AMERICANS EYE PAKISTAN TEXTILE BUSINESS

SYED FAZL-E-HAIDER, QUETTA
Aug 27 - Sep 02, 2007

USA-based textile sourcing companies are currently exploring investment opportunities in Pakistan textile business through acquisition and joint ventures. American companies like WestPoint Stevens and Dan River, are in the process of negotiations with the local textile groups for entering into a joint-venture business or to establish their own industry for manufacturing textile and apparel goods required by their chain stores.

Textile is the main industry in Pakistan, which earns up to 66 percent of the total annual foreign exchange earnings. Last January, while addressing the joint session of Pakistani importers of American textiles, and the Business Council for Understanding in New York, Prime Minister Shaukat Aziz said Pakistan's total exports stood at Rs 17 billion out of which Rs 4 to 5 billion pertained to textiles. He had invited American investors to invest in Pakistan since the country had set up encouraging laws for free textile zones and was also establishing an international textile zone, dry ports and terminals.

United States is an important export market for Pakistan. American retailers find Pakistani textiles and apparel particularly attractive. Import quotas exist, however; trade in textiles is governed by a bilateral agreement. WestPoint Stevens and Dan River are the two American companies, which are reportedly negotiating a $200 million deal with a Karachi-based textile group in Pakistan. The deal is yet to be finalized.

The WestPoint Stevens is a world-class textile company, which is involved in multi-billion dollars textile business. It is actually the merger of three of the oldest, most innovative and successful companies in American textiles. The three companies that merged are J.P. Stevens & Co., Pepperell

Manufacturing Company, and Westpoint Manufacturing Company. Products made by WestPoint Stevens and its ancestor companies can be found on every page of American history. The company is engaged in the design, manufacturing & marketing of textile products. It manufactures and markets bed & bath textile products, including sheets, pillowcases, bedspreads, towels and related products for distribution to chain and department stores and mass merchants. It produces circular knit fabrics supplied primarily to manufacturers of men's, women's and children's sportswear & activewear. The company is also exploring investment opportunities in India, China and Vietnam.

Dan River is a leading manufacturer and marketer of textile products for the home fashions and apparel fabrics markets. Founded in 1882, Dan River has a long history of making high-quality textiles for the American bedroom. The company is a leading manufacturer of textile products for a multitude of uses and applications. The company began as a cotton mill on the banks of Virginia's Dan River and grew into a leading manufacturer of yarn and fabric in the ensuing decades. Today, Dan River creates products for both home and hotel, with additional lines of cotton, cotton blend, and shirting fabrics. The company designs distinct bedroom furnishings for teens, kids, and adults, with a wide selection of fabrics and accessories ranging from decorative pillows to draperies.

Along with other American textile companies, the globalization of the textile industry also hit the Dan River's operations in the United States. Since 1997, more than 350 textile plants have closed in the US. Dan River filed for bankruptcy in 2004 and emerged in the beginning of the year 2005. In January 2006, Dan River was sold for $93 million to an India-based company- Gujarat Heavy Chemical Limited (GHCL). The GHCL bought 90 percent of available Dan River stock and assumed its $80 million debt. GHCL then planned to close down the company's manufacturing operations in the U.S and outsource all products from India, Pakistan and China.

The Asian countries- Pakistan, China, India, Bangladesh, and Sri Lanka are presently considered the leaders in world textile exports. Pakistan has edge of over Bangladesh and Sri Lanka as these countries do not have their own cotton as raw material. Pakistan has a strong textile industry with sufficient raw cotton as raw material for spinning industry and sufficient labour force. According to World Bank estimates, Pakistan ranks 8th among 150 cotton exporting countries of the world. India ranks 9th and China ranks at a far 110. After introduction of free-trade policies under WTO from January 2005, most of the countries are demanding changes in their trade and commerce, economic and financial policies to adjust in the changing world trade circumstances.

Some western companies have closed down their business in their home countries and shifted their units to India and China. Some prominent retail chain stores in the US are currently planning to source their requirement of textile and apparel goods from Pakistan. The official sources claim that Pakistan offers much more tempting environment for business than its neighbor does and any negotiations of the western companies with Pakistan textile businesses will enjoy full government patronage. It is worth mentioning that Islamabad has allowed foreign investors 100 per cent acquisition of any business, including textile and full repatriation of profit. That is why the American companies have shown interests in acquisition and joint venture arrangements with Pakistan's textile business. The government has given the foreign investors in Pakistan all freedom of profit making and never before in last 60 years the profiteers, speculators and big business were given such taxes relief and price fixation liberties as by the present government.

Acquisition or joint venture with American or European companies will give access to Pakistani business to markets in USA and Europe where textile business volume is expected to touch $800 billion in next few years. The statistics of textile exports to USA and European Union during six-month period of January-June 2006 however, reveals that Pakistan has not performed well. This is because of the fact that international business policies, political developments, poor agriculture conditions and deterioration in law and order situations tend to make world textile markets vibrant making the demand and supply position price system fluctuating.

Islamabad has devised a strategy to achieve the set target of the cotton production of 20.70 million bales by 2015. In this regard it has planned to take different measures. The government has chalked out a comprehensive strategy to increase the cotton production by 5 percent annually, thus setting the target of cotton production to 20.70 million bales by 2015 covering the 3.32 million hectares sowing area.

It is a fact that the US retail market in the long run would mainly be dependent on textile and apparel supplies from Asian countries like China, India and Pakistan. Hence, the American textile companies are currently planning to tap the Asian resources taking advantage of the free-trade. The multinational retail stores and companies would bring their own funds at very low interest rates and may install their own power plants to make the business more competitive and profitable. They may manage to avail better facilities of infrastructure. Some experts however fear that Pakistan textile industry may be high-jacked by multinational companies in case the foreign companies bring foreign investment on larger scale into the country. It would keep local textile entrepreneurs on wages instead of profit.