Seminar on Better Strategy for Development of Textile Sector

Ministry of Textile Industry

Competitiveness of Pakistan Textile Industry

Issues and Challenges

By: Fayyaz Riaz

Small and Medium Enterprises Development Authority (SMEDA)

August 30, 2008

Faisalabad
 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

Source: US International Trade Mission

 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
Source: US International Trade Mission
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
Source: US International Trade Mission
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%
700 Apparel: 9.6% 655 Bn

600 583 Bn
482 Bn
500
397
US$ Bn

400 351
281
300
200
232 258
100 201

0
2005 2008 2010

Source: ITC Textile Apparel

Developed Countries will remain the Major
Consumers
PER CAPITA CONSUMPTION
(kgs. of textile fibres per capita in 2006)

PER CAPITA TEXTILE CONSUMPTION

INDIA 2.8
PAKISTAN 4
CHINA 5.5
DEVELOPING COUNTRIES AVERAGE 4.5
JAPAN 8.5
USA 21
DEVELOPED COUNTRIES AVERAGE 17.7
GLOBAL AVERAGE 6.8

0 5 10 15 20 25

Source: Werner Int’l

Asian countries would gain in
US…
Market Share of Total Apparel for USA Market - 2010
100%
5%
11% 14%
16% Rest of the
90%
12%
World
80% 14%
SSA
11%
13%
17%
Asean
70%

14% Taiwan &

60% 12% Korea
12%
South Asia
50%
15% China & HK
18% 27% 38%
40%
Europe
5%
30% 5%
5% Canada
14% 3%
20% CBI
13%
12%
12%
10% Mexico
14% 11% 9% 6% Source: KSA
0%
2000 2003 2005 2010
 …As Well as in EU
Market Share of Total Apparel for EU-15 Market - 2010
100%
9% 9% 8% 7%
Rest of the
90%
World
11% 12% 10%
80% 11% Romania &
Bulgaria
70% 7% 8% 9% 15% Euro Med
60% 9% 10% 13%
ASEAN
50% 25%
40% South Asia

30% 56% 54% 53% China

20%
35%
Intra EU Trade
10%
Source: KSA
0%
2003 2004 2005 2010
 Synthetic Fibers Filling the Gap

WORLD PRODUCTION OF TEXTILE FIBERS

CELLULOSIC SYNTHETIC WOOL COTTON

60

50
MILLION TONNES

40
Thousands

30

20

10

0
'40
'50

'85
'10
'20
'30

'60

'90

'95
1965

1970

1975

1980
1900

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
Vendors
20%
Relationship

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

Supplier’s Client’s
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
becomes aa
Closures or
or reduction
reduction of
of textile
textile strategic
production
production capacities
capacities in
in high
high cost
cost strategic asset
asset
countries, mainly EU, Japan,
countries, mainly EU, Japan, USA USA

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 all players. Capital not
for all players. Capital not initiating
initiating partnership
partnership and
and
technology
technology isis the
the only
only restricting
restricting factor
factor alliances
Globalization alliances
to
to set
set up
up new
new capacities
capacities

The Exchangeability
Exchangeability ofof the
the products,
products,
The strategic
strategic choice
choice for
for textile
textile
manufacturers price
price becomes major factor of
becomes major factor of
manufacturers isis between
between high
high volume
volume low
low
cost differentiation
differentiation
cost products
products or or niche
niche products
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 Country’s 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.
Pakistan’s Textile & Apparel
Industry…
% Share in Global trade
World Trade Share

China, 24%
Other, 27%

Indonesia, 2% Hong Kong, 9%

Mexico, 2%
Pakistan, 2%
Taiwan, 2%
Korea, Republic Italy, 7%
of, 3% Germany, 6%
Belgium, 3%
Turkey, 4%
France, 3%

India, 3%
United States, 4%
Pakistan Textile Exports – Major
Categories
2006
Art Silk & Syn.Tex Other textiles
3% 2%
Tents & Canvas
1% Raw Cotton
1%
Yarn
Towels 12%
6%

Fabrics
Madeups Incl. Bedwear 24%
21%

Ready Made Garments

Knitwear (Hosiery)
12%
18%
 T extile an d Ap p arel E xp o rts fro m P akistan

12000
10,117
10000 8,926

3050
8000
Value in US$ Mn

2723
6000

4000 7067
6263
2000

0
2004 - 05 2005 - 06
Ye a r
Tex tiles A pparel
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

Vlue in billion
1998 4.3 1.84 6.14
6
1999 4.26 1.85 6.11
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
(2006)
120
C ountries T extile A pparel T otal
100

Value in billion US $
P akistan 7.47 3.91 11.38 80
T extile
60
C hina 48.68 95.39 144.07 Apparel
40
20
India 9.33 10.19 19.52
0
B angaladesh 0.23 7.18 7.41

dia
a

am
n

sia
h
in
a

es
In
ist

Ch

itn

ne
lad
k

Ve

do
Pa

ga

In
V eitnam 0.63 4.9 5.53
n
Ba
Co u n trie s
Indonesia 3.6 5.7 9.3
 Pakistan vis-à-vis Bangladesh, Indonesia, Egypt, China, India and Vietnam
Factor
Factor Costs:
Costs: Labour
Labour wages
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) 2006
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-à-vis Bangladesh, Indonesia, Egypt, China, India and Vietnam
Factor
Factor Costs:
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) 2006

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-à-vis Bangladesh, Indonesia, Egypt, China, India and Vietnam
Factor
Factor Costs:
Costs: Raw
Raw Water
Water and
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
Raw water cost 18.2* 14* water, only water, 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 1.6

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

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

Raw Material and Power Costs are the key cost drivers

Key Cost drivers and Pakistan’s 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

Pakistan’s Textile & Apparel Industry…
SWOT
Strengths Weakness
• Low Price Image
• 4 largest Cotton producer
th
• Lower marketing initiatives
• 64% of country’s 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
• Women’s 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