Section 2: Market and Industry Analysis (Europe)

Textile Industry Europe

The textile and clothing (T &C) industry is a very heterogeneous industry
and diverse industry; it covers a wide range of important activities. It
includes transferring raw fiber into yarns and then yarns in to fabric and
then finally uses the fabric to produce a wide range of finished products
such as wool, bed-linen, geo-textiles, clothing, and synthetic yarns using
high-tech machines.
Facts:
The textile and clothing sector in European Union occupies a crucial
position in the European manufacturing sector. This industrial sector is
one of the leading contributors to the economy of the European Union.
Besides, the T & C sector also plays a major role in the social fabric of the
many member countries of the European Union. As per the structural data
released in 2006, European Union had more than 220 companies in the
diverse sectors of textile industry. The industry is one of the major
industries that provide employment opportunities to a large number of
labor forces in EU. The industry accounts for generating employment to
more than 2.5 million people. The average turn over the Textile and
clothing industry is about 190 billion Euros each year. This important
sector also accounts for about 3% of the total manufacturing value added
in Europe.
FDI Figures:

The textile and clothing sector in European Union is one the two biggest
players in the global market. The European textile sectors accounts for
29% of the worlds textile exports (this, however, does not include trade
between the European Union member countries). EU is just behind China
in textile export, which occupies the first position and accounts for 40% of
the worlds textile export.
The European Union market presents a perfect platform for foreign
investors to invest in the textile and clothing sector. The textile sector is
slowly but steadily is gaining importance in new and emerging markets of
the third world countries. The use of new innovative methods to produce
textile fibers and many other textile products in different sectors like
medicine, science, architecture, aerospace, transport and automobile
have opened up several avenues for foreign investors to exploit the textile
market and cater to the needs of the market.
Investment policies:
To facilitate foreign investors investing the textile and clothing sector in
European Union, the European Commission carries out bilateral
agreements with foreign countries and formulates a mutually profitable
industrial policy and lays down the regulatory framework. All foreign
players are required to operate within the set regulation framework. The
agreements help the foreign investors to have a better access to the
markets in the third world countries.

The (T & C) textile and clothing industrial policy dialogue carried out by
the European Commission with the Euro Mediterranean region is of great
significance. This strategically important region has an important role to
keep geographic proximity of the entire textile and clothing production
chain in Europe.
The Single Market policy adopted by the European Union is one of the
most significant landmarks of the European Union market base. The policy
has a very positive bearing on the growth of the business and people in
the EU in terms of increased employment opportunities, wider choice of
goods and services, information and consumer protection, mobility of
labour and creating competition amongst foreign players.
The European Textile sector is especially proactive in undertaking research
work for the development of new and innovative products. The EU textile
sector additionally has an active commitment within lead market
initiatives that aims to provide appropriate measure to boost the market
of the textile products.
The advanced technology used for the manufacture of textiles in EU is a
major factor responsible for attracting investors for foreign companies and
contribute to the exports of the EU. The ambitious plans by the EU to
attract foreign investors in the textile sectors by providing financial
incentives has paved way for long term sustainable development of
European Textile and Clothing industry.
Size of the European textile industry:

As per the reports of the European Commission, as of 2007, the textile

industry in Europe generated as much as around $277 billion in gross
revenue that year. Besides, it employed around 2.3 million workers and
comprised as many as 220,000 companies.
The government has also provided financial incentives to foreign
companies for modernization of the textile units in the country. Besides,
the government also provides essential help to make credit available to
foreign players investing in the textile sector.
Geographic Spread in Europe:
In the EU, the biggest producers in textile and clothing industry are the
five most populated countries, i.e. Italy, Germany, France, Spain and the
United Kingdom accounting for about three quarters of EU-27 production
of textile and clothing. In some other countries the sector plays an
important role in the national economy accounting for 5% to l5% of
employment and up to 10% of total exports of manufactured products
(Portugal, Greece, Lithuania, Poland, Slovakia, Romania, Bulgaria, and
Czech Republic).
Southern countries such as Italy, Greece and Portugal, some of the new
Member States such as Romania and Poland and, to a lesser extent, Spain
and France contribute more to total clothing production, While northern
countries such as the United Kingdom, Germany, Belgium, the
Netherlands, Austria and Sweden contribute relatively more to total textile
production.

Overall, all sub-sectors are present in the European Member States. We

can distinguish a concentration of sub-sectors in different regions of the
EU. As for the textiles part of the subsectors: the yarn sub-sector - mainly
for wool is concentrated in France and Italy and the United Kingdom. Manmade fibres and yarns are produced in Austria, Germany, Italy and in
Eastern European countries. Production of cotton fabrics is mainly located
in Italy and France and the Wool fabric production in the United Kingdom.
Quasi all silk yarn is imported into the EU and mainly used in Italy and in
France. Leaders in the technical textile sub-sector are Germany, France,
Italy and Belgium. Finally, carpets are mainly produced in Belgium,
Germany and Italy.
With regard to the clothing sub-sector, divided into Woven and knitted
garments, the former is mainly located in the new Member States
especially in Romania and Bulgaria. The knitted garments sub-sector is
prominent in Portugal, Italy and Germany. Household textiles are mainly
produced in Italy, Portugal, Germany and France.
Economic Crisis:
The economic crisis has entailed a general decline in production across
the entire sector. The textile and clothing sector experienced its lowest
growth rates in the second half of 2009 with extra-EU exports dropping by
20% in the textile sector and up to 26% in the clothing sector as
compared to the respective period in 2008. After the economic crisis the
production of clothing decreased but now its again starting to gain pace.

As far as these sub-sectors of T/C sector are concerned, the industry

recovered most rapidly in technical textiles, followed by the yarn
producing sector. However, in some sub-sectors in the clothing industry
the decline is still continuing especially in the clothing accessories. This
slow recovery is mainly due to the fact that the EU market is the main
market for the European T/C products and demand is recovering very
slowly in home and clothing products.
Competitive Challenges:
The European T/C sector is facing a number of challenges. Many of these
have been fuelled by developments specific to the T/C sector such as
technological change, the termination of the system of managed trade in
this sector and the creation of the customs union with Turkey. The sector is
adapting to this changed trade environment within the EU and on the
international level. Successive enlargements of the EU rendered the EU
market bigger and scaled up the European T/C industry. Technological
change, advancement in R&D show new applications of T/C products in
diverse fields and an ever increasing competition of products imported
from developing and emerging countries force the EU industry to use
niche applications While keeping up innovation and modernisation. Here
the EU industry has an advantage producing locally or in the Euromed
area. The proximity of production and quick transportation allows the EU
producers to ensure a fast reactivity to changes in fashion demands and
styles.

Competitive advantages are of importance such as lower transportation

costs, quicker transportation times and quick response to retailer's
requests for changes in style and fashion, duty-free entry into the EU and
labour costs comparable to many low cost Asian countries.
Main Competitors
The T/C sector is a globalised sector and major competitors for the EU
industry are in some cases markets with highest export potential. This is
true for countries such as China and India. The T/C industry in the EU is
competitive and aims to find new markets for its products given trade
liberalisation is reciprocal and symmetric. The trade development shows
that as a consequence of the integration of T/C sector into the general
multilateral trade rules, a trend of concentration of T/C trade followed
giving a dominant position to some players in the world such as China,
India and Pakistan. China and Turkey figure as most prominent
competitors to the EU but also to each other with significant production
capacity across all sub-sectors. India is developing its industry cross
sectorally. Its strength lies today in cotton yarns and fabrics.
On a sub-sectoral level, key competitors are countries that have or are
potentially developing a similar to equal level of development in the
specialisation of their T/C sector to the one of the EU.
In the cotton yarn and fabrics sub-sector, the man-made fibre, especially
viscose and cellulose fibre based sub-sectors, India is a main competitor.

Given its national cotton production, India has a natural comparative

advantage in accessing this raw material.
Moreover, its geographical position - close to other cotton producing and
processing countries, such as Pakistan, Bangladesh, Indonesia, Vietnam as
well as its industrys development, positions India as a global competition
to the EU industry.
The Pakistani local production of cotton and cotton yarn gives the country
a natural advantage. Its industry has developed a production capacity
similar to the EU industry and allows Pakistan to be a strong global
exporter of bed linen and toilet linen.
Europe and Pakistan
EU-Pakistan bilateral trade relations are governed by the Cooperation
Agreement from 2004. Enhancing bilateral trade and investment is also
part of the EU-Pakistan 5-year Engagement Plan from 2012.
Pakistan is a major beneficiary of the trading opportunities offered by the
EU Generalised Scheme of Preferences (GSP). From 1 January 2014
Pakistan benefits from generous tariff preferences (mostly zero duties on
two

thirds

of

all

product

categories)

under

the

so-called

GSP+

arrangement aiming to support sustainable development and good

governance. In order to maintain GSP+ Pakistan has to keep ratification
and effectively implement 27 core international conventions on human
and labour right, environmental protection and good governance.
Trade Picture

The EU being Pakistan's most important trading partner taking

21.2% of Pakistan's total exports.

EU-Pakistan trade increased by almost 4.7% annually between 2007

and 2011.
Pakistani exports to the EU are dominated by textiles and clothing
as well as leather products. Textiles and clothing account for just

under 75% of Pakistan's exports to the EU.

Pakistan's imports from the EU mainly comprise mechanical and
electrical machinery as well as chemical and pharmaceutical
products.

The EU and Pakistan have set up a Sub-Group on Trade to promote the

development of two-way trade. The Sub-Group on Trade - set up under the
auspices of the EU-Pakistan Joint Commission - is the forum for discussions
on trade policy developments more broadly and also aims to tackle
individual market access issues which hamper trade between the two
parties.
While Pakistan's economy holds considerable potential, high costs of doing
business, complex regulation and infrastructure bottlenecks all have a
detrimental effect on trade and growth. Pakistan's trade regime and
regulatory environment still remain comparatively restrictive.
Textiles and clothing account for around 75% of Pakistan's exports to the
EU. While the textiles and clothing industry are the backbone of the
Pakistani economy, relying so heavily on one product category carries
risks for Pakistan. Trade diversification programmes have been launched
by the EU, to reduce the country's reliance on the textiles and clothing

sector. The recently granted GSP+ preferences should also support

Pakistan's efforts towards diversification.
As a result, more than 78% of Pakistan's exports enter the EU at
preferential rates.Around 80% of the textiles and clothing articles
imported to the EU from Pakistan enter the EU at a preferential tariff rate.
Around a quarter of these imports are bed linen, table linen and toilet and
kitchen linen.
Textiles and clothing account for around 75% of Pakistan's exports to the
EU. Pakistani exports to the EU have increased modestly in terms of value
despite the elimination of quotas, including on imports of Chinese textile
and clothing products.
However, relying so heavily on one product category carries risks for
Pakistan. Trade diversification programmes have been launched by the
EU, to reduce the country's reliance on the textiles and clothing sector.

Marketing Mix

Product
Although Nishat Mills manufactures a number of different textile related
products but for now we will only export yarn, grey cloth and processed
fibre to Europe. The reason of exporting these products is that the
demand of Pakistani yarn in Europe is great and we can grab a lot of
market share in Europe with our top quality yarn and processed fibre. By
exporting these products we can fully utilize our production capacity. As
these are mostly industrial goods, we dont need to change a lot in the
product for European market.
Price
As far is Yarn and processed fibre is concerned, Chinese and Indian
companies are Nishats biggest competition. Both China and India are
penetrating in the European textile markets by offering yarn and
processed fibre at reasonably low prices. We too will offer yarn, processed
fibre and grey cloth at a low price, with our great quality we are pretty
much confident that we will grab a large chunk of market share from India
and China. We are not aiming for big profits in the start, our focus is just
on penetrating in the market and a low pricing strategy will help us in
achieving our objective.
Distribution
We will establish our company offices in different parts of Europe to cater
the rising demand of the textile and clothing industry of the continent. Our
company representatives will reach out to different European textile firms

and convince them to purchase their raw material from Nishat mills. Our
manufacturing units are in Pakistan but we will build storage houses in
Europe to stock the goods, so that in case of small orders our company
representatives can deliver the goods from the storage houses.
Promotion
Nishat mills enter into the European market on its own. We have the
financial resources to establish offices in different key places across
Europe. Our companys representatives will take orders from different
companies in Europe and our export marketing department in Pakistan will
deliver the shipment to the buyer.
We will advertise about our products in different trade magazines. We will
take part in different trade exhibitions to showcase our products.
Ham-Tex Fair
Ham-tex is a fair of textile held in Germany on every January of the year in
which all over the world well established organizations make their display
centres to attract new customers. Nishat mills will use this fair as a tool of
promotion for its yarn, grey cloth and processed fibre.