Pakistan's Textile Industry Overview

Pakistan is the fourth largest producer of cotton, 6th largest importer of raw-cotton, 3rd largest consumer of cotton and first largest exporter of cotton yarn.
Textile sector is important for Pakistan because

The share of textile industry in the economy, its contribution to exports, employment, foreign exchange earnings, investment and value addition makes it the single largest manufacturing sector for Pakistan.

It contributes around 8.5% to GDP Employs 38% of total manufacturing labour force Contributes 55% to total merchandise exports Pakistans share in the Global textile sector is about 1.5% and in the world clothing exports is about 0.7%

The total contribution of textile exports during the period of 2010-2011 is 55% of total exports of Pakistan $17.79 billion. With textile exports reaching $ 10.87 billion in 2010-11, Pakistan is among the major textile exporting countries. The variety of products ranges from cotton yarn to knitwear.

Till late 1980s Pakistan was only exporting white bedsheets to Europe as their domestic industry was producing printed and higher quality bed linen.

In the 1990s, the export growth remained slow despite the fact that the European market started importing printed and higher quality bed linen from Pakistan. Bed wear exports surged after the European Union gave a duty free excess to Pakistani products and increased textile quota by 25% in 2001-02.
Thereafter some problems cropped up.

EU imposed a duty of 13.1% on imports of bed linen from Pakistan, just a year prior to the quota free regime. After long negotiations, this duty was reduced to 4.8%. Exports started increasing from US $8.44 billion in 2004-05 to US $9.9 billion in 2005-06.

Pakistans textile industry has been heavily investing (US $6.0 billion) for the last six years in modernization and improvement of production base. This investment includes both investment through bank loans as well as own sources.

The break down of the investment according to sectors is as below.

Spinning (46%) Weaving (26%) Textile processing (10%) Made-ups (8%) Knitwear and garments and synthetic textiles (5% each)

Advantages to Pakistani Textiles

Pakistans textile industry enjoys certain advantages over its competitors abroad. The availability of raw material
Relatively cheaper labour force Investment incentives from the government

The non-textile exports from Pakistan are mainly Carpets Gems & jewelry Leather products Shrimp Rice Fruits Petroleum products and chemicals

The main factors that have led to losses to this industry are

The event of 9/11 Duty free market access provided by USA to various countries excluding Pakistan EU import regulations for Pakistan Reduction in duty drawback rates Increased cost of utilities Upward trend in cost of finance Exchange rate appreciation

Low technological levels as compared to other neighbouring competitors.

As a result, textile and clothing products from Pakistan are about 20% costlier in the international export markets.

Due to changes in international scenario, the banking sector has become extra cautious while dealing with textile sector.

Anticipating opportunities in post quota regime, lured by economical mark up rates, most of the export units opted debt financing for expansion, balancing and modernization.

While Pakistan was being bogged down by internal factors, its competitor countries were showing tremendous progress. In the garment sector alone, Indias exports grew by over 100%, Bangladesh 200% and China 900% during the first quarter after quota elimination, while Pakistans growth in this sector was only 14%.

Pakistan Textile Industry Process Overview

Textile Sectors

Cotton growing/Ginning Yarn Spinning

Open End Spinning/Rotor Spinning Ring Spinning Compact Spinning Heather/Melange/Specialty

Weaving

Power Looms Shuttle less Mills

Fabric/Yarn Processing

Woven Knit

Finished Product

Vertical Knitwear Denim Sewing

Towels Home Textiles Sweaters

Woven Bottoms Woven Tops Knitwear

Service

Labs Buying Offices Consultants Suppliers Embellishments Garment Washing

Cotton

In Pakistan its also known as the silver fibre.

Its second most important fibre after wheat.

It is cultivated over about 12% of the total cultivated land.

The area of cotton has been static for the last ten years. About 80% of the national production comes from Punjab

Pakistan is five years behind India in cotton development.

Pakistans Punjab and Indian Punjab are of same soil characteristics, but in India production has increased manifolds due to introduction of Bt cotton. Pakistans cotton is regarded as one of the best among the cottons of similar staples grown elsewhere in the world. Despite this Pakistani cotton is sold at a much cheaper price in the international markets in comparison to its competitors.

There are several reasons for this

First is bad ginning as a result Pakistans cotton yarn has earned world-wide as one carrying the highest non-lint contaminants. Second reason is the product mix of cotton yarns with almost all the yarn exported by Pakistan being in coarse and medium counts, which naturally fetches a low value. The third reason is nearly complete absence of high valued yarn, like dyed yarn, in exports from Pakistan.

There is a serious issue of cotton contamination in Pakistan which has resulted in heavy loses to the textile sector. India has overcome this problem by focused R&D activity

Main Problems

Low Yield per Acre

Contamination Poor Grading Standards Not enough MMF

Ginning

Stage where lint is separated from seed cotton.

There are around 1220 ginning factories in the country.

Most of these do not adequately follow govt. regulations and only 750 to 800 units actually function in a season.
Poor management in the ginning process leads to a number of problems in the next stages of textile chain.

The machinery used is mostly local and very old, based on technology introduced in late 40s and 50s.

Consequently the efficiency and productivity of the process is only one fifth of that of the machines being used in China and India. The ginning factory has a pivotal role for determining the quality of cotton fibre as raw material for down stream textile industry. Yet this component of textile Industry is the most neglected and antiquated one.

Ginning sector in Pakistan has the following shortcomings:

The ginners do not separate different varieties of cotton according to the approved grades and hence the advantage of producing better and longer staple cotton is lost when all the varieties are lumped together in ginning. The seed cotton is not properly dried to preserve its fibre properties and improve its grades. Very few ginning factories are equipped with the artificial drying system and most use sunshine drying which does not take out moisture completely and expose the cottonseed to further solid contamination.

Even few ginners bother to undertake preginning and post-ginning cleaning, as it adds to their costs. Very few ginners have the properly covered and clean storage facilities. The seed cotton sacks are normally piled up, out in the open. The ginned lint cotton is again packed in boras or jute sacks or plastic bags rather than hessian cloth. This packing adds to the dust contamination or chemical particles incase of polyester bags which cannot be separate later on by any process.

The ginned cotton bales are not marked according to the variety contained therein. Hardly any ginning factory has the services of qualified classers; gin filters or mechanical engineers to ensure the ginning process as per the prescribed modern techniques.

Man Made Fibres and their Utilization in Pakistan

The consumption of MMFs such as polyester, nylon, acrylic and viscose etc now has the dominant share in the world textile market. In 2000-01 the world consumption ratio of cotton and MMF was 41:59. However Pakistan has lagged far behind in this field because of its overwhelming dependence on cotton for textile manufacturing. The significance of MMF was completely ignored while the global consumption patterns were rapidly changing in favour of the blended fabric categories.

Pakistan was late starter in this field.

Its consumption was only 81:19, the lowest amongst all the textile exporting countries. Pakistan has attracted some foreign investment for development of polyester industry to partially meet the demand of the polyester staple fibre of the spinning sector of the textile industry.

At present out of the total blended yarn produced in Pakistan around 70% is polyester/cotton and the remaining 30% id polyester/viscose. The viscose fibre industry in Pakistan has not yet developed and almost all the viscose fibre is being imported. The demand for MMFs is however growing annually by more than 10% and the competing countries are consuming MMF to the ratio 40%.

Spinning /Yarns

Spinning is the first stage of value addition to cotton lint and MMF in the textile chain.
If the spinning industry produces sub-standard yarn, its effect goes right across the entire value chain. At the time of independence when many other industries were non existent in Pakistan, the spinning sector did exist. Over the years the spinning sector has rapidly expanded to emerge one of the most developed sub-sectors of Pakistans textile industry. Out of the total 163 million spindles in the world, 113 million are installed in Asia. Pakistan with 8.01 million spindles ranks third in Asia- behind China (with 41.7 million) and India (31.9 million).

Pakistans spinning sector being the fourth largest producer of yarn in the world not only caters for the requirements of the local industry but about one third of the total produces exported. The average unit price realisation of Pakistans cotton yarn in the international market is non the less very low compared to that of its competitors because:

The cotton lint provided by Pakistans ginning sector is contaminated with non-lint components. This results in Production of contaminated yarn, which fetches very low price. More than 70% of Pakistans cotton yarn is that of coarse and medium counts with the least value addition. Though Pakistans cotton staple length is not suited for very fine count yarns, it can still easily by used for 40-60 count yarn provided there is the will and the motivation on the part of the spinners to do that. Pakistans competitors are focusing more on the production of higher and finer counts of cotton and MMF yarn. Pakistans low count yarns are mostly used for towel, terry cloth and under garment production. These products obviously cannot be compared price wise with the higher end textile made-ups and garments products.

The textile industry at present is facing an over capacity situation in the spinning sector. The capacity utilisation in the past 10 years ranged between 70-80%.

Fabric Processing

Investment and development of Pakistans weaving sector have been subdued.

The situation of installed capacity and actual utilisation of capacity in weaving sector is given in the following table

Category

Integrated textile units Independent weaving units Power Loom sector Total

Installed Effective Capacity (no. of Capacity (no. of looms) looms) 9,898 4,185 (42%)
17,500 225,253 252,651 15,000 (86%) 190,000 (84%) 209,185 (83%)

The first and second categories fall under the large scale organised mill sector.

The third and largest power loom sector equipped with traditional and largely obsolete machinery actually falls under the classification of cottage or small-scale industry.
This sector is disorganised, fragmented and undocumented.

However, it produces in the region of 5.5 million square metres of fabric a year. Most of this fabric is used in the domestic market.

Textile made-ups

Garments (Hosiery and Knitwear Industry)

In 2001 there were around 10,000 knitting machines working in the country with 60% capacity utilisation. This sector is third largest foreign exchange earner for Pakistan after yarn and fabric. Demand for hosiery and knit wear items is growing faster than the other woven products in the world. The number of the knitting machines in Pakistan hence is too low when compared to competing countries. But before more machines are installed, attention should be focused on attaining total utilization of the already established knitting units.

Towel Industry

In 2001 there were 6,500 towel looms in both organized and unorganized sectors. The industry is mostly export based.

The quality of Pakistans towels is considered low.

due to the production from the cottage towel industry which is from outdated looms.

Modernisation of the machines and set up of large scale organised towel industries, pakistans share in the world market can increase significantly

As Pakistan has an edge over competitors of having abundant low count cotton yarns which are required for the production of towels.

Bed Linen Industry

In this low value added traditional export sector, Pakistan has been able to more than double its share in the world market over the last decade. Pakistans bed wear products however, fail to realise high unit price because

They lack in quality Not in line with the latest fashion or design Not according to specification of the buyers Common perception in international market that suppliers from Pakistan cant insure timely shipments.

Ready made Garment Industry

The garments alone are an annual global market of around $200 billion.
The US and EU are the two largest markets for garments and apparel with a combined share of 70%.

Pakistans share of the global garment market is only 0.7%

Pakistans garment industry is mainly concentrated in Lahore and Karachi. The industry started operation in 1970s. There are all together 700 vertical knit facilities and 4000 garment sewing units.

Tale of Two Cities (Lahore Vs Karachi)

Karachi produces generally fragmented work.

Separate facilities providing fabric, finishing, sewing etc. The work is generally of poorer quality and, due to low overheads, cheaper in cost. Karachi produces knit & woven products and supplies to the lower end buyers.

Lahore comprises of Vertical facilities with huge production capacities (upto 10 tones of dyeing per day). Sewing exceeds 700 machines per plant. These plants are self contained in some cases from yarn to finished product including embellishment and washing.

Lahore produces mostly knitwear for branded customers & department stores.

The garment sector is further divided into the sub-sectors of

Mens wear (woven or knit) Womens wear (woven or knit) Babies wear Sports wear T-shirts Pullovers hosiery

While Pakistan has been able to develop a solid base in mens garment segement with a significant growth, womens wear (which is the largest single category of a global market with one third share) has so far been overlooked.

Pakistan Textile & Clothing Industry

A. B.

The Pakistan Textile and Clothing Industry has, in general terms, two types of companies: Manufacturing companies who are themselves direct exporters Manufacturing companies who do not export directly but who sell to commercial exporters or whose capacities are bought by buyers.
-

These companies are becoming of less and less interest to buyers.

Presently companies in Group A and B sell large quantities of cotton yarns and increasingly large quantities of woven grey fabrics, i.e. intermediate textile products of limited value addition, into the world markets. The importer of these intermediate textile products is to convert them into value added, consumer products , often for sale into the export markets in competition with Pakistan exporters. Why cannot Pakistan exporters fill more of the supply chain?

Group A: Manufacturing Companies who are themselves direct exporters

These companies are often at least partially integrated in more than one activity with superior management tema and equipment.
As they export directly, they understand the dynamics and the driving forces in the markets.

Whether for knitwear or for woven, the trend is for vertical integration.
These manufacturing units are generally large (more than 1,000 workers, some cases more than 10,000) These units have laboratories that conform to ISO standards.

Some clients require these units to conform to certain economic obligations, commitments to improve working conditions and even certain social duties. Such as

Creation of canteens Schools Hospitals Recreation centres Healthcare

Companies exporting directly on their own accounts are generally more attractive to buyers as suppliers than manufacturers using commercial exporters.

However, and in spite of having a direct involvement in the markets, many Pakistani companies are seem content to serve the lower, highly price sensitive segments of the market with basic products.

Group B The subcontractor / buying office / brand and branded store sector

This approach seems to be the most widespread in Pakistan, and is probably adopted by the majority of companies.
It consequently involves the largest number of jobs. Each link in the chain plays a specific role

The manufacturing companies in this group are unlikely to be in control of their destinies as they are beholden to the commercial exporters.
They are unlikely to have the correct management structures and modern equipment. Importantly they are not in direct contact with the markets. They are certain to be under persistent price pressure and without product development that could enable them to become direct exporters. The opportunities for manufacturing companies to progress are inhibited by the commercial exporter/buying house.

Brands and branded retail stores

The branded retail stores, mostly American, does not have its own manufacturing unit.
It relies on networks of manufacturers spread across several different countries, including Pakistan.

The contribution of these retail stores in the product development activities is fundamental

Their marketing expertise play the key role in enabling to develop products to full fill the consumer needs. It is the market knowledge of these retailers which enables them to produce very precise product demands. The design phase is entirely handled by the brand.

The retailers determine

The collection, i.e. the models, the materials and the colours The grade of quality required

They do not deal directly with the suppliers, but via the intermediary of the Pakistani buying office, or even its own liaison office

Buying House/Liaison Office

They form a link between the design office of the retailers and the sub-contractors who manufacture the products.
Their role is fundamental if the manufacturing activities are to function correctly.

They intervene as a liaison between the two parties at several levels:

Initial contact

To a certain extent, they act as sales representative for the manufacturer. They also save time for the branded retail store by selecting the most appropriate suppliers. Their role is to find the best balance between the clients requirements and the manufacturing companys know-how. Assuring quality standards are met at the manufacturing stage Meeting shipment deadlines and any specific delivery requirements (labeling, packaging, delivery etc)

Quality Control

Additional Services

The core objective of buying offices is to ensure that the delivery of an order complies with the clients needs. However, additional services can be carried out depending upon the contractors requirements. Such as

Drawing up precise technical data sheets (if not fully supplied by the contractor) Sourcing supplies for the client Proposing additional designs to the client (materials or models) Proposing additional training courses to sub-contractors, notably in terms of quality

They buying offices look after the subcontractors sales and marketing requirements as well as part of the buying and production monitoring requirements of the brands and branded stores. Certain brands, e.g. Levis, which over the years have developed major supply flows from Pakistan, have set up a permanent office that is totally dedicated to their needs (liaison office)

Sub-contractor or Manufacturer

The sub-contractor concentrates on the manufacturing function.

For them, the sales and design functions do not exist. They receive orders via the buying offices. Contacts with the contractors are made via visits to the sites by the branded stores buying teams. The sub-contractors only very rarely meet the product design team (if at all)

The manufacturing quality is high for most of their products.

Pakistani manufacturing units are supplying to the biggest American and certain European , sportswear and jeanswear brands, as well as for the major branded stores ( Calvin Klein, Tommy Hilfiger, Diesel, Macys, Nike, Ralf Lauren Polo Jeans, Zara, Springfield, Abercrombie & Fitch etc) The level of manufacturing quality they must attain, together with the respect for deadlines and service-quality, are consequently aligned with international standards.