EXPLORING POTENTIAL OF TEXTILE EXPORTS TO USA
SAAD ANWAR HASHMI
Dec 24 - 30, 2012
The textile export industry is primarily dependent on westerns markets whether it be Europe or USA where major buyers including Wall Mart, Target, JC Penny to name a few are found. The exports include home textiles, apparel, garments and yarn which constitute to major exports. In addition to buyers which primarily are large retail outlets with distribution across countries, private orders by universities, designers and boutiques are also placed as one time orders. Pakistan is also a front runner with apparels made of leather including purse, wallets, belt, jackets etc. With the quantum of exports, western markets become an attractive avenue for textile exports from Pakistan. The industry was hampered post subprime mortgage crisis and recession which squeezed orders for textile exports. As business managers and industry leaders, a lot of focus is brought to factors which are domestic to the industry including interest rate, currency devaluations, high cost of imports and shortage of gas and power.
The other side of the coin i.e. international industry environment often becomes secondary whereas textile manufacturers pay more heed to domestic issues rather than analyzing international markets to its full extent. Textile exports post-recession witnessed a decline due to reduced spending by consumers in westerns markets decreasing local export orders. Textile manufacturers based on exports witnessed a decline in top line revenue and faced liquidity crisis in addition to domestic issues highlighted. It is observed that textile exporters are highly dependent on few buyers which, on an average constitute to more than 60 percent of total exports if not less.
Lack of diversification of buyer base has also been viewed as a reason why textile exports from Pakistan were not able to generate revenue from other sources if major buyers pull away from USA posing a risk. Regardless what the arguments maybe, westerns markets continue to be attractive for textile exporters. USA predominately is a major market for Pakistani textile exports. For any decline in exports, textile manufacturers almost always blame USA for recessionary impact and country risk of Pakistan reducing orders. It is important to understand the export potential of textiles to USA as we move into year 2013 and how Pakistan is positioned.
While it cannot be denied that the country risk of trading with Pakistan is high with law and order issues and ongoing struggle of power and gas shortages, textile industry in USA has grown by 3 percent since January 2011. The industry has a quantum of US Dollar 70 billion, most being generated through home textiles and apparels. In order to stimulate the spending pattern in the economy the deposit rates are as low as 0.15 percent per annum, maximum being 0.3 percent per annum which does not give an incentive for consumers to save. The local textile industry of USA, however, is facing a tough challenge to compete with India, China and Bangladesh due to low costs and exchange rate relative to the Dollar.
If we only take the exchange rate into account, the exports from these countries become attractive for USA, available at a cost much lower than what is being produced locally. The demand for fabric and yarn in USA is expected to remain above 5 percent through FY13 as designer brands along with the local industry hopes to compete with textile imports through higher price though justified through quality. The challenge for USA, however is such where the country is struggling to export textile products. Domestic costs, specially salaries and wages are higher. Apparel exports from USA were US Dollar 10.1 billion in CY10 which has now reduced to US Dollar 8.2 billion in CY12. The exports are primarily those categorized under designer brands whereas the domestic market in USA is flooded with imports from China, India and Bangladesh. The differential in price between apparels manufactured locally versus imports is between 25 percent to 35 percent. It is estimated that China alone has captured 48 percent of the textile industry in USA where as the market share in apparels is 40 percent in 2012.
Despite the fact that workers in China have demanded higher wages with booming economy and that wages of workers have grown by 15 percent to 21 percent in 2012, Chinese exports remain an attractive option for markets in USA. It is also estimated that if workers keep demanding a wage increase year-on-year by 15 percent, the cost if production of Chinese textiles relative to cost of production in USA will be at par by year 2015. Yuan is also becoming stronger relative to USA which is another risk. If these risk factors remain constant, Chinese exports to USA will drop by end 2013.
On a positive front, USA is spending more than US Dollar 1 billion a month on Capex in textile manufacturing. Industry wide capacity utilization in USA has gradually increased from 66 percent in CY10 to 70 percent in CY 12. Supply of cotton in USA is expected to be 25 percent higher than demand in CY13. The production levels as mentioned can increase if textile exports from USA become strong or cost of production of exporting countries increases as expected. The aim for USA is to reduce the trade deficit arising out of textile imports which could easily be reduced if local industry booms. USA with enhanced capacity utilization in textile manufacturing and drive to reduce costs through economies of scale is planning to reduce manufacturing costs of textiles to have a level playing field relative to imports. Employment in the textile industry of USA remains stagnant at 400,000 since people are cautious of the industry competing with imports keeping job security under question.
The textile industry is USA is hoping to capitalize on domestic sales as demand remains high. In order to compete with imports, advertisements and marketing efforts are being done to differentiate higher quality at the price offered relative to imports. For Pakistani exporters of textiles, competing with regional players is a challenge. However, with sound export potential, USA will remain a dominant export destination for Pakistani textiles.