Empirical Analysis of Textile Clusters in Pakistan: Muhammad Shahzad Iqbal - Faiz.M.Shaikh - Dr. Babak Mahmood
Empirical Analysis of Textile Clusters in Pakistan: Muhammad Shahzad Iqbal - Faiz.M.Shaikh - Dr. Babak Mahmood
1
Lecturer, Department of Business Studies, The University of Faisalabad
2
Assistant Professor, SZABAC-Dokri, Email:[email protected]
3
Assistant Professor, Department of Business Studies, The University of Faisalabad, Email:[email protected]
322 International Conference On Applied Economics – ICOAE 2010
Figure 2.1
Figure 2.2
Figure: 2.3
Moreover, it is the biggest source of employment in the country providing employment to more than 1.3 million people. About
38% of the manufacturing sector employment is in textile sector.
Year Textile Apparel Total Export Performance of Textile and Apparel Industry in
Pakistan
1995 4.26 1.61 5.87
Figure: 4.4
The textile cluster contains a very diverse set of players and interconnections amongst the players. Some of the supporting include
suppliers of machinery and tools; financial service providers, agriculture, transport and logistics. Whereas the textiles finished goods
side, exporters, distributors and the leather clusters are important one.
5 Textile Diamonds
The textile cluster has generally shown a good performance in terms of overall growth. Nonetheless, the cluster has largely
remained engaged in low-end of the value chain with heavy dependence on basic exports. The Diamond analysis below identifies
various strengths and weaknesses that have led to the current outlook of the textile cluster
328 International Conference On Applied Economics – ICOAE 2010
s
Source: SMEDA 2000
Figure 5.3.1: Factor Conditions across Textile & Apparel Value Chain
Weaknes
ses
Strengths
Pakistan is the fourth largest producer of cotton (9% world share) and is endowed with fertile lands and extensive irrigation
network (USDA 2007; UNU 2007). However, the cotton sub-sector faces serious productivity and quality gaps. The cotton yields for
Pakistan were 586 kgs/hectare compared to 1129 kgs/hectare in China in 1999-2000. Moreover, most of the commercial varieties of
cotton were of small to medium length (22mm-28mm) with coarse texture (SMEDA 2000). One of the major contributing factors to
this low productivity and poor quality is non-adoption of modern planting techniques such as furrow planting which is 6-7%. At the
ginning, spinning and weaving stages, dependence on outdated and less efficient technology is seriously hampering the productivity
rates. For instance, the processing rate at the ginning stage is 8.3 bales per hour compared to 20 in the case of USA. Similarly, the
spinning sector is largely dependent on less efficient technology e.g. spindles (9.2million units) compared to a meager 147,852 units
of routers (Ibid). Similarly, weaving sector is dominated by conventional looms. The ratio of conventional power looms to shuttle-
less looms is estimated to be 1 to 92 (2006).
Gaps in skill set of labor force only add to the problem of low productivity. Informal apprenticeship mechanism such as
Shagirdi is the dominant form of skill transfer which eventually leads to inconsistencies in product quality. Ultimately, these
inhibiting factor conditions, such as low quality of raw material, poor technology and insufficient skills, lead to low value addition
and high defect rates. For example, 40% of exported fabric was grey in 2000—an indicator of low value addition. Similarly, the
defect rate at the processing/printing stage was 10% (SMEDA 2000). It is pertinent to mention here that the overall factor conditions
of the country particularly those related to road infrastructure and energy also play significant role shaping the productivity of textile
sector. For instance, cost of freight from China to USA was 50% cheaper than that from Pakistan (GoP, 2007).
5.4 Context for Firm Strategy and Rivalry
Pakistan‘s Textiles and Apparels industry is highly fragmented comprising many small-scale players with majority of them
working in the unorganized sector (see Table). This fragmentation and emergence of small-scale operators is partly due to
government policies of the past which declared unit size 40 looms and below as cottage industry and hence provided exemption from
tax and stringent labor policies (2006).
Table 5.4.1: Industry Structure and Capacity
Another important feature of the textile industry in Pakistan is that it is largely dominated by family owned businesses. For
instance, in Faisalabad, largest textiles producing city in Pakistan, three families dominated the business and trade groups. This, on
the one hand, promoted trust and effective contract enforcement thus reducing transaction cost, it also led to regulatory ‗capture‘
thus diverting government incentives to benefit a few and stifled the competition (2006). Some policies of the government with
regards to taxes as well as incentives have been listed in the Figur-2.
World Bank notes that textile sector suffered from low diversification due to government restrictive policies on import of
polyester (25% tariff rate) coupled with poor administration of import duties and duty rebates schemes (World Bank, 2002). Lack of
access of finances constitutes another important constraint for large number of small businesses in the cluster as the banking system
is more aligned to serving large scale firms (2006).
6 Challenges Faced by Textile Cluster
Unavailability of standard raw material.
Lack of skilled workers.
Poor coordination between cluster players.
Financial problems.
Gaps in quality of local suppliers.
Increase global competition.
Low foreign direct investment.
Not setting specific strategies.
High tax rates.
Poor state of technology and production process.
Lack of specialized workers.
Excessive dependence on textiles and apparel cluster and limited diversification of exports.
Poor governance and its implication for overall business environment and foreign investment.
Rising Cotton Prices.
China and India being considered as countries for high value added garments.
Limited use of modern technology.
Confusion in political / religious scenario.
Low levels of managerial capabilities.
Poor physical infrastructure.
Lack of a well coordinated approach at the cluster level
7 Conclusions
Pakistan is the fourth largest producer of cotton (9% world share) and is endowed with fertile lands and extensive irrigation
network (USDA 2007; UNU 2007). However, the cotton sub-sector faces serious productivity and quality gaps. The cotton yields for
Pakistan were 586 kgs/hectare compared to 1129 kgs/hectare in China in 1999-2000. Moreover, it is the biggest source of
employment in the country providing employment to more than 1.3 million people. About 38% of the manufacturing sector
employment is in textile sector. The manufacturing sector contributes to around half of the total exports and textile sector contributes
around 46% of the manufacturing sector‘s contribution. The negative growth of 2.6 % declining from $ 16.4 billion last year to $
16.0 billion in July-April 2008-09
8 Recommendation
After all above data we recommend that we need to be done.
Ministry of Textile Industry should launch and endorse the development a cluster-based textiles vision.
Increase Efficiency and Productivity with the help of research and development department and identify key areas for
process.
Improve supply chain management.
Government should coordinate with private sector.
Initiate educational and awareness programs for firms in the textile industry on the business value of formal and modern
training.
Building Logistic Capabilities.
Developing long term relationships with Clients.
Collaborating with buyers on forecasting and inventory management.
Investing in IT infrastructure and compliance.
Think Value Not Price.
Be on the Cutting Edge of Performance.
Reduce Cycle Time, Improve Flexibility.
Redefine Strategic Partnership.
Encourage private sector, increase public expenditure, and work with international institutions such as the World Bank
and Asian Development Bank to improve the infrastructure particularly energy by exploiting the huge hydroelectricity
potential available in the country.
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Diversify the export portfolio by facilitating the development of multiple clusters particularly in the areas of logistics and
communication, medical devices, horticulture, and tourism.
Development of skills in labor and offer trainings time to time.
Conduct global market research in textile apparels.
9 References
All Pakistan Textile Mills Association (APTMA), web address: www.aptma.org.pk. Accessed on 14/10/2007.
A Survey of owner managed business Department of Employee, September 1990
Bari, K. Malik (2003), The Competitive Advantage of Pakistan – Empirical Analysis of the Textile/Apparel Industry, PhD Thesis,
University of Strathclyde, Glasgow, U.K.