BUSINESS STRATEGY 

[AN OVER VIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
 
 
 
 
 
 

[Abstract] 
The textile sector of Pakistan is the backbone of the economy of the country. It contributes 65
% to the total exports of the country. Besides being a very important sector, it is neglected
and today faces stiff competition in international market. This report is formulated to
highlight the issues and problems pertaining to the textile sector and some recommendations
to utilize the maximum potential of this industry to boost the exports of textile products of
Pakistan.

Group Members:      (Group # 2:  MBA‐II Direct)              

i) Ammar Ashraf                            iv)         Piyar Ali Lakho                      
ii) Hassan Ahmed Khan           v)         Rohan Tariq Mirza 
iii) Muhammad Hasan                    vi)       Raja Imram Arshad 
      Vii)        Sarmmad Rafique 
 

Submitted To:   

‐ Mr. Kamil Shahbazkar 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
 

DEDICATION

This report is dedicated to our great mother land Pakistan ,our beloved Institute Of
Business Administration, Karachi, our loving teacher Mr. Kamil ShahbazKar, Ahmed
Mansoor Khabaray (Teaching Asst.), Ministry Of Textile, all those people who helped us
completing this report and lastly to all the project groups members.

 
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Table of Contents 
 

Cover Page…………………………………………………………………………………………………………………………… 1 

Dedication……………………………………………………………………………………………………………………………  2 

The Textile Industry Of Pakistan: An General Overview………………………………………………………   3 

The Production Process Of Textile Industry…………………………………………………………………………   7 

Textile Value Chain Diagram……………………………………………………………………………………………….   8 

The Financial Perspective Of The Textile Industry Of Pakistan…………………………………………..    27 

Marketing Perspective of the Textile Industry of Pakistan…………………………………………….....    44 

Export Potential Of Textile Industry of Pakistan…………………………………………………………………   55 

BIBLIOGRAPHY……………………………………………………………………………………………………………………… 64

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 

The Textile Industry of Pakistan 

The textile sector enjoys a pivotal position in the exports of Pakistan. In Asia, Pakistan is
the 8th largest exporter of textile products. The contribution of this industry to the total
GDP is 8.5%. It provides employment to about 15 million people, 30% of the country
work force of about 49 million. The annual volume of total world textile trade is US$18
trillion which is growing at 2.5 percent. Out of it, Pakistan’s share is less than one per
cent. The development of the Manufacturing Sector has been given the highest priority
since Pakistan’s founding with major stress on Agro-Based Industries. For Pakistan
which was one of the leading producers of cotton in the world, the development of a
Textile Industry making full use of its abundant resources of cotton has been a priority
area towards industrialization. At present, there are 1,221 ginning units, 442 spinning
units, 124 large spinning units and 425 small units which produce textile products.
The industry consists of large-scale organized sector and a highly fragmented cottage /
small-scale sector. The various sectors that are a part of the textile value chain are:
Spinning, most of the spinning industry operates in an organized manner with in-house
weaving, dying and finishing facilities. Weaving comprises of small and medium sized
entities. The processing sector, comprising dyeing, printing and finishing sub-sectors,
only a part of this sector is operating in an organized state, able to process large
quantities while the rest of the units operate as small and medium sized units. The
printing segment dominates the overall processing industry followed by textile dyeing
and fabric bleaching. The garments manufacturing segment generates the highest
employment within the textile value chain. Over 75% of the units comprise small sized
units. The knitwear industry mostly consists of factories operating as integrated units
(knitting + processing + making up facilities). The clothing sectors both woven and
knits are mainly clustering in Karachi– Lahore and Faisalabad where sufficient ladies
labor is available. High value added products i.e. garments and textile made-ups have
over the years progressively increased their share in the textile export portfolio.

 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
Currently these products constitute 57% of the total textile exports. During early
nineties the textile exports were dominated by yarn and greige fabric which had a share
of almost 56% in the total exports. As far as the markets are concerned 60% -70% of the
merchandise is exported to the USA and the EU.

TOTAL TEXTILE UNITS IN PAKISTAN:

Ginning  1221

Spinning 445

Weaving 

140
Large

Small   425

Power Looms   20600

Finishing 

Large   106

Small  625

Garments 5000

600
Large

Knitwear   700

Towels  400

Total Capacities:  

Spinning:  1900 Million Kgs Yarn

Weaving:   5600 Million Sq. Mtr. Fabric

 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
Finishing:   3500 Million Sq. Mtr

Garments:   650 Million PCs.

Knitwear:  350 Million PCs.

Towels:   55 Million Kgs.

RECENT INVESTMENTS IN TEXTILE SECTOR:

During 1999 – 2006, there has been a rapid expansion in investment in new textile
technology. There is now a marked shift to value addition and the share of garments
and made-ups has increased from 47% to 58%. Total investment in textile industry
during the last four years is now being estimated at $ 6 billion that has led to
improvement in productivity, both in terms of quality and quantity, in yarn, fabrics,
home textiles and garments.
Spinning is the most capital intensive segment of the textile sector, but value added
sectors - home textiles and garments - require relatively less capital investment, but they
also create more jobs.

 
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Production Process Of The Textile Industry

Textile manufacturing begins with the production or harvesting of raw fiber. Fiber used
in textiles can be harvested from natural sources (e.g. wool, cotton) or manufactured
from regenerative cellulose materials (e.g. rayon, acetate), or it can be entirely synthetic
(e.g. polyester, nylon). After the raw natural or manufactured fibers are shipped from
the farmer the chemical plant, they pass through four main stages of processing

• Yarn production

• Fabric production

• Wet process

• Garments Manufacturing

 
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USTRY OF PA
AKISTAN] 
 

 
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USTRY OF PA
AKISTAN] 
 
YARN MANUFAC
M CTURING PROCESS
S (USED IN
N PAKISTA
AN):

More co
ommonly known
k as spinning
s prrocess is th
he initial
process of the texttile producction proceess. Spinnin
ng is the
twisting
g together of
o fibers to form yarn (or thread, rope, or
cable).

OPENING
G/BLENDING
G:

Row material
m (co
otton and synthetic)) are receeived in
compactt bales. Op
pening is th
he first operration requ
uired to carrried out to
o open matterial
from hig
ghly pressed cotton/sy
ynthetic baales.
CLEANIN
NG

Cotton fiber
f must be cleaned
d to remov
ve foreign matter
m
such as plant partss, seed hullls, dirt, etc, from the fibers.
Cleaning
g is perform
med in succcessive step
ps from coaarse to
fine.

CARDING
G

The blo
ow room only
o opens the row material
m to
o flock
whereass the card opens
o the flock
f into individual
i fibers.
During this
t individ
dualization process, co
oarse trash particles arre removed
d in the lick
ker-in
zone and fine trash
h particles/
/ dust suck
ked away. The
T sheet off carded fib
bers is remo
oved
through
h a funnel in
nto a loose rope
r like sttrand called
d a sliver.
Combin
ng

DRAWIN
NG

The task
k of drawin
ng process is to impro
ove evenneess oversho
ot, medium
m and especcially
long term
m level by straighteniing and paaralyzing th o this it also for
he fiber. In addition to
blending
g of differrent fibers (Blending
g of Polyeester / Co
otton, Polyeester /Visccose,
Polyesteer / Wool Etc.)The
E draawing fram
me containss several paairs of rollers that rotaate at
successively faster speed.

 
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ROVE FORMATION (ROVING):

The main function of the roving is to attenuate the
sliver. In this process draw frame sliver is fed to the
drafting arrangement, which attenuate the sliver with
a draft of between 5-20.. The twisted (rove) is finally
woundon the bobbin, so that it is easy to transport to
next process, stored and crelled on ring frame

SPINNING
In this process rove is fed to drafting arrangement, which further attenuate to spin into
final yarn. The delivered stand offline fiber from the
drafting arrangement, is strengthened by inserting twist
in it. This twist is generated by the spindle, which rotate
at a higher speed. Each revolution of spindle import one
turn of twist to the strand. Finally the yarn (twisted fiber
strand) is wound on bobbin mounted on spindle with the
help of traveler

 
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INNOVATION IN SPINNING PROCESS:

Cotton is a more traditional raw material for spinning. Today synthetic raw materials
are used for production of blended yarn. Some of these methods are discussed below.

MANMADE FIBERS
Manmade fibers are often shipped as staple (similar inlength to natural fibers), which is
ready for spinning, or asfilament yarn, which may be used direct  ly or followingfurther
shaping or texturising. Both synthetic and celluloseare
manufactured by processes that simulate or resemblethe
manufacture of silk (i.e., forcing a liquid through asmall
opening where the liquid solidifies to form acontinuous
filament). The three main methods of fibermanufacture
are described below:

WET SPINNING
In wet spinning, the polymer used to form the fiber is
dissolved in solution. The solution is forced under
pressure through an opening into a liquid bath in which
the polymer is insoluble. As the solvent is dissipated in
the bath, the fiber forms. Wet spinning produces rayon,
acrylic, and modacrylic.

DRY SPINNING
Dry spinning uses a solvent that evaporates in air. The dissolved polymer is extruded
through the spinneret into a chamber of heated air or gas; the solvent is generally
recovered for reuse. Acrylic is produced by dissolving the polymer in dimethyl-
formamide before dry spinning. Other fibers formed by dry spinning include acetate,
triacetate,

 
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PROBLEMS WITH SPINNING INDUSTRY:

At present there are 493 textile mills out of which 53 are composite units 410 spinning
units and 30 waste spinning units. There are 8.63 M. spindles and 132000 rotors
installed of which 6,208 M. spindles and 73100 rotors are in operation (June1995). The
capacity utilization is 72% in spindles and 55% in rotors. Annexure-1 describes the
capacity installed worked and idle capacity during the last 10 years. The closed spindles
declined from 30% in 1985-86 to 15% in 1990-91 and have now again increased to 28% in
June 1995. The rotors behaved similarly and %age closures declined from 34% to 10%
and then again increased to 45% during the same period.

Annexure-11 describes the month-wise details of closed capacity for1993-94 and 1994-
95. In would be noted that of the total closed capacity 19% spindles and 32% rotor are
fully closed and 9% spindles and 13% rotors are partially closed. The partial closure
represents both capacity closed for normal maintenance as well as import of market
slump.

The No of spinning units – capacity and hence production of yarn had increased during
the last five years. The exports of yarn could not keep pace with the increase in
production and is reflected in low export volumes detailed as below:

Production & Exports of Yarn(In M.K. Gs)

Period Yarn Production Exports Export %age of production

2004-05 1055.23 502.67 52.4

2005-06 1188.27 505.86 42.6

2006-07 1234.54 555.30 45.0

2007-08 1498.95 578.5 36.6

2008-09 1415.20 511.63 36.1

 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
The low levels of exports sales coupled with increase in raw cotton prices and increase
in input cost in turn had impact on mills viabilities and this resulted in decline
approximately 100 MKg of yarn production in 1994-95 and this trend is anticipated to
continue in near future. This in turn has developed a state of financial squeeze on textile
industry and is reflected into increase in the closures of spinning units as under

Year Total No of units Units fully closed

2004 - 05 307 31

2005 - 06 334 44

2006 - 07 471 103

2007 – 08 493 114

June – 2009(updated to Aug) 493 120

The main reasons for these disaster is as follow:

(i) Market recession.

(ii) Over capitalization and hence unfeasible performance.
(iii) Uncertain viability of spinning sector at international prices of raw cotton.
(iv) Financial constraints.
(v) Lack of timely modernization according to the market requirement.
(vi) In-efficient management.
(vii) Labour problems.
(viii) Disputes amongst directors/family/shareholders and various cases pending in Courts.
(ix) Law and order situation.
(x) Power disconnection.

 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
SUGGESTIONS TO BOOST SPINNING INDUSTRY:

1. The farmers and ginners need to be educated on quality improvement, grading,

packing, and labeling and storage functions of cotton. Improved quality of raw cotton
will not only reduce the cost of production and waste product but will also enable the
spinners to produce cotton yarn of higher counts to fetch more foreign exchange.

2. Special incentives need to be provided to attract investment for manufacturing the

textile machinery. This will reduce the cost of textile machinery and ultimately the cost
of production of cotton yarn to enjoy competitive advantage in the international market.

3. Duties on the import of equipment for the generation of electricity should be

removed so that the textile firms could produce cheap electricity themselves which
ultimately will reduce the cost of production of cotton yarn.

4. Performance of the existing apprenticeship institutes should be improved, new

institutes should be established and refresher courses for farmers, ginners, spinners,
mill managers and export managers should be started to improve upon the quality of
human resource in textile sector.

5. Mark up rate for borrowing the money from banks should be inversely related with
the production of higher counts of yarn. The mark up should range from 25 per cent for
20 counts to 14 per cent on the above 100 counts of yarn produced and 13 per cent for 20
counts to 8 per cent for the above 100 counts of yarn exported. Similarly the imposition
of sales tax on cotton yam should production to 10 per cent for below 20 counts of yarn
produced.

 
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WEAVING PROC
CESS

Weaving
g is the tex
xtile art in which
w two distinct seets of yarnss or
threads, called thee warp and the filling or weft (ollder woof), are
interlaceed with ea
ach other to
o form a faabric or clo
oth. The warp
w
threads run length
hways of th
he piece of cloth, and the weft runs
r
across frrom side to side.

Cloth iss woven on

n a loom, a device forr holding the
t warp th
hreads in place
p whilee the
filling th
hreads are woven th
hrough them
m. Weft is an old Eng
glish word meaning "that
which iss woven".

The man
nner in whiich the warrp and fillin
ng threads interlace
i w each oth
with her is know
wn as
the weav
ve. The th
hree basic weaves
w aree plain weaave, satin weave,
w and
d twill, and
d the
majority
y of woven products are created with
w one off these weav
ves.

Woven cloth can be

b plain (in
n one colo
or or a sim
mple pattern
n), or it caan be woveen in
decoratiive or artisstic designss, including
g tapestriess. Fabric in
n which thee warp and
d/or
weft is tie-dyed beffore weavin
ng is called ikat.

The anccient art of hand weav

ving, along
g with hand spinning, remains a popular craft.
c
The m
majority off commerrcial fabrics in the W
West are woven on compu
uter-
controlleed Jacquard
d looms. In
n the past, simpler faabrics weree woven on
n dobby looms,
while th
he Jacquard
d harness adaptation was
w reserveed for morre complex patterns. Some
S
believe the
t efficien
ncy of the Jaacquard loo
om, with itss Jacquard weaving
w prrocess, mak
kes it
more ecconomical for
f mills to
o use them to weave all of theirr fabrics, reegardless of the
complex
xity of the design.
d

In generral, weaving
g involves the
t interlaccing of two sets of threeads at righ
ht angles to each
other: th
he warp and
d the weft. The warpss are held taaut and in parallel
p ord
der, typicallly by
means of
o a loom, though
t som
me forms off weaving may
m use otther method
ds. The loo
om is
warped (or dressed) with thee warp thrreads passing through
h heddles on
o two or more
m
harnessees. The warrp threads are moved
d up or dow
wn by the harnesses
h c
creating a space
s
called th
he shed. Th
he weft threead is wound onto sp
pools called
d bobbins. The
T bobbins are
 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
placed in a shuttle which carries the weft thread through the shed. The raising and
lowering sequence of warp threads gives rise to many possible weave structures:

ƒ Plain weave,
ƒ Twill weave,
ƒ Satin weave, and
ƒ Complex computer-generated interlacing.

Both warp and weft can be visible in the final product. By spacing the warp more
closely, it can completely cover the weft that binds it, giving a warp faced textile such as
rep weave. Conversely, if the warp is spread out, the weft can slide down and
completely cover the warp, giving a weft faced textile, such as a tapestry or a Kilim rug.
There are a variety of loom styles for hand weaving and tapestry. In tapestry, the image
is created by placing weft only in certain warp areas, rather than across the entire warp
width.

MODERN WEAVING:

Modern looms still weave by repeating in sequence the operations of shedding, picking,
and beating in, but within that
framework there has been
considerable development during
the 20th century. Several new types
of loom have come into industrial
use, whereas older types have been
refined and their scope extended.
Two main influences have been the
rising cost of labour and the
increasing use of man-made,
continuous-filament yarns. The first
has led to an increase in automatic control, in automatic handling of yarn packages, and

 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
in the use of larger packages; the second, to greater precision and finish in loom
construction, because deficiency in these qualities is readily reflected in the quality of
the cloth made from these yarns.

Modern looms can be grouped into two classes according to whether they produce
cloth in plane or tubular form. Looms of the first kind, comprising all but a few, are
called flat looms; the others are described as circular. Since the majority is flat looms,
the adjective is used only when a distinction has to be drawn. Flat looms fall into two
categories: those that employ a shuttle and those that draw the weft from a stationary
supply, usually called shuttle less looms. (This term is not entirely satisfactory, as some
primitive looms make no use of a shuttle, merely passing through the shed a stick with
weft wound on it.) Shuttle looms fall into two groups according to whether the shuttle
is replenished by hand or automatically. The second kind is often described as
an automatic loom, but, except for shuttle replenishment, it is no more automatic in its
operation than the hand-replenished or so-called non automatic loom, which, like all
modern looms, is power-operated by electric motor. With both types of loom the actual
weaving operation is entirely automatic and is performed in exactly the same manner.

Hand-replenished, or non automatic, looms are used only where particular

circumstances—of yarns, fabrics, or use—make automatically replenished looms either
technically unsuitable or uneconomic. Basically they differ little from the power looms
of the latter half of the 19th century. They do not run appreciably faster but are better
engineered, making use, for example, of machine-cut instead of cast gear wheels. Often
there is no superstructure, which makes for cleanliness and improved illumination;
frequently rigid heddle connectors are employed, leading to precise and stable setting
of the shed; and usually the over pick mechanism has been replaced by the cleaner and
safer under pick.

Automatically replenished flat, or automatic, looms are the most important class of
modern loom, available for a very wide range of fabrics. In virtually all such looms, the
shuttle is replenished by automatically replacing the exhausted bobbin with a full one.
 
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In principle they are thus the same as the automatic looms introduced at the end of the
19th century. Since that time, automatic shuttle-changing looms have also been
introduced but have largely become obsolete, because bobbin-changing looms have
been developed to a point where they can deal with most of the yarns for which it was
once thought necessary to use shuttle-changing looms.

RECOMMENDATIONS FOR IMPROVEMENT:

· Increase in loom productivity,

· Increase in weaver productivity,
· Improvement in the quality of fabric,
· Longer lengths and wider widths fabrics can be produced,
· As many as 16 colours of yarn in the weft can be used without sacrificing the
speed of the machine,
· Increase in versatility,
· Use of weft accumulators, which reduces average tension on weft during
insertion of weft, equalizes
· yarn tension caused by the diminishing diameter of weft supply package,
avoids snarls in the weft
· and gives fewer weft breakages,
· Reduces cost of production due to higher productivity and better value
realization due to improved
· fabric quality.

 
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TEXTILE WET PROCESSING:
Wet processing is a tricky business. Unlike spinning and weaving, where specific
calculations with certain constants cover up the entire technology, wet processing is a
field of variations and uncertainties. Despite strict process controls and quality checks,
variations do occur and to cope up these problems quick and correct decisions are
required. The wet processing of textile goods involves the following processes:
• Checking and raising in grey department.
• Singeing, scouring, bleaching, and mercerizing in pre-treatment department.
• Dyeing of pre-treated fabric in dyeing department.
• Printing of pre-treated/dyed fabric in printing department.
• Finishing of dyed/printed fabric in finishing department.
• Final checking and folding of finished goods in folding department.

GREY DEPARTMENT:
It is the first department of the mill where the grey fabric is stored, checked and issued
for the processing orders. At first all of the fabric is received and stored in the godown.
Then it is checked, folded and issued. In case of flallil fabric, it is raised, folded and
issued. The sequence of processes is as follows:

GREY GREY

CHECKING RAISING

FOLDING FOLDING

PROCESSING PROCESSING

 
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PRETREATMENT
This department carries out the various processes also called back processes on textile
goods in grey form. The input in this department is the graded grey fabric and the
output is white fabric (bleached and/or mercerized).
Pre-treatment occupies the key position in textile finishing sector, since almost all
textile undergoes pre-treatment in the course of their finishing operations and
estimated to 60-70% of faults that appear during subsequent processing attribute to
wrong or inadequate pre-treatment. The sequence of various processes in the pre-
treatment is:

SINGEING

DESIZING

SCOURING
COLD PAD BATCH
BLEACHING

BLEACHING

MERCERIZATION

 
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DYEING
“It is the process of colouring the textile materials by immersing them in an aqueous solution of
the dyestuff called dye liquor”
The general theory of dyeing explains the interaction between dye, fibre, and water and
dye auxiliaries. More specifically it explains:

• Forces of repulsion, which are developed between the dye molecule and
water; and
• Forces of attraction, which are developed between the dye molecule and
fibre.

The processes consist of three stages:

1 Migration of the dye from the solution to the interface accompanied by
absorption on the surface of the fibre.
2 Diffusion of the dye from the surface towards the centre of the fibre.
3 The anchoring of the dye molecules by covalent, ionic, or hydrogen bonds, or
other forces of physical nature.
The process of dyeing can be classified as:
• Cotton dyeing.
• Polyester/Cotton blends dyeing

COTTON DYEING
Dyeing on cotton (natural fibre) is carried out by a variety of dye classes but at ATI,
cotton dyeing is carried out with the following dyes:
• Reactive dyes.
• Vat dyes.
• Pigment dyes.

DYEING PROCESSES

For cotton dyeing with reactive dyes the following process are adopted
• Exhaust process.

 
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• Semi-continuous process.
¾ Pad – batch process.
• Continuous process
¾ Pad – steam process.
¾ Pad – dry – chemical pad – steam process.
¾ Pad – thermosol process.

PRINTING
Printing can be defined as the localised application of dyestuff or pigment to fabric to
generate a pattern or design. In printing thick or viscous solution of dyestuff or
pigments are used to ensure that the colour adheres to the precise spot applied and
does not spread to destroy the definition of the printed object. The word printing
implies a process that uses pressure being derived from the Latin word meaning
printing. The German word Druck used for printing also means pressure.

FINISHING
Textile finishing is a term that is commonly applied to different processes that the
textile materials undergo after bleaching, dyeing or printing for final embellishment to
enhance their attractiveness and sale appeal.
The type of finishes and methods of their application depend upon the nature of the
fibrous substrate and their arrangement in yarn or fabric. The properties of fibres such
as swelling capacity, chemical reactivity, response to heat treatment etc determine the
type of finish suitable for a particular product. Choice of the finish is further governed
by factors such as structure of yarn, type of weave and construction of fabric i.e. woven,
knitted or non-woven

 
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GARMENT MAKING PROCESS (USED IN PAKISTAN):

Knowledge is the key to success and this also stands true for textile
industry. Every textile entrepreneur need to know the basic, traditional
as well as modern and technical apparel making techniques. This helps
the traders compare all the available means in the market and select the
one best suited for the business requirement. The basic processes of textile
manufacturing viz. spinning, weaving, knitting, finishing processes, dyeing, printing
and others are all involved in fabric manufacturing. However, the actual ready to wear
apparel involves many more processes right from pattern drafting to garment
construction which include pattern designing and pattern making, grading, marker
making, apparel cutting, sewing, pressing and finishing. Lets have an overview of the
basic processes as well as the latest trends in the making of an apparel.

PATTERN MAKING:

The basic procedure for apparel making is to design a pattern and put it
into an identifiable form. The traditional method of pattern making
includes creation of hard paper patterns. The modern apparel making
system has adopted the digitization of pattern making process. These
days many clothing firms provide the most modern and technical services for garment
construction. They can create fresh computerized patterns or make modifications to
existing hard paper patterns or digitize the available data. These patterns can be made
from their own samples or specifications provided by the apparel manufacturers. Most
of these firms try to provide patterns that will sew properly without confusion in the
production line.

 
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PATTERN GRADING

Grading is the process used for creating sized patterns. There are certain
proportional rules and set increments that form the basis of grading.
These rules are set on the basis of analysis on body measurements of the
general population. The clothing firms also help in pattern grading
using the specifications provided by the apparel manufacturers and some of them also
assist the manufacturers in establishing specifications for their product. The grade rules
are developed keeping in view the market segment for which the product is intended
such as men, women, youth, child, toddler etc. These firms mostly use the softwares
available in the market for checking the accuracy of the grades.

MARKER MAKING

Fabric is the most important basic material for apparel making and it
accounts for around 50 per cent of the ex-factory cost of a garment.
Thus, material optimization or maximizing fabric utilization is the
fundamental factor for every apparel firm. Marker making is done to
avoid material wastage. While making markers, fabric width, length, fabric type and
subsequent cutting method, all are taken into account. Both single size and multiple size
paper markers are made using automated marker making tools and Computer Aided
Design Computer Aided Manufacturing (CADCAM) along with traditional manual
methods. The firms providing this service use previously graded pattern or the
digitized copy of styles provided by the apparel manufacturers.

 
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APPAREL CUTTING

Apart from using traditional tools such as straight knife, band knife,
shears etc. nowadays, automatic spreading equipment and
computerized cutting systems are widely used for apparel cutting .
Pattern specifications are kept into consideration while cutting which
ensures that the constructed garment is exactly similar to the sample produced. The use
of markers ensures as little textile waste as possible.

APPAREL SEWING:

The sewing operation in most of the garment construction companies is

closely supervised for quality control. A variety of apparel styles and
fabrics are sewn these days. There are a large number of sewing
machines available for almost any sewing operation. Some of the
examples of such machines are single needle, double needle, safety stitch, automatic
meter, automatic multi stitch, loop tacker, pocket welt, keyhole buttonhole, automatic
button.

PRESSING & FINISHING:

After the sewing operation, the constructed garments are examined,

pressed, tagged and bagged in the pressing and finishing department.
The automated processes adopted these days prevent the possibility of
wrinkling of the sewn garments throughout the finishing process.

 
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GARMENTS MANUFACTURING FACILITIES IN PAKISTAN:

There is now more focus on garment and knitwear export in Pakistan. At present there
are 5000 plus garment units operating in Pakistan. Of these 12% are said to be large
scale and 88% are small almost cottage industry level. There are about 250,000 industrial
sewing machines and half a million domestic sewing machines in this sector. In knitting
too there are about 750 big and small units. Pakistan fetched more than US $2 billion
from export of garments and knitwear during last fiscal year and expects to push up
earnings in the current fiscal year too. These two sectors, said to be the highest value
added textile products, are likely to emerge main foreign exchange earning items in the
post 2005 world export market.

SUGGESTION FOR IMPROVEMENT:

- As garments sector is the most value added sector in textiles, investments in

textile should focus on garments.
- A $ 20 million dollar investment in spinning & waving sector produces on 200 –
300 jobs, while such a investment in garments sector can generate almost 4500 –
5000 jobs and about $ 0.5 million foreign revenue.
- Exports of raw yarn and cloth should immediately be banned and exports of
unfinished goods should be immediately banned.
- More foreign collaboration is required for the end product industry i.e. Garments
manufacturing so that a permanent relation be developed to external buyers.
- The textile industry should reverted to composite units for the production of a
complete range of products.
- A redesigned energy policy should be implemented for the textile sector as
interruption in power leads to serious losses and cancellation of orders.
- One of the greatest value addition to the garments sector and eventually to the
textile sector would be to evolve brands rather than be merely a out source
facility. The brand establishment could a one the most powerful boaster for the
textile sector of Pakistan.

 
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Financial Perspective Of The Textile Industry 
TEXTILE TRADE: WTO

The world textile trade is regulated by a governing body’s agreement by World Trade
Organization’s (WTO) called Agreement on Textile and Clothing (ATC). This agreement
enforced rationing of textile trade and imposed quotas on export to certain countries namely
European Union, Canada, United States of America and Turkey on December 2004. This
severely hampered developing countries exports to these countries and affected these countries
textile sector contribution to their respective country’s GDP.

RATIONING & CONSEQUENCES ON PAKISTAN

Rationing or quotas act as a quantitative barrier on textile or garments that a producing nation
can export to a consuming market. Pragmatically, this has meant that low-cost producers aren't
free to sell as much as they could while retailers must cobble together supply chains to produce
the lowest-cost supply possible. This has led to serious repercussions on textile trade. Rationing
goes as far back as 1974 when it was imposed on a dozen countries mainly in Asia by America,
European Union and Canada. The developed importing countries used their status and
persuaded the exporting countries for mutual rather forced restraints, limiting poor nations to
export raw materials. It was initiated as short-term measure but later on extended and
converted into a long-term plan. The basic purpose behind this was to give a breathing space to
the local industries of developed countries so as to make them able to compete in future. Setting
such unfair conditions, the new entrant like Pakistan, whose industry is in the upstream infant
stage, has rendered many problems. These were the tactful strategies used by the developed
countries to exploit the weaker position of the developing nations. The use of quotas began to
be phased out in 1995, but so far only about 50% of textile products have been freed, including
such items as seat belts, umbrellas, baby clothes and brassieres. Once the quotas are removed on
remaining items, competitive countries will no longer be limited in their access to lucrative
markets and uncompetitive nations will lose their guaranteed markets which are now governed
by quotas. Pakistan’s total share in the global textile and clothing market is 2 per cent. Will
Pakistan be able to increase its share in the post quota era or will it loose the percentage that it
currently possesses?

The industry had great expectations from the post-quota regime. While exports have gone up, it
was not to the levels expected. And competing countries are getting ever more aggressive. The
industry is however confident of better prospects ahead.

 
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The industry and the government had expected orders to start flowing in post-quota, and had
expected an export growth of 35-40 per cent during the year. It was also expected that
readymade garments and home textiles would be the driving force for textile exports.

In anticipation of this, many in the industry went in for massive capacity expansions, etc.
However, the orders did not come in as expected.

The progress has been slow, but not that bad. This situation of influx was expected by the
industry players, but they are still anticipating that exports will increase gradually and will be
higher in 2006, rising further in consecutive years.

If the industry moves with such a slow pace it can not meet the export target as was set
previously.

For the post quota regime relaxation by the government were not enough as they did not
attract a large amount of small businesses to enter and there is very small sport by the
government to promote home textiles. Holding one textile / apparel exhibition once a year does
not bring in importers and it definitely does not do any good to potential exporters.

Government needs to enter into contracts with the international sourcing houses and
associations for the reason, to promote purchasing from Pakistan, causing higher influx of
foreign exchange into the country.

DISABLING RATIONING

Companies thought that the global market will be anxiously waiting for them to enter the
market and orders of big brand names will start pouring in which did not happen because
despite Pakistan being able to produce high quality products lacks the proper marketing and
image building required for promoting itself globally.

This shows that the industry was not prepared for the post quota era therefore they could not
meet the demand.

The quotas put forth another problem by being lifted too slowly and that too from only half the
products causing slow transitioning to technically enhanced industry that practices high
exports.

 
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WTO: IMPACT ON PAKISTAN TEXTILE INDUSTRY

When the rationing system was disabled, it brought a astonishing change to Pakistani Textile
Industry. Textile industry is the one of most important sector in the Pakistan’s economy as its
share in economy, GDP and foreign exchange earning, is the highest. Despite of the global
economic recession of year 2001, this is the only industry that is contributing to the great extent
in the Pakistan economy that is why it is called as the backbone of the economy. The share of
textile in the total country’s exports is around 66%. Pakistan is among one of the largest
exporters of textile in the world along with China, India and Bangladesh. Before year 2005,
Pakistan was exporting its textile products under the quota system but the implementation of
WTO has abolished the quota system in the international market, which gives rise to many
threats and opportunities for the textile industry of Pakistan. With the implementation of WTO,
Pakistan’s industry has to face many challenges and the major one is that now they have to face
the intense competition from China and India for exporting their textile product in the
international market. Just at the end of the first month of WTO regime of January 2005, China
has proven to be the biggest threat for Pakistan textile exports. In January 2005, the United
States imported more than $1.2 billion in textiles and apparel from China, up from about $701
million a year ago. Moreover, some analysts have predicted that China could capture as much
as 70 per cent of the American market in the next two years. Before the end of quotas, about 16
per cent of apparel sold in the United States was from China.

INTERNATIONAL REPERCUSSIONS OF WTO & PAKISTAN

Along with China, India has also reacted to the situation. Their government has started giving
incentives to the textile exporters. Their primary textile markets are United States and European
Union but Indian textile industry is facing many problems. Though labor cost in India is low
but their operating cost is very high, government support is only with the small producers who
have antiquated technology, their productivity is low and quality of cotton is far behind
Pakistan. The cotton yield in India is just 330 kg per Hectare, whereas world average is 900-
1,000 Kg per Hectare. Because of these reasons threat from India is less as compare to China.

This was just the one side of the picture, and was giving an impression that this change of
regime has affected Pakistan negatively in the international textile market. But the things are
not so easy to state. WTO has not only created challenges for Pakistan exports but also opened
many doors of opportunities subjected to the few conditions. The end of quota system has
meant that there is now a large international textile market. Pakistan has opportunity to
increase its exports. Moreover, Pakistan is an agricultural-based country and its cotton quality is
known to be the best in the world, which enables opportunities for Pakistan to bring
improvements in the product quality. Two of the Pakistan textile products that are Bed linen
and Towels are best available in the entire market. Approximately 6,500 towel looms operate in
Pakistan, with an increase in the value of exports to all markets of more than 300 per cent since
1993.

 
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The opportunities enabled for Pakistan is subjected to certain conditions and Pakistan should
act fast to realize the facts. Pakistan textile industry is facing some problems like weaving sector
in Pakistan is dominated by small, family-owned power-loom weavers who produce poor
quality fabrics at very low productivity levels. Moreover, the cotton-ginning industry in
Pakistan has quality and efficiency problems that affect the final cotton goods. Pakistan’s
ginning technology is obsolete, with machines only one-fifth as productive as machines in
developed countries. In addition, different ginning mills have their own standards, affecting the
overall uniformity of cotton lint produced. Power-loom technology currently in place is often
from the 1940s and 1950s and has become obsolete, producing 48-inch fabric when present
demand is for fabric widths of 92 inches.

PAKISTAN GOVERNMENT POLICIES AND WTO

Pakistan has to improve the quality of the product and they should make their product
available at competitive prices in the international market. This is not far from Pakistan and
they can produce quality products at competitive prices because labor cost is very low, cotton
quality is the best and expertise is available. The Government is sensitive about the situation
and making efforts to enable Pakistan to compete effectively in the post WTO regime.
Government has initiated to rectify the situation one such example is to encourage machinery
upgrades. Pakistan’s Government created a program (under Textile Vision 2005) to upgrade the
technology used in a large portion of Pakistan’s weaving sector. The program is designed to
give loans to textile firms in Faisalabad to upgrade from power looms to auto looms. In the last
few years the huge investment is made in the textile sector of Pakistan and exporters are
encouraged to use the latest technology.

It is true that due to WTO there are many threats to be faced by textile exporters of Pakistan and
first few months are not very good but it does not mean that Pakistan cannot compete in the
international textile market. Pakistan has the capability to compete in the global market and for
this we need to capitalize on our strengths (cotton quality, low labor cost, increased exports of
their major products etc) and should analyze our competitors this will enable us to compete
effectively in the international textile market in the post WTO regime.

Textile Industry is the major economic sector of Pakistan and for quite some time to come it
will continue to be the main driving force in the industrial and agriculture area. It contributes
more than 66% to the total export earning of the country, accounts for 46% of the total
manufacturing and provide employment to 38% manufacturing labor force. The availability of
cheap labor and basic raw cotton as raw material for textile industry has played the principal
role in the growth of the Cotton Textile Industry.

 
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The textile industry is contributing towards the economic growth of Pakistan from the last five
decades as can be highlighted by the following facts and figures. Its share in the total export of
the country is 63%, in manufacturing 46%, in employment 38% and 11% in the gross domestic
product.

Around PKR 8 billion investments have been made during the last five years. But the
government policies pushing such important sector to the wall and which can collapse anytime
will not only result in the downfall in foreign exchange reserves but also loss of revenue,
increase in trade deficit, unemployment and wastage of economic resources of the country.

The input costs are all time high and volatile. There was favorable stability in cotton prices
during the last three years but ever changing prices of polyester remained unstable for many
years, which left negative effect on the financial results of spinning sector and adversely
changed the positiveness of results into dismal figures.

The government keeps on the policy of raising prices of other inputs costs. Government of
Pakistan needs serious policy revisions regarding facilitation of Textile sector.

EXPORTS IN TEXTILE INDUSTRY:

We would like to discuss how textile sector is going by stating down the series of events that are
taking place in the industry and their implications.

STRIKES OF VALUE ADDED SECTOR:

The strike of the value-added textile sector continued on second consecutive day on Wednesday
this month. But protestation was curtailed outside the textile units. Police registered cases
against more than 1000 people for burning, damaging and looting private and official property
by disorderly mobs in the city.

One labor rally was taken out in the city and protestors raised slogans against the government
and demanded that the export of cotton and cotton yarn should be stopped straight away to
save the living of the 2.5 million family members in the country. Its thought that scarcity and
non-availability of cotton yarn in the market has endangered millions of dollars worth export
orders of home textile, made-ups and fabrics and this is the reason that we are seeing protests
by the value added exports to stop the export of yarn. The value adding sector muses that not
only the cost of finished goods has increased due to non-availability of yarn in domestic market
"but also they have became uncompetitive in international markets due to high production
cost".

 
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Value adding sector gives the argument that Indian government has banned export of cotton to
safeguard its upstream value-addition industry, and Bangladesh has forced ban on export of
jute, necessitated by indigenous necessities.

Aftab Ahmad, central chairman, and Ajmal Farooq, regional chairman of All Pakistan Textile
Processing Mills Association have called upon the authorities not to ignore this important sector
of the economy. Chairman of Council of Loom Owners, Waheed Khaliq Ramay, urged the
government to restore the situation. The trade leaders demanded total disallow on export of
cotton and yarn.

More than 60,000 power looms and textile value added units remained closed as a protest as
workers & owners of power looms observed strike, organized rallies and set up hunger strike
camp to press the authorities for their demands.

IMPLICATIONS OF 15 % REGULATORY DUTY ON EXPORT OF YARN:

All Pakistan Textile Mills Association (Aptma) has said categorically that export duty of 15
percent is penalizing and it could not be accepted by Aptma

Aptma spokesman said cotton and yarn under DTRE and Manufacturing Bonds will not be
subjected to any duty, value added yarns at $3.5 & above per kilogram should be permitted to
be exported duty free and without any quantitative restriction as this is a price which is higher
than the average price at which towels and fabrics are being exported without any constraint or
duty.

CONDITIONAL DUTY-FREE EXPORT OF YARN ALLOWED BY GOVT:

In response to the protests associated with duties, ministry of textile industry has allowed
conditional duty-free export of cotton yarn, with minimum price and quantity restrictions.
Ministry of textile industry had issued notification for amendment in the SRO issued by
ministry of commerce on May 12, 2010 for imposition of 15 percent regulatory duty on export of
cotton yarn.

As per notification, the ministry of commerce has permitted export of cotton yarn with
immediate effect with some restriction including quota and price. They said that current
relaxation for the export of cotton yarn has been approved after intervention by finance minister
Abdul Hafeez Sheikh, as a delegation of spinners met him at Islamabad to resolve the
regulatory duty issue, besides negotiations between and value added sector.

In addition, value-added yarn, bringing a price of $3.5 per kg or more will also be allowed duty
free with a maximum quantity of 2000 tons per month to be counted from May 13, 2010.

Re-exports of yarn against imports of cotton under temporary importation schemes, such as
DTRE, will be permitted duty free for those who were already registered to use such facilities
before May 12, 2010. However, duty will be compulsory on the value of exports over and above
the value of imported cotton.
 
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IMPACT OF VAT ON PAKISTANI TEXTILES

Pakistani textile industry opposes the Value Added Tax (VAT) plan, as according to them, it
will cripple the spinal column of the country’s economy.Although the industry was to take
pleasure in zero-rates under the VAT policy, it would still meet problems of tax payment and
refunds, which would create a fund crunch.

In 1996, when the sales tax policy started, the textile industry was rated zero, but yet it paid,
which was later refunded. But this process turned complex, resulting into extra expenses on
sales tax staff and stopped huge funds of the textile industry.

Later on, all the legal companies were registered appropriately and the trouble of handing out
invoices was discarded eternally. As of now, the industry is suffering from power failure for
certain durations, higher rates of power and gas and several duties and taxes, which have
turned the textile industry business more expensive as compared to its neighboring nations.
Above this, if the VAT policy is implemented strictly on the industry, then it will lead to
unfavorable shortage in funds.

MAKING TEXTILE SECTOR COMPETITIVE:

The Economic Coordination Committee on 28th June approved bulky package of Rs20 billion
for the Textile Sector to help it in acceleration of exports in 2007-08 Under the package six per
cent R&D hold up for garment sector, 5 per cent on dyed printed home textile and 3 per cent on
dyed printed fabrics. R&D package is to boost Research and Development activities. The Prime
Minister, however, gave thought to grievances of textile sector and decided to continue the
assistance to make the industry internationally competitive. Subsidy under the new package
will go on till June 2008. Earlier, the decrease of subsidy rate was scheduled from 1st July 2007.
The spinning sector will be set 3 per cent markup on long term loans. It will cost government
Rs1 billion. While Rs2 billion would be incurred on R&D from 1.7.2007 to 30.6.2008. Under the
new package, flat rate of one per cent subsidy would give more payback to sectors like yarns,
grey fabrics and cotton etc.

Textile industry had uttered dissatisfaction over new budgetary proposals for 2007-08. The
disapproval was focused on government policy of making little difference between exporters of
value added goods and manufacturers of semi-finished raw material. Textile business tycoons
in their disapproval stated that the government proposals confirmed global textile rating
agencies predictions that Pakistan would ultimately be made supplier of semi-finished goods.
But after the first ever protest by spinners, Pakistan could also fail to spot the chance of supplier
of semi finished textile goods. They were serious of relief in tax particularly the withholding tax
in 2007-08 budget and demanded subsidy as has been extended to agricultural sector. Similarly
spinners were demanding R&D on marketing value added goods. Government’s new package
has resolved the issue and now the responsibility fell on the shoulders of textile industry as to
how efficiently the package is utilized.
 
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In South Asian perspective Bangladesh has outstripped the other regional states. It has
protected the maximum share of leading garments on the US and EU. Pakistan has been left at
the back both by India (13 per cent increase in exports to EU&US) and Bangladesh (22 rise in
exports to US&EU between Jan-Nov 2006 and 34 per cent in November alone). While Sri Lanka
exports upbeat by 24 per cent to EU due to Generalized System of Preferences plus scheme-zero
rate of duty. Japanese market is also being gone to its competitors. Before, the budget, State
Bank of Pakistan, an significant source of revenues for government, had shown concerns that
textile sector had serious surplus liquidity, distorted the tightening of monetary policy, chewed
the Bank’s profits despite record subsidized loans in 10 months. In response to textile industry’s
demand for more incentives, the Bank had made it clear that “the financial sector was fairly
competitive”. Financing to textile industry and real interest rates in the country are inferior than
its regional and competitive partners”. It is further clarified that the State Bank of Pakistan
provides finance to Banks @ 7.5 per cent alongside commercial lending of 12.57-13-57 per cent.
In India the rate is 9 per cent alongside 15 per cent commercial rate. Bangladesh and Sri Lanka
the dispensation rate is 6.7 against 11.14 per cent commercial rate while Sri Lanka provides
loans at 18 per cent in both cases. Borrowing rates for Pakistani exporters is the lowest in
contrast to other regional competitors.

Government’s policy is to act in the following pattern.

(i) rationalize tariffs

(ii) ensure a conducive trade, finance and fiscal policies

(iii) remove the sales tax on textile value chain

(iv) reduce import duty on polyester chain.

The government also provides ease of use of development finance and export financing at low
mark up rate including bother free environment. After the new package, textile industry needs
to set off in to production of high value added goods, technology up-gradation and research to
assemble the global competitiveness and challenges. The over all exports increase up to 6.5 per
cent is not heartening. Before the budget, Chairman Aptama had made claims that 116 textile
mills have been closed down. An estimated 700,000 spindles were going out of process which
includes closure of 20,000 during May alone. He had claims that about 500,000 spindles have
been closed during last year and had rendered more than 15,000 people jobless.

Government plan of cotton vision is to get better the quality of silver fiber in the country.
According to Chief Executive Trade Development Authority of Pakistan, textile dream was
being updated in line with the chaining needs. Country’s exports are under stress because the
core products failed to give matching performance in terms of exports. Nevertheless, a study by
CBR’s team comprising senior officials conducted before the budget had exposed that Rs40.7
billion as a refund and rebate was paid to the textile industry whereas the industry
remunerated only Rs13.8 billion of indirect taxes (sales tax, customs and excise). In case of

 
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income tax, the textile industry had made not noteworthy payment of Rs45 billion through
withholding tax ranging between 0.75 and 1.5 per cent.

Despite EU’s precincts introduced in 2005, Chinese textile exports continued to increase share in
all major markets. Smaller exporters like Morocco, Egypt, Cambodia have also extended their
textile and clothing exports. Share of less developed countries’ textile exports to EU and US
increased during 2006. Pakistan textile exports to EU&US amplified by 12 per cent only in post
quota regime. Exports of yarn and fabric to Japan is also decreased by 7 per cent. Developing
countries like Pakistan required outsourcing planning to ensure cheaper good production to get
maximum returns. The proposed Reconstruction Opportunity Zones (ROZ) in Tribal areas will
be another chance to give a new boost to 41-hot selling textile/clothing and non-textile (leather,
surgical, medical, sports stone etc) identified items for exports to US at a zero custom duty.
Government’s latest package would therefore, get better skill, professional knowledge and
managerial knowledge. Extension of R&D facility will aid to focus on innovative measures. It
will make possible sustainable indigenous environment to protect and endorse textile industry
and benefit the economy at the same time.

LOANS FOR TEXTILE INDUSTRY:

Loans are also necessary if a country wants to promote a sector. So its deemed important that
textile sector be given loans that are easily accessible so that capital can be provided for the
development of the industry and for its competitiveness.

FINANCIAL OUTLOOK OF SPINNING INDUSTRY OF PAKISTAN

Spinning industry is capital intensive in nature and needs a huge investment and continuous
support of banks for the regular supply of fibers.

FINANCIAL RATIOS AND SPINNING MILLS OF PAKISTAN

The future of firms can be determined to some extent from financial ratios derived from their
financial statements. This report highlights current problems and financial health of the mills
and considering these ratios, one can develop an idea about the future of this sector.

CURRENT RATIO

Current Ratio is an indicator of the capability of the firms to pay their current liability by
converting current assets. It is calculated by dividing current assets with current liabilities.

Current Ratio= Current assets

Current liabilities

 
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High figures mean that company has the capacity to pay its current liability. Acceptable figures
vary, depending upon the type of business. Generally, more than one is acceptable. Smaller
value shows that company has not enough current assets to discharge its current liabilities.

The current ratio of spinning mills of Pakistan is less than 1.00 in both years. It is alarming.
Mean of current ratio in 2006-7 was 0.87 and 0.82 in 2007-8.

Ratio table depicts that there is no improvement in 2007-8 and if it continues, there is a
probability that in coming year’s situation of the sector will not improve.

Return on assets

Return on Assets (ROA) is an indicator which tells about the efficiency of firm in using the
assets. It is calculated by dividing the annual earning of the company with total assets, shown
as percentage.

Return on assets = Net earning X 100

Total assets

This ratio is also an indicator of money earned by a company against each dollar invested. Ratio
table shows that mean of the return on asset is -2.07 and -1.73%, which is quite alarming.

OPERATING PROFIT MARGIN

Operating Profit Margin (OPM) is also called operating margin, operating income margin or
return on sales (ROS). It shows the efficiency of the firm in generating profits from its
operations. Difference between gross profit and operating profit provides information about the
over head expenses in total cost.

OPERATING PROFIT MARGIN = OPERATING PROFIT X 100

NET SALE

Ratio table depicts that in 2006-7, its mean value is 1.82%, whereas in 2007-8, there was a
decrease of -0.58%. It shows that as a whole, spinning mills of Pakistan have borne losses. The
table also depicts that 25% firms have -3% loss, however, more than 50% firms have positive
figure.

Net Profit Margin= Net Profit X 100

Net sale

In 2006-7, spinning mills of Pakistan reported -1.76 % and in 2007-8 operating profit margin
became -6.25%.

 
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RETURN ON EQUITY

Equity is the money invested by the shareholders for profit. This ratio indicates the firm’s ability
to earn against the investment. It is also called return on average common equity, return on net
worth, return on ordinary shareholders' funds.

RETURN ON EQUITY= NET INCOME AFTER TAX X 100

NET EQUITY

Spinning mills of Pakistan have only 0.71% ROE in 2006-7 and situation became worst in 2007-8.
In 2007-8, it has -10.74%, which tells us that net loss of the firms will lead them to a serious
position and this position may not allow them to survive and ultimately there are more chances
that many firms will be bankrupt.

DEBIT RATIO

Debt ratio is one the fundamental ratios used to determine the financial health of the firms. It
tells that what is the level of total liabilities and assets of the firms.

Debit ratio= Total liabilities X 100

Total assets

Spinning mills of Pakistan have 78.95% and 64% debt ratio in 2006-7 and 2007-8 respectively. It
means that liabilities are more than the assets.This ratio has declined, which means that with the
passage of time the difference between liabilities and assets is increasing.

ENERGY TO TOTAL COGS

Cost of fuel or energy is the second major cost of spinning mills. Data shows that its range is
from 6 to 22 percent of the total cost of production. It is very useful to note that there are mills
where share of fuel cost is too low and the mean value of energy to COGS is 11 and 10% in 2006-
7 and 2007-8 respectively.

There is a slight decline in the share of energy and it may be due to increase in cost of raw
material which has pushed down the energy share or might be due to better use of energy.
There is another possibility that this decline may be due to shift of many mills on in house
generation of electricity by using natural gas, which is cheaper than the electricity provided by
the government.

It may be due to efficient system or use of natural gas to produce electricity. The table shows a
minor reduction in the average share of fuel cost. It may be due to many reasons; efficient use of
electricity, modern technology or switching to gas based generators of electricity.

 
37 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 

Financial ratios of spinning industry of Pakistan

2006-07 2007-08

Mean Percentile Mean Percentile

25 50 75 25 50 75

Current Ratio 0.87 0.69 0.9 1.02 0.82 0.73 0.84 1

Return on Assets -2.07% -4.00% 0.00% 2.00% -1.73% -5.00% -1.00% 1.00%

Gross Profit
6.53% 4.00% 9.00% 13.00% 6.21% 2.25% 8.00% 13.00%
Margin

Operating Margin 1.82% 0.50% 5.00% 10.00% -0.58% -3.00% 4.00% 8.00%

Profit Margin -1.74% -2.25% 0.00% 2.00% -6.25% -4.00% -2.00% 1.00%

Return on Equity 0.71% -11.25% 2.00% 11.25% -10.74% -23.50% -2.00% 8.00%

Earnings Per Share

0.4 -3 0 2 -2.37 -3 -1 2
(Pk. Rs)

Debit Ratio 78.95% 57.00% 71.00% 88.50% 81.97% 64.00% 73.00% 89.00%

Total Asset
0.98 0.62 0.86 1.12 0.95 0.55 0.82 1.2
Turnover

Fixed Asset
1.45 0.86 1.17 1.95 1.56 0.9 1.28 1.91
Turnover

Current Asset
3 1.69 2.46 3.56 2.65 1.46 2.13 3.09
Turnover

Salaries to Total
8.12% 6.00% 7.50% 9.00% 7.78% 6.00% 7.00% 9.00%
Cost

Energy to Total
10.50% 9.00% 10.00% 12.00% 9.90% 8.00% 10.00% 11.75%
Cost

Raw Material to
68.76% 64.00% 70.00% 73.00% 70.48% 68.00% 72.50% 76.00%
Total Cost

 
38 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
CONCLUSION

From all above discussion, more than 50% mills have shown losses in 2007-8, current ratio of
more than 60% mills is less than one. Return on assets is quite low, rather many companies have
shown a negative figure. Financial situation of spinning mills with the exception of few leaders
is quite precarious and in coming years, there is a chance that many share holders will lose their
all investment and banks will not be able to take their loans back.

IMPORTS & EXEMPTION OF CUSTOMS DUTY:

During the first eight months (July to February) of the current fiscal year, the import of textile
machinery recorded 3.1% growth to $163.844 million as compared to $158.897 million in the
corresponding period of last year. In the current tough and disappointing scenario, investment
in textile industry is like a light at the end of the tunnel and reflects that still there are chances of
revival in this important sector of the economy. The import cost in February was $23.10 million
as against $7.992 million in the same month of last fiscal year, showing an increase of 190%.

The government has already granted exemption of customs duty on import of a wide range of
textile machinery and equipments.

The textile machinery had been showing decreasing trend in since 2006. Pakistan imported
textile machinery worth $928.6 million during 2004-05. However a decline of 12% in the import
of textile machinery was witnessed in 2005-06 worth $817.2 million. In 2006-07 imports declined
by 38.4% and totaled $502.9 million, while machinery worth $438.3 million with a decrease of
12.8% was imported during 2007-08. Before the removal of quota system, the textile industry
made around Rs 5 billion investments by modernizing and expanding its units to prepare itself
in the post quota regime.

INVESTMENT IN TEXTILE INDUSTRY:

During the last ten years (1999-2009) textile industry has made an investment of about US$ 7.5
billion. The total investment to be divided in various sub sectors of textile industry, indicates
that 50.2% in spinning sector followed by 17% in textile processing, 15% in weaving while the
investment and other sectors namely like knit wear, made ups and synthetic textile at respective
rate of 7.02%, 4.71% and 5.76%. This investment includes both investment through bank loan as
well as own sources. Textile Machinery worth US$ 215.5 million has been imported during the
year 2008-09. Presently whatever investment is being made it is mostly confined to the denim
sector whereas spinning and value-added sector have modest investment in this context.

TEXTILE EXPORTS:

Textile sector is the backbone of Pakistan export economy. It comprises of 521 textiles units.
Pakistan is the fourth largest producer of cotton and third largest consumer. It contributes 9% of
GDP and employs 38% of the workforce in the manufacturing sector.

 
39 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
Cotton textile exports grew from $9.2 billion in 2004-05 to $10.4 billion in 2006-07 and $10.5
billion in 2007-08, but in the last fiscal year exports of textiles fell by 6% if compared to 2008-09
($9.95) billion.

The share of textile exports in total exports of the country shrunk to 55 percent so far in the
current financial year from well above 60 percent in the past years. As the overall export
volume remained stagnant in the first seven months of the current financial year, the shrinking
share of textile goods in exports has been adversely impacting the export sector. During July-
January 2009-10, total exports came to $10.870 billion as against $10.820 billion in the
corresponding period of last year. In the months under review, textile export proceeds totaled
to $5.981 billion over $5.849 billion in the same months of previous year. The domestic market
although large and growing at 5 per cent per annum consumes only 25 per cent of the yarn
produced which translates to downstream production. 50 per cent of the yarn is exported, the
other 25 percent is converted to fabrics etc. for exports. Pakistan produces around 8 to 10 per
cent of the world's cotton but its share in total world trade for textile and clothing is around 2
per cent in value terms. Pakistan currently produces around 8.5 per cent of the world's total
yarn production and accounts for 30 per cent of total world trade in yarn. Both these figures
relate to quantity.

TEXTILE INVESTMENT WILL GENERATE 17.37 MILLION JOBS BY 2012

The textiles sector has witnessed a burst in investment during the four years and the
investments between 2004-08 were Rs. 1,08,531 crore and its expected to touch Rs. 1,50,600 crore
by 2012. This enhanced investment will generate 17.37 million jobs by 2012.

PRIVATIZATION OF LEADING BANKS HAS BEEN A MAJOR FACTOR IN DECREASING OF INVESTMENTS:

The privatization of all leading banks in the country has added salt to the injury, as it is only the
National Bank of Pakistan (NBP) management that is ready to extend a patient hearing to the
cries of textile sector. Rest of the banking industry, otherwise, is not ready. The grim situation in
textile industry is getting from bad to worse and many new entrants to the sector have already
closed down their units. A good number of single spinning unit holders are on their way to
closure. The weaving sector is breathing hard at the oxygen ventilator. The apparel sector is
left in the lurch with the termination of 6 percent.

GOVERNMENT’S APPROACH FOR IMPROVING TEXTILE INDUSTRY:

The government is stressing upon the industry for the consolidation of the sector through
mergers & acquisitions in order to effectively face tough international trading environment,
as the international and regional competitive pressures are going to further build up and it will
be large corporate that are more likely to survive. To deal with this scenario government has
approved the textile package, including different measures including relief in the
interest rate for loan to spinning sector and Research.

 
40 
 B RATEGY   [AN
BUSINESS STR N OVERVIEW
W OF THE TEEXTILE INDU
USTRY OF PA
AKISTAN] 
 
THE MOSST PROFITABL
LE AREA IN TEXTILE:

The garmments sectorr is considerred the mosst profitable as comparee to other teextile sectorss and
governmment is com mmitted to making
m it centre
c of vaalue added manufacturring goods.. The
garment is the mostt profitable sector
s but due
d to some constraints,, it is not uttilized efficieently.
The govtt. is taking steps to overrcome all isssues being faaced by this sector. The govt. is focu
using
on proviision of trainned manpow wer and vo ocational training instituutes where modern
m andd up-
dated education and d skill trainin
ng would be imparted

TEXTILE E INDUSTR
RY'S ECON
NOMIC CO
ONTRIBUT
TION
2006-07

Manufacturing 46%
% OF TOTAL
L MANUFA
ACTURING

Employm
ment 38%
% OF TOTAL
L LABOUR FORCE

GDP 8.5%
% OF TOTA
AL GDP

Investmeent US $ 6.4 BILLIO

ON

PAKISTAN SH
HARE O
OF TEXT
TILES IN WOR
RLD TR
RADE
(000 Metric Tons)

C
COTTON YARN COTTON
N CLOTH

Preiod W
WORLD PAAKISTAN P
PAK SHAREE WORLD PAKISTANN PAK SHHARE
E
EXPORT EX
XPORT I
IN WORLD D EXPORT EXPORT IN WOORLD
E
EXPORT % EXPORT %

1971 4
446.9 109
9.6 2
24.5 901.5 48.4 5.4

1972 5
558.7 160
0.7 2
28.8 982.7 58.1 5.9

1973 5
579.1 146
6.9 2
25.4 1,042.2 73.8 7.1

1974 5
529.9 74.6 1
14.1 969.0 77.5 8.0

1975 5
597.0 153
3 2
25.6 965.1 56.2 5.8

1976 6
655.4 95.9 1
14.6 841.0 48.8 5.8

 
41 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
1977 565.4 46.7 8.3 816.6 37 4.5

1978 683.6 74.9 11.0 869.6 51.6 5.9

1979 753.5 88.8 11.8 1,305.7 58.7 4.5

1980 828.6 97.2 11.7 1,311.9 78 5.9

1981 796.4 84.6 10.6 1,292.0 85.6 6.6

1982 834.1 112.5 13.5 1,323.6 86.6 6.5

1983 958.5 141.6 14.8 1,477.2 107.3 7.3

1984 1,022.4 93.9 9.2 1,641.0 97.8 6.0

1985 1,000.2 145.2 14.5 1,643.5 106.2 6.5

1986 1,187.2 202.5 17.1 1,869.0 105.8 5.7

1987 1,455.8 243.4 16.7 2,112.7 122.8 5.8

1988 1,286.6 235.5 18.3 1,990.7 123.8 6.2

1989 1,465.5 331.3 22.6 2,271.6 139.0 6.1

1990 1,484.5 436.1 29.4 2,203.8 156.3 7.1

1991 1,559.7 474.2 30.4 2,221.0 169.8 7.6

1992 1,627.8 571.5 35.1 2,402.2 178.8 7.4

1993 1,628.8 567.4 34.8 2,540.3 161.7 6.4

1994 1,942.8 532.4 27.4 2,680.6 170.1 6.3

1995 1,816.4 507.0 27.9 2,733.7 160.8 5.9

1996 1,890.0 569.6 30.1 2,644.3 219.3 8.3

1997 1,950.1 502.4 25.8 2,759.8 194.3 7.0

 
42 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
1998 1,763.4 420.3 23.8 1,781.3 185.6 10.4

1999 1,746.7 455.1 26.1 1,776.0 230.9 13.0

2000 1956.6 534.1 27.3 2571.8 249.8 9.7

2001 2090 561.3 26.9 2912.0 271.0 9.3

2002 2043 550.7 27.0 3274.0 299.2 9.1

2003 2120 503.5 23.8 2856.0 283.0 9.9

2004 1783 504.0 28..3 3065.0 282.2 9.2

2005 1783 671.0 37.6 3180 239.9 7.5

2006 2380 780 32.8 3235 263.3 8.1

Source: ICAC (World Textile Demand (SEP 2007) & TDAP

 
43 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
 

Marketing Perspective of the Textile Industry 
PRESENT TEXTILE PRODUCT MARKETS KNITWEAR:

USA, UK, Germany and The Netherlands are the top four trade partners for Pakistan.
Pakistan primarily exports robes made of cotton that constitutes 70% of total quantity
exported in the category. The remaining 30% exports of Pakistan are in robes made of
synthetic material. Country-wise export of knitwear is given in Table-3.

Table 3 : Country-wise Export of Knitwear

(Value in 000 $)
Country 2008-09 2007-08 2006-07
U.S.A 1,069,214 1,074,347 1,144,244
UK 176,130 142,326 156
Germany 72,217 74,284 62,280
Spain 48,775 54,450 49,141
Canada 41,797 46,806 48,147
Belgium 41,482 39,974 37,231
France 31,981 34,954 33,738
U.A.E 36,533 27,094 15,491
Sweden 12,559 10,728 7,299
Saudi Arabia 14,180 9,177 5,685
Ireland 4,641 6,358 5,019
Denmark 5,198 5,654 4,848
Finland 5,982 4,809 4,745
Benin 4,736 4,978 4,316
Australia 4,422 4,503 3,193
Norway 3,412 3,558 2,008
South Africa 2,827 3,103 2,374

 
44 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
Mexico 3,377 2,970 2,473
Sri Lanka 2,056 2,329 1,878
Japan 2,094 1,775 1,322
Portugal 1,326 1,325 835
Qatar 1,119 1,084 549
Poland 1,030 999 394
The
70,589 73,748 79,987
Netherlands
Italy 34,638 57,014 74,647
Turkey 3,251 5,147 5,185
Greece 3,492 2,770 2,971
Singapore 2,536 1,341 2,144
Hong Kong 1,113 1,204 1,511
Chile 919 846 730
Other
37,127 23,472 37,155
countries
Total 1,740,753 1,723,127 1,798,477
Source: Trade Development Authority of Pakistan.

 
45 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
NUMBER OF THE LARGE AND SMALL TEXTILE UNITS IN PAKISTAN:

The textile industry is one of the most important sectors of Pakistan. It contributes
significantly to the country's GDP, exports as well as employment. It is, in fact, the
backbone of the Pakistani economy.

ESTABLISHED CAPACITY:

The textile industry of Pakistan has a total established spinning capacity of 1550 million
kgs of yarn, weaving capacity of 4368 million square meters of fabric and finishing
capacity of 4000 million square meters. The industry has a production capacity of 670
million units of garments, 400 million units of knitwear and 53 million kgs of towels.

The industry has a total of 1221 units engaged in ginning and 442 units engaged in
spinning. There are around 124 large units that undertake weaving and 425 small units.
There are around 20600 power looms in operation in the industry. The industry also
houses around 10 large finishing units and 625 small units.

Pakistan's textile industry has about 50 large and 2500 small garment manufacturing
units. Moreover, it also houses around 600 knitwear-producing units and 400 towel-
producing units.

CONTRIBUTION TO EXPORTS:

According to recent figures, the Pakistan textile industry contributes more than 60% to
the country's total exports, which amounts to around $ 10.87 billion US dollars. The
industry contributes around 46% to the total output produced in the country.

In Asia, Pakistan is the 8th largest exporter of textile products.

 
46 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
CONTRIBUTION TO GDP AND EMPLOYMENT:

The contribution of this industry to the total GDP is 8.5%. It provides employment to
38% of the work force in the country, which amounts to a figure of 15 million. However,
the proportion of skilled labor is very less as compared to that of unskilled labor.

ORGANIZATIONS IN THE INDUSTRY:

All Pakistan Textile Mills Association is the chief organization that determines the rules
and regulations in the Pakistan textile industry.

PAKISTAN’S TOTAL EXPORTS:

The share of textile exports in total exports of the country shrunk to 55 percent so far in
the current financial year from well above 60 percent in the past years.

As the overall export volume remained stagnant in the first seven months of the current
financial year, the shrinking share of textile goods in exports has been adversely
impacting the export sector. During July-January 2009-10, total exports came to $10.870
billion as against $10.820 billion in the corresponding period of last year. In the months
under review, textile export proceeds totaled to $5.981 billion over $5.849 billion in the
same months of previous year.

Government claims to diversify the export base by focusing on the sectors other than
the traditional ones, however the figures available on the exports tell a different story.
“No new product or new market has significantly contributed to the exports and it is
the same old and traditional items that have been making the total export volume,”
according to textile exporters.

 
47 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
Textile products remained the mainstay of the country’s export sector over the years
and being the largest industrial and export-oriented sector, it caters to the employment
of a major part of industrial labor of the country.

Textile exporters said that the most worrisome factor is the stagnant export of textile
goods and whatever is being exported in this category largely comprises of raw cotton,
cotton yarn and low valued textile goods.

The value-added sector, they pointed out is under intense pressure due to a host of
domestic and international issues, which have been making the country’s products
uncompetitive in the foreign markets from its international competitors.

The prolonged power outage, gas shortage, high financing cost and infrastructure
problems are some of the major issues, which have been hampering the growth of the
value-added textile sector.

Also, the high tariffs on the textile goods in EU and US markets have given leverage to
its competitors like Bangladesh and Vietnam to kick out Pakistani products from these
lucrative and high-priced markets.

“It will be a wishful thinking to increase the export of value-added sector in the present
situation when even raw materials are not available in adequate quantity to run the
industrial units in this sector,” a value-added textile exporter felt.

He noted that revival of textile sector is not possible without the growth in value-added
sector because it is the one, which would fetch better prices of cotton instead of raw
cotton and cotton yarn, which is presently being exported in huge quantity.

“The share of textile products in the total exports could only be achieved through focus

 
48 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
on the value-added textile chain and if remedial steps are taken, the textile’s share
jumping to 60 percent is not a hard target to achieve,” he added.

STRATEGIES FOR THE IMPROVING PERFORMANCE AND EXISTING MARKET SHARE:

• Textile Asia 2010 was arranged at expo centre Karachi to promote the textile
industry of Pakistan
• Government of Pakistan - Ministry of Privatization & Investment - Setting up
textile industry-joint venture in Pakistan

• Since textiles are Pakistan’s major export sector, the Board of Investment in
Pakistan has developed a focus to promote and mobilize local and foreign
investment particularly in the manufacturing sector for textiles.

• New Product Developments in Textiles: Conventional Textiles is experiencing

radical changes nowadays. New products are entering into markets. There is lot
of opportunities for Pakistani manufacturers to tap new products in global
market. But this has to do with implementing product innovation and
development within the manufacturing organizations. Various Pakistani Firms
have complete setup for innovative value added products and are doing
excellent in Textile Business. Such success stories should be replicated in
different manufacturing units so as to attain competitive advantage over our
regional competitors.

• Women Wear in Textiles: Women’s wear is the highest seasonal products as

compared to other textiles. The products included in this category have high
value and fetch more profits in exports. Unfortunately Pakistan lacks in this area
of manufacturing. To manufacture Women’s wear t textile products, the firm
should have well expertise in Design, CAD/CAM, machines and human
resource. Effectively combining all these resources, value added exports targets
could
 
49 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
• Comprehensive Database Management System in the Cell being developed
• Online Portal and interactive web applications to create link between the Private
Sector and Government
• Seminars and Workshops in collaboration with International experts
• Value added products should be manufactured, because they have got higher
demand in the international market and in this way Pakistan will be able
generate more revenues.
• Trade shows and exhibitions should be arranged in order to promote the
products of textile industry
• Pakistan should focus its exports to middle east and gulf countries as well

SOME POTENTIAL FUTURE MARKETS FOR THE TEXTILE EXPORTS:

• Germany

• Indonesia

• Thailand

• Spain

• Gulf region

• Saudi Arabia

FUTURE TARGET FOR TEXTILE PRODUCTION:

According to our recent Economic Survey 2005-06, the performance of agriculture has
been weak - due to poor performance cotton production i.e. 12.4 million bales as against
targeted 14.3 million bales. Pakistan is among the three countries where cotton
consumption has substantially increased during past few years; it is projected that by
2010 we need over 15.50 millions balls that’s why Government of Pakistan has set a
target to achieve 20.13 millions bales by 2015 under a program “Cotton Vision 2015”; In
view of cotton production potential we are already utilizing our land under the
cultivation of cotton at its optimum level; however area in Baluchistan and D.I. Khan

 
50 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
district and in NWFP can be further consider though there is sever shortage of water;
which needs heavy investment and require long term strategies, planning and sustained
commitment. The International Cotton Advisory Committee has projected the world
cotton production by 2010 to be 153 million bales (weighing 170 kgs each), while the
demand would be much higher from countries like India, China; so one of the primary
concerns is to meet the requirement of local textile industries.

GOVT. OF PAKISTAN’S POLICIES TO BOOST TEXTILE SECTOR GROWTH AND ITS EXPORTS:

A five-year textile policy announced by the Govt. offers about Rs87 billion cash subsidy
to the textile and clothing sector to boost exports. It envisages plans to boost textile
exports to $25 billion from the current $17.8 billion by 2014.

The policy, approved by a special cabinet meeting presided over by Prime Minister
Yousuf Raza Gilani, was announced by Textile Minister Rana Farooq Saeed Khan.

The hefty package for the sector carries special duty-drawback rates, besides repayment
of earlier research support, subsidy on long-term financing loan and development and
other subsidies.

The policy focuses on export promotion measures, instead of steps to increase

production and revive the ailing industry.

1. Under the new policy, the textile industry has been exempted from load
shedding. It will also enjoy priority in gas allocation like the fertilizer sector. An
amount of Rs2.5 billion has been allocated to make export refinance available at
five per cent.
2. An amount of Rs44 billion as special drawback rates will be provided to value-
added textile exports for two years -- Rs17 billion in 2009-10 and Rs27 billion in
2010-11.
3. The proposed rates include one per cent of the FOB value of exports on
processed fabric, two per cent of the FOB value on home textiles and three per
cent of the FOB value on garments.
4. In addition, exporters achieving an increase of 15 per cent will get one per cent
additional drawback. Another Rs5.4 billion has been earmarked for earlier
refunds of research and development subsidy for the sector.
5. An amount of Rs4.5 billion has been allocated to continue monetization of
customs duty of PTA to offset additional cost for users for the current year. A
decision about this duty will be taken by the National Tariff Commission during
the year.

 
51 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
6. Another Rs5 billion has been allocated to convert long-term loans on the same
pricing as applicable to the LTTF scheme together with a grace period of one
year on both existing and converted facilities, without the facility of refinancing.
Textile machinery will be zero rated.
7. In order to encourage women’s participation in the industry, the government
will pick two regulatory costs to employers -- social security and EOBI. The cost
of this measure is estimated at Rs2 billion for the current year.
8. The government plans to treat local sales of yarn and fabrics to large exporter as
deemed exports. For this purpose, small producers will get one per cent
drawback on levies and unadjusted taxes on sales to export houses which will
cost Rs2 billion.
9. The government has set a target to increase the rate of conversion of cotton from
$1,000 to $2,000 over the next five years. A textile investment support fund and
technology up gradation fund (UTF) will be set up. An amount of Rs1.6 billion
has been allocated for the UTF for the first year. However, this fund will go up to
Rs17 billion by 2014.
10. Under UTF for capital intensive projects, the government will pick up 50 per cent
of interest cost of new investment in plant and machinery with a maximum of
five per cent. For small investments, government will contribute up to 20 per cent
of capital cost as a grant.
11. An amount of Rs1 billion has been earmarked for infrastructure development for
2009-10 in public-private partnership. More industrial estates will be established,
besides developing clusters.
12. An amount of Rs1 billion has allocated for skill development initiatives. A
comprehensive training plan will be worked out.
13. A legal framework will be developed to specify standards and testing
requirements, prescribe disclosure requirements and other matters relating to
practices and methods relevant to the sector
14. The principle of cascading will be implemented while ensuring adequate
protection to the local industry and removing anomalies. All regulatory
bottlenecks will be removed. Market access will be increased through free trade
agreements.
15. The government will provide necessary support for branding, grading, labeling
and other activities that would add value to the textiles chain. An insurance
scheme will be introduced to protect local exporters from unforeseen losses and
help the industry in IT-related issues.
16. The policy will focus on certain sub-sector issues from fiber to garments,
including ginning, spinning, weaving, knitting, processing, fashion designs,

 
52 
 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
handloom and handicrafts, carpets, technical textiles. Specific schemes will be
launched, mostly on public-private partnership basis, to upgrade and improve
these sectors.
17. The persistent problem of contamination and trash content will be addressed
through enforcement of the standards laid down in the Cotton Control Act and
Cotton Standardization Ordinance. Measures will be taken to develop other
vegetable fibers (jute, flax etc.), wool and sericulture for supporting
diversification within natural fibers.
18. A ginning institute will also be established in Multan to undertake research in
improved ginning methods. Similar initiatives will be taken in other cotton
growing areas.

COUNTRIES THAT PUT HIGH TARIFF ON PAKISTANI EXPORTS:

America is the greatest exporter of Pakistani textile products. But It is undeniable that
Pakistan’s exports are penalized harshly when they arrive at US borders. American
import duties on Pakistani textiles have sometimes approached 20 per cent, while other
countries’ exports to the US have enjoyed minimal tariffs. Such discrimination also puts
Pakistan at a stark disadvantage with its textile-exporting competitors from the
developing world, many of whom are tariff-exempt in US markets.

American trade policy hurts these industries more than it helps. The average US tariff
rate on Chinese exports to the US is three per cent, compared to 10 per cent on Pakistani
exports. Tariffs on Pakistan’s goods are far above those imposed on products from
affluent countries. To choose a simple example: Pakistan’s towels and T-shirts trigger
7.5 percent and 19 percent tariffs, while tariffs on Sweden’s cars and airplane parts are
only 2.5 percent and zero. So last year, Pakistan’s $3.6 billion in goods exported to the
U.S. faced a $365 million tariff penalty – almost three times the $142 million penalty on
Sweden’s $13 billion. Lobbying campaigns have kept U.S. tariffs on the textiles Pakistan
makes much higher than our tariffs on rich-country goods. To make matters worse, our
exemption of most African and Latin American towels and shirts from tariffs puts
Pakistan at a disadvantage against its direct competitors.

Other counties that put high tariffs on Pakistani textile exports include Japan and many
EU countries.

 
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STRATEGIES TO TAP THE UNTAPPED MARKETS:

1. To participate in all the trade shows those are held in the international markets
and put our products on display. So that there is awareness regarding the
Pakistani textile products.
2. To participate in the international seminars and conferences on the topic of
Textile, so as to know about the international quality standards and
requirements.
3. To organize trade shows in the countries which are still not the export market for
Pakistan?
4. To coordinate with the govt. of Pakistan in its efforts to promote the textile
exports of Pakistan.
5. To help and coordinate with the Govt. of Pakistan in identifying and signing
MOUs with the countries that are potential markets for Pakistani textile exports.
6. To coordinate with the Chinese Govt. in identifying the global textile importers
and analyzing the business environment there.
7. To identify the countries which lenient trade and tariff barriers, so that the
exports is profitable there.
8. Expand the market share in the existing markets, by identifying the segments
whose needs are still unmet.
9. Creating more value added products, because they bring handsome revenues
and also they have huge market in the international arena
10. Decreasing the costs to as minimum as possible, so that the products appear
attractive to most of the buyers.
11. Employing the innovative marketing strategies like branding the products,
giving them unique and stand alone brand identities.

 
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Export Potential Of Textile Industry 
The present Global Scenario of Textile Industry with particular reference to the position
of Pakistan in the International Textile Market is given here for the interest of our
readers. The demand for textiles in the world is around $18 trillion, which is likely to be
increased by 6.5%. China is the leading Textile exporter of the world’s total exports of
US$ 400 billion. Country wise major market shares of the textile exporting countries are:
China: $ 55 billion, Hong Kong: $ 38 billion, Korea: $ 35 billion, Taiwan: $ 16 billion,
Indonesia and Pakistan: $ 9 billion.

Though Pakistan has emerged as one of the major cotton textile product suppliers in the
world market with a share of world yarn trade of about 30% and cotton fabric about 8%,
having total export of $ 7.4 billion which accounts for only 1.2% of the over all share.
Out of this Cotton fabric is 0.02%, Made-ups is 0.18% and Garments is 0.15%.

Now a very important question is “What is the potential and future expected growth
of the textile industry of Pakistan”.

While answering this question first we have figure out our strengths and weakness and
how to improve them.

OUR STRENGTHS ARE:

• 4th largest producer of Cotton Yarn and Cloth in the World after China which is
No. 1.

• We have signed MOU with Monsanto for BT cotton to improve the yield per acre
which is now low and at 13th position in the world. Ranks 2nd in export of yarn
and 3rd in export of cloth.

• We have large spinning capacity – with major part of European, Japanese &
Chinese Machinery.

• Ample availability of cheap labor.

 
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• Good markets for products.

• Large domestic market.

WEAKNESS ARE:

• Low productivity resulting in high labor costs.

• Limited skills development facilities.

• Low value addition.

• Small product and market base.

• Little Research and Development.

COTTON PRODUCTION:

Despite a massive shortage in the domestic market, the country's raw cotton export
registered a robust increase of 140 percent during the first 10 months of current fiscal
year mainly due to rising demand in the world market. Pakistan achieved a bumper
crop during the current cotton season and overall cotton production stood at 12.7
million bales during current fiscal year (2009-10). Although, the country has got a
bumper cotton crop, however it is much less than the consumption and not sufficient to
meet the country's demand, which presently stood at some 15.5-16 million bales per
annum.

Now if we improve of crop production by using BT cotton seed we could increase

cotton production up to 20 million bales. It would give us extra 7 million bales to be
processed. The production of yarn was 2,913 million kg in 2008-2009. With the addition
of these 7 million bales the annual production yarn could increase to around 4602
million kg.

 
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YARN PRODUCTION:

As explained previously that our yarn can be enhanced up to 4602 million bales by
better production of cotton. These are estimates for the present production facilities of
the yarn. It is quiet evident that we have 30 % extra yarn processing capacity then the
weaving setups we have here. If we operate them at full capacity then we increase our
yarn capacity to 6 million bales. We would stand almost at double production due to
better cotton production and utilizing full production capacity.

Average unit price realization of Pakistani cotton yarn in the international markets is very low
compared to that of its competitors. Average unit price of cotton yarn decreased from $2.34/kg
in 2007-2008 to $ 2.11/kg in 2008-2009. Where as china sells at average price of $ 3.3/kg. Here
we can assume the huge difference of the price levels.

Now the present export of Pakistan textile products with 3000 million bales is around 12 billion
bales. If the cotton production can be doubled, the exports could go to around $ 25 billion. If
add the under price effect then the present setup and production facilities the textile exports can
increase to $ 40 billion.

TEXTILE POLICY 2014:

“ The present government has identified textile as a key priority area and is making all possible
efforts to set the right policies and incentives that encourages private sector investment in value
addition and expansion in a bid to gain wider access to the international markets. We have fixed
an ambitious target of US $ 25 Billion till 2014 in the new five year Textile Policy with 2 times
value addition target “

The figure is exactly the same that we calculated above. Excluding the under price effect
we could raise our textile exports to $ 25 billion.

 
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FACTORS EFFECTING THE PRICE OF TEXTILES:

Now the major problem with the Pakistani cotton is collection issue. The dirt content in
a normal cotton production is around 1 % – 2 %, but for Pakistani cotton it is around
7 % – 9 %. It is one of the major factors of the under pricing of our textile products.

Another important factor that affects our textile exports is the production of course
yarns. Course yarn has a almost half of price difference with the fine spun yarn. The
local market is based on course spun yarn while international market is focused on fine
spun yarn.

ESTIMATED POTENTIAL OVER NEXT 10 YEARS:

Textile exporters could bring $25 billion from exports in next four years and $120 billion
in next 10 years, if they are provided level playing field. All those condition explained
above are the key problems with the textile industry.

Pakistan textile exports for U.S and Europe is 44 % & 50 % successively. The U.S market
for Pakistani products is restricted in the form of Multi-Fiber Arrangement (MFA),
restraining the textile and clothing exports to the large markets of Western Europe and
North America. An important change brought out by the agreement on textile and
clothing (ATC) will be the reduction of non-tariff barriers (NTBs). According to one
estimate Pakistan will have an additional market access of about 62 percent and 67
percent for textile and clothing respectively with the eradication of MFA.

Now consider the case of EU where our exports are around 50 % .i.e. $ 6 billion. We are
constantly hampered by anti-dumping duty of 13 %. With all the effects taken into
account this duty rises up to 25 %. Any such duty is not imposed on other exporting
countries like china, India and Bangladesh. The imposition of this duty cost paksitan a
loss of almost $ 10 – 12 billion.

APTAMA (All Pakistan Textile Mills Association) has conducted a research that reveled
following fact.

 
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“Textile trade in the world is estimated to be around US$ 300 billion currently. Industry experts
predict that by 2014 when the facilities in the West will close down and they will source their
textiles from more efficient areas of the world resulting in the trade volume of around US$ 800
billion. Pakistan's share of the current trade volume is around 3.5%. If we are to maintain our
current share of this larger pie, our textile exports alone are potentially targeted to reach US$ 28
billion”

SOME RECOMMENDATIONS:

COTTON:

Cotton is the largest exportable crop of Pakistan's economy as exports of cotton and
cotton made products earn 55 percent of total annual export earnings. As such,
promotion of cotton means promotion of exports while failure of cotton crop
tantamount to heavy damage to Pakistan economy. It would be difficult for our textile
industry to compete with textile giants like China, India, Bangladesh, Vietnam and Sri
Lanka in export of textiles when we have to import a larger amount of cotton to meet
shortfall of our cotton requirements.

ENERGY:

Pakistan is passing through the most difficult phase of its history due to the energy
crisis that is a threat to its export-oriented textile units. During the last few years, the
textile exporters have faced serious power crisis in the industrial areas, which caused
million of rupees losses to every year especially from December to July as these months
are considered the peak seasons of textile export. The Country's energy demand has
grown at an annual consumption growth rate of 4.8% that is expected to grow at 8 to
10% per annum till 2010. Therefore, there is dire need to have a sustained growth in
energy supply and infrastructure capacity of 7 - 8% per annum to support the steady
growth in the Country's GDP.

 
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 BUSINESS STRATEGY   [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN] 
 
MARKET ACCESS:

Market access is critical for economic survival and growth, especially for nations that
have small internal markets, limited domestic resources, and/or rely heavily on intl.
trade for economic survival and growth.

Once in a lifetime history provides a window of opportunity, which if availed, can

change the destiny of nations. The window, available today, is to capture the outposts
which are being abandoned by the Western textiles and which our regional competitors
have already marshaled their forces to capture. Once lodged, it will be almost
impossible to overthrow them. We are positioned to capture them ourselves provided
the required strategies and technical support is in place.

We should focus to retain our position as a leading textile producer and to get greater
market share in the coming years. We have concerns over our ability to continue with
the present rate of growth as long as the region does not provide an even playing field.

We are trying to seek advantages in the quality of our market and access to the leading
consumers of textiles and apparel. In the post quota era, we must use the World Trade
Organization regulations to our benefit and ensure that measures other countries are
taking to boost their respective industries are WTO compliant. Pakistan operates under
some of the lowest tariffs in the region but we must continue to develop bilateral trade
agreements to give us preferential market access. 60% of the world trade is still
conducted under bilateral arrangements.

RECOMMENDATIONS:
1. Pursue the concept of Reconstruction Opportunity Zones (ROZs) with the United
States.
2. Free Trade Agreement (FTA) with the European Union, USA and other Markets.
3. Anti Dumping Duty and other Countervailing Measures to be tackled with a long-
term perspective.
4. New & Non-Traditional Markets to be tapped.

 
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5. Establishment of Warehouses and Display Centres
6. Preferential Treatment to Regional Competitors
7. Trade Instead of Aid
8. Creation of the Post of Trade Negotiator.
9. GSP Plus issue to be pursued with the European Commission.

MERGER & ACQUISITION:

International trade is getting increasingly competitive in phenomenon of globalization

paradigm shift. For new demanding world, textile sector has stepped in when it has
also reached at its maturity. Maturity promises optimum productivity but it also
requires that the productive system must have been grown in full. Merger and
acquisition is the indication of same economic reality that brings together scattered
parts for collective survival and to exploit the opportunity with the greater strength.
APTMA as a figurehead of textile sector of Pakistan urgently need to build a strategy
where we combine together smaller or weaker units lest they die their own.Benefits /

CHALLENGES:
1. Synergy: To avoid duplication and increase profit margin.
2. Increased Market Share: To absorb a major competitor and thus increase its power to
set prices.
3. Cross Selling: A manufacturer can sell complementary products to the same
customer.
4. Economies of Scale: Geographically contiguous industries can avail the benefits of
economies.
5. Taxes: A profitable company can buy a loss maker to use it for reducing their tax
liability.
6. Resource Transfer: Resources can create value through either overcoming
information asymmetry or by combining scarce resources.
7. Diversification: This may hedge a company against a downturn and investment in
other sectors.

 
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8. Empire Building: Managers have larger companies to manage and hence more
power.
9. Vertical Integration: The supplier may find more difficulty in supplying to
competitors of its acquirer because the competition would not want to support the new
conglomerate.

COST OF DOING BUSINESS:

Cost of doing business specifically for textiles is subject to a very high operating and
financial leverage. It accounts for 18 per cent of the total credit disbursed in the
economy. During the last recent years, our Country's economic scenario has adversely
affected the viability of the textile industry and retarded its growth and sustainability.
The investment made during the past 5 - 7 years by all sub sectors in textiles ranging
from spinning, weaving, finishing and fabrication is under serious threat.

It is to be noticed that there has been reduction of 12.86% in investment in Textile

Machinery in terms of US Dollar this year as compared to the corresponding period last
year. If inflation is also factored in, the drop in fresh investment in Machinery will be in
the vicinity of 11% to 12%.

This has all resulted because of the slow down in further investment in the Textile
Industry due to high cost of capital borrowing and increased pressure from regional
competition.

The financial viability of the textile sector relies on the following factors:

1. Self-sufficiency in better-managed cotton crop.

2. Viable financial cost for working capital and long-term financing.
3. Availabity of hedging mechanism for commodities. (Cotton hedging).
4. Protection mechanism for Pakistani exporters against the new payment terms being
dictated by Western Customers like D/A, DP and open terms.

 
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HUMAN RESOURCE DEVELOPMENT:

Development of Human Resource be considered as an asset for the organization

because lesser number of skilled and trained employees are more beneficial for a
company rather than number of un-skilled and illiterate workers. Following measures
should be adopted to enhance the productivity of the company as well its employees:

1. Human Resource Development: Focus on education, training and skill development.

2. Respect for human Rights, gender balance, and eradication of child, bonded labor
and promote dignity of labor.
3. Harmonized labor management relations.
4. Productivity and development based work culture.
5. Vocational training outside all industrial estates.

 
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BIBLOGRAPHY: 

Following references have been used in the completion of this document

- http://www.ptj.com.pk/Web‐2010/02‐10/Dr.Noor.htm
- http://www.ptj.com.pk/Web‐2009/08‐09/Textile‐Briefs‐National.htm
- http://www.ptj.com.pk/Web%202004/03‐2004/global.html
- http://www.aptma.org.pk/CR_print.htm
- http://www.thenews.com.pk/daily_detail.asp?id=216559

 
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