MACRO ENVIORNMENTAL

AND INDUSTR ANALYSIS OF

PAKISTAN TEXTILE INDUSTRY
BUSSINESS STRATEGY & POLICY
REPORT

This report contains a detailed Industry analysis (Competitor

analysis) and Macro Environmental analysis (PESTEL analysis)

which is prepared to analyze the factors influencing textile

industry of Pakistan and impacts of this industry on the

economy of Pakistan. This report is a part of our course

Business Strategy & Policy. We visited the different

organizations and their competitor organizations. We conducted

unstructured interviews of the different departmental heads after a

little bit discussion we presented our questionnaire to respondents

and allowed them to complete it by them. The purpose of this

structured questionnaire was to gather information about macro

environment and behavior of firms along with we have also

studied different articles and research papers. We have completed

this report successfully. Main thing that we learn from this report is

experience of different strategy making practices involved in textile

industry of Pakistan.

1|Page
 Preface………………………………………………………… 3

Acknowledgement……………………………………………… 4
CONTENTS in BRIEF

PART 1: textile industry of PAKISTAN ………………………… 5

 History & present

 Sub sectors & value chain

PART 2: PESTEL analyses ………………………………. 13

PART 3 Industry Analysis ……………………………

 Porter’s five forces in Pakistan textile industry( PTI )

 Effect of PESTEL on Porter’s five forces in PTI
 Strategic group
 Summary

2|Page
 Preface
Research reports are very important part of MBA program. Keeping this thing in view we were
assigned a report to elaborate

“FROM ENVIRONMENTAL ANALYSIS to INDUSTRY ANALYSIS

Of TEXTILE INDUSTRY Of PAKISTAN”.

We would like to extend our appreciation to such a personality

Mr. Mushtaq Khan, whose tireless efforts for the betterment of the student and
department is much worthy. He is the asset, which is not ever to be forgotten he remained
precedence for us while finishing our research report. The completion of this task without his
guidance was not possible.

Maximum efforts have been exerted to complete the report and we hope that a reader will find
it useful and beneficial.

3|Page
 Acknowledgement
Person is not a perfect in all the contexts of his life. He has a limited mind and mind thinking
approaches. It is the guidance from the almighty Allah that shows the man light in the
darkness and the person finds his way in this light. Without this helping light, person is
nothing but a helpless creation.

The teaching of the Holy Prophet Muhammad (PBUH) were also the continuous source
of guidance for us especially his order of getting knowledge and fulfilling once duty honestly
was key motivation force for us.

We are also thankful to our friends and class fellows who assisted us in creating a favorable
environment. Again, we are thankful to all our friends and class fellows who help and provide
the moral support for completing this hard task

4|Page
PART 1

TEXTILE INDUSTRY
OF
PAKISTAN

5|Page
History and Present
The origination of cotton cultivation and production of textile products in the Subcontinent is
traced back to the cotton – Dessi (Gossypium Arboreim specie) Cotton – has been produced
since that period. The residuals of actual textile and textile material, tools and instruments used
in manufacturing textiles, all divulge presence of textile in the Valley. In the early 20th century,
another variety of cotton – American Cotton – was introduced in this region by the British ruling
at that time. Initially this variety was imported from the North American continent. However, in
1917, this was cross-breeded with the Dessi cotton. The first test-cultivation of the new
genetically modified seed (3F) was made in South Western Indian regions by a renowned cotton
breeder, Dr. Mohammad Afzal. Biologically, cotton is perennial plant that grows in the forests,
nevertheless, with the technological developments, its cultivation period turned seasonal
generating higher productivity.

Pakistan’s economy can be characterized as semi-industrialized. The country’s industrial sector

constitutes ~24% of the gross domestic product (GDP).Pakistan has a total labor force of around
54mln (Labor Force Survey 2008-09 In 1947, independence of subcontinent from the British
rule and its division in two independent countries, Pakistan and India, opened new avenues for
the textile sector. Pakistan then, comprised two areas, East Pakistan (now called Bangladesh) and
West Pakistan. The West was the cotton producing area and East was renowned for jute
production. At the time of partition, East Pakistan received only 90 cotton mills out of 389 mills
of erstwhile undivided Bengal. Whereas, West Pakistan was left without any industrial setup and

6|Page
inherited mere two composite textile mills, Okara Textile Mills, Okara and Lyallpur Cotton Mill
in Faisalabad [formerly Lyallpur]3. During the 1950s, with more area coming under cultivation,
cotton production expanded rapidly.

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
49million. 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.

7|Page
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, dyeing 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.
Pakistan is the world’s 4th largest producer and 3rd largest consumer of cotton. The Textile and
Clothing Industry has been the main driver of the economy for the last 50 years in terms of
foreign currency earnings and jobs creation. The Textile and Clothing Industry will continue to
be an important engine for future growth of the economy; there is no alternative industry or
service sector that has the potential to benefit the economy with foreign currency earnings and
new job creation, especially if synergy is developed amongst different sub sectors and efforts are
made to aggressively grow the Readymade Clothing Sector. Pakistan’s Textile Industry had
proved its strength in global market during the last four decades. It has proved its strength even
in post quota era by not only sustaining its position but, also showing growth during 2005 to
2007, but declined to $11.1 billion in 2008 due to financial and economic meltdown globally.
The Garment Sector & especially the Knit Garment Sector need special focus in future

8|Page
FY07 was a historic year for the industry as it achieved highest ever exports of ~USD 11bln.
Given the sector's significant contribution in the exports, the performance of this sector has a
strong impact on the national economy.

Sub Sectors
Textile industry can be broken down into following sub sectors or industries:

i) Cotton Spinning Sector

The Spinning Sector is the most important segment in the hierarchy of textile production. At
present, it is comprised of 521 textile units (50 composite units and 471 spinning units) with10.1
Million spindles and 114 thousand rotors in operation with capacity utilization of 89percent and
60 percent respectively, during July – March, 2008-09.

ii) Cloth Sector

The pattern of Cloth Production is different than spinning sector. There are three different sub
sectors in weaving via, Integrated, Independent Weaving Units, and Power Loom Units. There is
investment in the shuttle-less looms both in integrated and independent weaving sector. This
trend is likely to intensify in the country. The Power Loom Sector have modernized and
registered a phenomenal growth over the last two decades. The growth of power loom sector is
due to favorable Government Policies as well as Market forces. This sector is producing
comparatively low value added Grey Cloth of mostly inferior quality. Problems of the power

9|Page
loom sector revolve mainly around the poor technology, scarcity of quality yarn and lack of
institutional financing for its development from unorganized sector to an organized one.

iii) Textile Made-Up Sector

This is the most dynamic segment of Textile Industry. The major product groups are Towels,
Tents & Canvas, Cotton Bags, Bed Wear, and Hosiery & Knitwear & Readymade Garments
including Fashion Apparels. Table 3.4 compares export performance of made-up sector during
the period July-march 2008-2009 and 2009-10

a) Hosiery Industry
There are about 12,000 Knitting Machines spread all over the country. The Capacity utilization is
approx 70%. There is greater reliance on the development of this industry as there is substantial
value addition in the form of knitwear. Besides locally manufactured machinery, liberal import
of machinery under different modes is also being made and the capacity based on exports is
being developed.

b) Readymade Garment Industry

The Garment Industry provides highest value addition in Textile Sector. The Industry is
distributed in small, medium and large scale units most of them having 50 machines and below,
large units are now coming up in the organized sector of the industry. The industry enjoys the
facilities of duty free import of machinery and Income Tax exemption. This sector has
tremendous potential. Exports remained under pressure.

c) Towel Industry
There are about 7500 Towel Looms in the country in both organized and unorganized sector.
This Industry is dominantly export based and its growth has all the time depended on export
outlets. The existing towels manufacturing factories are required to be geared up to produce
higher value towels.
d) Canvas
This is the highest raw cotton consuming sector. The production capacity is more than 100
million Sq. Meters. This value-added sector has also great potential for export. The 60% of its
production is exported while 40% is consumed locally by Armed Forces, Food Department.
Pakistan is the cheapest source of supply of Tents and Canvas.

IV)Synthetic Fiber Manufacturing Sector

This sector has made progress in line with demand of the Textile Industry. Presently there are
Five (5) Polyester Fiber Units with production Capacity of 640000 Tons per annum; one acrylic
fiber unit (M/s. Dewan Salman) has started its commercial production in December1999, with
rated capacity of 25,000 Tons per annum. Besides import of M.M.yarn, Fibers is permissible to
supplement the local production.

v) Filament Yarn Manufacturing Industry

The Synthetic filament yarn manufacturing industry picked up momentum during 5th Five Year
Plan when demand raised and hence imports increased and private sector was permitted to make
feasible investment in the rising market conditions. Today following three kinds of filament yarn

10 | P a g e
are manufactured locally: The polyester filament yarn manufacturing activity has slowed down
and currently a large scale imports from China has compelled local industry to close down and
only 6 units with operational capacity of 55851 M. Tons supply polyester filament yarn. The
local production filament fabrics is not picking up as their exports sales are not feasible and local
market is heavily flooded with smuggled goods. The Production of Polyester Filament Yarn is
approx. 60,337 Tons per annum and imports during the period July – March 2010 is 116,964 M.
Tons as against 89,362 M. Tons during July – March 2009. Government in the last year reduced
in duty on filament yarn. While it was helpful to the Synthetic Weaving Units, its impact on the
Filament industry is evident in the form of closure of 15 units. Recently Hosiery sector has
started consuming synthetic yarns for export of Knitted Garments which are both value added as
well as diversification in product.

vi) Art Silk and Synthetic Weaving Industry

Art Silk and Synthetic Weaving Industry has developed over the time on cottage based Power
Looms Units comprising of 08_10 looms spread all over the country. There are approximately
90,000 looms in operation of which 30,000 looms are working on blended yarn and 60,000
looms on filament – yarn. Besides, there are some mobile looms which become operational on
market demand. The major concentration is in Karachi- Faisalabad, Gujranwala, and Jalalpur
Jattan as well as in the un-settled area (Bare – Swat – Khyber Agency and Wazirstan).

vii) Woolen Industry

The main products manufactured by the Woolen Industry are Woolen Yarn of 6.864 M. kgs,
Acrylic yarn 6.960 M. kgs, Fabrics 3,445 (M.sq.meter), Shawls 13.353 Million, Blanket
657,235,and Carpet 3.5 (M. Sq. meter).

VALUE CHAIN
Briefly,
 The production stage covers a sequence of activities from sowing to harvesting and
ginning. Cotton is produced on large as well as small farms with significant differences
in farming methods and access to technology.

 The processing stage covers activities involved in the transformation of cotton lint into
cloth or garments for consumer use. The entire sequence of activities covers spinning
(blowing, mixing, carding, combing, drawing, simplex, ring spinning, and cone
winding), weaving (warping, sizing, weaving), processing (singeing, desizing, scouring,
mercerizing, bleaching, dyeing, printing, and finishing), and garment manufacturing.

11 | P a g e
12 | P a g e
PART 2

PESTEL ANALYSIS
OF
TEXTILE INDUSTRY

For this part of report we have studied different research

papers and articles also consulted government research
centers like Lahore Chamber of Commerce, APTMA and other
secondary data sources in our access

13 | P a g e
PESTEL Analysis

Is a useful tool for understanding the “big picture “of the environment, in which you are
operating, and the opportunities and threats that lie within it. By understanding the environment
in which you operate (external to your company or department), you can take advantage of the
opportunities and minimize the threats. Specifically the PEST or PESTEL analysis is a useful
tool for understanding risks associated with market growth or decline, and as such the position,
potential and direction for a business or organization. For the purposes of this page we will focus
on the PESTEL variation of the acronym. The PESTEL Analysis is often used as a generic
'orientation' tool, finding out where an organization or product is in the context of what is
happening outside that will at some point effect what is happening inside anorganization.A
PESTEL analysis is a business measurement tool, looking at factors external to the organization.
It is often used within a strategic SWOT analysis (Strengths, Weaknesses, Opportunities and
Threats analysis).
The PESTEL analysis Headings are a framework for reviewing a situation, ARE used to review
a strategy or position, direction of a company, a marketing proposition, or idea. PESTEL
analysis for business and strategic planning, marketing planning, business and product
development and research reports. The PESTEL template below includes sample questions or
prompts, whose answers are can be inserted into the relevant section of the table. The questions
are examples of discussion points, and should be altered depending on the subject of the analysis,
and how you want to use it.
Make up your own PESTEL questions and prompts to suit the issue being analyzed and the
situation (i.e. the people doing the work and the expectations of them).It is important to clearly
identify the subject of a PESTEL analysis
(that is a clear goal or output requirement), because an analysis of this type simulate faceted in
relation to a particular business unit or proposition - if you dilute the focus you will produce an
unclear picture - so be clear about the situation and perspective that you use PESTEL to analyze.

A market is defined by what is addressing it, be it a product, company, organization, brand,

business unit, proposition, idea, etc, so be clear about how you define the market being analyzed,
particularly if you use PESTEL analysis in workshops, team exercises or as a delegated task.
The PESTEL subject should be a clear definition of the market being addressed, which might be
from any of the following standpoints:

 A company looking at its market

 A product looking at its market
 A brand in relation to its market
 A local business unit or function in a business
 A strategic option, such as entering a new market or launching a new product
 A potential acquisition
 A potential partnership
 An investment opportunity
Be sure to describe the subject for the PESTEL analysis clearly so that people contribute to the
analysis, and those seeing the finished implications.

14 | P a g e
IN PAKISTAN TEXTILE INDUSTRY
Since inception, except for a limited time period Pakistan’s political landscape is characterized
with instable governments, inconsistent policies, lack of foresightedness and poor governance.
Besides other fields, industrial and economic growth of the country also had adverse effects of
these inconsistencies and uncertainties. Textile industry is considered as the leading industry of
the Pakistan, though since inception a tremendous positive growth has been seen in this industry,
yet as compared to other contemporary rivals this growth cannot be termed as satisfactory.

Political and Economical analysis

In the perusing paragraphs the various political and economical factors, which affected Textile
industry (positively or otherwise) in either way will be discussed in detail. To make our
discussion more comprehendible the history of Pakistan can be divided in to following seven
distinctive eras1 :-

a. Flat Fifties (1947-1958)

b. The Golden sixties (1958-1969)
c. Socialist seventies (1971-1977)
d. Revivalist Eighties (1977-1988)
e. The Muddling Nineties (1988-1999)
f. Reforming Hundreds (1999-2007)
g. Gifting Democracy ( 2007-todate)

a) Flat Fifties (1947-1958)

In 1947 at the time of independence of subcontinent from the British rule and its division in to
two independent states, opened new avenues for the textile sector of India and Pakistan. Pakistan
then, comprised of two areas, East Pakistan (now called Bangladesh) and West Pakistan. The
West was the cotton producing area and East was renowned for jute production. At the time of
partition, East Pakistan received only 90 cotton mills out of 389 mills of erstwhile undivided
Bengal. Whereas, West Pakistan was left without any industrial setup and inherited mere two
composite textile mills, Okara Textile Mills, Okara and Lyallpur Cotton Mill , Faisalabad.

Though strong potential base for textile industry in the shape of sufficient raw material existed in
the country, and government had realization of its potential, but due to multifarious challenges
faced by the newly borne state , much attention could not be paid on improving the industrial

1
- “The Role of Politics in Pakistan’s economy , by Ishrat Hussain,Journal of International affairs,Fall 2009,Vol 63

15 | P a g e
health of Textile sector. A few of the challenges which newly born government had to confront
with included:-
a. Settlement of large number of migrates.
b. Restoration of law and order rising from Hindu – Muslim riots and looting groups
involved.
c. Support to Freedom movement initiated by kashmirees, and Kashmir war imposed by
India.
d. Death of Quaid e Azam ( founder and ideological as well as political leader of the
nation)
e. Formulation of the constitution, and different policies as a sovereign state , which
was a need to define the roles, policies, and duties of different social and public
segments of the society.
f. Assassination of First Prime minister ( Liaqat Ali Khan)
g. Indo- Pak war of 1965

Political and Economic Policy 1947-1958.

The era from 1947 to 1958 is marked as the post world war era in the world political and
economic scenario, when industrial production was at peak and the developed nations were
seeking access to larger markets for sale of their goods and services. During the same era two
prominent world powers USA and the then USSR started cold war to increase their area of
influence over the world, and the world was divided into two distinct blocks2, Western (lead by
USA) and the communist block lead by USSR. Pakistan being a newly borne state and its geo
strategic location was very lucrative market for both of the blocks, but the political leadership
of the country decided to join western block by signing British Common wealth of Nations in
1947 and CENTO in 1954, and SEATO in 19583.Though by joining SEATO Pakistan received
sufficient military aid from USA but no worthwhile economic or industrial aid was extended to
Pakistan by USA. During this era Pakistan’s Political map is marked by the assassination of its
first prime minister Liaqat Ali Khan, dissolution of first constitutional assembly by the Governor
General Ghulam Muhammad and then dissolution of Constitutional Assembly by the President
Iskandar Mirza thereby declaring martial law in the country and finally handing over power to
General Ayub Khan in 1958.
Despite these turmoil in the country a number of decisions taken by the government which have
a significant effect on economic and industrial development of the country are as :
From 1948 to 1958 , growth rate in industrial sector of the Pakistan had been highest among the
world , as it had fluctuated between 4.9 % to 28.7 %.

 Non Devaluation of currency: 1n 1948 numerous countries devalued their

currency , with an aim to increase their export , but Pakistan did not4 devalued its
currency , because the objective of its industrial policy was to preserve its raw material

2
“Pakistan and SEATO , by Dr Lubna saif,Pakistan Journal of History and culture,2007.
3
Ibid
4
“Industrialisation in Pakistan”, Qureshi, Shariq etal, www.Scribd.com

16 | P a g e
 from exporting abroad and encourage investors to invest in the country for production of
finished goods inside the country .This policy brought out following results5:-
(1) Overvalued exchange rate helped industrialists to import modern textile units
and install new industry in the country.
(2) Due to overvalued exchange rate export of Cotton was discouraged by the
international market so growers and industrialists were forced to meet the
demand of local market, thus dependence on imports reduced considerably
and cotton prices remained controlled, thus ginners and spinning units earned
quite reasonable profit.
(3) Due to high demand of yarn in international market the spinning sector which
constituted the maximum part of the textile Industry , was benefited in a way
that surplus yarn produced was exported abroad even at higher exchange rate .
(4) Due to over priced currency rates our trade with India and England declined.

 Quantitative Control on Imports.

In 1949 heavy tariffs were imposed on import and quantitative control on imports was
introduced, however import on capital machinery was facilitated which helped
industrialists to import machine tools and textile plants from the developed countries.
This policy helped in reducing dependence on imports and development of local industry,
moreover one of the objective of Quantitative Control was to force private sector for
indulging in R&D and try to develop its own manufacturing sector, but unfortunately this
aspect was not fully understood or exploited by the investors.

 Open General License Scheme (1950-2).

During the 1950s, with more area coming under cultivation, cotton production expanded
rapidly. In the meantime, under the Open General Licensing (OGL) scheme , Pakistan’s
business community imported textile plants and machinery. This led to the establishment
of Star Textile Mills Limited, Gul Ahmed Textile Mills Limited in Karachi, Kohinoor at
Rawalpindi, Nishat, Crescent Textile in Faisalabad and Colony Textiles Mills Limited in
Multan. 6

 Untimed Devaluation (1955):

As a result of an unanticipated move, in 1955, rupee was devalued by 33.5 per cent to
regain exports bonanza of Korean War. It backfired and exacerbated the deficit intricacy.
We experienced trade deficits through out the decade except 1950. We also lost the
Indian market because of poorly timed devaluation.7

5
Ibid
6
Industrialisation in Pakistan”, Qureshi, Shariq etal, www.Scribd.com
7
Ibid

17 | P a g e
 b) Golden sixties ( 1958-1969)

 Export Bonus Scheme (1959):

In Ayub's period, devaluation was ruled out as doable option to boost exports because of its
inability to deliver in the past. Export Bonus Scheme (EBS) and Export Credit Guarantee
Scheme (ECGS) were launched for the monetary incentives to exporters. At the institutional
level, Export Promotion Bureau was set up to disseminate information to exporters, settle trade
disputes and advise government on commercial policies vis-à-vis exports. To discourage
dependence over imports of commodity items and to promote consumption of indigenously
produced commodities in 1959 Ayub’s Government introduced Export Bonus Scheme. The
Export Bonus Vouchers Scheme (1959) and tax incentives stimulated new industrial
entrepreneurs and exporters. Bonus vouchers facilitated access to foreign exchange for imports
of industrial machinery and raw materials. Tax concessions were offered for investment in less-
developed areas. These measures had important consequences in bringing industry to Punjab and
gave rise to a new class of small industrialists.
 Establishment of First textile commission:

The first textile commission, which was constituted by the first material law government in 1960
had, inter-alia, recommended that an economic size textile unit should preferably have 25,000
spindles and 500 looms. No new mill with only 12,500 spindles and without looms should be
sanctioned. However, no need was paid to the advice by the sanctioning authorities with the
result that an excess capacity had tented to build up in the spinning sector.8
 Establishment of PICIC and IDBP.
During 50s and early Ayub’s regime the industrial growth rate of Pakistan had been highest
among the world (4.8 to 28.7%), and government received lot of funding from the international
donors. To extend its benefits to private sector and for providing financial assistance to
entrepreneurs government established Pakistan industrial development and investment
corporation and Industrial development bank. These two financial institutions proved very
helpful in expanding the capacity building of textile industry, and a large number of power looms
were established.9
 Establishment of Central Cotton Research Institute:

With the establishment of the Central Cotton Research Institute in Multan in 1970, cotton
breeding process attained momentum in the country and variety of better cotton seeds were
introduced , as a result per hector production of cotton increased significantly and due to
availability of raw material in abundance production of fiber also increased. Pakistan started

8
“Economic policy, growth and poverty in historical perspective”by Akmal Hussain,, Encyclopedia of Pakistan , 2006.

9
“Economic policy, growth and poverty in historical perspective”by Akmal Hussain,, Encyclopedia of Pakistan , 2006

18 | P a g e
exporting printed fabrics in the late 70s to Africa and by mid 80s made inroads to Europe for
export of various products.10
 Industrial Expansion:

By mid 60’s there were about 180 units of textile

bleaching, printing and processing units. A number of spinning units comprising of only
12,500 spindles were set up. Newly established mills were based upon imported
technology but there was lack of technical staff and shortage of capital.

c) The Socialist Seventies (1971- 1977)

Democratic era of Zulfiqar Ali Bhutto’s government is marked with the three significant changes
in government policy :

 Nationalization of industrial Units

 Equal distribution of wealth among different segments of society.
 Empowerment to labor

1. Nationalization of industry:
Zulfiqar Ali Bhutto was much impressed from the communism as he had analyzed the
exploiting policies of Capitalism in depth and was convinced that equal distribution of wealth
and money can be ensured through government’s control over units of production. So he
announced nationalization of all major industrial units, though a very few of the textile units
were nationalized by the government , yet this policy had following overall impact on the
industry11 :
 Confidence of the investors was shattered and investors started shifting their assets
abroad.
 Foreign industrial investment slowed down .
 Slowing down of private industrial investment
 Though due to increased incentives for the labor announced, in the first two years
production rate increased , but in the last three years it declined sharply and economic
growth which was 7% in the first two years came to 3% in the last two years.

2. Land Reforms:

Though land reforms of Bhutto were aimed at equal distribution of resources among all
segments of society , yet it failed to achieve its results and per acre production declined sharply.
Most of the land lords who were affected adversely from this policy belonged to Southern
Punjab and Sind ( Cotton growing belt) , so the production of Cotton crop also declined sharply ,
resultantly raw material needed for production of yarn and fabric became scare and cost of
production increased , which resulted into decline of exports as well.

10
Ibid
11
The Role of Politics in Pakistan’s economy by Ishrat Hussain Journal of International affairs,Fall 2009,Vol 63

19 | P a g e
 3. Devaluation of Currency:
To increase exports Bhutto announced a devaluation of rupee by 58% , but this step could not
fetch the desired results because of following reasons:
 Production had decreased significantly due to the policies of nationalization and
land reforms introduced already.
 Oil prices surged in the global market , resulting into a worldwide recession.12

4. Export and Import Policy:

By 1970-1971 there were already 113 textile units and the industry had 2,605 spindles and
30,000 looms. After the separation of East Pakistan, Cotton Export Corporation of Pakistan was
established.. The textile industry suffered heavy looses because the export cotton controlled by
CEC, and the import of machinery was made difficult due to shortage of foreign exchange.
Import licensing system was abandoned, so import of textile machinery was made a complex
affair.
5. Abandoning Multiple Exchange System:
Multiple exchange system was abandoned and Rupee was linked to Dollar , thus import and
export of textile products and machinery to European and other countries was affected adversely.
13

b) Revivalist Eighties (1977-1988)

The overthrow of Bhutto government by a military coup in July 1977 and the ascendancy of a
right wing military leader, General Zia ul-Haq, halted the socialist experiment. The military
government devised policies to boost the confidence of private investors and promote the welfare
of Pakistani citizens. The economic expansion continued during 1977-88. Price level again
remained well in-checked. During this regime the country’s economy grew an average rate of
more than six percent annually. Zia’s rule fundamentally changed the Pakistan economy and
society. The expansion of the industrial sector under Zia was equally impressive. Per capita
income in the 1980s was about 25% higher than India (close to $500 per head compared to
India’s $390). The average Pakistani was better fed and clothed than an Indian. While 52% of
India’s population was below $1 a day income only 11% of Pakistan’s was below this poverty
line. The major political decisions which had healthy effects on textile sector are:-

1. Denationalization of Industries

12
Ibid
13
Economic policy, growth and poverty in historical perspective”by Akmal Hussain,, Encyclopedia of Pakistan , 2006

20 | P a g e
 Zia ul Haque announced denationalization of industries which was nationalized during Bhutto
regime, this denationalization had following impacts on over all economy of the state and
Textile industry:
(1) Investors trust was restored and lot of investment in the shape of foreign
remittances came into the country.
(2) Sick Textile units like Koh- e- Noor textile Faisalabad were revitalized under the
ownership of real owners.
(3) Production increased manifolds , thus exports were encouraged.
(4) Due to increased production , demand for raw material also increased , and
growers earned reasonable profit on cotton crops.
2. Relief on Import Duties:
The 80’s decade brought a relief to the textile industry. There was rapid growth in the
spinning sector. Till 1980-81 spinning continued to expand to 4033 thousand spindles in 203
spinning units.Machinery for producing garments and made-ups was also freed from import
duty.
3. Export Policy :

To encourage exports, exports rebates were introduced , which included reduction in export tariff
from 17% to 10 % thus increasing textile exports.

1. Expansion in Textile Industry:

Due to relaxation given in import / export policies , increase in GDP and better planning during
the period number of textile units in the country increased from 153 in 1977 to 224 in 1988 , at
an average growth rate of 7.1% annually , which was very impressive figure among the other
rival competitors. Production of yarn had increased from 282640 in 1977 to 685031 in1988 , thus
shoing a 242 % increase ,similarly export of textile cloth too had increased from 1445.30 to
2230.82 in 1988.

d) Muddling Nineties (1988-1999)

Political Scenario and Economic Performance
Nine different governments (four interim-appointed, four elected and one following the military
coup of October 1999) ruled Pakistan in this period. This instability had affected all industrial
sectors including Textile Industry. Prominent political and economic characteristics of this era
are:

Due to frequent governmental changes no concrete policy for industrial development could be
adopted , though far reaching reforms were introduced in 1991, economic indicators once again
fell sharply in contrast with the 1980s for several reasons other than political instability.The
failure to implement successive agreements led to the loss of Pakistan’s credibility among the
international financial community. The confidence of local investors eroded when the foreign
currency deposits of Pakistanis were suddenly frozen. Foreign investors were unhappy as all the
power purchase agreements were re-opened and criminal action was initiated against Hubco(

21 | P a g e
Pakistan’s largest foreign-owned power generation company). The GDP growth rate decelerated
to 4 percent. While the agriculture sector recorded higher output, growth of the manufacturing
sector was low. The investment ratio fell to 13.9 percent during 1998 and 1999 as foreign
savings, which formerly bridged the gap between national savings and investment, dried up in
May 1998 . The persistence of fiscal (above 7 percent of GDP) and external deficits (4 to 5
percent of GDP) led to the accumulation of large levels of domestic and external debt throughout
the decade. Development expenditures took a major hit and GDP dropped to 3 percent from 8
percent in the first half of the 1980s. Social sector expenditures were squeezed to accommodate
higher debt service and defense expenditures. Total external debt levels became unsustainable,
rising from $20 billion in 1990 to $43 billion (47.6 percent of GDP) in 1998. Exports stagnated
and Pakistan lost its market share in a buoyant world trade environment. The incidence of
poverty nearly doubled from 18 to 34 percent, and the unemployment rate rose as well. Social
indicators lagged behind other countries in the region. The Human Development Index of the
United Nations Development Programme ranked Pakistan in one of its lowest development
categories.

An interesting paradox is that the economic policies of both major political parties, the Pakistan
Muslim League (PML) and the Pakistan People’s Party (PPP), who took turns ruling during the
1990s, were similar and could not be faulted. Both parties were committed to deregulation,
privatization, liberalization, greater reliance on market forces and other economic reforms. The
supporters of PML and PPP argued that the dismissal of the Nawaz Sharif government in 1993
and of the Benazir government in 1996 did not allow positive trends to persist. It can only be
speculated whether the economic output for the decade would have been better had these
governments completed their terms in office. Poor governance would have been largely offset
by the continuity in policies, programs and projects. The stop-and-go cycle faced by Pakistani
economic actors imposed enormous costs in terms of macroeconomic instability.

Dual Price Policy:

To depress prices of raw cotton to the benefit of the textile producers government used dual
price strategy , which benefited exporters but was depressing for the growers. (Townsend and
Guitchounts, 1994) . The first price was a “benchmark” price, which was set periodically by the
Government and was merely a reference price. That is, it was not derived from the market, but
was used in conjunction with the second price to calculate the export tax on cotton lint. The
second price was a Minimum Export Price (MEP). The MEP was set daily by a Government
committee, which established the minimum price at which the base grade of Pakistani cotton
(Afzal, 1 1/32 inches) could be exported. The export tax was the difference between the
benchmark price and the MEP. For example, if the benchmark was 50 ¢/lb and the MEP was 55
¢/lb, the export tax would be 5 ¢/lb. When the domestic price of cotton was below the
benchmark, exports were possible because the revenue generated from exports (export price -
domestic price) was greater than the export tax. However, when domestic prices were above the
benchmark, the export tax exceeded the revenue from exports

lint production did not decrease, but did increase at a slower average rate than prior to the
implementation of the policy in 1988 (10%/year over the 1970-1987 period
and 5%/year over the 1988-1995 period). This indicates that the prices being

22 | P a g e
received by Pakistani farmers over the 1988-1995 period were sufficient to induce some growth
in cotton production, but not to the extent prior to 1988.As a result of this policy Textile exports
decreased by 58 % between 1988 to 19997 from that of prior to 1988( as shown in the diagram).

Source: THE PAKISTANI COTTON INDUSTRY: IMPACTS OF POLICY CHANGES,.

by : Darren Hudson and Don Ethridge , Mississippi State University

Power Shortage:

Power shortage was one of the biggest challenge being faced by the government and textile
industry of the Pakistan like all other industries of the country during 90s. Sudden power
breakdowns were fatal for the spinning and weaving industries as sudden breaks resulted into
large number of defective productions .To address the problem PPP government signed a number
of agreements with foreign IPPs for production and purchase of power on higher tariffs , which
was used as a tool by their opposition ( Muslim League) and issue was much scandalized. Once
Muslim League government came into being , it had a business and industrial oriented approach
, at that time prices of fuel were much lesser and self generation was considered more
economical than purchasing power from WAPDA , so to benefit the industrialists it allowed all
major Textile and other industrial units for self generation ( Captive Power Plants). Self
generation was not a permanent solution and in the long run industry found it to be an expensive
affair , due to increased fuel prices and heavy maintenance charges over long period.
Textile Growth:
During the six years between 1993 and 1998, production of yarn (in quantity terms) registered a
steady annual growth rate of 302% in Bangladesh and 405% in India. On the contrary, Pakistan
registered a growth rate of 101% per annum in yarn production although it ranked third after
China and India in the global yarn production during the same six years. In exports, while
Taiwan, India and the republic of Korea registered an annual increase of 18.1%, 27.7% and 5.4%

23 | P a g e
respectively during 1993-1998, Pakistan registered a negative growth of 4.8% one important
development was that till 1997, Pakistan was the world’s largest exporter yarn followed by India
.However, in 1998, India gained the NO 1 position, leaving Pakistan at NO 2 In the case of
cotton cloth production, a number of Asian countries have been emerging in the international
market to compete with Pakistan. These countries are Bangladesh, India, Taiwan, Indonesia,
Thailand, Turkey, Sri Lanka and Iran.14

e) Reforming Hundreds (1999-2007)

In 1999, as a result of an anti coup ( as claimed by Musharraf Government) , Muslim Leagues
government was ousted and Army took over the government. Military government had to face
four serious economic challenges as legacy of Political government:

a. heavy external and domestic indebtedness

b. High fiscal deficit
c. low revenue generation capacity; rising poverty and unemployment
d. weak balance of payments with stagnant exports.

The country faced a serious external liquidity problem as its reserves were barely sufficient to
buy three weeks of imports and could not possibly service its short-term debt obligations.
Workers’ remittances decreased by $500 million, foreign investment flows dwindled by $600
million, official transfers turned negative and Pakistan had no access to private capital markets.
In the domestic sector, the declining tax-to-GDP ratio and inflexible expenditure structure,
whereby 80 percent of revenues were preempted to debt servicing and defense, constrained the
government’s ability to increase the level of public investment.

Government took the challenge seriously and Structural policy reforms combined with an
improvement in economic governance laid the foundations for accelerated growth from 2002 to
2007. The economic growth rate averaged 7 percent, up from 3.1 percent in 2001 to 2002.
Poverty was reduced by between 5 and 10 percentage points, depending upon the methodology
used. The unemployment rate
also fell from 8.4 percent to 6.5 percent and approximately 11.8 million new jobs were created
between 1999 and 2008. Gross and net enrollment ratios at the primary school level recorded
upward movement. The re-profiling of the stock of debt brought down the debt-to-GDP ratio
from 100 percent to 55 percent. Foreign exchange reserves increased to cover six months’
imports from a few weeks’ imports. The fiscal deficit remained below or slightly above 4 percent
of GDP. The investment rate grew to 23 percent of GDP and an estimated $14 billion of foreign
private capital inflows financed many sectors of the economy. The exchange rate remained fairly
stable throughout the period.

Ministry for Textile

14
History of Textile industry, www.APTMA.com

24 | P a g e
The need to establish a separate ministry for textiles had been on the cards for several years as
this sector contributes 8.50% of the national income, constitutes more than 60 % of to the export
earning of the country, employs 38% of the industrial labor force, generates half of the
production of manufacturing sector and shares 9% in GDP and also has the potential to meet the
challenges of the highly competitive global market especially after the removal of trade barriers
under W.T.O regime. Realizing its importance in September 2004 a separate textile industry was
set up by the Musharraf government and a leading textile industrialist Mushtaq Ali Cheema was
appointed first textile minister. The roles and tasks assigned to the ministry included: 15

1. Formulation of Textile policy

2. Coordination and liaison with Federal agencies/institutions, provincial Govts and Local
Governments entities for facilitation and promotion of the textile sector;
3. Liaison, dialogs, negotiations, except trade negotiations, and cooperation with
international donor agencies and multilateral regulatory and development organizations
with regard to textile sector;
4. Setting of standards and monitoring and maintaining vigilance for strict compliance of the
standards throughout production and value chain;
5. Textile related statistics, surveys, commercial intelligence, analysis and dissemination of
information and reports on international demand patterns, market access etc
6. Linkages with cotton and textile producing countries;
7. Training, skill development, research for quality improvement and productivity
enhancement throughout the production/value chain;
8. Management of Textile Quotas; and,
9. Exercise administrative control over:

 Federal Textile Board

 Textile Commissioner s Organization
 Synthetic Fiber Development and Application Center, Karachi
 Textile City Projects, Karachi/Faisalabad
 National Textile University, Faisalabad
 Directorate General of Textiles & Quota Supervisory Council
 All textiles related EPB/EDF funded institutes concerned with skill development in
various sub-sectors of textile industry
 Textile Testing Laboratory, Faisalabad
 Garment City Projects at Lahore, Faisalabad and Karachi.
 Pakistan Cotton Standards Institute, Karachi.

Low Interest Rates on bank Loans:

Lower industrial and trade interest rates on bank loans encouraged the investors and huge
investments in all sectors especially housing , construction , telecommunication and textile
trading and value added activities were carried out during this era.

Increase in Textile Exports:

15
www. Ministry of textile.gov.pk

25 | P a g e
With consultation of all stakeholders of textile industry ,during 2002-2003 , government laid
down a target of textile products exports at US$ 10.4 billion , (1 US $ billion above than the
last year) which was termed as realistic by the exporters. The textile sector which constituted
69% of total export during 2001-2002, believed that enhanced quota by the European Union and
Turkey would make this possible to fetch another US$1 billion that year.16
Export of Value Added Textile Products:
The rise in export of value-added products from Pakistan was another point of encouragement
for the textile sector. “The export of value-added products rose to 57.4% from 53.9% of year
1999-2000.17

APTMA DELEGATION MEETS CHIEF EXECUTIVE, GENERAL PERVEZ

MUSHARRAF
(A Meeting Which Has Produced Many More Measures
for Strengthening Textile Industry)
Mr. Mohsin Aziz Chairman APTMA led an APTMA delegation to meet General Pervez
Musharaf, Chief Executive of Pakistan. in CE's Office at Islamabad on 14th June, 2004.

A formal meeting of half an hour turns into Casual get-to-gather for over two hours finding
solution through team work and taking textile sector needs into account is a good thing for
economy. The meeting was also attended by Mr. Shaukat Aziz, Minister of Finance, Mr. Abdul
Razzak Dawood, Minister of Commerce, and General Ghulam Ahmed, Chief of staff to the
Chief Executive and Mr. Tariq Aziz, Principal Secretary to the Chief Executive.

General Pervez Musharaf who lighted the Torch of Reforms in Pakistan takes the participants
into full confidence in respect of current affairs by informing everyone about everything one
needs to assess the prevailing situation, and the problems of textile industry which has borne the
burnt of the ill-conceived economic policies of past are discussed and a reborn hope for us who
remained crushed under the debris too long has been fulfilled as the present regime desired so.
The Chief Executive, General Pervez Musharaf reiterated his government resolve to revive the
economy and said the role of Textile Sector is vital to economic revival. In his words "My
government full realizes the importance of the textile industry as an engine for economic
development and growth".

The era of President Asif Ali Zardari (2008) Pakistan's textile industry is emerging as a major
player after the global economic meltdown in 2008. The financial and economic meltdown has
resulted in a permanent closure of many mills not only in the EU and the US but also in textile
producing countries like Turkey, Brazil and a few South American countries. As a consequence,
this has brought great opportunities for the textile sector in developing countries like Pakistan.

The foundations for the industry in Pakistan have always been very strong. Being major cotton
producing country and having a large, modern and efficient spinning and weaving industry as

16
History of Textile Industry , www.APTMA.com
17
Ibid

26 | P a g e
well as the availability of man power are the strong pillars of the industry in Pakistan. The
economic meltdown was a wakeup call for the value-added industry that survival was for the
fittest; it also opened up new opportunities left by the closures in other parts of the world. 18

The industry found openings in the higher-end products that were no longer produced in the
West. Textile products originating from Pakistan may have been viewed in the past as “cheap” or
“low cost” products, but that perception is changing fast. Textile sector posted 39% and 183
percent gains in revenue and profit respectively in July-December of current financial year on the
back of substantial growth in all segments - spinning, weaving and composite.

The spinning sector of Pakistan continued its strong performance in first half of the year 2011
fiscal year, as revenues increased to Rs. 71 billion from Rs. 46.2 billion in same period in 2010.
This implies a 54% increase on year on year basis. The gross margins of spinners increased by
17%, mainly led by a continuous rise in cotton and yarn prices during the period (cotton prices
up 36.4%). Hence, the spinning sector's overall profits rose by 303%YoY to Rs. 7.0 billion.

On one hand, the cost of buying cotton is expected to increase by as much as 35%, the textile
mills are expected to pass those expenses down the supply chain. The recently released study
from Crisil Research estimates that high raw materials costs will be taking a 2.5% bite out of the
operating margins of spinners in 2011/12. Rising cotton imports from China and a cap on Indian
cotton exports are the main factors driving up global cotton prices, and yet strong demand has
enabled spinning companies to pass on the increase in cotton prices to buyers.

As a result of a sharp increase in raw material prices, woven and knitted fabrics and garment
enterprises from Pakistan are finding it difficult to get better price and corresponding increase
from customers. In this context weaving sector's gross margins took a hit due to increase in yarn
and polyester prices, which exceeded the increase in grey fabrics prices. Therefore, the gross
margins declined by 11%, despite the fact that revenues grew by 44% amounting to Rs. 8.9
billion, owing to improved volumes.

The composite sector's revenue increased by 31% amounting to Rs. 122.9 billion, the gross
margins shrank to 15%, and can be attributed to an increase in raw material prices during this
period, which remained a constant concern for the value added sector. Overall, the textile sector
of Pakistan reported increase in sales 39% amounting to Rs. 202.9 billion in first half of financial
year 2011.

The industry should watch the cotton prices very carefully, as is pertinent to note that just one
year ago, cotton was trading at 70 cents a pound. Today it is trading at roughly $2 a pound, that
too given the decade old trend of cotton prices stabilizing at 40 cents to 50 cents per pound. The
real question, of course, is: What happens next?

Everyone is expecting a bullish trend for long term outlook for cotton., yet the very nature of
cotton crop require a long lead time ranging from 18 to 20 months, from the time that a farmer
plants the seeds, until that cotton grows into a plant, which is harvested, cleaned and pressed into

18:www.ptj.com/A.H.H.Saheed.htm

27 | P a g e
bales for the spinning industry. For an investor, that means that there's still plenty of time to
profit from the cotton shortfall. This is a commodity, whose bullish price moves are likely to end
in a spectacular (and risky) blow-off. To elaborate further, if the 2011 crop is also not a bumper
one, we can expect that prices will continue their upward move even longer.

China being the largest grower of cotton will set the global prices and has imported a record
amount of cotton in January 2011, i.e, 390,800 metric tons, which implies an 85% increase as
compared to 2010. This extra demand prompted India, second largest exporter, to cap exports
and also the inclination to put high level of tariffs on exports above 2 million bales, whereas,
China has announced that it will drastically increase the price of cotton products, thus mills in
Pakistan, have to watch thier inventories as well as domestic cotton outlook for 2011 and 2012
period to ensure their profitability in the long run.

f) Gifting Democracy 2008 todate

As a result of general elections, in 2008 Pakistan People’s Party and its allies formulated
government and after the resignation of General Pervez Musharraf , a new era of democratic
government started in the country. The political government had following challenges to
confront:
a. Restoration of law and order
b. Power shortage ( Electricity and gas supply)
c. Building Consensus over NFC ( distribution of assets between Federal government
and provinces)
d. Restore Investors confidence
e. Formulation of industrial policy specific to various industries
Though in 2004 a separate textile ministry was established but till 2009 , it could not chalk. out
any concrete textile policy. Important features of the policy are19:

 Textiles Investment Support Fund.

(TISF) will be established for incentivizing investments in specific areas including
modernization of machinery and technology, removing infrastructural bottlenecks, enhancing
skills, better marketing and use of information and communication technology (ICT). Through
this fund following initiatives will be undertaken:

o Technology Up-gradation Fund (TUF):

To facilitate new investments and upgradation of technology Government will
contribute part of the investment financing or part of the investment cost through
the TUF. Under this scheme, for capital intensive projects, government will pick-
up 50% of interest cost of new investment in plant and machinery with a
maximum of 5%. For small investments, government will contribute up to 20% of
capital cost as a grant. For this purpose, Government has kept a budget of Rs.1.6

19
Ministry of textile , government of Pakistan

28 | P a g e
 billion in the current financial year for this scheme. This will increase to Rs. 17
billion by 2014

o Skills Development:
 A comprehensive training plan will be developed to upgrade the overall
pool of skills in the textiles value chain in close consultation with the
industry and will be implemented during the next five years.
 Facilities will be provided for audits to enhance productivity and efficient
processing.
 Government will also support acquisition of foreign expertise in
enhancing local productivity and supervisory skills and for this purpose
Government has exempted foreign experts from income tax.
 Government will allocate Rs. 1 billion during the current year for skill
development initiatives.
o Infrastructure Development
 Based on the experience from textiles city and garments cities models,
 Government plans to set up more such industrial estates to ensure
availability of all industrial amenities at reasonable cost.
 Clusters will be developed where small investors can set up their facilities.
 The clusters will be provided with laboratories, product development
centers, research centers, common sheds etc.

 Standardization:
A legal framework will be developed to specify standards and testing requirements, prescribe
disclosure requirements and other matters relating to the practices and methods relevant to the
sector. This has become necessary in view of compliance standards imposed by major importing
countries.
 Zero Rating of Exports:
Government recognizes the principle that exports should not be taxed. Efforts will be made to
identify all direct and indirect levies that add to the cost of doing business without appropriate
compensation so that remedial measures can be adopted.

 Rationalization of Tariff Structure

The principle of cascading will be implemented while ensuring adequate protection to the local
industry and removing anomalies.
 Removing Regulatory Bottlenecks:
An extensive exercise will be undertaken covering all sub-sectors, to identify rules, regulations,
procedures, levies and other regulatory constraints that hamper the development of the sector.
Based on this exercise, appropriate measures will be adopted to simplify or remove such irritants.

29 | P a g e
  Market Access:
Government will be expending concerted efforts to secure due access for Pakistan in some of the
key destinations of our exports. Preferential access as well as FTAs in such markets will be the
focus of such efforts.
 Marketing Support:
Government will provide necessary support for branding, grading, labeling and such other
activities that would add value to the textiles chain.

 Export House Scheme:

To initiate a process of building big export houses, Government is planning to treat local sales of
yarn and fabrics to large exporter as deemed exports. For this purpose, small producers will get
1% drawback on levies and unadjusted taxes on sales to the export houses. An amount of Rs. 2
billion has been budgeted for the current year for this scheme.

 Drawback of local taxes:

o There is a multitude of costs imposed on exporters that raise the cost of
production and render our exports uncompetitive. Additionally, outages of power
and gas, cross subsidization in prices of utilities and frequent closure of industry
on account of law and order add further burden to our industry. Exporters are also
losing business or merely holding on to the existing businesses because the buyers
have stopped visiting Pakistan. For all these, and many more, factors it is very
difficult for our exporters to be able to compete with nations which face no such
problems.
o It is proposed to compensate our value-added textiles exports for a period of two
years through provision of drawback to offset the costs imposed on them directly
and indirectly by a variety of government agencies and disruptions caused by law
and order problems. However, this support will be linked partially to
performance. For this purpose following drawback scheme is proposed:
 Processed Fabric 1% of the FOB value of exports
 Home textiles 2% of the FOB value of exports
 Garments 3% of the FOB value of exports
o In addition, those who will achieve an increase of 15% in exports relative to last
year will be given 1% additional draw-back.

Critique
Though in this textile policy far reaching objectives and targets were set up , but on ground there
are number of contradictions, e.g; promises of Provision of uninterrupted power and gas supply ,
it is all very well to announce 'Priority in Gas and Electricity Load Management, but to be able to
effectively carry this out poses some serious practical challenges.
First, to implement such a measure requires equal assurance and willingness by the related yet
different ministries, namely Water & Power and Oil & Gas. Second, the textile industry itself is
scattered and does not draw power from either dedicated textile feeders or textile specific power
stations. Therefore ensuring continuity of supplies only to textile mills while switching off
others, may operationally not be doable. Third, the textile industrial units (especially the small

30 | P a g e
and medium sized) are so grossly intertwined with residential areas in virtually all industrial
centres such as, Faisalabad, Gujranwala, Sialkot, Sheikhupura, Multan, etc., that it gets to be
virtually impossible to separate the gas and electricity supply lines of domestic users from the
industrial ones. TISF (Textile Investment Support Fund) has been set up as an overall initiative
, which is surely a step in the right direction as it entails support to human resource development,
technology upgradation, marketing facilitation, infrastructure development and creation of
management efficiencies.

Similarly, measures announced about the drawback schemes (1% on processed fabric, 2% on
home textiles, 3% on garments, 1% extra on 15% sales growth and 1% on levies and unadjusted
taxes) and subsidized export refinancing can often tend to be counterproductive if not
implemented with prudence or without demanding any type of tangible reciprocity from the
beneficiaries. Too many times in the past we have seen refund (sales tax) and export rebate
schemes being, i) misused, ii) subjected to mis-declaration of item codes (something that even
ends up destroying our national image as it annoys the administrations of importing countries),
and iii) instrumental in promoting departmental corruption, which leaves a genuine and honest
export house at a serious disadvantage.

Tight Monetary Policy

The continuity of tight monetary policy causes an intensive increase in cost of production. Due to
high interest rate financing cost increases which cause a severe effect on production. The
withholding tax of 1% also affects the production badly. The high cost of doing business is
because of intensive increase in the rate of interest which has increased the problems of the
industry. The government should take immediate measures to remove slowdown in the textile
sector.20

Removal of subsidy on Textile sector

The provisions of Finance Bill 2009-10 are not textile industry friendly at all. Provisions like
reintroduction of 0.5% minimum tax on domestic sales, 1% withholding tax on import of textile
and articles etc., are nothing but last strike on industry’s back. Reintroduction of minimum tax on
domestic sales would invite unavoidable liquidity problem, which is already reached to the
alarming level. The textile industry was facing negative generation of funds due to unaffordable
mark up rate.21

Energy Crisis

20
Pakistan Textile Industry Facing New Challenges , by Aftab A. Khan , Corresponding Author, College of Business Administration, King Saud
University

Research Journal of International Studies - Issue 14 (May, 2010)

21

31 | P a g e
  Electricity Crisis

As a consequence of load-shedding the textile production capacity of various sub-sectors has

been reduced by up to 30 per cent. The load-shedding of electricity cause a rapid decrease in
production which also reduced the export order. The cost of production has also risen due to
instant increase in electricity tariff. Due to load shedding some mill owner uses alternative
source of energy like generator which increase their cost of production further. Due to such
dramatic situation the capability of competitiveness of this industry in international market is
affected badly. 22

 Gas Shortage

Gas load-shedding continues in Punjab and KPK despite a significant increase in temperature. A
spokesman for the All Pakistan Textile Mills Association (APTMA) claimed that 60 to 70 per
cent of the industry had been affected and was unable to accept export orders coming in from
around the globe. He said the textile industry had already endured over 45 days of gas
disconnection over a period of four months, causing extraordinary production losses and badly
affecting capability of the industry. In Punjab, he said, energy supply disruption only was
causing an estimated loss of Rs1 billion per day. In the larger interest of the economy and
exports, he suggested, the government should “ensure utility companies provide smooth
electricity and gas supply to the textile industry23

Effect of Inflation

Inflation rate is measured as the change in consumer price index (CPI).Inflation is basically a
general rise in the price level. It is decline in the real value of money. Inflation can have adverse
effect on economy. Pakistan is one of prey of inflation. It still faces high double digit inflation.
The increase in inflation causes the increase in the cost of production of textile good which
return in downsizing. The double digit inflation causes reduction in exports of textile .

Tariff Concession by EU

After 2010’s devastating floods, government of Pakistan had taken up the stance with European
Union for granting a special trade waiver to Pakistan thereby relaxing Tariff rate quotas for
minimum two years , which was accorded by WTO after the consensus shown by EU. Among 75
products given concession include 20 Textile products, of which mostly are non value added

22
Pakistan Textile Industry Facing New Challenges , by Aftab A. Khan , Corresponding Author, College of Business Administration, King Saud
University

23
Pakistan Textile Industry Facing New Challenges , by Aftab A. Khan , Corresponding Author, College of Business Administration, King Saud
University

32 | P a g e
items. Textile industry considers this concession unproductive as , it does not seem to be that
exciting when one takes into account that the majority of their concessions apply to items that
fall in the category of feeding cheap raw materials to the European manufacturing, instead of
promoting value addition in Pakistan. Also, the strong growth items for us like bed linen, bulk of
home textiles, towels, etc have either been excluded or have been placed under the ceiling of
tariff related quotas.

Decline in Textile Exports and lower growth rate

Textile exports have seen a decline of 15.37 % in January 2012 as compared to January 2011,
mostly because of the power shortage and non availability of gas to industry. As per an estimate
out of 365 days 170 days our industry remains shut down . At the moment Pakistan’s textile
industry is operating 30-40 % below its production capacity and growth rate in last four years has
been at 2.5% as compared to that of 6 % in Indian textile industry.

Statistical Analysis
The comparison of different statistical data show the progress of textile sectorduring 1971-2009:

EXPORT OF RAW COTTON

Quantity Value Value Unit Value
Period
000 Kg. 000 US $ 000 Rs. $/ Kg. Rs/Kg.

1971-72 260,412 200,493 954,747 0.77 3.67

1972-73 216,074 106,089 1,166,975 0.49 5.40
1973-74 36,122 34,192 376,111 0.95 10.41
1974-75 201,550 157,934 1,553,900 0.78 7.71
1975-76 109,132 96,602 950,462 0.89 8.71
1976-77 14,847 29,304 288,317 1.97 19.42
1977-78 100,460 112,351 1,105,413 1.12 11.00
1978-79 54,830 66,593 655,200 1.21 11.95
1979-80 250,770 337,538 3,321,000 1.35 13.24
1980-81 325,316 525,599 5,203,400 1.62 15.99
1981-82 231,413 278,501 2,938,200 1.20 12.70
1982-83 254,920 306,339 3,896,600 1.20 15.29
1983-84 98,222 132,355 1,771,800 1.35 18.04
1984-85 262,989 279,229 4,368,000 1.06 16.61
1985-86 638,510 513,271 8,290,500 0.80 12.98
1986-87 640,964 446,493 7,675,800 0.70 11.98

33 | P a g e
 1987-88 501,977 609,967 10,758,600 1.22 21.43
1988-89 840,268 929,563 18,032,500 1.11 21.46
1989-90 294,519 442,995 9,550,000 1.50 32.43
1990-91 281,731 411,812 9,553,400 1.46 45.94
1991-92 455,217 518,302 12,943,900 1.14 28.43
1992-93 262,918 270,813 7,000,700 1.03 26.63
1993-94 74,899 79,461 2,383,200 1.06 31.82
1994-95 31,009 62,082 1,924,331 2.00 62.06
1995-96 310,930 506,765 17,421,321 1.63 56.03
1996-97 20,958 30,749 1,239,384 1.47 59.14
1997-98 88,650 126,139 5,482,631 1.42 61.85
1998-99 1,748 2,327 116,354 1.33 66.56
1999-00 82,959 72,560 3,760,760 0.87 45.33
2000-01 135,094 138,138 8,072,481 1.02 59.75
2001-02 34,926 24,581 1,493,295 0.70 42.76
2002-03 55,100 49,016 2,875,000 0.89 52.18
2003-04 37,307 47.671 2,744,419 1.28 73.56
2004-05 117,084 109,957 6,545,740 0.94 55.91
2005-06 62,658 68,151 4,080,000 1.09 65.12
2006-07 45,065 50,226 3,045,202 1.11 67.57
2007-08 57,124 70,122 4,386,131 1.23 76.78
2008-09 78,241 87,328 6,826,000 1.12 87.24
_________________________________________________Source
:TDAP

34 | P a g e
 Comparison of World Cotton Growth(million tons)

Source: International Cotton Advisory Committee (ICAC) statistics

35 | P a g e
 Cotton Consumption((million tons) by main Countries 1981-2013)

Source: International Cotton Advisory Committee (ICAC) statistics

36 | P a g e
 COMPARISON OF TEXTILE PRODUCTS EXPORTS( 2000-2010)

37 | P a g e
 EXPORT OF COTTON & COTTON MANUFACTURES
(Million US $)
COTTON MANUFACTURES COTTON & COTTON WASTE
% OF TOTAL
% OF TOTAL EXPORT
EXPORT
OT COT COT
COT COT TEN COT BE HE TON TOT TON COT COT COT COTT
PER TON TON T & TON TOW D R GARM HOSI THR MAN AL MAN TON TON COT TON COTT ON
IOD YAR CLO CAN BAG ELS WE MA ENTS ERY EAD UF- EXP UF- YAR CLO TON WAS ON WAST
N TH VAS S AR DE- ACT ORT ACT N TH TE E
UPS URE URE

1971 127. 229. 590. 200.

81.5 1.9 1.2 6.1 0.9 1.2 3.2 3.2 2.3 38.8 21.6 13.8 4.9 33.9 0.8
-72 5 0 7 5
1972 200. 126. 356. 817. 106.
2.3 4.5 7.0 1.3 0.9 3.3 6.2 3.2 43.6 24.5 15.5 3.0 13.0 0.4
-73 5 8 0 3 1
1973 189. 143. 396. 1026
7.5 8.1 16.3 4.9 4.5 8.6 8.3 5.3 38.7 18.5 14.0 34.2 3.5 3.3 0.3
-74 5 9 9 .4
1974 132. 309. 1039 157.
92.3 22.4 7.2 15.6 5.6 3.7 14.4 10.3 5.8 29.8 8.9 12.8 1.9 15.2 0.2
-75 6 9 .0 9
1975 145. 137. 378. 1136
25.1 7.9 18.3 3.7 5.0 21.5 10.2 4.0 33.3 12.8 12.1 96.6 1.1 8.5 0.1
-76 0 5 2 .7
1976 118. 162. 381. 1100
25.0 8.3 14.2 3.3 3.8 30.4 11.8 4.4 34.7 10.8 14.7 29.3 2.4 2.7 0.2
-77 4 0 6 .8
1977 107. 175. 385. 1311 112.
26.0 9.0 12.9 4.8 2.9 30.4 9.8 7.1 29.4 8.2 13.4 1.6 8.6 0.1
-78 0 9 8 .1 4
1978 197. 215. 542. 1709
27.7 11.2 21.2 7.9 5.4 38.1 12.3 5.8 31.8 11.6 12.6 66.6 1.5 3.9 0.1
-79 6 7 9 .6
1979 205. 244. 12. 626. 2364 337.
31.7 21.2 26.5 3.9 53.9 20.0 7.1 26.5 8.7 10.3 1.9 14.3 0.1
-80 9 1 0 3 .7 5
1980 207. 241. 20. 737. 2957 525.
65.3 35.7 47.9 11.1 75.2 23.2 10.1 24.9 7.0 8.2 1.9 17.8 0.1
-81 0 4 6 5 .5 6
1981 196. 279. 35. 790. 2490 278.
64.3 31.4 42.9 9.7 94.2 28.5 7.7 31.8 7.9 11.2 1.1 11.2 0.0
-82 7 5 8 7 .0 5
1982 247. 281. 67. 938. 2707 306.
93.8 17.9 39.1 19.5 122.7 36.5 12.8 34.7 9.1 10.4 6.4 11.3 0.2
-83 3 4 5 5 .7 3
1983 217. 360. 53. 1007 2768 132.
64.1 15.5 46.6 22.9 162.4 56.0 8.6 36.4 7.9 13.0 14.5 4.8 0.5
-84 6 2 3 .2 .1 4
1984 260. 305. 51. 937. 2491 279.
49.6 12.1 49.7 29.2 132.0 42.6 4.8 37.6 10.5 12.3 9.1 11.2 0.4
-85 4 9 0 3 .2 2
1985 279. 314. 90. 1108 3069 513.
31.1 9.5 67.5 52.2 206.1 54.6 3.8 36.1 9.1 10.3 5.3 16.7 0.2
-86 2 8 1 .9 .8 3
1986 506. 345. 123 1596 3686 446.
23.4 8.1 83.9 51.1 355.2 96.6 3.3 43.3 13.7 9.4 5.9 12.1 0.2
-87 1 3 .9 .9 .4 5
1987 541. 485. 136 1875 4454 610.
30.3 12.3 117.4 64.1 349.9 134.3 3.8 42.1 12.1 10.9 9.2 13.7 0.2
-88 0 4 .9 .5 .6 0
1988 600. 464. 147 1972 4661 929.
41.1 13.5 140.4 58.8 335.5 166.9 3.0 42.3 12.9 10.0 12.3 19.9 0.3
-89 8 8 .9 .8 .5 6
1989 833. 559. 190 2504 4954 443.
28.8 13.4 129.8 78.2 393.7 273.7 3.0 50.5 16.8 11.3 27.8 8.9 0.6
-90 7 0 .8 .2 .3 0
1990 1183 675. 246 108. 3277 6133 411.
79.6 20.5 129.4 497.1 333.6 3.4 53.4 19.3 11.0 55.5 6.7 0.9
-91 .0 8 .2 9 .4 .1 8
1991 1172 819. 284 113. 3652 6904 518.
51.2 32.4 136.7 613.5 425.1 3.7 52.9 17.0 11.9 59.7 7.5 0.9
-92 .5 4 .0 5 .1 .0 3

38 | P a g e
1992 1121 863. 351 125. 3750 6813 270.
39.9 23.7 139.0 617.7 464.1 4.8 55.1 16.5 12.7 49.3 4.0 0.7
-93 .5 1 .6 5 .9 .5 8
1993 1259 820. 285 129. 3795 6802
29.1 17.3 129.2 612.2 509.1 4.0 55.8 18.5 12.1 79.5 62.1 1.2 0.9
-94 .3 6 .6 4 .8 .5
1994 1528 1081 340 163. 4647 8137
38.2 19.1 144.8 641.7 688.5 1.9 57.1 18.8 13.3 62.1 63.2 0.8 0.8
-95 .1 .4 .2 5 .5 .2
1995 1540 1275 422 179. 5009 8707 506.
39.5 24.6 174.1 648.5 703.4 1.5 57.5 17.7 14.7 57.2 5.8 0.7
-96 .3 .9 .2 1 .1 .1 8
1996 1411 1262 456 208. 5023 8320
36.2 27.6 194.1 736.4 688.9 1.7 60.4 17.0 15.2 30.7 41.8 0.4 0.5
-97 .5 .4 .3 7 .8 .3
1997 1159 1250 508 245. 4890 8627 126.
58.1 23.1 200.1 746.5 696.7 1.8 56.7 13.4 14.5 42.2 1.5 0.5
-98 .5 .3 .8 8 .7 .7 1
1998 945. 1115 611 255. 4560 7779
40.8 20.8 177.7 651.2 742.1 1.5 58.6 12.2 14.3 2.3 28.1 0 0.4
-99 2 .2 .0 3 .8 .3
1999 1071 1096 709 307. 5112 8568
52.9 19.2 195.6 771.7 886.7 1.3 59.7 12.5 12.8 72.6 36.4 0.8 0.4
-00 .6 .2 .9 6 .7 .6
2000 1076 1035 734 328. 5225 9224 138.
50.0 19.0 243.0 827.5 910.3 1.0 56.6 11.7 11.2 39.0 1.5 0.4
-01 .6 .0 .9 2 .5 .7 1
2001 942. 1132 918 351. 9123
47.4 18.2 269.8 882 841.5 - 5404 59.2 10.3 12.4 24.5 41.7 0.2 0.4
-02 3 .7 .5 3 .6
2002 928. 1345 132 359. 1146. 6668 1116
73.2 18.2 374.8 1092.6 - 59.7 8.3 12.1 49..0 47.0 0.4 0.4
-03 3 .6 9.0 7 6 .0 0.2
2003 1127. 1711. 138 417. 7587. 1231.
75 18.0 404 993 1459 - 61.6 9.2 13.9 48.0 50.0 0.3 0.4
-04 0 7 3 0 7 3.
2004 1057. 145 1439
1863 67 0 520 466 1088 1635 0 8146 56.6 7.3 12.9 110.0 0.0 0.7 0.0
-05 0 0 1.0
2005 1383. 2108. 203 418. 1645
39.0 13.7 588.0 1310 1751 0.3 9649 58.7 8.4 12.8 68.0 0.43 0.4 0.0
-06 0 0 8.0 0 1.0
2006 1428. 2027. 199 514. 1798. 1000 1697
69.0 11.4 611.0 1547.0 0.2 58.9 8.4 11.9 50.0 21.4 0.3 0.1
-07 0 0 6.0 0 0 1.6 6.0
2007 1,301 190 537. 1732. 9631. 1905
2,011 71.0 10.4 613.0 1452.0 0.2 50.6 6.8 10.6 70.0 12.8 0.4 0.1
-08 .0 4.0 0 3 9 2.0
2008 1114. 1955. 173 480. 1740. 8963. 1768
56.2 8.4 642.9 1230.0 - 50.7 6.3 11.1 87.3 17.5 0.5 0.1
-09 8 3 5.0 1 8 5 8.0

Source : APTMA

39 | P a g e
Social Environmental Analysis
The change in the lifestyle of the people affects the growing demand of the NTM products. The
change in the lifestyle and needs in different demographics also affect the demand of the
customers. Due to all these changes NTM is performing excellent for the excellence organization
as well as for the customer. Changes in social trends can impact on the demand for a firm's
products and the availability and willingness of individuals to work.

Social responsibility in the textile industry

Corporate Social Responsibility (CSR) is a worldwide-accepted development on how companies
can manage their business processes to produce an overall positive impact on society and
environment.24Like the firms in other industries, textiles firms are also realizing their
responsibility towards the various parties associated with them and the environment. However,
the ways by which different organizations choose to fulfill their social responsibility might be
different. The ways in which a textile firm can fulfill its responsibility towards various parties
are similar to those of firms in other industries, as is evident from the points mentioned below:

Towards employees

 By providing a competitive and challenging work environment to the employees.

 By having ethical recruitment, remuneration, promotion and other policies
 By providing opportunities to the employees to voice their opinion and complaints and
have an effective policy for the solution of these complaints.
 Ensuring a safe working environment for the employees.
 Having fair policies for the solution of employee disputes.
Towards shareholders
 By representing a fair picture of the company’s financial position and profit/loss to the
shareholders

24
Michiel van Yperen, "Corporate Social Responsibility in the Textile Industry" IVAM RESEARCH AND
CONSULTANCY ON SUSTAINABILITY (2006).

40 | P a g e
  By paying them a fair rate of dividend
Towards the government
 By making payment of the due taxes and duties at the proper time
 By abiding by the laws and regulations of the area in which the firm operates.
 Contributing to the economy through exports.
 By providing the necessary information to the government as and when required
Towards customers
 By undertaking constant research and development and coming up with innovative and
more useful products from time to time
 By providing quality products to the customers at reasonable prices
Towards investors
 By giving the investors a true and fair picture of the financial condition of the business.
 By giving them due returns on the investment made by them.
Towards suppliers
 Making competitive payment to the suppliers for the products purchased from them
 Maintaining a good relationship with the suppliers.
Towards competitors
 Indulging in ethical and healthy competition
 Towards society
 Undertaking community development and area development programmes.
 Undertaking charity work for the underprivileged sections of the society.
 By creating job opportunities.
Towards environment
 Ensuring a pollution-free process of production
 Having an efficient system for the disposal of waste
 Making the product and the process of production as environment-friendly as possible.
 Adopting eco-friendly packaging
 Ensuring the purchase of environment-friendly supplies.

41 | P a g e
The concept of social responsibility is gaining popularity in today’s times. Companies are
becoming increasingly aware of their responsibilities towards the various stakeholders associated
with them. More and more companies are trying to work in a way so as to protect the interests of
the employees, customers, suppliers and other parties and the society at large. The concept of a
business firm working only with the motive of earning profit is gradually becoming outdated.

Textile mills are committed to provide safe environment to their employees. In the spinning
section, where cotton is cleaned, mixed and separated in the blowing and mixing section. Those
who work here suffer from eye, throat, nose, ear and skin diseases. In the carding/winding
section, cotton dust in the air is inhaled through the mouth, nose and ears, causing various
harmful diseases like asthma, T.B, black cough and cancer, those employees suffers from such
diseases are provided medical facilities.

Other benefits Textile Mills give to their employees are:

 Pension after retirement

 Gratuity
 Group insurance
 Workers participation fund
 EID bonus

Social issues in the textile chain

The simplest outline of the different steps in the textile chain is given in next figure. In each step
of this chain different social issues are relevant. Working condition related to health and safety
issues are very relevant in the Chinese textile industry from the production of fiber until the
garment production.25

25
Michiel van Yperen, "Corporate Social Responsibility in the Textile Industry" IVAM RESEARCH AND
CONSULTANCY ON SUSTAINABILITY (2006).

42 | P a g e
Nowadays, retailers and brand companies take some responsibility for the labor conditions in
their supply chains, at least on paper. Many have developed codes of conduct on labor standards
to be implemented in their overseas workplaces. The reality in these workplaces however, is
often still quite grim. Wages are too low to live on, 80-hour workweeks are common, and the
health and safety of the workers, the majority of whom are women, is constantly being
undermined. Workers have no security of employment; women are discriminated against and
harassed. In many countries there is also evidence of bonded or child labor. Workers are often
not allowed to form trade unions, because the right to organize or collective bargaining is not
recognized in the country where they work. Generally, the most frequently found problems in the
textile supply chain are in the field of working conditions and labor standards.

Social Accountability 8000(1)

General data

In 1997, SAI launched Social Accountability 8000 (SA8000), a voluntary standard for
workplaces, based on ILO and UN conventions. SA8000 is a uniform, auditable standard for a
third party verification system on social issues, initiated by Social Accountability International
(SAI). SAI is a non-governmental, international, multi-stakeholder organization dedicated to
improving workplaces and communities by developing and implementing socially responsible

43 | P a g e
standards. SAI works with companies (International brands such as Chiquita, Dole, Gap,
Timberland, Avon Products and Co-op Italia; ), consumer groups, non-governmental
organizations (NGOs like Amnesty International and CARE), labor organizations (which
currently include a total of 15 million workers in their ranks), governmental agencies, and
certification bodies around the world. Together with these stakeholders and with other multi-
stakeholder initiatives, fair trade, environmental organizations, development charities, and anti-
corruption groups, they carry out research, training and capacity building programs. SAI is
member of the Joint Initiative on Corporate Accountability & Workers Rights (Jo-In).

Provisions

Elements of SA8000 are:

 Child Labor:
No workers under the age of 15; minimum lowered to 14 for countries operating under
the ILO Convention 138 developing-country exception; remediation of any child found to
be working;
 Forced Labor:
No forced labor, including prison or debt bondage labor; no lodging of deposits or
identity papers by employers or outside recruiters;
 Health and Safety:
Provide a safe and healthy work environment; take steps to prevent injuries; regular
health and safety worker training; system to detect threats to health and safety; access to
bathrooms and potable water;
 Freedom of Association and Right to Collective Bargaining:
Respect the right to form and join trade unions and bargain collectively; where law
prohibits these freedoms, facilitate parallel means of association and bargaining;
 Discrimination:
No discrimination based on race, caste, origin, religion, disability, gender, sexual
orientation, union or political affiliation, or age; no sexual harassment;

44 | P a g e
  Discipline:
No corporal punishment, mental or physical coercion or verbal abuse;
 Working Hours:
Comply with the applicable law but, in any event, no more than 48 hours per week with
at least one day off for every seven day period; voluntary overtime paid at a premium rate
and not to exceed 12 hours per week on a regular basis; overtime may be mandatory if
part of a collective bargaining agreement;
 Compensation:
Wages paid for a standard work week must meet the legal and industry standards and be
sufficient to meet the basic need of workers and their families; no disciplinary
deductions;
 Management Systems:
Facilities seeking to gain and maintain certification must go beyond simple compliance
to integrate the standard into their management systems and practices.

The cotton and cotton textile industry are the backbone of Pakistan’s economy. It continues to
enjoy the status of the largest industry and commands comparative advantages in resource
utilization. It accommodates the largest number of employment to industrial labor force (38%)
and the largest source of foreign exchange earnings (60%). It accounts for 27% of value addition
in the manufacturing sector.

Increase in the cotton production and expansion of textile industry has been impressive in
Pakistan since 1947. Cotton – bales increase from 1.1 million bales in 1947 to 10 million bales
by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805
million similarly looms and finishing units increased but not in the same proportion.

45 | P a g e
Technological Environmental Analysis
Technological advancement in all the sectors of the country has changed the entire socio-
economic environment.

In Pakistan Textile Industry

Especially in the textile sector there is a lot of technological development.NTM computerized
machines and devices are installed in the NTM has made extension in its present setup by
installation of well advanced technology imported from Japan China and France.

To appreciate the extent to which current changes in technology potentially constrain the
emergence of developing countries producers as independent competitors, it is necessary to focus
on the knowledge components that dominate the process of technological change. For the textile
and clothing industry this includes design, engineering, problem-solving, maintenance,
management and marketing capabilities that, for the most part, are still lacking in all but a
handful of developing countries.

At the time of independence to 1958, textiles and clothing could be described as relatively labor-
intensive industries in which technology was stable, goods were largely standardized,
competition was based primarily on price, and economies of scale were relatively important26.
Each of these features has since undergone considerable change. 1n 1948 numerous countries
devalued their currency, with an aim to increase their export, but Pakistan did not devalued its
currency. In this way Pakistani currency is overvalued and this overvalued exchange rate helped
industrialists to import modern textile units and install new industry in the country. In 1949
heavy tariffs were imposed on import and quantitative control on imports was introduced,

26
Khan, Shahvuk Rafi (Ed.) (1999) Fifty Years of Pakistan Economy, OUP, Karachi.

46 | P a g e
however import on capital machinery was facilitated which helped industrialists to import
machine tools and textile plants from the developed countries.

In 1959 Ayub Khan initiates the Export Bonus Vouchers Scheme (1959) and tax incentives that
stimulated new industrial entrepreneurs and exporters. Bonus vouchers facilitated access to
foreign exchange for imports of industrial machinery and raw materials. Tax concessions were
offered for investment in less-developed areas. These measures had important consequences in
bringing industry to Punjab and gave rise to a new class of small industrialists. . To extend its
benefits to private sector and for providing financial assistance to entrepreneurs’ government
established Pakistan industrial development and Investment Corporation and Industrial
development bank. These two financial institutions proved very helpful in expanding the
capacity building of textile industry, and a large number of power looms were established.

By 1970-1971 there were already 113 textile units and the industry had 2,605 spindles and
30,000 looms. After the separation of East Pakistan, Cotton Export Corporation of Pakistan was
Established.. The textile industry suffered heavy losses because the export cotton controlled by
CEC, and the import of machinery was made difficult due to shortage of foreign exchange.
Import licensing system was abandoned, so import of textile machinery was made a complex
affair. . Multiple exchange system was abandoned and Rupee was linked to Dollar , thus import
and export of textile products and machinery to European and other countries was affected
adversely.
The expansion of the industrial sector under Zia was equally impressive. Manufacturing sector
growth during 1977-88 was over 9% per annum and compared very favorably with a growth of
3.7% during 1972-77. Several factors explain this rapid industrial expansion. First, the large
public sector investment, which started under Bhutto and continued in the early Zia period,
resulted in major increase in textile production due to installation of improved technology.
Second, incentives for manufactures goods exports were strengthened by the introduction of a
flexible exchange rate policy in 1982, and by increasing the rebates of custom duty and sales tax
for exports by the introduction of direct export subsidies in 1978-79. Third, the investment climate
for the private sector was improved by providing guarantees against future nationalization and
tax concessions. Few enterprises nationalized by Bhutto were handed back to the former owners

47 | P a g e
and licensing and investment controls were relaxed by raising the limit for units not requiring
any sanction from Rs.60 million to Rs.300 million in 1984 and further to Rs.500 million in 1987.
As a result of this the private sector investment industry grew by 9.5 percent per annum during
1978-83 and accelerated further in the last five years of Zia regime. The private sector share in
the new industrial investment by 1988 had risen to over 90 per cent in contrast to about 25 per
cent in 1976-77.

The revival of the private industrial investment helped to expand the capacity in the traditional
industries like cotton textiles and cement. The rapid growth of raw cotton production, thanks to
the improved irrigation, gave fresh impetus to textile production specially cotton yarn
production. Pakistan soon emerged as a major exporter of cotton yarn, with the 1989-90 yarn
exports exceeding the cloth by more than 50 per cent.

During the 1980s, the introduction of electronic controls remarkably improved diagnostic and
monitoring capabilities and reduced down-time to change models, patterns or colors or to repair
broken threads. This has produced major cost savings by significantly reducing labor time,
energy consumption and materials wastage while improving product quality. Thus, in Japan
operating manpower requirements in spinning were reduced from 76.6 to 43.5 workers per
10,000 spindles between 1975 and 1982. Computerized design systems have also permitted
textile firms to participate in the shift to design-intensive products. But Pakistan lags behind in
that technology at that time27.

In 1999, as a result of an anti coup ( as claimed by Musharraf Government) , Muslim Leagues

government was ousted and Army took over the government. Lower industrial and trade interest
rates on bank loans encouraged the investors and huge investments in all sectors especially
housing , construction , telecommunication and textile trading activities were carried out during
this era.

27
Lynn Krieger Mytelka, "Technological Change and the Global Relocation of Production in Textiles and
Clothing," Studies in Political Economy 36,( Fall 1991)

48 | P a g e
At present time Pakistani textile mills still did not have up-to-date technology and machinery
because of following reasons.28

 Pakistan’s textile industry experts feel that Pakistan has fairly large size textile industry
and 60-70% of machines need replacement for the economic and quality production of
products for a highly competitive market. But unfortunately it does not have any facility
for manufacturing of textile machinery of balancing modernization and replacement
(BMR) in the textile mills.
 The lack of research & development (R&D) in the cotton sector of Pakistan has resulted
in low quality of cotton in comparison to rest of Asia. Because of the subsequent low
profitability in cotton crops, farmers are shifting to other cash crops, such as sugar cane.
It is the lack of proper R&D that has led to such a state. They further accuse cartels,
especially the pesticide sector, for hindering proper R&D. The pesticide sector stands to
benefit from stunting local R&D as higher yield cotton is more pesticide resistant.
 Moreover, critics argue that the textile industry has obsolete equipment and machinery.
The inability to timely modernize the equipment and machinery has led to the decline of
Pakistani textile competitiveness. Due to obsolete technology the cost of production is
higher in Pakistan as compared to other countries like India, Bangladesh & china.
 Pakistan textile industry is facing problem of Low productivity due to its obsolete textile
machineries. To overcome this problem and to stand in competition, Pakistan Textile
Industry will require high investments. There is a continuous trend of investing in
spinning since many years. Pakistan’s textile industry estimates that around Rs1, 400
billion (US$32 billion) of investment was required till 2010 in order to achieve the
government's export target." Pakistan is facing externally as well as internally problems
which restricts the new investment. The unpredictable internal conditions of Pakistan
cause a rapid decrease in foreign investment that affected all industries but especially
textile industry.

28
Aftab A. Khan & Mehreen Khan, "Pakistan Textile Industry Facing New Challenges, "Research Journal of
International Studies, 14 (May, 2010)

49 | P a g e
Pakistan's spinning and weaving industry:
is in a crisis, largely owing to higher prices for domestically-produced cotton, financial
mismanagement and the subsequent difficulty in obtaining loans for new, technically-advanced
machinery. Loans from financial institutions are unavailable to the spinning industry, and several
weaving units are working under contract for lack of working capital.
 European and Japanese suppliers dominate the Pakistan market for textile
machinery. Other prominent suppliers are Korea and China. The current local production
of textile machinery is negligible, and is comprised mainly of spindles and ring cups for
the spinning industry, power (shuttle) looms for the weaving industry, simple dyeing and
finishing equipment, knitting and domestic sewing machines and accessories such as
rubber cots, plastic bobbins and wire for carding machines.
 Most of the country's dyeing and finishing units are small and use locally-manufactured
machinery based on obsolete technology
 There are no joint ventures in Pakistan for the manufacture of textile machinery and
equipment.
 Pakistan will require sophisticated machinery as it moves towards value-added
production and exports. The limited availability of foreign exchange and the higher cost
of financing will, however, curtail sales to this market.
 The spindles installed are old and less than approximately 40 percent are working.

50 | P a g e
Environmental analysis of the textile sector
Introduction
There is large number of mechanical and chemical processes involved in the textile industry and each
process has a different impact on the environment. This impact starts with the use of pesticides during
the cultivation of natural fibers, the erosion caused by sheep farming or the emissions during the
production of synthetic fibers. From that moment on, a number of processes are applied, using
thousands of different chemicals, to process the fibers and to reach the final stage of textile end
product.

In Pakistan from 1947 to onward there were very few textile industries and there was very less
awareness regarding environmental problems but During the past few decades the awareness
regarding environmental problems has increased considerably and has become an important issue in
the textile trade due to various environmental and health legislations, and also environmental policy is
increasingly dictated through market forces.

Many chemicals used in the textile industry cause environmental and health problems. These
problems may occur during the production process, with respect to emissions or occupational health
problems. Other problems caused by these chemicals appear due to their presence in the final product.
However, worldwide environmental problems associated with the textile industry are typically those
associated with the water pollution caused by the discharge of untreated effluent and those because of
use of toxic chemicals especially during processing. These chemicals can harm consumer if retained
in the fabric.

The textile industry is facing challenges due to social and environmental compliance issues from US
and European buyers, as stated by Muhammad Latif, Chairman, FIEDMC, at a seminar on Meeting
the Business Challenges through Social, Environmental and Code of Conduct Compliance, which was
arranged by Bureau Verities Quality International.

The impact of environmental regulations on the textile sector of Pakistan can be classified according
to many parameters. However, the major area of concern for the textile-processing sector is
wastewater. Textile processing is a water intensive process. The wastewater generated by the industry
is high in BOD, COD, pH, temperature, color, turbidity and toxic chemicals. The direct discharge of
this wastewater on the water bodies like rivers etc. pollute the water and affect the flora and fauna.
These polluted effluent need to be treated chemically to remove the hazardous materials and
chemicals so that the wastewater will comply with the prescribed limits and can be discharged into the
public sewer or into aquatic bodies.

Impacts of colorants on the environment

Environmental problems associated with the textile industry are typically those associated with water
pollution caused by the discharge of untreated effluent, are generally hot, alkaline, and strong
smelling, and colored by chemicals used in coloring process. Some of the chemicals, including dyes

51 | P a g e
and pigments, are toxic or can lower the dissolved oxygen content of receiving waters, threaten
aquatic life and damage general water quality downstream. Effects on organisms in the environment
can be either short term (acute) or long term (chronic).

In relation to the textile industry, four potential routes of colorants to enter the environment have to be
considered.

 Through routine process effluent or emissions.

 Through disposal of surplus materials and process residues.
 Through accidental release.
 Through the disposal of used packages (Solid waste).

The environmental risk is a function of environmental exposure (concentration and duration) and
polluting potential (hazard characteristics or toxicity). Hence, reducing the emissions into the various
environmental pathways can reduce the environmental risk.29

Polluting potential of colorants

Many add-ons in dyeing – namely carriers, dye-fixing agents, cationic retarders and heavy metal salts-
are difficult to biodegrade and therefore have a negative impact on the environment. The most
obvious source of non-metallic dye bath agents are additives to the dye bath used for pre or after
treatments. These products pose a greater pollution threat than dyes themselves. Carriers used in the
dyeing of polyester, insect proofing agent applied to wool in the dye bath and some classes of dyes all
give off high AOX.

The toxic effect of heavy metals on animal and aquatic life is dependent on their physico-chemical
form. In dye house effluent, heavy metals occur as a consequence of the heavy metals salts used in
dyeing, the use of metal-complex dyes, or from the presence of impurities in dyestuffs.

It has been observed that dyeing losses contribute to only 10- 30% of BOD of the total, with respect to
COD, the contribution of dyes themselves is around 2-5%, while that of dye bath chemicals is as high
as 25-35%. Acetic acid (used in disperse dyes on polyester, cationic dyes on acrylic fibers and acid
dyes on wool, silk and nylon) exerts a high BOD and can account for 50- 90% of dye house BOD.

Impact of the main solid wastes

The majority of textile solid wastes are fibers, yarns, fabrics, packaging waste, dye containers,
chemical containers, dirt, waxes, wasted sludge and retained sludge, paper, cartons, etc. The
hazardous solid wastes are the sludge, the dye and chemical containers, as they contain toxic material,
and dealing with wastes for disposal may expose the workers to toxic effects.

News & Views, “Environment and the textile industry of Pakistan”, Pakistan Textile Journal, June
29.
2007.

52 | P a g e
Impact of noise
The noise level resulting from the machines used in the textile industry, especially from the dry
processes, may violate the limit allowed by the law and cause hearing problems. The ring spinning
machines, the open-end spinning machines, the winding machines, the looms, the sewing machines
etc. work at very high speeds, thus exceed the allowed level of noise (90 decibels) and cause hearing
troubles to the production workers.30

Impacts of pollutants on health

The major sources of pollution in the textile industry, causing either acute or chronic effect are the
cotton dust and fiber particulates from the dry processes, oil and acid/alkaline mists; solvent vapours;
odours; dust and lint in the wet processes, and the nitrogen and sulphur oxides and other particulates
from boilers.

The use of dyestuffs and pigments may cause a number of adverse effects to health. Health effects
may be exerted directly at the site of application (affecting the workers) and later in the life cycle
(affecting the consumers). Many chemicals used in textile processing have adverse effect on
occupational and community health.

The surrounding area is also affected by the fiber fuzz in case of facilities not using scavenging
systems, and depending on ventilation through factory windows. This situation may have effect on the
respiratory diseases of people living in the area.

Summary of the emissions and their degree of pollution impact

Tables (1), (2), (3) and (4) summarize the emissions (wastewater, gaseous, particulates and solids) and
their degree of pollution impact for the different textile processes (H=high, L=Low). These tables are
given towards the end of the article.

Table (1) Major constituents and characteristics of wastewater from wet

processing of cotton and blend (World Bank, Paris Commission, Helsinki
Commission)
Pollution
Process Major Constituents Characteristics impact
Low,
Medium,

30. Article: Impact of Safta on Pakistan textile industry-By: Tauqir Haider

53 | P a g e
 High

Starch derivatives
H
Semi-synthetic sizing
M
agents
L
(CMC)
BOD M
Synthetic sizing agents
Sizing COD H
(PVAs, polyacrylates)
Temperature H
Additives :
H
Urea, Glycerin
Waxes and Oils Preserving
agents
BOD (30-50% of total) COD H
Desizing Acids or Enzymes
Temperature (70-80oC) H

Saponified waxes, oils, fats

Oily fats H
Surfactants
BOD (30% of total) H
Scouring Alkali pH (high) H
High temperature Temperature (70-80oC) H
Residual bleaching agents
L
stabilizers, surfactants Peroxide!
M
Bleaching wetting agents,mild pH
Temperature H
alkalinity

H
BOD
Alkali (NaOH) Surfactants H
Mercerisation pH (high)
Dissolved matter H

Dyestuffs (direct,
vat,reactive,
sulphur, pigment) H
Toxicity H
Electrolytes,Carriers
BOD (6% of total)
Acids and alkali H
Dyeing Suspended solids
Heavy metals H
pH
Oxidizing agents H
Strong colour
Reducing agents
Surfactants, Levelling
agents
Dyestuffs Toxicity M/H
Alkali, Acids COD H
Printing Reducing agents BOD
H
Thickeners pH
H
CH2O,Urea and Salts Suspended solids Strong

54 | P a g e
 colour H
H

Acid catalysts Surfactants,

Alkalinity L
Softeners, Lubricants and
Finishing BOD (low) L
Metal salts Toxicity H

Pollution prevention
Extensive usage of these chemicals by the processing industry results in discharge of toxic elements
as effluents, which if not treated properly have the potential to cause significant environmental
degradation. Some industries to reduce the impact of these dyes and chemicals on the environment is
by reducing the amount released for treatment. Furthermore, conventional waste treatment often
causes only a transfer of waste from one phase to another. Treatment usually results in the generations
of solids, sometimes hazardous, which are buried in a landfill. Disposal of waste in a landfill can
result in groundwater contamination, gas formation and problems with odors. In other words, waste
treatment is not necessarily a cure. As regulations become more stringent, companies are forced
toward more technologically sophisticated treatment methods. This results in an increased cost for
waste management and at times forces companies to go out of business due to increase in cost of
production. More and more companies realize that reducing the waste at the source is necessary to
reduce the cost of treatment.31

Pollution prevention does not only reduce water pollution, but also minimizes the release of pollutants
to land and air. In the Pollution Prevention Act, the Congress defines a multimedia waste management
hierarchy. Source reduction stands at the top of the waste management hierarchy and is followed by
reuse and on-site recycling. Off-site recycling is not considered a pollution prevention measure. In
Pakistan almost all the mills are not specifically paying proper attention toward this.

Pollution prevention opportunities:

Source reduction assessment involves the analysis of the textile wet processing. Operations to reveal
measures that minimize substrate, chemical, water and energy consumption. Substitution of
chemicals, process modifications and technology changes can increase the treat ability of the
wastewater and can also reduce the pollution load.

Good housekeeping and raw material control can help to solve certain problems. Pollution prevention
may result in several benefits for the textile processor, including:

31. Sahoo A and Gupta KK, “Electrochemical dyeing - An overview and techniques”, Asian Dyer, April 2007.

55 | P a g e
  Loss reduction.
 Reduction of chemical, water and energy consumption, thereby resulting in savings,
sometimes even increased production.
 Reduced liability for waste produced.
 Improved compliance with regulations.

Chemical Substitution:
The objective of chemical substitution is to replace process chemicals having high pollutant ratio or
toxic properties with others that have less impact on water quality or that are more amenable to
wastewater treatment.

A number of processes chemical substitutions have been suggested or developed for the textile
industry, and it is expected that this area will play a more important role in the future. The cost to
substitute other chemicals and products for those containing toxic pollutants is usually much less than
the cost to remove the pollutants from a mill's discharge via end-of-pipe treatment.

Foaming problems in treatment facilities and receiving streams have been solved by substituting
biodegradable, low-foaming detergents for the so-called "hard" detergents.

Potentially toxic pollutants have been reduced or eliminated by substitution. For example, switching
from chromate oxidizers to hydrogen peroxide or iodates eliminates chromium in dyeing processes.
Mineral acids are substituted for high BOD acetic acid in dyeing processes, offering an advantage in
terms of wastewater treatability. The substitution of mineral oils with nonionic emulsifiers for the
more traditional olive oil in carding wool also results in lower pollutant levels.

Starch wastes from desizing are the single greatest source of BOD at many mills. Consequently,
substitutes with low BOD, such as CMC and PVA, have become useful to reduce BOD loadings on
wastewater treatment systems. Harsh chemicals used in textile wet processes are being substituted
with a number of enzymes. Attempts are been made replacing sulphide based reducing agents for the
dyeing of sulphur dyes for eco friendly reducing agents, such as the Glucose and Mercaptoethanol.

The American Textile Manufacturers Institute reported, "Substitution should assume the direction of
easily treatable materials in terms of waste control technology and recoverability. Substitution,
however, a careful evaluation should be made to assure that one pollution problem is not being
substituted for another.

Process changes and new process technology:

Process changes and the implementation of new process technology are modifications to the basic
manufacturing operations of a mill. Some reduce water use and eliminate or minimize the discharge
of high strength or toxic chemicals. Others provide for material and energy reclamation.

Technological advances in fibers, process chemicals, other raw materials and processing equipment
are constantly occurring and, in general, these changes are resulting in lower hydraulic and
conventional pollutant loadings. Solvent processing is an example of a new process technology. It

56 | P a g e
involves the use of a no aqueous solvent such as perchloroethylene to scour and dye fabric. Because
the solvent has a high vapor pressure (compared to water), it is possible to vaporize it more easily and
recover it for reuse. It has not, however, achieved the original expectations of performance, except for
specialized processing and small batch operations.

Integrated eco- balancing approaches:

 Raw material uses should be zero residues.
 Rigid procedures, requiring the use of only specific chemicals and specific methods should be
converted into flexible ones to facilitate substitution of non-eco friendly chemicals by their
safe counterparts from time to time.
 Green Technology or Clean Technology should be practiced.
 Product (GNP) of a nation should be increased by substantially reducing the quantities of
inputs.
 Eco friendly index of product must include its shelf life period and extend of eco friendliness
of degradation products.
 Eco friendly machinery and processes should be used.32

Environmental restrictions:
Besides several global environmental restrictions some new regulation and/or standard have been
enforced on the textile sector.

 REACH is a new European Union regulation concerning the Registration, Eval uation,
Authorization and Restriction of Chemicals. It came into force on 1st June 2007 and replaces a
number of European Directives and Regulations with a single system. The main aim is to
safeguard human health and environment through the better and earlier identification of the
properties of chemical substances and to promote the use of alternative methods for the
assessment of the hazardous properties of substances.
 Global Organic Textile Standard (GOTS):Organic cotton is grown using methods and
materials that have low impact on the environment with the organic production systems
replenishing and maintaining soil fertility reducing of the use of synthetic pesticides, fertilizers
and building a biologically diverse agricultural system.

The aim of Global Organic Textile Standard is to define requirements to ensure organic status
of textiles, from harvesting of the raw materials, through environmentally and socially
responsible manufacturing up to labeling in order to provide a credible assurance to the end
consumer.

Starting point of the Global Organic Textile Standard development was the Intercot
Conference 2002 in Düsseldolf, Germany. The version 2.0 of the GOTS was published in

4:Abhishek C. Jadhav, “Eco-friendly substitution in textiles”. Indian Journal of Fibers and Textile Research, 2001.

57 | P a g e
 2008.

Legal Aspects of Textile Industry

Introduction:
At the start Pakistan have to face a lot of other problems due to which this sector was a bit
ignored. But later on increase in the cotton production and expansion of textile industry has been
impressive in Pakistan. Cotton – bales increase from 1.1 million bales in 1947 to ten million
bales by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805
million similarly looms and finishing units increased but not in the same proportion. Today it
employs 50% of industrial labor force and earns 65% foreign exchange of total exports.
Pakistan’s textile industry experts feel that Pakistan has fairly large size textile industry and 60-
70% of machines need replacement for the economic and quality production of products for a
highly competitive market. 33

In Ayub khan era (1958-69) Although Ayub Khan viewed himself as a reformer; he was
predisposed to the benevolent authoritarianism of the Mughal and viceregal traditions. He
provided tax holidays to the textile industry and he also introduced the export bonuses schemes
to encourage the exporters, provided the tax rebates to the importers of textile machinery. During
his period green revolution came in Pakistan which increased per acre yield of cotton .Before the
period of Ayub khan we were exporting the raw cotton but due to incentives provided by him

33
1: www.textileguides.com/history-of-pakistan-textile-industry.html

58 | P a g e
Pakistani industry flourished and we start exporting the cloth. The first textile commission,
which was constituted by the first material law government in 1960 had, inter-alia, recommended
that an economic size textile unit should preferably have 25,000 spindles and 500 looms. No new
mill with only 12,500 spindles and without looms should be sanctioned. However, no need was
paid to the advice by the sanctioning authorities with the result that an excess capacity had tented
to build up in the spinning sector. This was done by him to make because many mergers would
be done and this industry gives large production and enjoy the fruits of economies of scale. Later
on 1965 war created the problems for the whole textile sector. Foreign aid was curtailed while
during the second five year plan the growth of textile industry was very appreciable.34

During the era of Zulfikar Ali Bhutto (1973-77) unluckily the war of 1971divided the country
in to two parts an economy of the country was destroyed .The currency was devalued up to
131% which increases the value of imported textile products and reduced the value of exports
.another big mistake committed by the govt of p.p.p is that they nationalized the textile industry
units and its results declared that foreign investors was badly affected by this act of govt ,all
those industrial units taken by the govt adversely effected due to the corruption and inefficiency
of the managers .

Later on Zia ul-Haq (1977-88) adopted the policy of denationalization and deregulation but
even then they could not gain the confidence of investors,

Later on Benazir Bhutto and Nawaz Sharif tried their level best to encourage this industry as it
is the backbone of Pakistan. During the period 1973 to December 1992, some 71 spinning units
with 1,136, 835 spindles, 6,600 rotors and 7,329 looms were closed down. In 1992, a foreign
consultant form was hired by the government to look into the stagnating conditions in the local
textile industry. One of the observations of the foreign consultant was “Pakistan has failed to
make real progress in the international market and is being over taken by many of the
neighboring competitor countries.

Later on president Musharaf era October (1999- August 2007) Textile exports in 2007 were
worth $11.2 billion. The industrial sector registered 26 per cent growth. During his era in almost
every sector growth is seen.

The year 1999-2007 can be characterised as a years of achievement and consolidation. During
the year the Chairman of APTMA and the Managing Committee have to redouble efforts in
developing interaction with the government providing feed back to them and help resolve the
problems being faced by Textile Industry Some of Major achievements are as under:-

(1) Cotton

34.www.mongabay.com

59 | P a g e
  Excise Duty on Cotton:

Since the government has allowed free import and export of cotton lint, then there would
not be any customs/excise duty on import of cotton. The government on our presentation
has withdrawn the 15% excised duty imposed on import of cotton below 28mm staple
lengths.

 Local Sales of Cotton by T.C.P.:

During the years textile industry has been emphasizing that economic working of textile
units is primarily linked to comfortable supply of raw cotton. In 1999-2000, with the
improved cotton situation, the mill working was revived. The government was stressed
that at no point of time this equilibrium is to be disturbed. The government on repeated
requests introduced a major change in cotton sale policy to offset the expected losses in
cotton export and directed the Trading Corporation of Pakistan to lift curb on sale of its
cotton stock to the local buyers - main consumer.

 Contamination free Cotton:

Not only ginners but all concerned admit that seed cotton with higher content of trash
and moisture is being delivered. It has been established that for bringing overall
improvement in the quality cotton ginning has major role to play.
Accepting the point of view the Commerce Minister has constituted a committee for
preparing action plan to ensure contamination free cotton supply to Textile Mills in the
country.

 Research Institute:

The government establishes two ginning institutes in the cotton growing and ginning
area to improve quality of ginned cotton. The Federal government has approved a plan to
set up a Cotton Ginning Research Institute in Multan at a cost of Rs. 110 Million, aimed
at improving the quality of cotton.

 Implementation of Cotton Grading:

Pakistan joined the select band of major world cotton producing countries as the fourth
largest producer, after switching over to staple grade pricing system to wipe out the
stigma of a seller of poor quality lint to its local and global customers. A uniform grade
of the local lint has been prepared by the PSI and enforced.

(2) Customs
 Import of Second Hand Machinery:

The Ministry of Commerce has allowed the duty free import of textile machinery
required for Balancing, Modernization and Replacement. In addition, a recent decision

60 | P a g e
 taken under Trade Policy 2000-2001, wherein the import of more than five year old
machinery was disallowed has been withdrawn.

 Import of Ring Spinning Frame-Duty Free Import Allowed :

Previously the duty free import of Ring Spinning Frames are not allowed, under the
mistaken impression that these were being manufactured domestically and are being
unfairly subjected to Custom duty @ 10%, which now has been withdrawn. 2.3 SRO
369(1)/2000 will be modified, as proposed by APTMA in the near future.35

3) Taxation
 Income Tax Income Tax exemption certificate allowed for one year

The government has decided to allow Income Tax Exemption Certificate Under Section
50(4) and 50(5) valid for 12 months, previously after every three months, the textile
sector obtain the exemption certificate.

 Tax Ombudsman:

In the Finance Act, 1999, a high powered institution of Tax ombudsman was promised.
The govt. go for the appointment of Tax ombudsman to take care of the complaints and
impediments being faced by assesses. The government then made such appointments.

 Tax should be Prospective and not Retrospective:

Tax payable should be prospective and not retrospective for all assesses, the government
has accepted this.

 Supreme Court/High Court Judgement on Section 80-D being implemented:

Refund 80-D Allowable-Petitioner field returns for assessment year 1994-95 and 1995-96
- Benefit of economic reforms and incentive claimed - Assessing officer allowed
exemption to the profit and gains but levied turnover tax - petitioner requested for waiver
of charge and for refund of payment already made. Refunds have been expedited. Tax
Amnesty scheme's last date on our request have been exempted.36

(4)Wealth
 Tax:

35.Mirza Rohail B ”Textile industry of pakistan’’, 6 February, 2008

36 :www.finance.govt.pk/survey/chapter10/3 manufacturing.pdf

61 | P a g e
 The government abolished to encourage investment Wealth Tax Act 1963.

(5)Sales Tax
 Penalty for Delay in Payment:

Under Section 33 and 34 of the Sales Tax Act 1990, the world "shall" was inserted for
imposing penalty and additional tax. Therefore any kind of delay in payment will
automatically carry additional amount of Sales Tax by way of penalty/additional tax. We
propose that the world "shall" may be replaced with words "shall be liable" so that
adjudicating officer may have the authority of waiving penalty/additional tax in cases
where delay is genuine and beyond human control. The government accepted Sales Tax
chain is being completed. Sales Tax Refunds have been expedited

(6) Monetary-State Bank of Pakistan

 Amendments in Export Refinance Scheme :

Through the State Bank of Pakistan withdrew export financing on all types of yarn yet
provided financing to bleached and unbleached cloth at 10% mark-up instead of earlier
8%. All other categories of cloth fabrics such as dyed and printed fabrics will be
admissible for grant of export finance at 8%. The facility was available until 30th June
2005.

 Exchange Rate Policy:

The State Bank of Pakistan formulates a system of exchange rates whereby the country
would not lose its competitive advantages in any market.

The Finance Minister in his budget speech confirmed that State Bank of Pakistan would
follow an exchange rate policy that will maintain its competition in relation to market
forces and inflationary differentials between Pakistan and its major trading partners.

The State Bank of Pakistan has now allowed the rupee to float against the U.S. Dollar as
it advised Banks that the trading band of Rs. 52.10 - 52.30 for the green back stood
withdrawn. This move by SBP is to keep Pakistan exports, competitive to counter the
persistent disadvantage from the weak Indian rupee.

 Project Financing for BMR :

The textile industry was unable to pursue the much required value addition, due to non-
availability of BMR financing, as Development Financial Institutions are unable to
extend any funds to projects for BMR, and commercial banks too are reluctant to extend
project finance. The Governor State Bank of Pakistan has instructed all banks to provide

62 | P a g e
 finance to Textile Sector. The Textile Industry then expected to invest approximately
US$ 1 billion in year 2000 replacing old machine new technology under BMR.
Moreover, under the Investment policy a liberal first year allowance ranged from 40% to
80% is available to new industries, and the introduction of provision for tax credit equal
to 10% of investment in plant and machinery for new investment and investment for
BMR made during two years starting from 1st July 2000. This tax credit would be in lieu
of the first year allowance at the option of the tax-payer. State Bank & Lending
Institution have been convinced by APTMA of the need for adequate Financing to the
Textile Industry at low mark-up rates.

(7)Membership of Govt Bodies

 APTMA was given Membership of:
* Federal Export Promotion Board
* Textile Board
* Committee to implement "Textile Vision 2005".
* National Accountability Bureau
* Habib Bank Ltd.
Mr. Mohsin Aziz nominated as director for three years in his personal capacity.

63 | P a g e
PART 3

PORTER’S FIVE FORCES

For this part of report we visited the different organizations

and their competitor organizations. We conducted unstructured
interviews of the different departmental heads after a little bit
discussion we presented our questionnaire to respondents and

64 | P a g e
 allowed them to complete it by them. The purpose of this
structured questionnaire was to gather information about micro
environment and behavior of firms

Porter's five forces model

The nature of competition in an industry in large part determines the content of strategy,
especially business-level strategy. Based as it is on the fundamental economics of the industry,
the very profit potential of an industry is determined by competitive interactions. Where these
interactions are intense, profits tend to be whittled away by the activities of competing. Where
they are mild and competitors appear docile, profit potential tends to be high. Yet a full
understanding of the elements of competition within an industry is easy to overlook and often
difficult to comprehend. Porter has identified five basic forces that collectively describe the state
of competition in an industry

1) The threat of new entrants to the market

2) The amount of bargaining power possessed by the firm's/industry’s suppliers
3) The amount of bargaining power possessed by the firm's/industry’s customers
4) The threat substitute products present
5) The intensity of rivalry among competitors.

These forces assist in identifying the presence or absence of potential high returns. The weaker
are Porter's five forces, the greater is the opportunity for firms in an industry to
experience superior profitability. More generally, understanding how these forces affect
competition within an industry allows the strategist to identify the most advantageous strategic
position. The actors within an industry on whom these forces exert pressure are, respectively, the
industry's competing firms themselves, potential new entrants to the industry's markets, suppliers
(vendors), customers, and makers of substitute products. Obviously, the starting point for
conducting an analysis of the five forces of competition is to identify all the competitors,
potential new entrants, suppliers, the demographics of customers, and makers of and nature
of substitute products. Competitors would not only have to be identified, but various
distinguishing data about the industry would also have to be specified. For each competitor this

65 | P a g e
data would include market share, product line differences/similarities, market segments served,
price/quality relationships represented by products, growth/decline trends, financial strength
differences, and any other information that will help describe the industry. Arranging the five
forces and the major actors within an industry produces the "five forces model" as follows.

Porter's five forces model In Pakistan Textile Industry

Is important to analyze the Porter’s five forces model in textile industry as different industries can sustain
different levels of profitability. There are many explanations for that fact; one of them is the industry
structure. Porter built up this reference to analyze the industry that is influenced by five important factors
(Supplier power, Threat of substitutes, Barriers to entry, Buyer power and Rivalry).(In our case, we are
concern with textile industry, so we are going to see each factor to conclude about the industry
attractiveness.)

66 | P a g e
Threat to New Entrant

67 | P a g e
 No
Yes(+) effect No (-)

1) Do large firms have a cost or performance advantage in your segment of the

industry 

2) Are there any proprietary product differences in your industry? 

3) Are there any established brand identities in your industry? 

4) Do your customers incur any significant costs in switching suppliers? 

5) Is a lot of capital needed to enter your industry? 

6) Is serviceable used equipment expensive? 
7) Does the newcomer to your industry face difficulty in accessing distribution
channels? 
8) Does experience help you to continuously lower costs? 
9) Does the newcomer have any problems in obtaining the necessary skilled
people, materials or supplies? 
10) Does your product or service have any proprietary features that give you
lower costs? 

11) Are there any license, insurance or qualifications that are difficult to obtain? 

12) Can the newcomer expect strong retaliation on entering the market? 
13) Do large firms have a cost or performance advantage in your segment of the
industry 

14) Are there any proprietary product differences in your industry? 

15) Are there any established brand identities in your industry? 

16) Do your customers incur any significant costs in switching suppliers? 

17) Is a lot of capital needed to enter your industry? 

68 | P a g e
 18) Is serviceable used equipment expensive? 
19) Does the newcomer to your industry face difficulty in accessing distribution
channels? 

20) Does experience help you to continuously lower costs? 

21) Does the newcomer have any problems in obtaining the necessary skilled
people, materials or supplies? 
22) Does your product or service have any proprietary features that give you
lower costs? 

23) Are there any license, insurance or qualifications that are difficult to obtain? 

24) Can the newcomer expect strong retaliation on entering the market? 

Barriers to entry are factors that need to be overcome by new entrants if they are to compete
successfully. The threat of new entrants is the possibility that new firms will enter the industry.
New entrants bring a desire to gain market share and often have significant resources. Their
presence may force prices down and put pressure on profits. Analyzing the threat of new entrants
involves examining the barriers to entry and the expected reactions of existing firms to a new
competitor. Pakistan Textile Industry is very dependent on personal contacts and experience. The
new actors would have to bring some kind of client base along with the new establishment.
Product differentiation may constitute a barrier of entry as manufacturers are heavily dependent
on references and word of mouth. Without any established client portfolio it is difficult to attract,
endure increased costs in creating sample collections to show potential customers. Hence, in
startup phase costs are not only associated with the manufacturing required but also with
the costs for designers and creating samples. In the sense of reference dependency, barriers of
entry are considered as very strong. As the new entrant has limited experience in textile
manufacturing and there are no built up relationships with customers, they might experiences
Governmental policies do affect the business environment to some extent. An example of this is
subsidies, which are offered to companies establishing production in certain regional areas. In
addition to these potential barriers of entrance, new entrants may have second thoughts about
entering the new market, if existing manufacturers may retaliate on new entrants. The
Pakistan textile industry though, has such large population of manufacturers so any new actors
may hardly be noticed by the competition, which minimizes the risk for retaliation.

69 | P a g e
Capital Requirement:
The capital costs of getting established in an industry can be so large as to discourage all
but the largest companies. A firm has to bear the huge capital costs of establishing R&D,
production, and service facilities for supplying these planes. The firm has to change with
the passage of time in order to compete in the market.
The lack of R&D in the cotton sector of Pakistan has resulted in low quality of cotton in
comparison to rest of Asia. Because of the subsequent low profitability in cotton crops,
farmers are shifting to other cash crops, such as sugar cane. In Punjab alone, the cotton
area sown this season was less by 1.14 percent as compared to the last year. Textile
owners argue that although the Cotton Vision 2015 targets 20 million bales till 2015, it
is an ambitious target as in reality cotton production is decreasing each year. It is the lack
of proper R&D that has led to such a state. They further accuse cartels, especially the
pesticide sector, for hindering proper R&D. The pesticide sector stands to benefit from
stunting local R&D as higher yield cotton is more pesticide resistant.
Moreover, critics argue that the textile industry has obsolete equipment and machinery.
The inability to timely modernize the equipment and machinery has led to the decline of
Pakistani textile competitiveness. APTMA has highlighted that the Pakistan textile
industry faces tough competition from the Indian, Bangladeshi and Chinese textile
industries and local policies have resulted in Pakistani textiles facing a critical condition.
Bangladesh, India and China enjoy comparatively low interest rates than Pakistan. The
prevailing rates are as following, 8.5 to 9.0 per cent in Bangladesh, 5.25 per cent in India
(market rate is 10.25 per cent, however exemption of 5 percent is provided to the textile
industry) and 5.58 per cent in China. Meanwhile, in Pakistan, the last three to four years
has seen the interest rates to have risen more than 150 percent, to 13.25 percent.

Cost as a Competitive advantage:

Low wages do not necessarily give a competitive advantage when labor productivity is
also low. It is the unit labor cost which is critical to competitive advantage. Pakistan’s
low unit labor costs in textiles are the main source of its static competitive advantage at
present. But static advantage is of little consequence in a rapidly changing global
economic environment and it is dynamic comparative advantage which should be taken
into account. This leads us to the question: what are the fastest growing products in the
global market?
Other Bottlenecks which discourage the New Investor:
 Poor infrastructure
 Over governed and over monitored regime of different 27 Government Agencies,
harassing the industry virtually every day.
 Delay in sales tax refund causing serious cash flow / liquidity problem to the industry.
 Pakistan's bad image portrayed by the international media.

70 | P a g e
  Adverse travelling advice by the foreign countries to their citizens discouraging travel to
Pakistan.
 Pakistan to sign international agreements, providing protection to intellectual property
rights and international arbitration agreements.
 Lack of infrastructure required to meet challenges of the requirement of social
compliances after 2004.
 Non-availability of good quality soft water for the textile industry.
 Arrangements to provide Insurance guarantees to U.S. investors on their investment in
Pakistan

Is there Market Share for new comer?

Textile industry is the major source of export earnings for Pakistan. Its share in the total
merchandise exports of Pakistan, and is still above 50 percent, As far as the share in world total
is concerned, it fell from 2.6 percent in 1970 to 1.9 percent in 1980. But since then it is rising and
reached 2.7 percent in 1997.

Threat of Substitutes:

Yes (+) No No
effect (-)

1) Substitutes have performance limitations that do not completely offset

their lowest price. Or, their performance is not justified by their higher
price.


2) The customer will incur costs in switching to a substitute. 

3) Your customer has no real substitute. 

4) Your customer is not likely to substitute. 

Equal produces clothes using mainly cotton and silk, as mentioned above, so the only substitutes we can
have is the use of other raw materials, but there is no real substitute for clothes, until today, and also most
of our clothes use cotton as part of the “recipe”. We considered this factor as a low influence.

71 | P a g e
But with the technological advancement this factor can get more power in future as china and other
countries are introducing fiber that will be adjustable according to climate with more life than existing
fabric

Bargaining Power of Buyers:

To what extent are your supplier locked into Yes No No

you? (+) effect (-)
1) Are there a large number of suppliers relative to the number of
buyer in the industry?

2) Do you have a large number of suppliers, each with relatively
small purchases?

3) Does the customer face any significant costs in switching
suppliers?

4) Does the buyer need a lot of important information?

5) Is the buyer aware of the need for additional information?

6) Is there anything that prevents your supplier/buyer from
taking your function in-house?

7) Your supplier are not highly sensitive to price.

8) Your product is unique to some degree or has accepted
branding? 
9) Your buyer businesses are profitable.

10) You provide incentives to supplier with good rating .


The firms in an industry operate in two types of markets: in the markets for inputs and the
markets for outputs. In input markets firms purchase raw materials, components, and financial
and labor services. In the markets for outputs firms sell their goods and services to customers
(who may be distributors, consumers, or other manufacturers). In both markets the transactions
create value for both buyers and sellers. How this value is shared between them in terms of
profitability depends on their relative economic power. Let us deal first with output markets. The
strength of buying power that firms Bargaining power of buyer occurs when leverage is given to

72 | P a g e
the buyer and demand for lower price, increased quality and more services are made .Industry
buyers are not those people who ultimately purchase and consume its products but these are
industry purchaser .
If we see the Pakistan textile industry the bargaining power of the buyers is very high because of
market saturation ( only for existing competitors )Moreover, low cotton prices due to a bumper
cotton crop would enable Pakistan to lower its production cost and sustain pricing pressure.
Further, efforts on improving the yield per hectare would ensure higher productivity and
production, thereby providing the much-needed security of raw-material supply to textile
producers. So Buyers are spread all over the country and the suppliers are providing special
discounts for pushing bulk to the customer whenever he asks for a compound. The buyers are
aware of the need for information as their buyer trusts them implicitly for providing the best
quality.
Face from their customers depends on two sets of factors: buyers’ price sensitivity and relative
bargaining power.
Buyers’ Price Sensitivity
The extent to which buyers are sensitive to the prices charged by the firms in textile industry
depends on four main factors:

 The greater the importance of an item as a proportion of total cost, the more
sensitive buyers will be about the price they pay. Yarn manufacturers are quality
conscious and have greater power over their supplier but Cloth manufacturers are
highly sensitive to the costs of yarn because this is one of their largest cost items
and supplier of yarn has power and resources to export, as we have seen in
PESTEL analysis that in 2011 there was ban on yarn export to fulfill local
demand of yarn at controlled price.

 As in textile sector price differentiation is less and we know that the less
differentiated the products of the supplying industry, the more willing the buyer is
to switch suppliers on the basis of price for price reductions from their sellers. As
competition in the world textile industry has intensified, so suppliers are subject
to greater pressures for lower prices, higher quality, and faster delivery. The
greater the importance of the industry’s product to the quality of the buyer’s
product or service, the less sensitive are buyers to the prices they are charged( in
textile sector yarn manufacturer are quality conscious and other are of both price
and quality)

Relative Bargaining Power

Bargaining power rests, ultimately, on refusal to deal with the other party. The balance of power
between the two parties to a transaction depends on the credibility and effectiveness with which
each makes this threat. The key issue is the relative cost that each party sustains as a result of the
transaction not being consummated. A second issue is each party’s expertise in leveraging its
position through gamesmanship. In textile sector of Pakistan Several factors influence the
bargaining power of buyers relative to that of sellers:

73 | P a g e
  Size and concentration of buyers relative to suppliers: The smaller the number of
buyers and the bigger their purchases, the greater the cost of losing one. Because
of medium size and bulk production buyers are not concentrated nor supplier but
buyer are powerful because of following reasons

o Buyers’ information The better informed buyers are about suppliers and
their prices and costs, the better they are able to bargains.
o Ability to integrate vertically: In refusing to deal with the other party, the
alternative to finding another supplier or buyer is to do it yourself. In
textile industry especially for yarn manufacturer backward integration is
unprofitable and resource consuming but due to greater power of yarn
supplier cloth manufacturer often prefer it to establish their own spinning
and weaving units.

Bargaining power of suppliers:

Yes No No
(+) effect (-)
1) My inputs (materials, labor, supplies, services, etc) are standard rather 
than unique or differentiated.

2) I can switch between suppliers quickly and cheaply. 

3) My suppliers would find it difficult to enter my business or my
customers would find it difficult to perform my function in-house. 
4) I can substitute inputs readily. 
5) I have many potential suppliers. 
6) My business is important to my suppliers. 
7) My cost of purchases has no significant influence on my overall costs. 

Analysis of the determinants of relative power between the producers in an industry and their
suppliers is precisely analogous to analysis of the relationship between producers and their
buyers. The only difference is that it is now the firms in the industry that are the buyers and the
producers of inputs that are the suppliers. The key issues are the ease with which the firms in the

74 | P a g e
industry can switch between different input suppliers and the relative bargaining power of each
party. Because raw materials, semi-finished products, and components are often commodities
supplied by small companies to large manufacturing companies, their suppliers usually lack
bargaining power.
Natural calamities; disruptions in supply of raw material due to variable weather patterns and
Pakistan is the 4th largest producer of cotton in the world after China, US and India has the
largest area under cultivation Our sector produces mainly clothes with cotton and silk
and since China is the leading producer of cotton they have many suppliers available to choose
from. Furthermore, our sector is vertical integrated which means they have the raw materials
available from their production fields and all the supplying needs to produce the final product.
They also own a power plant that supplies energy. Also in the garment industry there are
concentrated purchases, due to all this we classified as supplier power as low factor because of
following facts,

Less Concentrated Supplier

 Although the industry is a key customer group of its supplier but due to Access to bulk
indigenous raw material profitability of supplier is low and he is less concentrated then
buyer. Political instability and inconsistency in policy framework is Rising cotton prices
to push production costs for value added segment (difficult for Local supplier to survive
with available finance in day to day rising pricing).Increasing competitive pressures on
product prices Improving product mix and a gradual move towards more value added
products Low value added, largely commodity products & Low Price Image

 Conversely, in few or smaller segments like the suppliers of complex, technically

sophisticated components may be able to exert considerable bargaining power like yarn
supplier they have relatively more power because of large scope in foreign market with
greater price.
Low switching cost
It is easy for supplier to switch from one buyer to another because of low differentiation, but here
a problem can arises that in case of bumper crop he may fall victim of low sale meanwhile
Switching cost for manufacturer is very low.

Forward integration
It can takes place in low cost segment, but doesn’t affect the more profitable fashion and quality
segment like one can install weaving unit with spinning but it too take time and investment due to
heavy capital expenditures

75 | P a g e
Rivalry among existing competitors:

Yes No
(+) effect No (-)

1) The industry is growing rapidly. 

2) The industry is not cyclical with intermittent overcapacity.

3) The fixed costs of the business are a relatively low portion of
total costs.

4) There are significant product differences and brand identities
between the competitors. 
5) The competitors are diversified rather than specialized.

6) It would not be hard to get out of this business because there are
no specialized skills and facilities or long-term contract
commitments, etc. 
7) My customers would incur significant costs in switching to a
competitor.

8) My product is complex and requires a detailed understanding on
the part of my customer. 

9) My competitors are all of approximately the same size as I am.



For most industries, the major determinant of the overall state of competition and the general
level of profitability is competition among the firms within the industry. In Pakistani textile
industry, firms do not compete aggressively, i.e. not up to that extent that prices are pushed
below the level of costs and industry-wide losses are incurred. In textile sector, price competition
is muted and rivalry focuses on and other nonprime dimensions. Five factors play an important
role in determining the nature and intensity of competition between established firms:
concentration, the diversity of competitors, product differentiation, excess capacity, exit barriers,
and cost conditions.
1) Concentration:
Seller concentration refers to the number and size distribution of firms competing within a
market. It is most commonly measured by the concentration ratio: the combined market share

76 | P a g e
 of the leading producers. A market dominated by a single firm displays little competition and
the dominant firm can exercise considerable discretion over the prices it charges.
 In yarn production market is dominated by a small regional groups (family groups) of
leading companies (an oligopoly on regional basis), price competition may also be
restrained, either by outright collusion, or more commonly through “parallelism” of
pricing decisions. But in clothing sector market is dominated by some major companies,
such as STARA and Gull Ahmed prices tend to be similar and competition focuses on
product development.

 As the number of firms supplying in textile market are increasing, coordination of prices
is becoming more difficult, and the likelihood that one firm will initiate price-cutting
increases. However, despite the common observation that the elimination of a competitor
typically reduces price competition, while the entry of a new competitor typically
stimulates it, systematic evidence of the impact of seller concentration on profitability is
surprisingly weak.

 So we can conclud that:

“The relation, if any, between seller concentration and profitability is weak
statistically and the estimated effect is usually small.”

2) Diversity of Competitors:

The extent to which a group of firms can avoid price competition in favor of collusive pricing
practices depends upon how similar they are in terms of origins, objectives, costs, and strategies.

 The cozy atmosphere of the Pakistan textile industry prior to the advent of import
competition was greatly assisted by the similarities of the companies in terms of cost
structures, strategies, and top management mindsets. The intense competition in export of
yarn in Europe and North American markets of is partly due to the different costs,
strategies, and management styles of the competing firms. Similarly, the key challenge
faced by APTMA is agreeing and enforcing output quotas among member firms that are
sharply different in terms of objectives, production costs

3) Product Differentiation:

The more similar the offerings among rival firms, the more willing customers are to substitute
and the greater the incentive for firms to cut prices to increase sales.

 In the case of Pakistani Textile industries they are offering product with least
differentiation and firms are not tend to be plagued by price wars that results in moderate
profits.

4) Excess Capacity and Exit Barriers:

77 | P a g e
Why does industry profitability tend to fall so drastically during periods of recession? The key is
the balance between demand and capacity. Unused capacity encourages firms to offer price cuts
to attract new business in order to spread fixed costs over a greater sales volume. Barriers to exit
are costs associated with capacity leaving an industry. Where resources are durable and
specialized, where employees are entitled to job protection, barriers to exit may be substantial.
 Exit barriers in the Pakistani textile industry resulting from the high costs of dismantling
operating units, environmental cleanup, and employee layoffs have resulted in a
continuing overhang of excess capacity that has kept profits at a very low level.
Conversely, rapid demand growth creates capacity shortages that boost margins. During
the latter half of last decade, due to Lack of transportation facilities, Increase in Yarn
Prices and power shortage. On average, companies in textile sector earning low profits
than first half of last decade
5) Cost Conditions: Scale Economies and the Ratio of Fixed to Variable
Costs:
When excess capacity causes price competition, how low will prices go? The key factor is cost
structure. Where fixed costs are high relative to variable costs, firms will take on marginal
business at any price that covers variable costs. The consequences for profitability can be
disastrous.
 Production input cost comparison of Cost provides a competitive advantage to the
industry. If the cost of the firm for the manufacturing of the products is low then it will
enjoy more profit than other firms. The below table presents a snapshot of the position of
Pakistan in relation to India, China, Bangladesh, and Cambodia in six cost categories:
labor cost, labor hours, electricity cost, ocean transport, land transport, and building cost.

Table

Cost 1 2 3 4 5
Category
Labor cost Bangladesh Cambodia Pakistan India China

Labor hours Bangladesh China Pakistan India Cambodia

Electricity Bangladesh China Pakistan India Cambodia

cost
Ocean China Bangladesh Cambodia Pakistan India
transportation
cost
Land Bangladesh Pakistan India China Cambodia
transport cost
Building cost China Bangladesh Cambodia India Pakistan

With an hourly wage of $0.55 per hour4, Pakistan ranks third on labor costs in our five-
country sample. Bangladesh has the lowest hourly wage ($0.32 per hour). Energy
efficiency and reliability affect both the quality and volume of textile and apparel

78 | P a g e
 manufacturing and are of prime importance to the sector. Two studies have identified
electricity cost as a constraint on Pakistan’s manufacturing competitiveness. In table,
Pakistan ranks third in electricity costs ($0.071/kWh) and Bangladesh with an average
cost of $0.053 per kWh, has the lowest electricity cost. Due to this low ranking Pakistani
industry is migrating to Bangladesh (as mentioned in PESTEL analysis)
 Between 2001 and 2010, the total profits of the Pakistan textile industries are
diminishing due to increases in variable costs of material (Increase in Yarn Prices), labor
(Increase in Minimum Wage) and electricity (increase in per unit price). But this
diminishing effect was not gigantic due to the presence high fixed cost because fix cost
helps in getting economy of scale and further this economy of scale may also encourage
companies to compete aggressively on price in order to gain the cost benefits of greater
volume

Overall industry rating:

Overall industry rating: Favorable Moderate Unfavorable

1) The threat of new entrants.

2) Bargaining power of buyers.

3) Threat of substitutes.

4) Bargaining power of suppliers.

5) Intensity of rivalry among competitors.


From the overall industry rating we can conclude that the industry is moderately attractive. The
major factors for concern in the industry are the threat of entry posed by buyers, suppliers or
distributors and the rising power of suppliers due to demand for specialized products increasing
day by day.

79 | P a g e
 Effect of PESTEL on Porter’s Five Forces
Threat of New Entrants:
The increasing inflation, global recession, global events and depreciation of value of Rupee has
decreased the cost advantage of the existent firms. Also, strict regulation of price by the government
has been cutting into the profit margins of the industry. Thus any new competitor with sufficient
resources can enter into the industry and can move ahead of the smaller companies that do not have a
differentiation factor to keep them ahead of the game.

Bargaining Power of Buyers:

As awareness increases among end consumers and chemists and people become more aware of their
clothing needs, their price sensitivity decreases as they recognize the efficacy of specific fibers and
word of mouth generated by satisfied customers shall increase industry’s power over buyers.

Bargaining Power of Suppliers:

The increased taxation, excise duties, global recession, and global events are increasing the cost of
inputs and thus having a negative impact on the industry’s power over suppliers.

Rivalry among Competitors:

The rising costs of manufacturing, fuel and power shall give way to a battle for shelf space among
competitors, turning what might be called a healthy competition into intense rivalry.

Threat of Substitutes:
Threat of substitutes is increasing with the rise of education and awareness fortified by media
sources as people realize the importance of textile .as china is introducing verity of new fibers.

80 | P a g e
 Strategic Groups of Pakistan Textile Industry

Theoretical Background: Strategic Groups

Industry is an arena where the firms compete with each other. Each industry has its own structure
and content that change with regard to industry life cycle 37

Within an industry, the structure of the competition can be analysed by Porter's (1980) structural
determinants of the intensity of competition, and by strategic groups , Porter's structural
determinants, indicating the five forces that drive industry competition, are rivalry among existing
firms, threat of new entrants, bargaining power of buyers and suppliers, and threat of substitute
products (Porter 1980, 4). Another structural method to analyse the structure of the industrial
competition are the strategic groups. In 1972, Michael Hunt found that industry participants in the
white goods industry differed on three key strategic dimensions - degree of vertical integration,
degree of product diversification, and the extent of product differentiation.

Based on these dimensions, he isolated four groups: full-line national manufacturers, part-line
manufacturer's brand producers, private brands producers; and national retailers. Hunt believed this
taxonomy "minimized economic asymmetry in each group and revealed barriers to entry to each
group". He termed these groups "strategic groups".38

Strategic groups are related to competitive strategy. On a company level, in most industries, firms
follow a different kind of competitive strategy evaluated by strategic dimensions. The following
strategic dimensions are used to identify differences between firms' strategies; specialisation
(product range, customer segments, geographical markets), brand identification, channel selection,
push versus pull, product quality, technological leadership, vertical integration, cost position,
service, price policy, leverage, relationship with parent company/company ownership, relationship
to home and host government, company activity, company size. But what is a strategic group?
According to Porter (1980, 129), a strategic group is a group of firms in a particular industry that
follow the same or a similar strategy along the strategic dimensions. An industry may have only one
strategic group if all the firms follow essentially the same strategy. On the other hand, each firm
may form an individual strategic group on its own 39

Strategic groups are essentially long-term in nature and costly to reverse because of the criteria on
which we observe them. Thus, these groups are relatively tightly drawn structures within the more
loosely drawn industry structure of conventional theory.

37
(Primeaux 1985; McGee 1985, 309-310).

38
“(Hunt 1972, 57; Mehra 1994)
39
Porter 1980, 127-128; McNamee & McHugh 1989, 91-92)

81 | P a g e
For the past several decades, strategic group research has addressed three main issues: strategic
group emergence, performance difference between groups, and stability of a group structure. (Lee
et al. 2002, 728) this paper falls under the first issue.

Also the firm's resources may be the basis in strategic group formation. Mehra (1994) presented a
resource-based model of the strategic groups. The model has two dimensions; the degree of
competitive differentiation in the industry; and the nature of the resource mix deployed to sustain
that competitive differentiation. Differentiation moves from low to high, while the resource mix
moves from simple to complex, with the degree of complexity increasing as the proportion of skills
in the mix goes up. This is so because, as compared to assets, skills are more valuable and more
difficult to duplicate.

The strategic groups in an industry can be displayed on a map where the number of axes is limited
to two, which means that we must select a few particularly important strategic dimensions along
which to construct a map .Porter's strategic group map was further developed by McNamee and
McHugh into the Group Competitive Intensity Map. The starting point for this map is the
assumption that the distinctive characteristics which the members of any strategic group display are
a function not only of the strategies that they follow but also of the structures they possess.
Consequently, the competitive location of any firm, or the strategic group into which it falls, should
evolve from coordinates based on both strategy and structure. 40

Thus, the strategic groups are needed in identifying which firms in the industry are competitors with
each other. Patterns of rivalry between groups are only tentatively approached by the weak
assertion that it all depends on market interdependence. If groups are defined by market-related
characteristics, such as product line or distribution channels, the market interdependence is likely to
be lower rather than higher. If group configurations arise from non-market sources, the potential for
market overlap will be much greater. However, the inconsistency of empirical findings may reflect
the fact that the members of a strategic group, while pursuing similar strategies, are not necessarily
in competition with each other41

The above mentioned five competitive forces will not have an equal impact on different strategic
groups. Also the entry barriers depend on particular strategic group that the entrant seeks to join in.
Entry barriers provide barriers to shift strategic position from one strategic group to another

In Pakistani Textile industry:

Strategic grouping of industry is carried out on the basis of scope of commitment and resource
activities. On these two bases Pakistan Textile Industry can be divided into following strategic
groups:-

40
“(McNamee & McHugh 1989, 89)
41
(Grant 1995, 98).

82 | P a g e
  Spinning Textile Mills
o Domestic market oriented
o Export Oriented
 Composite Textile Mills
o Domestic market oriented
o Export Oriented
 Weaving / Knitting Mills
o Domestic market oriented
o Export Oriented
 Apparel and made ups
o Domestic market oriented
o Export Oriented
 Cottage Textile Industry

Spinning Textile Units:

Spinning is the largest portion of our textile industry , here ginned cotton is converted into yarn. Pakistan
Textile industry comprises of 450 spinning units , out of which 403 are large units , producing multi
grade yarn . Pakistan stands at number four in world’s cotton yarn production with 8% share. Pakistan
spinning industry manufactures all counts of yarn but traditionally, the product mix is highly tilted
towards low value added yarns. Pakistan's textile industry enjoys several advantages over those of many
other countries as far as the production of quality fabrics and yarn is concerned and is a world leader in
the export of cotton yarn, including coarse, medium and fine varieties. Due to slump in the world market,
export of yarn decreased from 672 million kg worth US$1.38 billion in 2005-2006 to 562 million kg
worth US$1.29 million in 2007-2008, thus showing decline of 6% in terms of value. The situation has
further worsened in current years due to energy crisis in the country.42

Composite Textile Mills:

Composite textile mills are the units which have a number of products , starting from Spinning ( yarn
manufacturing), Weaving/ Knitting ( fiber cloth production), Finishing (Sizing and Printing). There are a
total of 50 composite textile units in Pakistan. Gul Ahmed Textiles Karachi and Chenab Textile
Faisalabad are the example of composite textile units.

Weaving:
Weaving is the process of converting yarn into fiber , there are 140 large and 425 small weaving units in
Pakistan, most of these units produce coarse fiber , which is then supplied to processing units for finishing
, printing and packaging. This sector is producing comparatively low value added Grey Cloth of mostly
inferior quality. Problems of the power loom sector revolve mainly around the poor technology, scarcity
of quality yarn and lack of institutional financing for its development from unorganized sector to an

42
“Pakistan Spinning Textile units facing difficult times” by Dr Noor Ahmed,Pakistan Textile journal,2007

83 | P a g e
organized one. The production of cloth sector has shown in following table.43 There are 106 large and 625
small finishing units in pakistan’s textile industry.44

Apparel and made-up: This strategic group of Pakistan’s textile industry comprises a toatal
of 5000 units ,of which includes 600 large garment units, 700 knitwear and 400 towel manufacturing
units , remaining are the small units meeting the requirements of domestic market.45

Cottage Textile Industry:

Cottage textile industry mostly comprises of power looms and some small weaving units , meeting the
local requirements of the country. There are a total of 20600 , power loom units , 453 weaving, 625
finishing,400 towel , 2500 garments and 600 knitwear units which make this group.46

43
“ Textile Industry of Pakistan” , by Yasin Ahmed, R&D ,Horizon Securities (Pvt) ltd
44
Experts advisory Cell , “Pakistan Investment guide”
45
Experts Advisory Cell, “Pakistan Investment Guide”
46
Ibid

84 | P a g e
 Summary
The global cotton and textile communities are facing historically volatile times, regardless of which
part of the supply chain they belong to. Without question, the problem our industry faces are
significant - but they are by no means insurmountable. In this new era, success will require a level
of communication and transparency greater than we have ever had in the past, and this is an
opportunity that we can take advantage of. The Textile Ministry by developing closer ties within the
business organizations and inter-industry platforms, both upstream and downstream, can do much
more than simply survive these dangerous times: It can proactively build a better, healthier and
stronger national textile industry that can benefit the economy and sustain long-term export growth,
once the current period of market turbulence subsides. This is a time where it is of paramount
importance that by regularly discussing strategies with the stakeholders, the authorities ensure that
the national cotton trade functions more smoothly in all sectors, so that we can ensure to not just
successfully ride the present crisis, but also manage ourselves in a way that we can possibly avert
one in future.
Neighbouring India, even after an extreme slowdown, is still growing at more than 6 percent per
year; whereas, Pakistan’s growth average during the past four years has been barely 2.50 percent.
Textiles are a labor-intensive industry at the Production stage, and employ proportionately more
workers per unit of output than most comparable industrial sectors. At least two million new
workers enter our labour market every year, which means that if we cannot match this with
corresponding growth, the problems with unemployment and poverty will compound. The sad
reality at present, however, points to a climate where our industry is instead operating at about 30 to
40 percent below capacity. The textile sector accounts for approximately 38 percent of our entire
labour force and an operating level of 60 percent basically means a job loss in this sector alone of
about one million workers. The result is that economies of scale are not very significant,
manufacturing is fairly competitive, and Southern manufacturers have an edge. On the other hand,
the design and marketing stage is characterized by innovation intensity, with considerable
economies of scale and barriers to entry. This pattern corresponds closely to Pakistan’s experience,
where the majority of garment manufacturing and weaving units are in the small-scale, informal
sector, although spinning and processing are done largely in medium to large scale integrated plants
Pakistan also enjoys a significant lead in terms of labor cost per hour (US$ 0.6 in 2004), over
developed countries like US (US$ 15.1) and newly industrialized economies like Hong Kong (US$
5.1), Taiwan (US$ 7.1), South Korea (US$ 5.7) and China (US$ 0.9). Also, Pakistan is rich in
traditional workers adept at value-adding tasks, which could give Pakistani companies significant
margin advantage.
Ironically, in textiles, not international demand or global management, inefficiencies have been the
main culprits, but the sheer choking of power (electricity) and energy (natural gas) has forced
closures resulting in the loss of global market share. Comparing this with 2007, when the industry
was operating on full capacity, it means: Whereas, in four years an extra 3.20 million fresh young
employable workers should have been absorbed in the textile sector, it is at present accommodating
one million than its peak back in 2007! Running an industry per se is becoming untenable,
especially in Punjab, where it is forced to close for nearly 170 days a year for want of power and
energy.

85 | P a g e
Little wonder that our textile exports are falling, rather than registering an increase. Based on the
figures recently released by the Ministry and verified by the respective Chambers, if we compare
January 2011 to January 2012 in quantity terms, the total textile exports have registered a decline of
15.37 percent, and the sector wise decrease reads as textiles and clothing by 16.81 percent, knitwear
by 34.79 percent, bed wear by 30.24 percent, towels by 21.76 percent, readymade garments by
24.46 percent, art silk and synthetic textiles by 44.29 percent and other made-ups by 28.16 percent.
Even more disturbing is the trend that the exports of higher value items have fallen at a much higher
rate than the less valued ones and, alarmingly, the products that in competing manufacturing
economies are regarded as ‘raw materials’, have actually gained their share of exports! For
example, raw cotton exports have registered an increase of 397.42 percent, cotton yarn one percent
and yarns other than cotton yarn by 2,287.50 percent. Value addition as we know has been a
weakness of Pakistani textile exports, as we continue to operate at one of the lowest per kilogram
values amongst the principal textile manufacturing countries of the world.
And it is this very weakness, which our Textile Ministry needs to guard against and strategies to
somehow overcome. The Indian Ministry as we know goes to great lengths in policy formation to
ensure that the operational framework supports a culture where the industrial potential of value
addition gets maximised - in spite of no real global or domestic shortage of cotton, we saw India
place a ban last month on its cotton export to see to it that priority lies with conversion of the basic
commodity into finished cum made-up goods - this in order to generate both additional foreign
exchange revenues and employment. At our end, one is not too convinced that our policymakers are
even thinking through this aspect of our trade dynamics. Recent key decisions on enhancing trade
with India seem to have been taken in haste and without ensuring the fair element of reciprocity.
While it is understandable to grant the MFN (Most Favored Nation) status to India, in doing so we
needed to protect our industrial strengths by guaranteeing fair access to the Pakistani products
where we add good value and enjoy a competitive edge over India, e.g. home textiles, toweling,
cement, sports goods, surgical instruments, specialised consumer products, processed meat,
livestock, etc. Even the EU concessions’ package does not seem to be that exciting when one takes
into account that the majority of their concessions apply to items that fall in the category of feeding
cheap raw materials to the European manufacturing, instead of promoting value addition in
Pakistan. Also, the strong growth items for us like bed linen, bulk of home textiles, towels, etc have
either been excluded or have been placed under the ceiling of tariff related quotas.
So what is the way forward? First and foremost, we (the Pakistani textile industry) in guidance from
the policymaker (the Textile Ministry) need to be more proactive in our decision making by
focusing on long-term positioning, instead of current or short-term profit taking. Turkey, India and
China started basing their textile policies on such a premise, way back in the 80s and see where they
are today. Their textile sector continues to grow in all its dimensions and the sheer strength of
product value addition over time has supplemented the development of their domestic markets and
in helping them to evolve as leading textile machinery suppliers of the world. Pakistan in this regard
still has a long way to go. Further, going forward our industry needs enhanced transparency,
predictable government policies, better supply chain management and an awareness, both within the
government and the private sector, of using the newly developed global hedging instruments to
achieve stability in cotton and MMF (Man-made Fibre) supplies, boost production, and to alleviate
possibilities on future tight stock situations.
Second, all participants in the industry can show leadership by advocating that the
government/Ministry does a better job of statistical reporting. Companies can also lead by

86 | P a g e
participating in surveys of production, consumption and stocks when such data is requested.
Common use of metric measures can help all stakeholders to speak one language of statistics that
the bureaucracy can understand.
Third, we need to remember that there have been notable improvements in the efficiency of trade in
textiles since the ending of the Multifibre Arrangement (MFA) in 2005, and attempts by anyone
(association, lobby group, etc) to take it backward through requests to the government for trade
protection should be strongly discouraged.
Finally, In Pakistan, cotton is grown on 3 million hectares mainly in the provinces of Punjab and
Sindh. More than half of the farms are less than 2 hectares in area, although they cover only 11 per
cent of the area. However, less than 2 per cent of the farms covering 24 per cent of the area are
larger than 20 hectares in size. Key actors in this segment of the chain are the 1.3 million farmers,
20 pesticide companies, 114 seed companies, government seed corporations, government seed
certification department, the agricultural extension system, the cotton crop research institutes, the
irrigation department, commission agents, ginners, and Agricultural credit companies.. Cotton, a key
raw material in the textile and garment industry, accounts for about 30% of the fabric cost and 13%
of the garment cost. the Textile Ministry should take its cue from their Indian, Chinese and
Bangladeshi counterparts by actively collaborating with the World Bank to make use of its initiative
to deliver training to industry managements, trade associations and the regulatory body on how to
effectively use various hedging mechanisms and devise intra-industry policy frameworks to ensure
smooth and long-term functioning of the entire industry’s supply chain

All things considered, it is apparent that the Pakistani Textile Industry is facing an uncertain
environment. The increase in input cost of minimum wage by 50 percent, increasing interest rates,
non-guaranteed energy supplies, lack of R&D and reduction in cotton production has had a negative
impact on the industry’s competitiveness internationally. In order to sustain the Textile Industry, the
new Pakistani government has a tough task ahead and needs to urgently implement a suitable long-
term strategy that provides a level-playing field against their regional competitors. And other
reasons are as follow
 Pakistan has an abundant supply of locally grown long staple cotton, which lends it a
cost advantage in the home textile and apparels segments. Other countries, like China and
India, have relatively lower supply of locally grown long staple cotton. Moreover, low
cotton prices due to a bumper cotton crop would enable Pakistan to lower its production
cost and sustain pricing pressure.

 Further, efforts on improving the yield per hectare would ensure higher productivity and
production, thereby providing the much-needed security of raw-material supply to textile
producers

 Non-Guaranteed Supply of Power: Industrialists also argue that the non-guaranteed

supply of power by WAPDA (Water and Power Development Authority) is another
problem that negatively affects the textile industry. Although, some textile units have
built their own energy generating plants to cut cost (these units run on gas), small units

87 | P a g e
 production depends entirely on the electricity supply of WAPDA. The textile industry
suffered heavy financial losses in Dec, Jan and Feb quarter, because of the inconsistent
electricity supplies. The lack of production subsequently resulted in the industry not
meeting its target for the quarter, massive financial losses were borne by textile owners
and sadly, it hit the most vulnerable: workers on daily wages. Textile owners as well as
workers passionately assert that the inconsistent supplies have and are destroying
business across Pakistan. They also highlight that the high cost of the utilities has making
Pakistani textile uneconomical in the international market

PRODUCTION, EXPORTS & DOMESTIC REQUIREMENT OF YARN

Fig: in '000' Kgs
CONSUMED IN AVAILABLE FOR
EXPORTS
MILL SECTOR LOCAL MARKET
PERIOD PRODUCTION
% OF % OF % OF
QUANTITY QUANTITY QUANTITY
PROD. PROD. PROD.
1971-72 335,702 98,785 29.43 130,158 38.77 106,759 31.80
1972-73 376,122 89,880 23.90 184,404 49.03 101,838 27.08
1973-74 379,460 96,056 25.31 100,564 26.50 182,840 48.18
1974-75 351,200 88,103 25.09 78,365 22.31 184,732 52.60
1975-76 349,653 83,943 24.01 112,182 32.08 153,528 43.91
1976-77 282,640 65,452 23.16 64,294 22.75 152,894 54.09
1977-78 297,895 55,165 18.52 59,955 20.13 182,775 61.36
1978-79 327,796 51,215 15.62 97,929 29.87 178,652 54.50
1979-80 362,862 47,910 13.20 99,834 27.51 215,118 59.28
1980-81 374,947 43,277 11.54 95,232 25.40 236,438 63.06
1981-82 430,154 42,624 9.91 95,621 22.23 291,909 67.86
1982-83 448,430 50,563 11.28 134,100 29.90 263,767 58.82

1983-84 431,580 34,972 8.10 101,805 23.59 294,803 68.31

1984-85 431,731 53,546 12.40 125,855 29.15 252,330 58.45

1985-86 482,186 46,052 9.55 157,895 32.75 278,239 57.70

88 | P a g e
1986-87 586,371 36,410 6.21 259,668 44.28 290,293 49.51

1987-88 685,031 41,566 6.07 210,950 30.79 432,515 63.14

1988-89 767,434 38,172 4.97 291,953 38.04 437,309 56.98

1989-90 925,382 47,119 5.09 374,976 40.52 503,287 54.39

1990-91 1,055,228 40,215 3.81 501,072 47.48 513,941 48.70

1991-92 1,188,270 36,022 3.03 505,863 42.57 646,385 54.40

1992-93 1,234,539 35,101 2.84 555,294 44.98 644,144 52.18

1993-94 1,498,948 36,846 2.46 578,648 38.60 883,454 58.94

1994-95 1,413,648 29,111 2.06 522,091 36.93 862,446 61.01

1995-96 1,505,244 30,164 2.00 535,889 35.60 939,191 62.39

1996-97 1,530,855 46,962 3.07 508,188 33.20 975,705 63.74

1997-98 1,540,720 53,445 3.47 461,919 29.98 1,025,356 66.55

1998-99 1,547,632 55,947 3.62 421,481 27.23 1,070,204 69.15

1999-00 1,678,536 65,481 3.90 512,971 30.56 1,100,084 65.54

2000-01 1,729,129 68,275 3.95 545,134 31.59 1,115,720 64.52

2001-02 1,818,345 77,328 4.25 539,500 29.67 1,201,517 66.08

2002-03 1,924,936 79,435 4.13 525,130 27.28 1,320,369 68.59

2003-04 1,938,908 93,141 4.80 514,279 26.52 1,331,487 68.67

2004-05 2,290,340 105,362 4.60 520,782 22.74 1,664,196 72.66

2005-06 2,216,605 95,710 4.32 691,492 31.20 1,429,403 64.49

2006-07 2,727,566 104,423 3.83 699,259 25.64 1,923,874 70.53

2007-08 2,809,383 105,443 3.75 594,936 21.18 2,109,004 75.07

89 | P a g e
 2008-09 2,862,411 106,416 3.72 526,246 18.38 2,229,749 77.90
Source: TCO/CSO

90 | P a g e