Numerous, producing lower value product with generally stagnant performance, suffer strong competition from India, China and Bangladesh. Won’t survive without govt support. 3 Company/Firm Rankings and Characteristics Identified

1. Lack of staff Training at all levels (Vocational, graduate and management) 2. Development of partnership type relationships with clients that assist to adopt and continually develop new high value items for export. Issues with Elites:

Issues with Middle Rankers:  Up to date Info. On; Latest and Efficient Technology Potential new Markets  Training staff at all Levels  Partnership relationship with potential clients  Access to design skill locally for short term assignments &  Access to local bank finance on competitive terms

 Issues for Middle Rankers +  Security Issues  Certification costs &  Quality and Cost of Raw Materials Additional Issues with Low Rankers:

Issues Universal to all Ranks  Training staff at all Levels  Market Knowledge  Partnerships with Clients  Delivery of Intermediate and not Final goods specially by lower ranked firms

Selected SICTs; an overview of Performance figures

Selected SICTs; an overview of Performance figures  Europe 76%, USA 15% and Japan 9%

Decline in Export of Sophisticated products  Pakistan Exports are declining  Heavily concentrated in a single SITC 6531 i.e. 80% in 2008  This share of 6531 is declining too.

6519, 6573, & 6577 growing significantly Many of the products produced under these three SITCs are technical, specialized or sophisticated products used in specialist applications. Only two firms interviewed stated they were producing these fabrics (Sapphire and Chenab) size 13 billion, Pakistan’s 6.7 million (2008). Focus on the final goods

SITC 6579 – Special Products – this consists of two products - textile transmission or conveyor belts and textile hose piping. It is a medium sized import sector that is growing steadily over time with growth experienced in both products No Export companies identified

Lack of focus on growing market trends i.e 6572 and 6577 specially There are little to no exports from Pakistan in bonded fabrics –the SITC One reason for the decline in trade in cotton-synthetic mixed fabrics over time is the move to the supply of finished products rather than base fabrics.

Performance analysis: Summary of declining reasons  Withdrawal of quotas into the USA market at the end of Leading to the cease in export of some goods  Move to more fully integrated firms and as the Middle rank and Elite firms produce more final goods and less intermediate goods their export sales will be found in other SITCs not chosen for analysis in this consultancy  Poor market Orientation (6519, 6572, 6573, 6577)

 Increased competition from China  Pakistan exports are heavily concentrated in some export sectors which themselves are globally small and are declining.  Pakistan exports are in areas of fabrics with an underlying base of cotton. However over time the market is shifting away from cotton base fabrics more to manmade fiber based fabrics. Performance analysis: Summary of declining reasons

1.The paradox of quality, value and subsidies: Rather than low rank firms govt must immediately focus on the Middle and Elite ranks to improve Value levels and sophistication. Low rank firms must be focused to strategically orient their performances towards high end sophisticated products as we can not compete China and India on the less sophisticated sector keeping in view the macro-economic factors. Strategic Recommendations

2.Through Mutual Co-operation and Govt Support firms must focus improvement in: A.Staff training levels (Specially vocational) B.Development of Partnership relationship with clients Strategic Recommendations

C.Information Exchange through facilitation of; Use of expatriate Pakistanis’ in destination countries and use of their networks into the Pakistan communities in those countries Attendance at trade shows and exhibitions; and Use of the internet Strategic Recommendations

D. Acquisition and Knowledge of the latest Production and Process Technologies and how to use them. E. Other Issues like certification, water treatment, environmental and waste disposal, energy, financial services Strategic Recommendations

Thnx!!! Any Qs??