READY-MADE GARMENTS

An emerging sector

By AMANULLAH BASHAR
Mar 15 - 21, 2004

Despite having well developed industrial base substantiated by a strong agricultural support, the textile sector in Pakistan has reached to an export level of around $7 billion which does not translate the actual potential of this industry.

The textile experts are of the opinion that exports of textile goods from Pakistan can attain the level of $22 billion provided concerted efforts are made by working together as an integrated industry instead of doing business in isolation by different segments of this industry which is the main stay of the national economy.

Practically speaking, over the years, an army of associations and trade bodies has emerged in the textile sector where politics for leadership is more visible for personal gains rather than making efforts to develop the industry purely on professional lines.

Although the textile industry has appreciably performed better as compared to other economic sectors yet its true strength has yet to be tested, especially in the post WTO scenario.

Being the largest foreign exchange earner for the country, the textile industry in Pakistan occupies a special place in eyes of the government as well as the private sector. The textile sector contributes over 67-68 per cent to the total exports of the country which were estimated over $11 billion last year. The export target for the current year was set at $12.1 billion for the current year which would hopefully achieved mainly because of better performance of the textile sector which is poised to hit the mark of $8 billion this year.

Despite all hue and cries over increase in cotton and cotton yarn prices within the local market, the overall performance of the textile exports are encouraging and likely to hit the mark of $8 billion at the end of the current financial year in June this year.

Pakistan's volume of textile exports remained hovering around $5 billion for many years which became a psychological barrier in the textile industry. For the first time, the textile industry managed to break the psychological barrier by adding around $2 billion dollars in the year 2002-03 by reaching around $7 billion. It is estimated that the textile industry continued to stride and is expected to register an increase of 37 percent over the total exports of previous year.

Pakistan's overall textile exports in fact are a pool of different component of which the major contributors are cotton fabrics, bed wear, knitwear, readymade garment and cotton yarn etc. By and large all these components are the front rankers in the export field with a close export performance. However, the experts feel that the ready-made garment has the potential to take over all its contemporaries and going to assume the role as a leader of the textile industry.

Their assumptions are based on the changing trends in the textile industry which rapidly moving towards value addition. In the early days, Pakistan used to export raw cotton, after developing the spinning sector, cotton yarn was the leading export product in the textile sector. At present, though the lead has taken by the cotton fabrics, yet this phase is a temporary one and time is not far away when the ready-made garment will take lead over all other sectors in the textile industry which is the logical conclusion of the economic growth of an industry.

The export performance of different segments of the textile industry in the year 2002-03 is given in the table 1.

Table 1
EXPORT PERFORMANCE OF DIFFERENT SEGMENTS OF THE TEXTILE INDUSTRY

Cotton fabrics:

$1.34 billion contributing 12.05 percent to the total exports

Bed wears:

$1.32 billion contributing 11.9 percent to the total exports

Knitwear:

$1.09 billion Contributing 10.27 percent to the total exports

Bed wears:

$1.09 billion contributing 9.79 percent to the total exports

Cotton yarn:

$928 million contributing 8.32 per cent to the total exports

Contribution by the Synthetic textile was restricted only to $574 million.

The above sectors are the main contributors in the textile sector's overall performance which is gradually increasing with the increased market accessibility in the European Union and the United States.

The experts in the textile sector, however, single out the readymade garment sector to be the top foreign exchange earner in the coming years because tremendous export opportunities available in the world market.

Actually, the working style of the textile sector was closely identical to the polarization prevailing in our society. A close look at the industry reveals that every sector of the textile industry operating in isolation. The spirit of working together towards a common direction does not prevail in this important segment of the economy. For instance, the All Pakistan Textile Mills Association (APTMA) claims to be the parent body of the textile sector, it mainly deals with the spinning sector. In fact different sectors in the textile industry have formed their own castles such as Bed wear Association, Knit Wear Association, Towel Manufacturing Association, Ready-Made Garment Association etc.

Though these organizations usually demand for transparency in the government policies and decision and raise hue and cry against what they call bureaucratic attitude of the government officials, but practically speaking they are working in highly suspicious and intriguing manners. They are never prepared to share about the developments in their sector. The so-called websites are either carry outdated information or totally black. This unfortunate situation prevailing in our textile sector is mainly due to lack of corporate culture and deep rooted Sethya system in the industry.

The export performance of different segments of the textile industry in the year 2002-03 is given in table 2.

TABLE 2
TOP 10 BUYER COUNTRIES

 

COUNTRIES

2002-03

% SHARE

2001-02

% SHARE

2000-01

% SHARE

CAGR

1

U S A

345,126

31.59

323,980

37.03

364,818

44.13

-3%

2

Saudi Arabia

122,203

11.18

73,645

8.42

52,744

6.38

52%

3

Germany

120,085

10.99

91,520

10.46

98,976

11.97

10%

4

United Kingdom

111,522

10.21

77,870

8.90

67,309

8.14

29%

5

Dubai

93,162

8.53

62,398

7.13

21,382

2.59

109%

6

France

50,581

4.63

39,743

4.54

36,672

4.44

17%

7

Netherlands

45,790

4.19

41,918

4.79

33,990

4.11

16%

8

Belgium

32,536

2.98

20,875

2.39

22,406

2.71

21%

9

Italy

31,151

2.85

26,050

2.98

19,559

2.37

26%

10

Canada

27,435

2.51

29,156

3.33

29,273

3.54

-3%

SUB TOTAL

979,591

89.66

787,155

89.97

747,129

90.37

15%

NEXT TOP 10 BUYER COUNTRIES

 

COUNTRIES

2002-03

% SHARE

2001-02

% SHARE

2000-01

% SHARE

CAGR

11

Spain

22,682

2.08

15,002

1.71

12,619

1.53

34%

12

Nigeria

11,836

1.08

5,279

0.60

6,524

0.79

35%

13

Ireland

8,507

0.78

7,497

0.86

6,215

0.75

17%

14

Sweden

7,514

0.69

5,996

0.69

6,537

0.79

7%

15

Denmark

4,362

0.40

4,352

0.50

4,597

0.56

-3%

16

Senegal

4,362

0.40

668

0.08

11

0.00

1891%

17

Malaysia

4,136

0.38

3,365

0.38

1,011

0.12

102%

18

Hong Kong

4,103

0.38

2,345

0.27

2,622

0.32

25%

19

Australia

4,096

0.37

5,216

0.60

3,685

0.45

5%

20

Greece

3,728

0.34

2,274

0.26

1,387

0.17

64%

SUB TOTAL

75,326

6.89

51,994

5.94

45,208

5.47

29%

SUB TOTAL OF 20 COUNT

1,054,917

96.5

839,149

95.9

792,337

95.8

15%

OTHERS

37,690

3.45

35,805

4.09

34,434

4.1

5%

TOTAL

1,092,607

100.00

874,954

100.0

826,77

100.0

15%

The Export Promotion Bureau (EPB) on its part has chalked out plans for capacity building with new aggressive marketing strategies for the textile sector especially for the garments on most modern lines. Under capacity building scheme for manufacturing export companies including indirect exporters, consultancy services will be provided on 50:50 cost sharing basis between the government and the private sector enterprises. The technological upgradation is to bringing about upgradation in the management of the business and not limited to only the production of goods and services, through BMR of production and expansion, better marketing procurement, financial management, induction of different technologies etc. aimed at increase productivity, better product quality or production, adaptation to meet changing market requirements.

BRAND DEVELOPMENT

For enhancement of exports, an important enable is to provide marketing support to strengthen the selling and marketing capabilities of the exporters who are at present weak in marketing management. To encourage the exporters in this respect and in conjunction with the capacity building scheme announced in the Trade Policy 2003-04, a specialized scheme is also offered for assisting, willing and able exporters to undertake better marketing preferably for branded products and services. While the development of brand names is covered in the scheme for capacity building for exporters, and brand acquisition and franchising scheme, this specialized initiative provide for guidance in overall marketing independently of other supportive scheme. This support will cover product design, packaging, pricing distribution and selling, shelf display, advertising and promotions, brand name and brand equity development, research etc. It would also cover overall business image enhancement including brochures, participation in exhibition and fairs, company's presentation, websites etc.

Majority of readymade garment exports from Pakistan does not carry even the made-in Pakistan label. Since, our products have not yet developed an identity for themselves in the world market; they are fetching comparatively much less prices as compared to those items being sold under a brand name. Developing a brand name of our own is not any easy task, hence to overcome this problem, the EPB has suggested acquiring or franchising existing international brands to excel in the export market and get better price of our products. This is the right decision and can make a visible change in terms of quality, quantity and value of our products.

CHALLENGE

Though, the readymade garments exporters are getting ready to join billion-dollar global market after implementation of WTO rules in January next year, they should also get mentally prepared to face the challenges of SA 8000, the standard for social accountability, which could soon start telling on our manufacturing industries.

The social compliance requirements from foreign buyers could create a lot of problems for the country's exporters in getting export orders from the US and European markets in the near future.

IMPLEMENTATION OF LABOR LAWS BEFORE PLACING ORDERS

Textile buyers, especially the Europeans, are forcing the local exporters for implementation of labor laws and social requirement of the workers before placing orders. This demand of the importing companies does not match to the existing system in our manufacturing sector lagging in developing a corporate culture in our system.

Just compensation, reasonable working hours, safe and healthy environment and prohibition of child labor are the components of the main theme of SA 8000 standard. Many companies choose to define their own values through a "Code of Conduct for Suppliers" or similar document, called the SA 8000 standard's document, adding under the SA 8000 standard, social auditors also conduct human rights audit in the factories.

These laws were implemented one year ago, but now the buyers have started asking about the implementation of the standard.

Actually, these demands on the part of buyers from the developed world amount to create non-tariff barriers for the smaller countries. Consequently, the small exporters would not be able to export their products in the international market and would, therefore, prepare garments for the large exporters. Most of the small readymade garments manufacturing units are set up as a cottage industry, where implementation of international labor laws are hard to implement not because they are impractical but because we are not used to share our gains with those who work for us. Sooner or later, we have to train our minds to accept these realities if we really desire to achieve good living conditions for us and our people.

Buyers are also conducting social audit of the country's garment industries through their approved auditors, and this situation is casting a negative affect on these buyers, who are already shaky about Pakistani garment industry. There are very few garment factories having capacity to rise to the occasion while majority of these producers dam cares all these norms and ethics. This means, they have to provide better conditions to their workforce if they desire to survive in the quota free environment after 2005.

Although lack of education among the workers is blamed for implementation of the rules for social requirement of the workers, yet it is willingness which lacks. It is the will that makes the way for any thing, mind it.

Pakistani exporters are still competing in the international market because of the high quality of their products and of course under the protection umbrella of the quota system. Besides producing the quality readymade garments, the price of the units will have to be bringing down in the face of the cut throat competition to force foreign buyer to buy Pakistani garment.

COMPETITORS

The international textile analysts estimate that China, which commands over 15 per cent of the nearly $400 billion global market in textiles, would be the biggest gainer in quota free regime. Indeed, there is evidence that China's market share could cross 25 per cent.

To substantiate their assumptions, they cited the precedents of three categories of both man-made fiber and cotton made-ups and apparel in which quotas in the US market were abolished in January 2002, China's exports surged by 300 to 500 per cent in just one year.

However, a recent US assessment says that India could be a gainer, although it would lag behind China by a substantial margin. An India-China comparison clearly shows how India has crippled the competitive advantage it once enjoyed in textiles by myopic policies and confusion about goals. While China has the capacity to make rapid advances in the global market, the moment opportunity arises, the size of India's industry is diminutive in comparison. Even if it were to make rapid advances in competitiveness, its ability to ramp up production and meet large orders remains rather limited.

Simply put, China has created large capacities and capitalized on economies of scale to dominate the world market. In sharp contrast, India's policy framework has fragmented industry by discouraging large-scale production and encouraging proliferation of small units. Large garment exporting units in India employ less than 1,500 workers, whereas in China that number goes up to 25,000. It's not surprising that the $6 billion garment exports from India are spread across over 10,000 units. Even Sri Lanka's garment exports of $3.5 billion come from only 300 units.

This has happened because small-scale reservation for garment export and the attendant fiscal concessions discouraged large units from entering the business. Similarly, in textiles, the profitability of large mills was severely eroded by fiscal concessions extended to power looms and the imposition of obligation to sell hank yarn at fixed prices to the handloom sector. The result was complete stagnation of the mill sector which had little money left for modernization and technology upgradation. For instance, in the year 2000, China had six times more shuttle less looms than India. Even Pakistan had twice the number.

The growing obsolescence in the mill sector and fragmentation of garment manufacture into small units has resulted in India selling low value-added goods. The evidence is shocking, while India's quantitative share of the global textile trade is around 8 per cent, its share of value added in the global trade is only 3 per cent. We have missed the huge opportunity in processing, made-ups and ready-made garments.

Mercifully, over the last two years the government has rationalized excise duties and introduced VAT across the textile value chain, and reduced import duties on textile machinery. But the change agenda remains incomplete. First, labor laws need to be more flexible to enable companies to capitalize on low labor cost. This would not harm labor, as along with other measures to make the industry globally competitive, this could double the number of jobs in less than a decade. Indeed, the textile industry offers the best scope for absorbing rural workers displaced from farming. Availability of funds at competitive costs is also critical for rapid creation of new capacity. Third, we must encourage the growth of man-made fiber industry through a fiscal structure that encourages value addition as over two-third of the global trade in textiles is in products based on synthetic fiber. Fourth, measures to reduce costs of infrastructure to global levels would be needed to aid growth. India's textile industry has the potential to contribute more to our GDP growth, job creation and poverty reduction than any other sector. The support we give it now would yield a whopping dividend in the years to come.

TASK AHEAD

To grab its due share out of the huge $400 billion global textile market, Pakistani exporters have to concentrate on the following basic fundamentals:

1. Increasing volume production to cut down cost of production through economy of the scale through mass production.
2. These steps could be achieved only through integration of the smaller units through mergers and acquisitions.
3. Instead of working in isolation as an individual collective mental approach would be a prerequisite.
4. Pakistani industrialists are used to enjoy huge profits of their products. They would have to comprise on the principles of more business and less profit which is in vogue the world over.
5.
Most of the garments units produce for men while a huge portion of the garment exports comprise over women fashion apparels. They have to bring in the change for ladies garments according to market requirements.