3 Revised Thesis Kamran=17!03!13

7/30/2019 3 Revised Thesis Kamran=17!03!13

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THESIS

Challenges faced by Pakistans apparel industry

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List of Contents

Chapter 1: Introduction...........................................................................................1

1.1 Introduction of the study..............................................................................1

1.2 Background of the study..............................................................................31.3 Aim (s) of the project...................................................................................41.4 Objectives of the study.................................................................................51.5 Research question........................................................................................51.6 Methodology in brief...................................................................................61.6.1 Research design...........................................................................................61.6.1.1 Universe.......................................................................................................61.6.1.2 Secondary sources........................................................................................71.6.1.3 Analysis of garments exports from Pakistan...............................................71.6.1.4 Data analysis, Results and discussions........................................................71.7 Rationale......................................................................................................8

Chapter 2: Challenges for Pakistan to face in export of Garments to EU and

USA..............................................................................................................9

2.1 Reviving the garments industry...................................................................92.2 Political instability and insecurity..............................................................132.2.1 Garment firms face cancelled orders on safety fears.................................13

Chapter 3: Analysis of Pakistans Garment Industry.........................................14

3.1 Pakistans Garment Industry......................................................................143.1.1 Current situation.........................................................................................143.1.2 Current Present Situation...........................................................................183.1.2.1 Pakistan apparel exports to United States not growing.............................183.2 Apparel sector making efforts to obtain EU market access.......................193.3 Readymade garment manufacturers face energy shortage and high cost of

production..................................................................................................203.4 From Pakistan to Bangladesh.....................................................................293.4.1 Worrying trend...........................................................................................303.4.2 Low labour cost..........................................................................................313.5 Garment Industry comparison with Competitor countries.........................32

3.5.1 Summary....................................................................................................323.5.2 Denim Fabric.............................................................................................32

Chapter 4: The apparel sector competitiveness...................................................33

4.1 Garment manufacturers face challenge of automation..............................334.2 Export marketing and impact of gas, power load shedding.......................344.3 Apparel sectors share in global market falls 10%....................................354.4 Certification and compliances....................................................................37

Chapter 5: The role of Government to address the issues of apparel sector.....38

5.1 Pakistan - Policy and Performance............................................................38

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5.2 We need apparel sector..............................................................................405.3 We can win................................................................................................40

Chapter 6: SWOT Analysis....................................................................................41

6.1 Strengths....................................................................................................416.1.1 Raw material base......................................................................................426.1.2 Labor..........................................................................................................426.1.3 Rich heritage..............................................................................................426.1.4 Domestic market........................................................................................426.2 Weaknesses................................................................................................436.2.1 Research & Development (R&D)..............................................................436.2.2 More dependence on cotton.......................................................................436.2.3 Labor productivity.....................................................................................436.2.4 Poor infrastructure.....................................................................................446.2.5 Poor quality standards................................................................................44

6.2.6 Unstable political situation........................................................................446.2.7 System orientation and supply chain.........................................................456.3 Opportunities..............................................................................................456.3.1 Pakistan Textile City..................................................................................456.3.2 Marketing...................................................................................................466.3.3 Collaboration with foreign companies.......................................................466.3.4 Re-engineering of production system........................................................466.3.5 Producing high value products...................................................................466.3.6 Image building of Pakistan to attract FDI..................................................476.3.7 Reducing the cost of business....................................................................476.4 Threats........................................................................................................476.4.1 New competitors........................................................................................476.4.2 Phasing out of quota system......................................................................476.4.3 Fashion life cycle.......................................................................................48

Chapter 7: Conclusion, Problems, Remedies and Recommendations...............49

7.1 Conclusion.................................................................................................497.2 Problems....................................................................................................527.2.1 Financial Problems.....................................................................................527.2.2 Apparel Input Issues..................................................................................54

7.2.3 Taxation Issues...........................................................................................557.2.4 Energy Crises.............................................................................................587.2.5 International Competition..........................................................................587.2.6 Environmental issues.................................................................................597.2.7 Miscellaneous Problems............................................................................597.3 Remedies....................................................................................................617.3.1 Input Related Remedies.............................................................................617.3.2 Remedies to energy crisis..........................................................................627.3.3 Financial Remedial Measures....................................................................637.3.4 Human resource development....................................................................637.3.5 SMEs Promotion.......................................................................................63

7.3.6 Labour Intensive Industries........................................................................647.3.7 Taxation solutions......................................................................................64

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7.3.8 Industrial Cities & Zones...........................................................................647.3.9 Offer Peaceful Environment......................................................................647.3.10 National Saving Promotion........................................................................647.3.11 Foreign Investment promotion...................................................................657.3.12 Environmental remedies............................................................................65

7.4 Recommendations and suggestions for improvements..............................657.4.1 Remedy though FDI...................................................................................657.4.2 Image Building of Pakistan to Attract FDI................................................657.4.3 Focus on Value Addition...........................................................................667.4.4 Creation of Ministry of Textile instead of Textile Board..........................667.4.5 Technology Up-gradation & capacity building.........................................667.4.6 Human Resources Development................................................................667.4.7 Accreditation and Certification..................................................................667.4.8 Reducing the cost of doing Business in Pakistan.......................................677.4.9 Need for Improving apparel Production....................................................677.4.10 Value added fashion garments sector........................................................69

References................................................................................................................72

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List of Tables

Table 3.1 Pakistan Textile Industry Export Performance......................................14Table 3.2 Pakistan Readymade Garments Export Performance............................16

Table 3.3 Textile Exports Share in Total Export of Pakistan...................................17

Table 3.4 Import of Sewing Machines and Parts......................................................23

Table 3.5 Country-wise Import of Industrial Sewing Machines...............................23

Table 3.6 Exports of Readymade Garments from Pakistan......................................24

Table 3.7 Country wise Export of Readymade Garments........................................25

Table 3.8 Bangladesh: Export of Readymade Garments (RGM).............................27

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List of Figures

Figure 3.1 Pakistan Textile Industry Export Performance.....................................15Figure 3.2 Pakistan Readymade Garments Export Performance...........................16

Figure 3.3 Textile Exports Share in Total Export of Pakistan..................................17

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List of Abbreviations

APTMA All Pakistan Textile Mills Association

ATC Agreement on Textiles and Clothing

BMR Basal Metabolic Rate

BOD Board of Directors

BOI Board of Investment

C&A Certification and Accreditation

CAD Computer Aided Design

CAFTA Central American Free Trade Agreement

CAM Computer-Aided Manufacturing

CEO Chief Executive Officer

COD Cash on Delivery

EPB Export Promotion Bureau

EU European Union

FBR Federal Board of Revenue

FBS Federal Bureau of Statistics

FDI Foreign Direct Investment

FDP Friends of Democratic PakistanFTAs Free Trade Agreements

KIBOR Karachi Interbank Offered Rate

GDP Gross Domestic Product

GNP Gross National Product

GSP Generalized System of Preferences

ISO International Standards Organization

KWH Kilo Watt Hour

MFA Multi-Fiber Arrangement

MW Mega Watt

NAFTA North American Free Trade Agreement

NEQS National Environment Quality Standards

OECD Organization for Economic Co-operation and Development

OIC Organization of the Islamic Conference

PITE Pakistan Institute of Development Economics

PKR Pakistan Rupees

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PRGMEA Pakistan Readymade Garments Manufacturers and Exporters

Association

R&D Research and Development

RMG Ready Made Garment

ROZs Reconstruction Opportunity Zones

RTAs Regional Transit Authority

SAARC South Asian Association for Regional Cooperation

SCP Structure Conduct Performance

SAFTA South Asia Free Trade Agreement

SME Small and Medium Enterprises

SRO Special Revenue Ordinance

SWOT Strength, Weaknesses, Opportunities, Threats

TC2 Tactical Command and Control

TDPA Trade Development and Promotion Authority

TDS Total Dissolved Solids

TSS Total Suspended Solids

TUF Technology Up gradation Fund

TV Television

TWO World Health Organization

UAE United Arab Emirates

UK United Kingdom

US United States

USA United States of America

USD United States Dollar

WTO World Trade Organization

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Chapter 1: Introduction

1.1 Introduction of the study

The Apparel sector is a very complex industry. It begins with agriculture, fiber

production of cotton and processed into yarn through different industrial stages and

through different weaving and knitting processes; it is converted into the finished

cloths. And every facet of the apparel industry is a field itself. 1 Apparels are very

important in our every day live, and even from the ancient times, apparels have been

used in a variety of ways. Industrial sector is also an important consumer of apparels.2

International trade in apparels and clothing has played a very important role in the

development process of many countries. It has helped their integration into the world

economy. A major part of merchandise exports of low and middle income countries

comprises of cotton- apparel sector. Developing countries in 2004 are contributing

more than 50% of the apparel exports in the international trade. This is a huge

contribution in the international trade by the developing countries as these countries

have no such contribution in other areas of trade. Thus liberalization of trade in

apparel is of major significance for many developing countries for the simple reason itimproves market access for them in the area of their comparative advantage.

However, increased competition from further liberalization is a matter of concern for

developing countries. (Karin A.S., 2009, P. 3)

The quota restrictions of Agreement on Textiles and Clothing (ATC) were essentially

for imports of Canada, the European Union and the Unites States. These three markets

account for more than one-half of world apparel imports. The end of the ATC quota

regime did eliminate the quota completely for protection in these markets. It is

understandable that the removal of quotas have a significant impact on global trade

flows. The end of a special trade regime that had existed for more than 40 years for

1Raghavendra R., et al. (2004). Cotton Fibers. Retrieved October 13, 2012 from Materials

Science & Engineering 554, Nonwovens Science and Technology II Web site:http://web.utk.edu/~mse/Textiles/index.html

2

Karin A.S. (November 2009).Pakistan's Textile and Clothing Sector: Its Future in the EuropeanUnion. Retrieved November 13, 2012 from Sustainable Development Policy Institute Pakistan Officialsite Web site: http://www.sdpi.org/publications/publication_details-298-7.html

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apparel is a remarkable step both in terms of trade liberalization and the elimination of

negotiated trade arrangements in breach of WTO rules.3

Multi-Fiber Arrangement (MFA) (1995) that continued till the year 1995 was

replaced with Agreement on Textile and Clothing (ATC), how in the second year of

its end in year 2006 the business activities of this industry were at their peak. This

shift was to affect exports of many countries producing winners and losers from the

additional liberalization. The termination of the ATC affected the patterns and flows

of trade in 2005 and even in 2006. The structural changes in world trade of apparel

went on unabatedly. In the export market of developed countries the share of China

continues to increase. The combined apparel imports of the three economies: Canada,

the US and the EU from China rose by 41 percent in 2005. There was an increase of

15 percent in 2006. However, the shares of some routine vendors like Romania,

Tunisia, Turkey and Morocco was declined. Advanced developing economies in East

Asia also lost market shares as mentioned in Pakistan cotton-textile and apparel

sector. (n.d., P. 108).

An interesting fact about the exports of Apparel is that the exports of some small

vendors have increased considerably at a faster pace as compared to China and other

developed countries like US and EU in the year 2006. Imports of apparel have

reached to $350 billion after an increase of 5.5% in the year 2006 for the four major

developed markets. This increment was comparatively at a greater pace as compared

to the previous year. However, intra-NAFTA apparel trade declined, and intra-EU

trade did not have any significant change in 2006. (Pakistan cotton-textile and

apparel sector, n.d., P. 108)

A reduction of 3% was observed in the imports of US from CAFTA, Sub-Saharan

Africa and the Dominican Republic. A decline of 14% was also recorded in the

imports of United States from some Asian countries like China, Republic of Korea

and Hong Kong. Imports of United States from EU declined by 2.5 per cent in 2006

as described in Pakistan cotton-textile and apparel sector, (n.d., P. 108)

3Pakistan cotton-textile and apparel sector. (n.d., P. 107). Retrieved September 21, 2012, from Higher

Education Commission Government of Pakistan Web site: http://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&ved=0CEAQFjAC&url=http%3A%2F

%2Fprr.hec.gov.pk%2FChapters%2F356S-5.pdf&ei=Heo6UdLOEMa80QXIyoDwBQ&usg=AFQjCNFztoqASNGFHmAAbEAaWkmawB3WQA&bvm=bv.43287494,d.d2k

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An incredible increase of 15% was observed in the imports of US from China and its

contribution towards total imports of apparel was 30%. In the same way, an increase

in the imports from Vietnam, Cambodia, Indonesia and Bangladesh was noticed. In

2006, an increase of 12% in the imports from India was recorded. China leads all

other importing countries who were supplying Apparel to United States, however,

other countries from Asia was also having great contributions in this context. In the

year 2006, there was a rapid increase in the imports of clothing from countries like

China and Hong Kong. China also take the advantage of its geographical position and

import a large amount of apparel to Japan. (Pakistan cotton-textile and apparel

sector)

More than three-quarters of Japans apparel imports came from China in 2006. Most

significantly, the share of imports of clothing was more than 80 per cent. Amongst the

four major developed markets, Canada was on the top in apparel imports in 2006. Its

imports from China went up by more than 20 percent. As a whole 2006 was a very

favorable one for the apparel trade of the developing countries as mentioned in

Pakistan cotton-textile and apparel sector (n.d., P. 109). Among other small scale

industries of Pakistan, industry producing readymade garments is the leading one as it

is not only meeting the needs of customers within Pakistan but also in other parts of

the world. The contribution of this industry to the total exports of Pakistan was 7.1%

which amount to US $ 1.77 billion during the period of 2010-11.

This industry require small amount of capital with the help of which many job

opportunities could be created and presently there are many individuals who belong to

both rural and urban areas of Pakistan and are serving this industry. Raw material

required by the industry is available domestically. Industry is using either locally

assembled machines or these machines are imported from other countries.

This industry require small amount of capital with the help of which many job

opportunities could be created and presently there are many individuals who belong to

both rural and urban areas of Pakistan and are serving this industry. Raw material

required by the industry is available domestically. Industry is using either locally

assembled machines or these machines are imported from other countries.

1.2 Background of the study

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The United States of America import market for denim apparel is extremely tough

and competitive. This market is characterized by extremely competitive pricing

structures and is dominated by China, Mexico and Bangladesh.4

During 2011, China has started losing 3% average share of this market but its position

in womens categories is improving. Latin American countries are benefiting from

this and are increasing their share. Most of the Asian suppliers including Pakistan do

not seem to be taking benefit from this scenario. Pakistan currently holds 3% market

share of total USA denim apparel imports in terms of value and quantity. Pakistans

denim apparel exports to United States seem to be stagnant over the years in study.

Although Pakistans share of ladies trousers category improved during 2011 but

overall, Pakistans average prices are rising faster than global prices. This is a serious

cause for concern as the US market is extremely sensitive to price hikes as described

in PRGMEA (2012, P.3).

According to PRGMEA (2012, P.3) Pakistan does not export denim fabric to USA.

Suppliers of denim apparel from Pakistan are now faced with a dual challenge. On

one hand they need to compete in fabrication and designing, while on the other, they

need to keep their prices in check. Pakistani suppliers need to come up with a

proactive and coherent strategy if they want to achieve a considerable gain in this

market. Alternatively, Pakistani suppliers should also look to export denim fabric to

Mexico, Nicaragua and Indonesia in order to fill their idle capacities as mentioned by

PRGMEA article Denim wars: The battle for us denim apparel import market(2012,

P.3).

1.3 Aim (s) of the project

Despite of all the positive aspects of garment industry there are still some issues

which are connected with this industry which can be considered as possible threats.

According to the experts of this business, the industry may face a competitive

business environment in near future. There are various issues connected with the

readymade garments industry of Pakistan which are needed to be resolved a few of

these are discussed as under:

4

PRGMEA. (2012, P.3)Denim wars: The battle for US denim apparel import market. RetrievedMarch 28, 2013 from Research Department, Pakistan Readymade Garments Manufacturers andExporters Association (PRGMEA) Official site Web site: http://www.prgmea.org/res.asp

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How to bring innovation and creativity in this industry?

What are the reasons behind the slow pace of value added process in this

industry?

What are the limiting factors that this industry is not progressing like the

neighbour countries of Pakistan?

Why Pakistani readymade garments have not that much good reputation in

the international apparel market?

What are the reasons behind low profitability in this industry?

All the issues of this sector could be resolved with the help of proper research and

development activities. All the improvements and up-gradations in different sectors

and fields become possible only because of research and development activities by

different experts of the concerned areas. All the big organizations focus on such

activities so to produce creative and innovative products and services as stated by

Professor Danny S. (2010, P. 31). Therefore, researcher believes that solution of

apparel sector problems lies by the researcher. Researcher has planned to hold a

research in this topic Challenges faced by Pakistans apparel industry.

1.4 Objectives of the study

To study the challenges for Pakistan to face in export of Garments to EU

and USA

Analysis of Pakistans Garment Industry

Garment Industry comparison with Competitor countries

To research the major issues connected with the red shed in the apparel

industry, for instance, branding, value addition, exporting, technological

improvement etc.

To study the role of Government to address the issues of apparel sector

1.5 Research question

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Major research questions which are answered in this project:

What are the ways organizations that belong to apparel industry can use for

vertical and horizontal integration in shape of business combinations so to

increase the overall exports of this sector?

Such and integration is necessary in case of Pakistan as all other major international

players of this industry believe in building networks throughout the world. So, in

order to be one of those organizations that belong to this industry from Pakistan have

to focus on this aspect of the business.

Following the further sub-division of major research questions:

What are the main issues which Pakistani manufacturer faces in exporting

their products in the international markets?

Which particular areas to be work on specifically with reference to garments

manufacturing organizations of the Pakistan?

What are the present standards of networking and garment exports required by

countries under EU?

What are the various possible ways available for Pakistani garments producing

organizations for vertical and horizontal networking so that their export

capacity could be enhanced?

How existing networks could be utilized to resolve issues related to exports of

these organizations?

1.6 Methodology in brief

In order to investigate the apparel industry researcher was used the Structure Conduct

Performance (SCP) framework5. Within this framework, researcher has look into

structure of the apparel industry, no. of players and their relative sizes. Researcher has

also look how is their conduct in industry means type of competition in the industry.

5

(n.d.). The Structure-Conduct-Performance Paradigm. Retrieved November 21, 2012 fromEconomicae: An illustrated encyclopedia of economics Official site Website:http://www.unc.edu/depts/econ/byrns_web/Economicae/scpparadigm.html

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Finally, researcher has look into their performance, profitability and cost efficiency.

Researcher has used this framework over time in discussion.

Researcher has also involve identifying the most relevant data and from previous

industrial reports.

1.6.1 Research design

1.6.1.1 Universe

For conducting my research on Challenges faced by Pakistans apparel

industry researcher has selected some garments manufacturing and exporting firms

for this purpose so all the apparel related executives and staff of following firms are

the universe for researchers study.

Shahkam Industries (Pvt) Limited

U.S Apparel (Pvt) Limited (Manga-Raiwind Road, Lahore)

Gulf-Nishat Textiles Limited (22-KM, Ferozepur Road, Lahore) (Exporting

Bed sheet stitching unit)

Gulistan Textile Limited (Head Office: Gulberg, Lahore)

1.6.1.2 Secondary sources

For analyzing and carrying out this research the sources through which

researcher relative information has got from:

i. Readymade garments policies followed by above firms.

ii. Relevant material / literature from libraries, books, magazines, newspaper

articles and periodicals.

iii. Internet searching

iv. Feedback from importers and exporters

v. Publications of All Pakistan Textile Mills Association (APTMA)

vi. Publications of Pakistan Textile Journal

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vii. Publication of Trade Development and Promotion Authority (TDPA) (old

EPB)

viii. Market reports

ix. Ministry of Textile, Government of Pakistan

x. Pakistan Institute of Development Economics (PIDE) Government of

Pakistan, Islamabad

xi. Economic Survey of Pakistan, Bureau of Statistics, Ministry of Finance,

Government of Pakistan

1.6.1.3 Analysis of garments exports from Pakistan

Researcher has analyzed the root cause of the problem why garment export is

decreasing.

1.6.1.4 Data analysis, Results and discussions

Researcher has analyzed the garments export from Pakistan for last few years

comparison with other garments exporting countries.

1.7 Rationale

Garment is the major industrial sector of Pakistan. Readymade garments industry

employs 40 percent of industrial labour. It contributes 46 percent to total industrial

output and 8.5 percent to GDP annually. From the last few years apparel industry in

Pakistan is struggling with a number of serious economic issues and worsening

political instability. This project has looked into industrys background especially in

1990s and 2000s and how it grows with time. It will also discuss the industrial

structure, conduct of the industry and performance at various periods of time

regarding apparel industry.6

Finally, researcher has discussed what went wrong and what the causes of recent

decline in readymade garments sector are. In the end, researcher has given

6

State Bank of Pakistan (SBP). (2011-12, P.1).Economic outlook. Chapter 1, SBP Annual Report2011-2012 (State of the Economy). Retrieved November 13, 2012 from Official site Website:http://www.sbp.org.pk/reports/annual/arFY12/Anul-index-eng-12.htm

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recommendations to fix these problems for example energy crisis like electricity and

gas load shedding, political instability like terrorism.

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Chapter 2: Challenges for Pakistan to face in export of

Garments to EU and USA

2.1 Reviving the garments industry

Pakistan is presently facing record energy problems and this had adversely affected

the exports of garments industry of the country. A decline was observed in the

performance of the industry during the period of 2008-2009, however, before that

industry was growing rapidly and the major reason behind this decline was energy

issues. This sector is really significant for the economic growth of Pakistan and there

are two major contributions which are creation of numerous job opportunities at a

very low cost and further it has capacity to lead the apparel industry of the country.

Dramatic decline in exports

These energy crises have negative influence on the exports of this sector, as exporters

remain unable to meet their commitments within the agreed time due to mass gas and

electricity shut down throughout the country. In present fiscal year, Pakistan had lost

$800 million foreign receipts due to failure in meeting the orders from international

customers. Previously, exporters and manufacturers who belong to this industry enjoygood business activities during last four months of every year, however, in the current

year a record decline of 15-20% has been observed due to uncertainty regarding the

supply of major inputs like power. (Farakh S., 2011, Para. 2)

Lateral impact

As the garments industry of Pakistan provide job opportunities to millions of

Pakistanis but due to these huge crises and loss of business, organizations engage in

this business are unable to provide jobs to these workers and this had create a great

amount of unemployment in the society. As the cost of production of Pakistani firms

are increasing rapidly due to costly power inputs so these firms are losing a great

amount of their share in the international garments market. Further, this situation had

positively influence on the exports of other competitive countries like China, India

and Bangladesh as their government is assisting them by providing them subsidies. A

decline of 12 million dozens has been observed during the period of 2007-08 to 2008-

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09 which results in loss of $0.36 billion from the international trade as reported by

Farakh S. (2011, Para. 3)

Global factor

There are not only the internal threats but also some external threats which are

adversely affecting the business activities of this sector of Pakistan. These factors

include economic recession in the developed countries of European Union and

America that adversely impact on the purchasing power of the individuals and

organizations which are the major purchasers of Pakistans garments products. All

these multi-threats from the internal and external business environment lead to a $3

billion decline in the exports of Pakistan Readymade Garments Manufacturers andExporters Association (PRGMEA) and a major fall of 30% has been seen the exports

EU and US. The recession in all these major developed countries like US, UK and

countries under EU cause a great decline in the routine apparel exports of Pakistan to

these countries. It is for that reason, Pakistan was exporting $4.1 billion amount of

readymade garments last year and in the present year these remain only $3 billion

which is a considerable decrease. As the countries under EU like Germany and France

are supporting each other it is for that reason the downturn which could be faced by

countries like Pakistan in their exports is reduced. Further, proper fiscal measures

would help in minimizing all such risks. The ratio of influence on the exports of

apparel from Pakistan is almost same as in case of EU and US. As this recession

cause the decline in the purchasing power of consumers it is for that reason demand

for Pakistan made garments have been decline which results comparatively less orders

from the side of US major buyers as reported by Farakh S. (2011, Para. 4-8).

Expected alternative solutions

So far as the external threats to Pakistans garment industry are concerned, these

could not be overcome by Pakistan, however, country can avoid all those threats

which belong to the internal business environment, for instance, it can overcome the

energy problems. So, it is necessary, as Pakistan must need to secure its exports and

GSP plus Status. GSP stands for Generalized System of Preferences (GSP) which is a

friendly tariff system for developing countries like Pakistan, under this system these

developing countries can export their products to the developed (donor) countries at

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low or no tariff and it is a kind of help which these countries can take from these

developed countries. (Farakh S., 2011, Para. 9)

Deficits

Pakistan is at the 6th number in the nations of the world but despite of this fact, still

the country is at the 52 number in the list of political and economic allies of EU as

commented by Farakh S. (2011, Para. 10). There are 49 economies of the world which

are presently having the status of GSP, however, the major competition of Pakistan is

with the countries like Cambodia and Bangladesh. As the GSP status is just like a gift

from the countries under EU to the developing countries like Pakistan it is for that

reason Pakistan has to secure this bilateral arrangement which is not any binding onthose countries.

Authorization

In order to further relax the tariff plans for countries having GSP and GSP-Plus status

countries under European Union are working on some suggestions and proposals and

there are valid chances that current status of Pakistan may rise from GSP to GSP-Plus

in case if other international conventions are being ratified before the year 2014. The

major exports of Pakistan to EU countries consist of apparel and leather items,

however, the share of apparel is 55%. Pakistan is presently engaged in a great amount

of international transactions with the countries under EU and exporting 18% of its

export volume to these countries and meanwhile imports of the country from EU is

not less than 9% of its total import items. Current volume of these international

transactions with the EU amount to $8,256 million and Pakistan is enjoying a profit of

$729 from these countries as imports of Pakistan from these countries arecomparatively less than exports to these countries. (Farakh S., 2011, Para. 11-12)

During his current visit of Pakistan, David Tirr, European Union (EU) head of South

Asia suggest that Friends of Democratic Pakistan (FDP) should not only focus on the

favourable tax and tariff plans but also on the energy crises which are presently a

major disturbance behind the fall of all the economic activities of the country As

mentioned by Farakh S. (2011, Para. 11-13). As presently EU countries are also

facing tough economic problems related to cash flow matters, it is for that reason EU

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director of South Asia raise a question that how EU could help Pakistan in such an

economic environment. So, to make the things favourable for Pakistan as well as

countries which are assisting Pakistan there is a need to devise a clear strategy which

should be comprehensive enough to deal with all the issues like politics, human

rights, trade, security and investment etc., and this is hoping to be finalize in the first

three months of next year. Considering the natural crises faced by Pakistans

agriculture and industrial sector due to shocking floods in the year 2010 and 2011,

European Council suggest that import duty of 75 items exported by Pakistan should

be waived off for some time period.

Unexpected stumbling

It is, however, not so easy to sanction these favours to Pakistan as India raise objects

that EU should not prefer Pakistan for these favours like that, but, these objectives

were taken back by the India after the present correspondence between both the

Commerce Ministers of India and Pakistan. This uncertainty attached to the

application of these economic favours do not end as Bangladesh argue at the forum of

World Trade Organization (WTO) that Pakistan should not be allowed these favours

as it will impact negatively on the sale of Bangladeshi products in the international

and European markets. In the present business scenario with European countries

Bangladesh is enjoying favourable business environment in these countries after

having Least Developed Country (LDC) status. Farakh S., 2011, Para. 14)

Summing up

As Bangladesh and Pakistan were same country a few years back, despite of some

misunderstandings both the countries have good relations and are engaged in manyagreements and bilateral treaties. Both the countries are members of OIC and SAARC

so Foreign Minister of Pakistan has discussed the present objection related matters

with the Prime Minister of Bangladesh in a sideline meeting during a session of

SAARCH at Maldives. So, considering that correspondence, it can be predicted that

Bangladesh will think again their decision to object the issue of 75 items of Pakistan

without any tariff and Pakistan will be able to supply its goods for 2-3 years.

2.2 Destabilized and insecure political environment

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2.2.1 Cancellation of garments orders due to safety issues

Buyers from EU and US have concerns about security issues in the industrial areas of

Pakistan and the recent events like factory fire and killing of 289 employees are

creating uncertainty in their minds and result in loss of business orders from these

countries as reported by Ahmad A., (2012, Para. 1). Due to instability there are few

orders which are taken up by the Bangladesh. The major reason behind such uncertain

safety environment is bad governance, as the government do not have any check and

balance on the factories engaged in garments business it is for that reason these

factories do not have proper systems to ensure the security of the workers working in

the factories. There is no up gradation in the rules and regulations concerning to the

health and safety of the employees. There are no changes in the laws in accordance

with the present business scenario as Factory Act remain unchanged and penalty

concerning to non-compliance is still PKR 500 which is almost equal to $ 5 and there

is no change since 1934 when this law was made. KIK is a Germany based retailer

which is getting its supplies from Ali Enterprises where there was only one door

unlooked to secure the workers from flames when the fire broke up. 7

As reported by Ahmad A. (2012, Para. 6-7) that uncertainty and doubts were clear in

the comments of Ejaz Khokhar who remain Chairman and Chief coordinator of

Pakistan Readymade Garments Manufacturers (PRGMEA), according to him this type

of incidents could be happen in the future as well, if a fair and unbiased inquiry will

not take place. Hence, to avoid such tragedies there is a need to make adjustments in

the concerning laws and these should be implemented without having any undue

influence.According to him government is not playing that role which is required to be

performed by the government and its 29 agencies which are meant to evaluate these

manufacturing units all over the country and there is no implementation of laws which

are presently available for the health and security of the workers.

7

Ahmad A. (2012, Para. 1-5).Pakistan: Garment firms face cancelled orders on safety fears.Retrieved November 21, 2012 from Just Style Web site: http://www.just-style.com/news/garment-firms-face-cancelled-orders-on-safety-fears_id115650.aspx

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All these circumstances are leading to decline of 15-20% in the export orders as most

of the buyers have serious concerns regarding all these issues. (Ahmad A., 2012,

Para. 8-10)

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Chapter 3: Analysis of Pakistans Garment Industry

3.1 Pakistans Garment Industry

3.1.1 Current situation

There are millions of individuals who belong to the garment industry of Pakistan and

this sector is contributing a considerable share in increasing the foreign reserves of the

country. In accordance with the facts and figures provided by Federal Bureau of

Statistics (FBS) Pakistan regarding first half year performance in year 2012, a

continuation of the disturbing trend of falling volumes in Pakistans major export

group apparel industry. In the apparel group, most of the categories depicted a decline

in exports during 1st half financial year of 2012 relative to 1st half financial year of

2011. All major sectors of apparel industry registered a steep fall both in quantity and

value terms during December 2011.8

Table No.3.1

Pakistan Textile Industry Export Performance

in Dec-2011 & Dec2010 (M. US $)

Dec. 2011 Dec. 2010

Readymade garments 142.612 148.895

Hosiery & Knitwear 144.28 180.447

Towels 50.134 51.949

Other made-ups 45.724 53.287

Bed wear 124.647 161.171

8 PRGMEA. (2012, P.1).Pakistans Textile Industry Exports Trend in 1H FY-2012. Research &

Development Cell, Pakistan Readymade Garments Manufacturers and Exporters Association(PRGMEA). Retrieved PRGMEA Official site December 11, 212 from Web site:http://prgmea.org/res.asp

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020406080100

120140160180200

Ready

made

garmen

ts

Hosiery

&

Knitwe

ar

Towels Other

madeu

ps

Bed

wear

Dec. 2011 142.612 144.28 50.134 45.724 124.647

Dec. 2010 148.895 180.447 51.949 53.287 161.171

Dec. 2011

Dec. 2010

Figure No.3.1

Source: PRGMEA. (2012, P. 1). Pakistans Textile Industry Exports Trend in1H FY-2012. Research & Development Cell, Pakistan ReadymadeGarments Manufacturers and Exporters Association. (North Zone),Lahore.

As reported by PRGMEA. (2012, P. 1) This record decline in the exports of Pakistani

apparel and readymade garments is due to extra-ordinary energy crises. A further

decline in the exports is expected as the basic energy inputs to this industry in Punjab

are almost stopped to be supplied and there are no concrete steps which are being

taken by the government in this connection. This entire situation is resulting decline in

the production and energy crises are the core reason behind all these inefficiencies.

According to PRGMEA (2012, P. 2) the current account balance of Pakistan is

already showing an adverse balance and this reduction in the export volume of

readymade garments are further leading to a great economic disaster. There is already

a negative variance of $ 4 billion in accordance with the standards being set for the

exports for present year. According to the facts and figures presented by Pakistan

Bureau of Statistics, there is a decline in the exports of apparel sector from $1176.768

million to $954.218 million in the month of December this year as compared to last

year.

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Table No.3.2

Pakistan Readymade Garments Export Performance

in Jul-Dec 2010-2011 and Jul-Dec 2009-2010

2010-2011

Jul-Dec

2009-2010

Jul-Dec %age change

Qty (M.Doz) 13.727 15.927 13.81

Value M. $ 800.996 787.736 1.68

0

100

200

300400

500

600

700

800

900

2010-

11=Jul-Dec

2009-

10=Jul-Dec

%age

change

Qty (M.Doz) 13.727 15.927 13.81

Value M. $ 800.996 787.736 1.68

13.727 15.927 13.81

800.996 787.736

1.68

Qty (M.Doz)

Value M. $

Figure No.3.2


As mentioned in PRGMEA (2012, P. 2) report above figure and table is showing the

export of apparel for the period Jul-Dec 2010-2011 & Jul-Dec 2009-2010. In 2010-

2011 Jul-Dec, apparel exports decreased by 13.81% in volume and increased by

1.68% in value. The drop in volumes in 2010-2011 Jul-Dec was mainly due to energy

shortage and hike in the cost of raw materials. Numerous export orders are being

cancelled as exporters are unable to meet their commitments due to short fall of gas

and electricity and this have caused a great damage to the business activities of

Pakistan.

This alarming decline in apparel exports due to energy shortage and it is furtherleading to a worse condition with every passing day as the short fall of electricity and

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gas causing less and less supply to the manufacturing units, all these conditions will

definitely impact negatively on the export orders. Adversity in the textiles sector is

being increasing day by day and a reduction of 4.48% can been seen in the facts

presented in the following figure which are showing a comparison of last half year of

2010 and 2011. Further a decline of $ 0.28 billion dollar was being observed during

this period. (PRGMEA, 2012, P. 3)

Table No.3.3

Textile Exports Share in Total Export of Pakistan

in Jul-Dec 2010-11 & Jul-Dec2009-10 (Billion US $)

2010-11=Jul-Dec 2009-10=Jul-Dec

Total Textile Export 5.96 6.24

Total Export (All) 11.24 10.81

Textiles as % age of Total Exports 53.57 58.26

0

10

20

30

40

50

60

Total

Textile

Export

Total

Export

(All)

Textiles

as %age

of Total

Exports

2010-11=Jul-Dec 5.96 11.24 53.57

2009-10=Jul-Dec 6.24 10.81 58.26

2010-11=Jul-Dec

2009-10=Jul-Dec

Figure No.3.3


According to PRGMEA (2012, P. 4) Buyers in the international market lacks trust on

Pakistani exporters as even if Pakistan made apparel is being offered to them at

reduced prices as compared to China and Bangladesh they still hesitate to place any

order and the major reason behind is late delivery and completion of orders. The

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reason behind these delays is very obvious as discussed earlier. All these conditions

are leading to adverse impacts on the economy of Pakistan and will have negative

influence on the foreign exchange reserves of the country. Government will be unable

to collect the targeted tax revenues and this will further impact negatively on the

employment conditions. Future of Pakistan made textile and garments products is

uncertain, however, the exporters are trying to maintain the present orders and

expectations of buyers.

3.1.2 Current Present Situation

3.1.2.1 Pakistan apparel exports to United States not growing

Major export products of Pakistan are exported to US as it is the biggest importing

country of these Pakistani products. However, due to economic turndown, the volume

of sales has been remaining steady during the year 20119. The numeric value of these

exports to US may increase by 3% but in real sense the quantity which is going to be

exported may have a decline of 18% during 2011 and the major reason behind

increase in the numeric value is increase in the cost of raw material (Daily Times.

2012, Para. 2).

According to PRGMEA it is evident that the exports of Pakistan made garment

products is not according to the given targets. A reason behind this decline is the

competitive forces which are also targeting US markets. Fibre products which are

made by man have show some positive figure but as their volume is not that much it

is for that reason its effect will not be visible. In order to stem this decline, textile and

garment exporters need to further diversification in the apparel products so that these

could be differentiated from others available in the international market as mentionedin Daily Times (2012, Para. 3-4).

3.2 Apparel sector making efforts to obtain EU market access

9

Daily Times. (2012, Para. 1).Pakistan apparel exports to United States not growing. RetrievedNovember 27, 2012 from Web site: http://www.dailytimes.com.pk/default.asp?page=2012\02\02\story_2-2-2012_pg5_12

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There are many problems which are being faced by apparel sector of Pakistan which

are influencing negatively on the export figures, however, after availing some energy

alternatives like boilers that run on coal instead of gas, this sector is trying hard to

access more markets of the European Union with a status of GSP plus in the year

2014.

According to the analysis presented by Mansoor A. (2012, Para. 2) apparel sector is

still facing issues like energy crises and growth in this sector is almost stopped even if

government have taken some positive initiatives as desired by the Eurpoean Union by

ratifying some conventions. Moreover, it was also mentioned that according to the

manufacturers of knitwear, there will be a further decline in the export figures and it

will be due to reduced supplies of gas as described by Adil B., Chairman of the

Pakistan Hosiery Manufacturers Association (North Zone). So resolve this issue many

exporters are trying different alternatives like they are using coal instead of gas,

although it is comparative costly to use coal but it is the least expensive power input

after gas (Mansoor A., Para. 3-4).

It was further mentioned by Mansoor A., (2012, Para. 5-6) that according to Adil B.

among other alternatives like coal instead of gas, there are some exporters who have

also installed generators so that in absence of electricity supplied by WAPDA all the

production operations could be continued. Moreover, there is not any other factor in

which Pakistani exporter lack from other exporters of the world as they have qualified

and experienced workforce, quality machines and cotton which is best for knitwear

(Mansoor A., Para. 6).

According to an exporter of knitwear, US and EU are comparatively safe markets as

compared to African and Central Asian countries as there is greater worth of knitwear

in the US and EU markets. There are no reliable financial systems of some emerging

markets, it is for that reason there are many exporters who face loses after dispatching

their consignment to these countries. In respect of knitwear, the period of December

to February is comparatively difficult. According to him, as the tariff policies of the

European Union are bit relaxed towards Pakistan made apparel products till 2013, it is

for that reason there is an expectations that exporters could earn greater amount of

profits during this period of time. However, he was found dissatisfied regarding the

activities of Trade Development Authority of Pakistan in the matter of certifying

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products which are in accordance with the access which is being granted to Pakistan

made products as per the new system as mentioned by Mansoor A., (2012, Para. 7-

10).

Pakistan can export its apparel items to some markets like Africa and Russia;

however, there are some issues which are connected with the Russian market which is

barter trade that is still being exercised over there. Moreover, as discussed earlier the

issue of steam is being solved by some exporters as they have converted their boilers

from gas to coal, however, it require additional capital. These production units could

not only rely on the power supplies by the Government. The GSP plus status will have

a positive impacts on the exports from Pakistan as its products were being exported at

a duty of 19 to 27% previously when a major competitor, Bangladesh was exporting

its products at zero duty added by Mansoor A., (2012, Para. 11-15).

The views of Pervaiz Hanif who is the previous chairman of Pakistan Readymade

Garments Manufacturers and Exporters Association (PRGMEA), exporters from

Pakistan could find good business by exploring some emerging markets which are

being targeted by our competitors like India and Bangladesh and rather than focusing

US and EU markets it would be beneficial for us to target those markets. However, he

shows his concerns about the financial uncertainties in trade with these countries, as

reported by Mansoor A., (2012, Para. 16-17),

3.3 Readymade garment manufacturers face energy shortage and high cost of

production

The products of apparent industry of Pakistan are not only demanded in domestic

markets but these also have a good demand in some international markets and it isreally a significant small scale industry of the country. Presently, this industry is

meeting the requirements of its local customers. In the period of 2010 to 2011

Pakistan have exported $ 1.77 billion goods which contribute 7.1% of the export

items of Pakistan. 10

10

Dr. Noor A.M. (2012, Para. 1).Readymade garment manufacturers face high cost of production.Retrieved October 24, 2012 from Pakistan Textile Journal Issue January 2012 Official site Web site:http://www.ptj.com.pk/Web-2012/01-2012/Dr.Noor.htm

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Dr. Noor A.M. (2012, Para. 2) describe that this industry require less amount of

capital and with the help of this much capital industry could create many job

opportunities. Raw material to be used to manufacture these readymade garments is

easily available in the local markets. Machines which are being utilized in this

industry are mostly either imported or these have been assembled locally.

It was 1970 when the readymade garment industry started its activities in Pakistan and

it grown at a great pace after that time. There are only few of these industrial units

which have expanded their activities throughout Pakistan else those most of these

units are either small or medium in terms of their capacity to produce, workforce andmachinery. As the cost of raw material being used in this industry is very low it is for

that reason its final output gives good profitability to the exporters engaged in some

international transactions. (Dr. Noor A.M., Para. 3) industry can not only meet the

requirements and needs of the customers within the country but it has also a capacity

to produce products which can be sold to the international markets and can be a good

source of foreign exchange for the economy of Pakistan. A large variety of products

and made in this industry which in general includes men garments and women

garments like printed dresses, maxis, skirts, night dresses, middies, shirts and blouses

etc. Synthetic fiber or cotton fabric is being used in all this stuff as described by Dr.

Noor A.M., Para. 4).

According Dr. Noor A.M., (2012, Para. 6-7), there are some other stuffs as well which

are being used to design different products and these include silk, man-made items

and linen which are used in some combination with the cotton intelligently. The

designers of these products are realizing the importance of this diversification in the

designs in terms of contrast, interest repetition and tempo. The export of woven

garments is also increasing with reference to Pakistan as these are contributing 10%

of the total export revenues of the country. These products are merely exported to

north part of America and the countries which lies under European Union.

Raw Materials: The major stuffs which are being used to design Pakistan made

readymade garments are merely local, however, in some products; imported material

is also used in combination with Pakistani stuff. However, both these materials are

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easily available in the local markets. Cotton is basically used as a major ingredient in

all these garments and Pakistan not only have enough quantity of this raw material to

meet the local needs but these could also be used to export garments in the

international markets. This cotton stuff is not only produced by mills but it is also

available from other sources as well and it is being utilized on a large scale in the

readymade garments industry. However, these other sources are not properly

organized and located at different places in the country. Further, the production of this

cotton is being reduced from 9.00 billion square meters in 2001-02 to 8.95 square

meters in 2010-11. In the sector producing cotton in an unorganized manner there are

250,000 looms which are presently operating. Various kinds of fabric and fiber is

being produced by the power loom sector that include viscose, pure cotton and

blended fabrics that are usually available at a low cost as mentioned by Dr. Noor

A.M., (Para. 8-9).

There are some other major ingredients which are being used in these readymade

garments and these include buttons, interlinings, labels, thread and normal lining etc.

which are manufactured domestically in Pakistan in an unorganized manner.

However, in case of export items there are some concerns about these local materials

so for meeting the needs of international customer these are imported as well (Para.

10-11).

Import of Machinery: There are various machineries which are being used by the

garments industry of Pakistan and these are being imported from different countries

like China, Japan and other and their working capacity is 4,500 stitches / min. these

machines are being used in the organized garments sector of Pakistan. There are some

non-industrial items as well which are being imported in connection with the

garments and these include electric irons and sewing machines which are being used

in houses. The details of some significant models of sewing machines along with their

parts have been provided in Table-3.4 and country wise imports of industrial sewing

machines are given in Table-3.5. (Dr. Noor A.M., Para. 12)

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Table No.3.4

Import of Sewing Machines and Parts

Value: Rs. Million

Machines / Parts Unit2008-09 2009-10 2010-11

QuantityValue QuantityValue QuantityValue

Sewing machines / CKD(household)

000 kg 1 2.4 27 61.2 46 101.0

Other Sewing Machines (household) No 21,434 101.0 16,091 34.26 28,594 60.7

Automatic Sewing Machines No 288 38.2 968 93.23 1,137 48.0

Other Sewing Machines (Industrial) No 40,433 33.8 88,773 1318.8 89,898 1687.2

Sewing Machines needles 000 kg 71 780.0 77 160.0 78 166.0

Furniture Sewing Machines 000 kg 1 142.6 1 1.0 4 4.1

Parts of Sewing Machines 000 kg 166 1.2 143 161.9 112 146

Total -- 1099.2 -- 1830.39 -- 2213.0

Source: Federal Bureau of Statistics, Government of Pakistan.

Dr. Noor A.M. (2012). Readymade garment manufacturers face high cost of production. RetrievedOctober 24, 2012 from Pakistan Textile Journal Issue January 2012 Official site Web site:http://www.ptj.com.pk/Web-2012/01-2012/Dr.Noor.htm

Table No.3.5

Country-wise Import of Industrial Sewing Machines

Country2010-2011 2009-2010

Quantity (No) Value (Rs. 000) Quantity (No) Value (Rs. 000)

China 43,868 617,738 40,377 453,956

Germany 8,210 258,105 186 3,943

India 2,160 28,262 3,414 27,016

Italy 1,213 36,959 313 9,321

Japan 22,195 445,811 22,788 406,050

Korea Republics 1,605 40,341 3,841 77,910

Asian Countries 3,774 96,507 8,505 141,330

Singapore 2,962 74,940 2,442 65,517

Hong Kong 779 17,329 1,734 23,757

Malaysia 669 16,126 796 22,258

Turkey 478 11,998 -- --

Vietnam 250 15,564 655 14,944

All others 1,735 27,570 3,722 72,754

Total 89,898 1,687,250 88,773 1,318,756Source: Federal Bureau of Statistics, Government of Pakistan.


Over-look machine is another major item that is being imported in Pakistan; it is

being used to overlook the cloth left after stitching and cutting to make it look tidier.

Moreover, some machines are imported especially for the purpose of cutting at the

mass level, stitching and making holes for the buttons. The major products of the

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readymade garments industry consist of Pants, trousers, school uniforms, maxis, bush-

shirts, t-shirts and other which are either made of pure cotton or with a mixed stuff.

Along with these garments are made for men and children as well for domestic

purposes and the main raw material is mixed stuff with cotton. This mixed cotton

stuff and pure cotton produced by the mills is used to manufacture Pants, Kurtas,

Shalwars, Shirts, and T-shirts. However, there is a variety which is not produced by

mills and it is been used to manufacture skirts, blouses and garments for children

among shirts and T-shirts which are exported internationally. There are some

traditional items as well which are being produced along with these routine items and

these include long Balochi and Sindhi Kurtas and these are not only used domestically

but also exported to other parts of the world as mentioned by (Dr. Noor A.M., Para.

13).

Exports: There is a direct or indirect influence of exports on the production of these

garments units. The quantity ordered to different countries for Pakistani products vary

in different period of times, however, due to inflation value of these quantities goes on

increasing. Following Table 3.6 indicate the whole position since 2000 to 2011 (Dr.

Noor A.M., Para. 14):

Table No.3.6

Exports of Readymade Garments from Pakistan

YearQuantity

(Million Doz)

Value

(US $ Million)

2000-01 36 827

2001-02 41 875

2002-03 61 1,093

2003-04 28 9932004-05 34 1,088

2005-06 37 1,310

2006-07 41 1,385

2007-08 42 1,592

2008-09 29 1,230

2009-10 28 1,269

2010-11 36 1,774

Source: Trade Development Authority of Pakistan.

Dr. Noor A.M. (2012).Readymade garment manufacturers face high costof production. Retrieved October 24, 2012 from Pakistan Textile JournalIssue January 2012 Official site Web site: http://www.ptj.com.pk/Web-

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2012/01-2012/Dr.Noor.htm

There are various countries which are buying readymade garments from Pakistan and

merely these include Germany, UK, France, Italy, USA and Netherlands during the

period of 2010 to 2011. Following Table 3.7 indicate the facts in accordance with

countries being importers of Pakistani garments items(Dr. Noor A.M., Para. 15):

Table No.3.7

Country wise Export of Readymade Garments

Value in $ 000

Country 2010-11 2009-10 2008-09

Germany 327,939 154,047 174,501

Spain 136,291 88,821 68,120

France 87,836 63,727 67,994

Netherlands 45,698 30,785 41,786

U.A.E 45,022 31,844 38,684

Turkey 39,751 21,414 25,513

Sweden 29,230 21,058 20,017

Australia 11,935 9,203 9,551

Greece 4,718 5,939 7,715

Norway 10,854 10,505 9,097

Benin 1,068 3,031 3,782

Denmark 6,622 5,531 13,730

Brazil 2,809 1,874 3,081

Hong Kong 1,237 856 554

Poland 8,504 3,637 1,817

Japan 4,691 3,248 1,508

U.S. America 501,425 393,714 403,580

United Kingdom 193,647 162,025 136,027

Italy 71,437 63,490 53,353

Belgium 124,481 90,169 66,875

Canada 28,415 20,681 16,165

Saudi Arabia 19,720 18,003 22,939

Ireland 11,406 14,034 6,998

Finland 4,694 3,459 3,107

South Africa 2,466 1,567 1,649

Portugal 2,637 2,495 1,166

All others 49,128 44,181 29,743

Total 1,773,661 1,269,338 1,230,019

Source: Trade Development Authority of Pakistan.


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Major Thrust: Presently US are the largest importing country of Pakistani products

after that EU is at the second number with reference to the sale of Pakistani garment

products. Shirts knitted by men or women are the products which are successful in US

markets being exported from Pakistan. Pakistan is exporting 28% of its total exports

to United States. 10% of the knitwear is being exported to EU countries in accordance

with the following product groupings as described in an article by Dr. Noor A.M.

(2012, Para. 16):

United States - Playsuits, baby wear, underwear, nightwear and sweaters.

European Union Sportswear, shirts, baby wear, gloves, trousers socks and

nightwear.

As more and more individuals are moving from villages to cities and there is an

increase in the Gross National Product have been noticed during last five years it is

for that reason demand of readymade garments have increased in the local market. As

the tailors are increasing their charges day by day this is also a factor which may

cause increase in the demand of readymade garments. Further, there are many other

industries as well which based on garments industry and these include weaving,

dyeing, spinning and many other, in this way industry is not only creating jobopportunities directly but also indirectly through these attached industries.

As the cost of production has been increased in Pakistan due to the use of energy

alternatives it is for that reason India, China, Bangladesh and Sri Lanka are taking

competitive advantage and snatching share of Pakistan in the international market.

There is a contribution of 53% of apparent segment in the international trade and this

percentage is growing day by day since last twenty years. (Dr. Noor A.M., Para. 17-

18)

As Bangladesh exports are free from any kind of duty it is for that reason revenues of

Bangladesh from readymade garments are increasing rapidly and these have reached

to $US 17.91 billion in the period of 2010 to 2011. The contribution of garments in

the total exports of Bangladesh is three-quarters and its share in total income from

exports is not less than 80%. After getting GSP plus status exports of Bangladesh to

countries like USA, UK, Netherlands and Germany is increasing considerably.

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Followings are the details of readymade garments exported by Bangladesh to different

parts of the world as described through Table 3.8 (Dr. Noor A.M., Para. 19-20):

Table No.3.8Bangladesh: Export of Readymade Garments (RGM)

(US $ Million)

Year Woven Knitted Total

1998-99 2,483 940 3,783

1999-00 2,985 1,035 4,020

2000-01 3,083 1,270 4,353

2001-02 3,364 1,496 4,860

2002-03 3,125 1,459 4,584

2003-04 3,258 1,654 4,912

2004-05 3,538 2,148 5,6862005-06 4,084 3,817 7,901

2006-07 4,658 4,554 9,212

2007-08 5,167 5,533 10,700

2008-09 5,919 6,429 12,348

2009-10 6,013 6,483 12,496

2010-011 8,432 9,482 17,914

Source: Bangladesh Knitwear Manufacturers and exporters Association.

Dr. Noor A.M. (2012). Readymade garment manufacturers face high cost of production. RetrievedOctober 24, 2012 from Pakistan Textile Journal Issue January 2012 Official site Web site:

http://www.ptj.com.pk/Web-2012/01-2012/Dr.Noor.htm

As per the details provided by Dr. Noor A.M in the Para 21 and 22 of the article

presented by him, Pakistan is producing apparel products with distinct designs and

features. Industry understands the needs of both its local and international customers

and providing quality goods to them. Famous designers and producers from Pakistan

present their products in the international fairs and big stores at New York, Berlin,

Tokyo, London and Paris.

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There is a limitation like ceiling is being applied by EU on the import f eight main

products, however, if this ceiling will finish normal rate of duties will be applied. A

limit of 7571 tonnes has been applied for the import of ladies jeans during a period of

2012 and 2013. If the objects raised by India, Brazil, Indonesia, Bangladesh would

have been withdrawn at World Trade Organization (WTO), this will impact positively

on the exports of 75 Pakistani items as it was allowed by EU till September, 2010 due

to disasters floods in major parts of the country as described by Dr. Noor A.M. (Para.

23-24). All countries except Bangladesh had withdrew their objections and there is

hope that with the mutual correspondence this objection will also be taken back by the

Bangladesh (Para. 24).

The package which is introduced by EU is mostly consist of fabrics, synthetic yarns,

polyester and cotton yarns which are not being exported by Bangladesh as it was

mentioned by Dr. Noor A.M. (Para. 25-26). The exports of Bangladesh are to the

extent of 179 million Euro in terms of seven textile products and contribute only 3%

of its total exports to the European Union.

There was a growth in the garments sector of Pakistan till the year 2008-2009 but

these exports are rapidly declining after that due to increase in the short fall in the

energy supply that cause reduction in the supply of these inputs to the garment

industry. The supplies of gas remain stopped for 174 days to the industries of Punjab

and in the same way this shortfall continued till January 2012. This shortfall had

disturbed 60% of textile mills, 54% on record weaving industries, 30% readymade

garments and 65% knitwear production units which exist in Punjab. (Dr. Noor A.M.

(Para. 27-28)

The declining exports could be disastrous for the economy of Pakistan in accordance

with the views of Bilal Mulla, the acting Chairman of Pakistan Readymade Garments

Manufacturers (PRGMEA) as mentioned by Dr. Noor A.M. in Para. 29-30. internal

factors causing this decline are security position which is going adverse and energy

system. Further, a negative impression to outside world about the high cost of

production is further discouraging foreign investors. Uncertain price level is also a

great concern for the producers who are engaged in manufacturing of apparel items. It

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becomes difficult to meet the orders in such a situation as most of the un-organized

manufacturers require their payments in advance. As far as organized sector is

concerned that is consist of mills where stocks are available these changes in the price

level do not impact that way.

3.4 From Pakistan to Bangladesh

Due to uncertain political and security environment and energy issues the apparel

industry of Pakistan is very much affected. Else all these internal factors as discussed

earlier there are some factors from the external world which are also negatively

influencing the trade volumes of apparel from Pakistan to other parts of the world, a

major factor from these is the competitive external environment. Bangladesh isbecoming a major competitor despite of having same kind of energy crises, but they

have managed it properly and in a better way as compared to Pakistan. Energy crises

is further leading to mass level unemployment as there are millions of individuals

who are working in this sector like Tauseef Enterprises from Faisalabad had 3000

workers and a sole owner Salamat has 800 employees in his factory and in the same

manner there are many which may fire their workers in absence of export orders and

energy. 11

Dhaka was the main hub of the entire industrial sector when Bangladesh and Pakistan

were same country before 1971 war, so considering the weaknesses of Pakistan

apparel sector it is trying to create attractions for the Pakistani manufacturers so that

Dhaka could again become the city of industries and mass business activities. The

major attractions include its GSP plus status and tax free entry to some 37 great

foreign markets like Canada, EU and Australia, low cost of labour, friendly rules and

regulations for foreign investors. It should a great concern for Pakistan that its

industrial units are moving to Bangladesh as it will cause decline in the tax revenues

of Pakistan and will become an obstacle in the way of economic development of the

country. At first developed countries started moving their industrial units to

developing parts of the world but now this trend is further exercised by countries like

Pakistan which is moving its industry to Bangladesh. The competitiveness is

11 Daily Dawn News. (2011).From Pakistan to Bangladesh. Retrieved November 21, 2012 from

Official site Web site: http://dawn.com/2011/08/30/from-pakistan-to-bangladesh/

31
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increasing due to the affects of globalization and same views were given by Frederic

Neumann, the head of economists at HSBS, Hong Kong. (Daily Dawn News Para. 7)

3.4.1 Worrying trend

Apparel sector is contributing more than 50% of the exports of Pakistan and it worth

almost $25 billion (15.3 billion pounds) during the period of 2010-2011 and it had

created 38% of the job opportunities in the production sector of the country as

mentioned in Daily Dawn News (2011, Para. 8-13). During that period exports of

Pakistani Apparel products rise by 35% which amount to $13.80 billion but it was

merely due to increase in the export of cotton, however, decline of 15% was observed

during July 2011-12. However, the situation is becoming adverse for trade andcommerce activities in Pakistan due to unfavorable security position as Karachi is the

main business hub of the country and Gang war and ethnic issues cause more than

300 killings in the month of July only, further Taliban interventions all over the

country is also another cause behind movement of industrial sector to Bangladesh.

Further, all these conditions are also discouraging for foreign investments which are

being attracted by Bangladesh.

Industries could only work at 30 to 40% of their actual capacity and it is only because

of the short fall in the power sector because of which factories could not work three

days in every week. Similar kind of power crises are also faced by industrial sector of

Bangladesh and there is a shortage of 2000 MW, however, their government has taken

some concrete steps to increase the generation of power, however, due to multi-

channel issues government of Pakistan remain unable to overcome its power crises as

stated in Daily Dawn News (Para. 14-18).

2.0 billion cubic feet/day is the amount of gas which could not be supplied for various

domestic and industrial users. In the same way there is a variance in the demand and

supply of electricity of 4000 - 6000 MW. These energy crises are further influencing

negatively the growth of economy of Pakistan by 2 % point on per annum basis as

stated in the report of Asian Development Bank, 2011. Despite of the fact the

Bangladesh is also facing energy crises but there is hope for manufacturers over there

as this situation will be improved in next few months due to actions taken by the

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government, it is for that reason it could be a new home for their industries. (Daily

Dawn News, Para. 19-21)

There are many advantages Bangladesh offer to foreign investors and these include no

duty on the imported raw material, tax holidays till 10 years, they can take back their

investments and profits to their native countries as described in Daily Dawn News

(2011, Para. 22-23). As Bangladesh is declared least developed country it is for that

reason country can export its products to 27 countries of the EU with any duty and

other than EU there are also 10 developed parts of the world like Japan, Canada,

United States and other in accordance with the agreements with these countries.

However, Pakistan is still to get tariff free status after Bangladesh take back its

objections at WTO as it need to trade with other countries not to have aid from them

(Para. 24).

3.4.2 Low labour cost

Despite of the fact that Bangladesh had increase the standard of minimum wages in

the country to 3,000 taka, however, there are many other countries which are in

competition have greater wage rates like India, Thailand, Vietnam, China and

Cambodia. In comparison with Bangladesh, wages are comparatively higher in

Pakistan as its bench mark rate PKR 7000 and there are some garment producers

which are paying greater amount than these minimum wage rates. It is for that reason

apparel cost of production is comparatively less in Bangladesh. Presently Bangladeshi

companies are producing high quality products for international stores like Wal-Mark,

Marks & Spencer and JC Penney and taking the advantage of low cost of production

due to low labour cost.

Proprietor of a Pakistani textile mill, Mr. Tauseef Salamat predicts that there will be

many organizations which will transfer their units to the Bangladesh or they have

already started operations and production of their business in Bangladesh. (Daily

Dawn News, Para.29-31). These manufacturers are producing goods for brands which

are internationally well known like Nike, Adidas and other. People are bound to shift

their business units to Bangladesh but it is not a good alternative for the economy of

Pakistan (Daily Dawn News, Para.32-34)

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3.5 Garment Industry comparison with Competitor countries

3.5.1 Summary

The US import market for denim apparel is extremely tough and competitive. This

market is characterized by extremely competitive pricing structures and is dominated

by China, Mexico and Bangladesh.12 During 2011, China has started losing 3%

average share of this market but its position in womens categories is improving.

Latin American countries are benefiting from this and are increasing their share. Most

of the Asian suppliers including Pakistan do not seem to be taking benefit from this

scenario. Pakistan currently holds 3% market share of total US denim apparel imports

in terms of value and quantity. Pakistans denim apparel exports to US seem to be

stagnant over the years in study. Although Pakistans share of ladies trousers category

improved during 2011 but overall, Pakistans average prices are risin

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3 Revised Thesis Kamran=17!03!13