Stagnant Performance of Textile Industry of Pakistan - Case Study Example

Stagnant Performance of Textile Industry of Pakistan Stagnant Performance of Textile Industry of Pakistan Introduction The sectors of textile and clothing items have always been very important for the economy of Pakistan. The total contribution of the textile industry in the income earned through exports is 60%, its contribution in the manufacturing arena is 46%, and this sector consumes over 46% of the loans obtained through banks and 38% of the total employed workforce of Pakistan works in the textile industry (MUNEER, 2006, p.5). The major role in the success of the textile industry of Pakistan has been plated by Cotton which is a very important raw material for the nation. Pakistan is regarded as the fourth most producer of cotton raw material and third most user of this raw material throughout the world (PINSTRUP-ANDERSEN, 2009, p.173). It is expected the industry will continue to grow and become one of the reason of economic growth in the economy of Pakistan. This industry has proven to attract foreign money into Pakistan’s economy and it is responsible for hiring the highest number of employees in Pakistan and there is no other industry that can replace it. Over the previous four decades the textile industry of this nation has displayed its strength in the international arena. Textile industry of Pakistan is not new and has a very huge history. During the period of 3000 BC, Pakistan’s Indus Valley was known for the production of raw material of cotton and during that era cotton was being used to create clothes (KENOYER, 1991, 340). The day when Pakistan gained existence on the world map, it had only two textile mills operational within the nation. Later, due to policies adopted by the government, the industry grew at a very fast pace. Today it is the leading sector of Pakistan and is the major contributor for the success of the economy of Pakistan and the manufacturing industry. Although the industry is very important, but over the period of past two decades, the industry has experienced heavy challenges due to competitors. The textile industry of Pakistan has been experiencing immense competition from old and new competitors with the international and local arena since the era of 2005 (CORORATON, 2008, p.52). Industry is even experiencing other issues that have taken place internally, the workforce is under trained and the productivity levels are lower, there is a lack of leadership within the industry, the industry has failed to differentiate and add value. Other internal issues that are hurting the industry very badly includes high rate of inflation, low rate of production of power and increased rates of interest at which bank loans and funds are provided. Body There has been an increase in the demand for clothing and textile industry goods throughout the world (FAINI, 1992). Past two decades have experienced tremendous amount of success of the industry of textile. During the period 1990 the total export of textile conducted throughout the world was 212 billion and after 18 years it increased by $401 billion (Ahmed, 2012). Pakistan even witnessed an increase in the amount of textile goods produced and exported during the era of 1990 to 2008. During the period of 1990, Pakistan exported $3.6 billion worth of textile related goods and by 2008, this figure increased to 11 billion (SHARMA, 2006, p.19, LOPEZ ACEVEDO, 2012, p, 1999). Pakistan has experienced growth in the industry but has faced various obstacles and challenges due to which the growth rate has been slow. Pakistan’s share in the export of textile has declined to 1.81% during 2008 from 2.23% as recorded in 2005 (SCHAFFER, 2009, p.344). During this three years period the production of textile has remained volatile due to heavy increase in power prices and low amount of availability of power. Pakistan faces various problems due to which the growth of their textile industry has remained sluggish. The main element of any textile industry is cotton raw material and Pakistan is competing as the fourth largest producer of cotton, but the issue is that the cotton produced in Pakistan is of low to medium quality (CRAWFORD, 2008, p.58). Except 2010 Pakistan has been able to produce similar quantity of cotton, during the period of 2010, the production rate was 14.5 million bales (ABID HUSSAIN, 2012, p.170). Over the past 15 years Pakistan has failed to produce desired quality and quantity of cotton, the cotton produced by Pakistan is contaminated and is classified as low quality cotton in international markets. The contaminated cotton produced by Pakistan comprises of waste material such as dust and jutes. Due to contamination of cotton, the production of yarn is even hampered (BRECHER, 1972, p.120). Defects in the produced finished goods become more visible and the end product is not liked by the customers. When cotton produced in Pakistan is used for the phase of spinning, the degree of contamination in cotton is recorded at 7% and this amount is considered quite high (ALAM S, 2012, p.347). The failure to produce uncontaminated cotton is caused due to failure of conducting research and development and lack of farmer’s interest as they are moving towards sectors that are producing higher revenue for them. To counter the problem, the industrialists in Pakistan has adopted backward integration method, according to this method, weaving factories have merged with spinning factories to increase the quality of yarn (SIDDIQI W, 2012, p.1172). In order to further work on the betterment of the quality of end product, integration with the ginning factories is required. In order to obtain competitive advantage, Pakistan needs to focus on the technology side of their textile industry. Pakistan textile industrialists are still heavily dependant on obsolete technology and due to this their productivity is quite low (PIDE, 2012). For example Pakistan is producing only 8 bales every hour during the stage of ginning, while those nations that have adopted up to date technology are producing 60 bales every hour (FBR Pakistan, 2012). Lack of up to date technology is even witnessed in the weaving and spinning sides of the textile industry of Pakistan. The production of printed fabric is even quite low in the nation due to lack of technology. Up to date technology is only used in the area of producing polyester, but these areas are even experiencing low productivity as expenditure on research and development is not taking place (KHAN, 2009, p.83). If the textile industry of Pakistan has to meet the demands of the consumers, they need to spend money and adopt up to date technology. One of the major reasons of low productivity in the textile industry of Pakistan is non availability of required and desired workforce (IQBAL, 2011). The labor market of the nation is quite enormous but the problem is that they do not have the desired skills and abilities, even in the textile sector there is lack of trained employees. The people working within the industry have only experience but lack formal training. These workers are unaware of the international requirements and thus fail to produce goods in accordance (AHMED, 2011). The industry has to bare the burden of heavy amount of wastage which is caused due to lack of good quality production, revision of the produced goods and lack of competent processes. Training arenas such as vocational, management and graduate have failed to address these issues. Owners of mills within the nation have reported that an individual has to gain training on the job for more than a year in order to be equipped with the ability of producing satisfactory end products. During the era of 1994 to 2006 labor productivity in this sector only increased by 1.2% and rate of increase in wages within the industry was only 3.63% and such happenings have failed to put the industry in a competitive position (MAHMOOD, 2007). Another major concern for the industry is lack of investments necessary to obtain up to date technology and skills to increase productivity and compete in the global arena (CHANNAR, 2011). During the era of 2010, the industry required a total funding of $32 billion to meet government’s target of production. Due to bad economic conditions within and outside the nation, the textile sector has failed to accumulate the required funds from local and international investors (PTEA, 2012). Within the same period, expenditure of $4 billion was conducted to import machinery from international regions and $2 billion was spent locally to purchase local machinery (CORORATON, 2008). 50% of these machinery were for the spinning side, 25% of these machinery was spend for fabric and cloth side and the remaining 25% was distributed between finishing and dyeing machinery (CORORATON, 2008). Heavy growth is experienced in ready made products as such products are high in demand both domestically and internationally, still low amount of investments were done in these areas (Memon, 2012). The direct competitors including the textile side of the India and Bangladesh have focused heavily on investing in the textile industry. The international community is getting better quality yarns from competitors of the textile industry of Pakistan; still Pakistan is mostly diverting its funds towards this side of the textile industry and suffering losses (The Express Tribune, 2012 & Thakur, 2009, p.112)). Pakistan’s textile industry has experienced heavy increase in the cost of production and that is one of the reasons of failure to compete in the international markets (Hathiringe, 2012). The main causes of increase in the cost of production is increase in the cost of raw materials, salaries, power cost, import and export cost, high rate of interests and devaluation of the currency of Pakistan (ARA, 2005). The textile industry of Pakistan was experiencing heavy challenges from the competitors is now facing the issue of increased cost of raw materials and due to such circumstances the mills have failed to accomplish their targets (Khan, 2012). The raw material supplied within the nation is less than the total demand which will result in heavy import of cotton as seen in the era of 2007 and 2008 that Pakistan became the second top importer of cotton (Syed, 2007). Productivity has increased at a rate of zero but the wages have doubled, the government has increased minimum wage level from Rs. 6k to Rs. 7k (HUSSAIN, 2012). The increase in cost of labor has increased the fixed cost side of the production and the local and international consumers are not ready to take the burden of increase in labor cost. The lava of burden on the industry has mounted because of heavy decrease in the supply of power to the mills and entire industry and in crease in power tariffs (Ameen, 2012). Khan states that the industry is producing at 30% less than its full capacity due to energy crises (KHAN, 2009). Cost of transportation has even increased, textile mills within the area of Punjab is bearing heavy cost of transportation as they have to import raw material through Karachi port and then export again through Karachi port (Jamal, 2012). Pakistan has experienced increase in inflation by double digits which are decreasing the purchasing power of the locals and which leads to increased prices of goods being exported (ELLIOTT, 2011). Recommendation The first issue experienced by the industry is of decreased quality of raw material and decreased quality of end product (Jaffrelot, 2002, p.163). The representatives of the industry should guide the local raw material producers to supply high quality raw material and this can be achieved by threatening them that the mill owners will obtain raw material from other sources if farmers fail to produce high quality raw material (JAMSHAID, 2010). The second issue addressed is low levels of productivity and untrained labor force. To solve the productivity issues, the mill owners need to import or obtain up to date technology for producing end products and decrease their investment in areas which are not providing higher rate of return and increase investment in machinery used to produce end products which will increase productivity (LAHIRI, 2001, p.197). Training programs in official settings need to be established, these training centers need to preach expected workers of the textile industry about the requirements of foreign nations (HASAN, 2011, p.61). The third issue experienced by textile industry is increased cost of production. Organizations can shift from salary based pay to piece rate systems to counter the increase in minimum wages and this will even enhance product as workers will try to produce more in order to earn more (QADEER, 2006, p.17). 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