Pakistan’s garment industry
June 15, 2009
Beyond China
June 15, 2009

How do we beat our competition - China, India and Bangladesh? CEO’s and Senior Managers offer insights By Fareeha Qayoom

How do we beat our competition – China, India and Bangladesh? CEO’s and Senior Managers offer insights

By Fareeha Qayoom

Mr. Zafar Sheikh, CEO Combined Fabrics

Mr. Zafar Sheikh, CEO Combined Fabrics

Pakistan is going through a deep decline in its apparel exports – the hardest hit sector of the economy seems to be the knitwear industry, the effortless money maker in the past. U.S. imports from Pakistan increased 10 percent in 2003 to reach $2.5 billion. Pakistan was ranked as the 59th largest export market for U.S. goods according to a study by US Government. Roughly 72 percent of Pakistani exports to the U.S. consisted of textiles and apparel, while U.S. exports to Pakistan were mostly intermediate capital goods. 2005 changed all that growth.

There are three major centers of Knitwear industry in Pakistan. Lahore, Karachi and Faisalabad, all of them seem under fire. What are the specific issues that are holding Pakistan back? TKFR asked the leading Industry leaders to evaluate issues and provide suggestions on how to turn imminent crisis in to competitive opportunity in the global markets after 2005.

Zafar Sheikh, the CEO at Combined Fabrics feels the government should facilitate the exporters by eliminating needless red tape, lowering essential utility costs and providing a stable image abroad. “The exporters only want a level playing field with Bangladesh, India, and China – we’re in a race with one foot tied down. Quota was a limit and a financial burden. In post-quota scenario, exporters are facing even more fierce competition since government policies hinder exporters instead of facilitating them. For example, government gave exporters one facility in the research and development (R&D) area but it’s so cumbersome that most exporters can not avail it. The government doesn’t play its part. Their systems are not efficient – take sales tax for example. Government policies’ implementation is always a problem, even if their intentions are good. I fail to understand why can’t the State Bank pay up if exporters supply genuine bona fide proof of re-export? We are not asking for any facilities – just smooth running of their basic systems. Another problem that can be attributed to the government directly is the high cost of utilities – the cost of production is very high for the simple reason that the utility costs are so high. I am not saying the exporters are running efficient units. We have to contend with low levels of literacy and barely skilled labor force. This increases the cost of production also but our biggest problem is regular uninterrupted power supply. Power outages happen fifty times a day. Exporters have been forced to purchase power plants to maintain efficiency and production. All these costs add up at the end of the day. Most factories have to keep diesel generators as a back up. It costs twice as much as WAPDA supplied power. Capital costs increase. Pakistani government earned thirty billions in the last ten years from quota alone. Part of this money should have been invested back in the industry by opening training schools. Where did all that money go? EPB spends millions on advertising on image building exercises – what’s the point of announcing that they reached US $ 10 billion mark- what’s the big idea? Another major issue that exporters have to contend with is the poor image abroad. Security is a big thing for most European and US buyers. Even if we offer half a dollar cost advantage over India, buyers prefer India. We haven’t been able to import duty free sundries, (SRO 410). There are so many hassles that exporters prefer not to use this SRO for small quantities. The knitwear situation is pretty bad right now. One of the pioneering units in Lahore – Sarah Textiles closed down – its parent concern, Ammar Textiles is working on 10% of its original capacity. Where are the leading companies? Others will follow in the same path if government policies are not implemented in their true spirit.”

A CEO of another vertical knitwear factory on Ferozpur Road, who didn’t want his name quoted, was very upset with the role of the government. “They say Pakistan is a cotton efficient country but what’s the point of having home produced cotton if you can only purchase it at the same price as any international buyer? What’s the advantage in that? Our sales tax is stuck with the government. Petrol prices are impacting the economy negatively – I have been forced to close my knitting and dyeing units and had to let people go. Things can’t stay at this level – they are bound to improve. I at least hope so.”

Waseem Bukhari, GM production at 6sigma, a Pakistani based US and European importer selling pre-sold goods in those markets, feels it’s not possible to launch a Pakistani private label abroad because of high costs of production and wastages, low vendor capability and lack of innovation, and imperfect operating systems. “It costs too much. Right now, it’s not feasible to launch our own label abroad. We specialize in sourcing, buying and managing pre-sold goods for our US and European customers. Its not that Pakistan is not a good supply market – it is, if you can manage your vendor base and product correctly. We used to ship blank A&F t-shirts – three years ago, we decided to progress beyond the basic product – we took on the embellishment and wash processes in Pakistan too. This year we shipped 2.5 million t-shirts with heavy embellishment and wash, it took us three years to get our supply chain right – we had to go through a bad patch first, Pakistan was not geared up for such a product – we had to deal with lead-time issues, embellishment issues, bad suppliers, we ended up creating a complete supply chain in the process.”

“Typically in the past, most vendors and suppliers would refuse or not develop new products that would come in the market for pricing and development,” he continues. “Pakistan failed to realize that the product was changing in the meantime. Refusing new products built and developed other markets because they built this new capability at buyer’s expense. Pakistan failed to do so. Furthermore, most local vendors failed to build expertise in the existing product offering. Our costs of production are very high. The major reason is failing to control wastages at each process. Fabric costs about 60%, knitting wastage is one to two percent, dyeing losses are 7-9%, panel wastes are 5-7%, marker cutting wastes are around 17-20%, and this doesn’t include the 3 to 5% excess garment that is already planned to counter wastages and quality rejections, then there are embellishment, print and wash wastages which are around 2%. There is no control. Vendors don’t work on controlling fabric weight for example – the proper way is to understand the process and then implement the systems, you need to follow basic rules of knitting; all machines have variable widths, you can not treat each fabric in exactly the same way. High end customers don’t compromise on the fabrics and they will not give tolerances. There are high rejection levels. No records are maintained on the preproduction processes, after approvals, production repeats the same process all over again. This is probably the reason why sometimes the production approvals take so long. Like the whole country, even our industry suffers from ad Hoc strategies – take any area – planning, finance – we are working on short term goals. The vendors need to sort out their bulk issues. Prices are another big issue. Many vendors work on bank refinancing and are performance driven. They have to take orders at any price to show performance to their banks, so this causes a huge disparity in price within the same market. Our tailors are not cross trained. They can’t stitch a full garment on their own, they only know a single operation. You don’t call this expertise. Furthermore, the quality inspectors are not doing their jobs honestly. Negligence at each stage adds costs to the garment. There is no accountability. Tailors need to know their jobs. Sewing is the most neglected area in the factory. In the past, the customers were absorbing these costs, now they refuse to do so. Our government is not in touch with reality if they think things are good in Pakistan. There is only growth at the individual level. Collectively, this industry is going down. In a country of 150 million, labor shouldn’t be a problem. The cost of living is very high in Pakistan. Tax payers don’t get any benefits from paying their taxes. The consumers in this country are paying 78% indirect taxes in addition to direct taxes. How can you progress?”

Raza Ahmed, MM at Target Corporation thinks that the vendors had not factored in WTO. “We have lost on tops and gained on woven bottoms. Nishat, Gulistan, Sapphire and Kohinoor all expanded their capability in anticipation of 2005 post quota environment. Top leaders of the market determine what’s going to happen to a market. It can’t be done at the government level. We could have diversified in to other product lines. Nishat is a Gap fabric supplier for example, they are talking about conversion. There are no failure stories in the woven apparel industry. They are working with Europe and USA. Knitwear industry on the other hand is suffering.”

“Lahore is Pakistan’s show room,” he says. “It has to have the lead, for any textile buyer, Lahore is an important market in Pakistan. All major buyers have offices here. Unfortunately, going vertical was not the way, big set ups carry overheads, besides, wearing too many hats means you don’t excel in any area. All major knitwear units followed Ammar’s lead and bought 30” diameter machines, the layouts may have been different but they were all working from the same feasibility. You have to use the fabric you produce in your in-house knitting and dyeing units, if your fabric is rejected, your margin is gone so fabric is one area that can’t be improved in the vertical model without making these processes independent and commercially viable profit centers. Having all processes under one roof is not necessarily the best way it just means that all areas become cost centers, instead of profit centers. No effort was made to improve processes. Commercial dye houses and knitting houses on the other hand are more efficient since they were forced to improve to generate incomes.”

“Take stitching, long term investment in this area was not done either,” Raza continues. “White collar salaries are being paid to blue collar jobs. Tailors make fifteen to twenty thousand per month since they earn on piece rate. No effort is made to stitch quality garments. Speed is more important than accuracy. A lot of work needs to be done in this area. The tailors can not afford for the salary system to work – of course, there will be resistance and they will create hurdles. The only option is to hire fresh workers and train them separately. Women can be developed as skilled tailors in this area, you also eliminate the problem of turnover and manageability, the only downside with women workers is lack of flexibility on overtime. Developing skilled tailors will cost you one year only in patience and will power. But most factories are driven by short term goals so no effort is made to improve this area or improve costs and efficiencies. We even have to import dyestuff. India has its own so this is another major cost. There are no two ways about it either you reduce your prices or your value proposition. Our product quality is good in comparison to our competition. We rarely hear about stitching claims. Our major weakness continues to be the fabric area. China, India and Bangladesh also get price subsidies from their governments, we don’t. We have a huge advantage in the level of commitment displayed by the work force – no other industry has the same level of hard working dedicated people who will put in such long hours with very little rewards, it’s not a norm in any other industry in Pakistan. We just need to work smarter. We should move into data base management. Reports are generated each day but data is not analyzed and patterns are not studied. Data is key in performance evaluation. The buyers want value, price, quality and service you have to be seen as a mass supplier. Value proposition means the buyers get something extra, saving in lead time, price or quality.”

“Buying houses can not drive business it is purely linked with factories. You are only as good as your supply chain. Why won’t we do nylons, warp knits? We need to get out of the vertically integrated mind set. Karachi is doing the right thing,” he concludes.

Azfar Hassan, the CEO of Matrix Sourcing is fairly optimistic. “Maintaining status quo is not an option. We need to work on our human resources and improve our service package by building in more value, which is meaningful for our clients. We need to work on efficiencies and accounting systems and stop blaming other people. Our industry is by no means finished, we haven’t tried everything. Factories are not being managed well. There is no middle management. We need to work in this area. There are no training programs, empowerment or tolerance for mistakes, then there is wide spread corruption – kickbacks in all process abound. These are major issues. Moving production off shore will not solve our problems. Besides, only the home textiles industry is thinking of moving their manufacturing to Bangladesh due to anti-dumping by EU. As far as knitwear industry is concerned, the best place to manufacture goods is our own country. We need to get our basics right. You will save lot of money if you can get the fabric and sewing right. Jordan was able to do what we were not able to accomplish in Pakistan – they set up training units by putting 50 machines on the side and cross trained their tailors. They have skilled salaried labor, which is more efficient and cost effective than paying piece rate and what’s more it didn’t cost them a lot to develop in time or money. This can be done in Pakistan too. We need to manage the implementation of change. Business comes automatically if you have the capability. It’s only tough when you are selling off the grain. A lot can be done to improve management, skills and by controlling production costs. You can only solve a problem by recognizing that you have a problem in the first place.”

Azhar Iqbal, the CEO of Leisure Textiles also feels that collective improvement can only come with better management. “Quota was an edge for Pakistan. It hid carelessness, inefficiencies and wastages. How can a new buyer come in the market? JC Penney, VF did so. What’s the reason they have not grown beyond a certain point in Pakistan? We need to think about these issues. Our supply chain was okay ten years ago and gave Pakistan a good chance in the global market. ”

First published in the print edition of The Knit-Xtyle Fashion Review, issue 13, 2006

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Fareeha Qayoom
Fareeha Qayoom
Publisher and editor-in-chief of Tkfr.com and former print editions of The Knit-Xtyle Fashion Review (tkfr), a trade newsletter for the textile and apparel industry of Pakistan. In short, Publisher, editor, and a blogger. In addition, she has served as Managing Editor of MIT Technology Review Pakistan, print and web editions (2015-16). Total of 7 editions were published under her leadership by ITU, Punjab's first public technology university under the license of MIT Technology Review (USA). She has also managed Value Mag in the same capacity, a real estate and lifestyle magazine for Value TV - 2008-9. Published freelancer for The News on Sunday 1994-96. Fareeha has over 21 years of solid management experience – of managing brands (like Harley Davidson, Munsingwear, Chaps, Chaps Ralph Lauren etc.,), Retailers (like Target, Mervyns, Kohl's, Marks and Spencer etc.,), customers (VPs, Product Managers, Unit Managers, and Buyers), and products (apparel - woven, knits, men's, women's, children's, Print and online publishing units), projects, teams, and processes, information, content, and data, staff, vendors, and time. Versatile and adaptable with international exposure, communication and language skills (oral and written), and a consistent track record of achieving company targets and objectives, plus a MA in Political Science from Punjab University, a MSc in Economics from La Salle University, Louisiana, USA, and a BA in Economics from Kinnaird College for Women.

10 Comments

  1. Textile exports up over 15pc
    By: Imran Ali Kundi | Published: January 21, 2010

    ISLAMABAD – Despite prevailing power crisis, exports of textile industry showed unexpected growth of over 15 percent in December, which is positive sign for the overall exports of the country that has been on the declining side since the start of ongoing financial year.

    With the start of winter season, not only gas loadshedding is creating problems for the textile units but electricity outage is also on peak.

    Export of textile industry has increased to $ 831 million in the month of December 2009 from $ 720 million in the same month of December 2008 showing an increase of 15.38 percent, Federal Bureau of Statistics reported on Wednesday.

    However, it showed negative growth of 0.57 percent in the first half (July-December) of 2009-10 over the corresponding period of 2008-09. According to the figures, textile export had decreased to $ 5.035 billion in July-December period from $ 5.063 billion against same period of previous fiscal year.

    Export of following textile items in July-December increased as follows: raw cotton, 127.56 percent; cotton yarn, 25.66 percent; yarn, 46.32 percent; readymade garments, 1.66 percent; art silk and synthetic textile, 110.40 percent; made up articles, 0.57 percent; and other textile materials, 39.60 percent.

    Meanwhile, according to the figures, the following items of textile group showed negative growth: cotton cloth, 27.48 percent; cotton carded, 90.85 percent; knitwear, 6.51 percent; bed wear, 6.12 percent; towels, 5.20 percent; and tents, 8.26 percent, in the first six months of 2009-10.

    Similarly, export of traditional products of food group went down by 11.64 percent. Among these, the export of rice declined by 18.42 percent during July-December, which stands at $ 1.468 million against $ 1.662 billion in the same period last year. In the rice group, the export of Basmati went down by 42.49 percent, whereas export of other items increased by 11.95 percent.

    http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/21-Jan-2010/Textile-exports-up-over-15pc

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    http://www.tkfr.com/?p=2212

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    Beyond China
    http://www.tkfr.com/?p=34

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  2. Thursday, January 21, 2010

    Textile exports remain flat in July-Dec ’09-10, dip by 0.57 percent

    Staff Report

    KARACHI: Country’s textile exports remained flat during the first half of the current fiscal year by coming to the tune of $5.034 billion.

    Textile and garments exports remained almost equal to the number of corresponding period last year despite of the economic recession world over mainly because of extra ordinary exports of raw cotton and cotton yarn.

    The unprecedented increase of 217 percent in raw cotton export in December, which on one hand perturbed value-added textile chain, resulted in 15.38 percent increase in overall textile exports during the month.

    The export of raw cotton stood at $145.84 million and cotton yarn export stood at $728.441 million during the six months rising by 127 percent and 25.66 percent respectively, Federal Bureau of Statistics (FBS) reported.

    The textile and garments export in six months (July-December) of the current fiscal year stood at $5.034 billion declining by 0.57 percent as compared to $5.063 billion during the same period last year.

    The recovery in textile export was mainly attributed to major export of raw cotton and cotton yarn during these months that has become a major source of concern for the value-added textile component because of high prices of these items in the local market affecting adversely their performance.

    Exporters said textile export growth was not at all a positive development as on the back of exporting just raw cotton and cotton yarn, the country was again going back to old days when it was the major export and there was no value added products being exported from the country.

    The unit price of one cotton bale fetched by the export of raw cotton and cotton yarn is much lower than value-added products brought for the country.

    When it comes to export of value-added products, the bleak scenario is still prevailing on the export of these items as export of knitwear was almost down seven percent during the months under review.

    Export of bedwear decreased 6.12 percent during these months. Towel export declined 5.2 percent, tents, canvas and tarpaulin declined by 8.26 percent.

    Export of cotton cloth was down 27.48 percent and cotton carded or combed by 90.85 percent.

    Export of readymade garments was up by 1.66 percent and art silk and synthetic textile up by 110.4 percent during these months. Daily Times

    http://www.dailytimes.com.pk/default.asp?page=2010\01\21\story_21-1-2010_pg5_8

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  3. fareeha says:

    Aptma rejects plea to cut yarn export ceiling
    By Our Staff Reporter
    Friday, 05 Feb, 2010

    KARACHI: The All Pakistan Textile Mills Association (Aptma) has rejected the value-added textile sector’s demand for reducing ceiling on yarn export by making amendment in the SRO of Jan 14, 2010 issued by the ministry of commerce.

    http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/business/13+aptma-rejects-plea-to-cut-yarn-export-ceiling-520-za-09

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  4. fareeha says:

    Sunday, February 07, 2010

    APTMA slams strict quotas on cotton yarn export
    Staff Report

    KARACHI: All Pakistan Textile Mills Association (APTMA) on Saturday declared there is an abundance of cotton yarn in the country and dispelled the reports that its shortage is playing havoc with downstream textile industry.

    Apparently, in response to a press conference of value added textile sector a couple of days back, Anwar Tata, Chairman APTMA defended the spinners in its press conference held at APTMA House Karachi.

    http://www.dailytimes.com.pk/default.asp?page=201027\story_7-2-2010_pg5_4

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  5. Yarn exports exceed by 5mn kg in Jan
    By Parvaiz Ishfaq Rana
    Saturday, 20 Feb, 2010

    KARACHI: The government has failed to restrict the export of cotton yarn at the fixed quota of 50 million kg per month as during the month of January these exceeded the capped level by over five million kg.

    http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/business/13+yarn-exports-exceed-by-5m-kg-in-jan-020-za-08

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  6. Cotton yarn export increased by 50pc

    ISLAMABAD: Minister for Textile and Industry Rana Muhammad Farooq Saeed Khan on Friday told the Lower House of the Parliament that export of cotton yarn has increased by 50 per cent during first half of the current fiscal year as compared to last year. Replying to a question during question hour, he said the prices of cotton and yarn have risen sharply in the domestic market due to higher export of yarn. The prices of cotton have increased from Rs 3,175 per maund in December to Rs 4,869 per maund in December 2009, he added. Rana Farooq said in order to ensure availability of yarn, the government has imposed a cap of 35 million kg from March 1 to June 30 on export of yarn. This steps would help significantly improve the local availability of yarn in the country, he added. To another question, the minister said export of cotton cloth fell by 4 per cent and bed wear by 10 per cent during 2008-09 due to global economic recession and power and gas loadshedding. He said the government was making all out efforts to end the anti-dumping duties imposed by USA and European Union (EU) on Pakistani cotton products.—Agency
    http://www.regionaltimes.com/27feb2010/moneynews/cotton.htm

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  7. Yarn industry on verge of collapse
    By Nasir Jamal
    Tuesday, 09 Mar, 2010
    LAHORE: Yarn producers on Monday warned against total collapse of the entire textile exports from the country during the last quarter of this fiscal year (April-June) unless the government revoked its controversial decision to restrict cotton yarn exports.
    http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/business/13+yarn-industry-on-verge-of-collapse-930-za-05

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  8. Producers of yarn to hold protest rallies
    By Nasir Jamal
    Tuesday, 16 Mar, 2010

    LAHORE: Yarn producers will march on streets of Lahore on Thursday to vent their anger over quantitative restrictions on export of cotton yarn.

    Similar, protest processions will also be organised in Karachi and Peshawar.

    The protest march by spinners would coincide with their one- day strike the same day. Strike and protest march have been announced to force the textile ministry to revoke its decision of decreasing yarn quota to 35,000 tons a month from 50,000 tons. An All-Pakistan Textile Mills Association (Aptma) announcement said on Monday mill owners would assemble at the Aptma zonal office and march towards the Governor’s House to express their resentment over what it called hostile attitude of the textile ministry.

    http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/business/13+producers-of-yarn-to-hold-protest-rallies-630-za-04

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  9. Textile minister critical of yarn producers
    By Kalbe Ali
    Wednesday, 17 Mar, 2010

    ISLAMABAD: Textile Minister Rana Mohammad Farooq Saeed Khan on Tuesday criticised yarn manufacturers for trying to take “undue advantage” of the yarn situation, and said the ministry could not be blackmailed by any sector.

    http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/business/13+textile-minister-critical-of-yarn-producers-730-za-01

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  10. Textile exports continue upward trend in Feb
    By: Imran Ali Kundi | Published: March 20, 2010
    ISLAMABAD – After showing healthy growth in the month of January, textile sector once again registered a handsome growth of 21.67 percent in the February over the same period of the last year, Federal Bureau of Statistics reported on Friday.
    According to the figures issued by Federal Bureau of Statistics, textile’s exports were recorded at $795 million in February against $653 million in the same period of 2009.
    However it showed a slight growth of 4.18 percent in the first eight months (July-February) of the current financial year against the same period of the last year.

    http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/20-Mar-2010/Textile-exports-continue-upward-trend-in-Feb

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