Energized, Motivated Workers Will Drive Growth
February 10, 2011 Pakistan’s textile industry is emerging as a major player after the global economic meltdown in 2008. The financial and economic crisis has resulted in a permanent closure of many mills not only in the European Union and the United States but also in textile-producing countries such as Turkey, Brazil and a few other 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 a major cotton-producing country and having a large, modern and efficient spinning and weaving industry–as well as the availability of manpower–are the strong pillars of the industry in Pakistan. The economic meltdown was a wakeup call that showed the value-added industry that survival was for the fittest; it also opened up new opportunities in the gaps left by closures in other parts of the world.
Room at the top
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.
Pakistan is emerging not only as a supplier of quality and high-end fashion products being supplied to high-end international brands, but also a solution provider in terms of logistics, designs, inventory management and product development. This is particularly true in the denim and home textile sectors.
Also, many people associate Pakistan with a low-wage, unskilled labor force. Nothing could be further from the truth. While Pakistan continues to have an edge in terms of its labor cost, the industry generally has invested immensely in training its work force–not only at the worker level, but also to develop a very strong and energetic middle and top management.
This can be attributed to the establishment of new textile universities, which are training bright young professionals for mid- and top-level positions in textile companies. That greatly enhances companies’ ability to provide comprehensive solutions to their customers.
Another great change that is revolutionizing the industry is the opening of a number of fashion schools in Pakistan. This is taking the industry to a new phase, with many producers tapping into the local market by introducing their own brands and opening retail outlets. Some are aspiring to become regional players as well.
This is greatly enhancing Pakistan’s ability to upgrade its products and move up the fashion chain. Many companies are integrating themselves vertically for better control on quality, lead times, costs and product development. There is a long way to go but the journey has started. Companies that don’t change will be left behind.
Optimism, but also realism
All of this sounds very positive and while the industry is confident, there are serious challenges as well. On the global front, wild fluctuations over the last two years have made the textile business very risky. Producers all over the world should have a level playing field, and as proponents of a free market, we believe that all countries should adhere to the principle of global transparency for enhanced price discovery and risk management for all stakeholders.
India’s recent export restrictions are tantamount to giving subsidies to local manufacturers and are against the very principle of globalization and free trade.
Earlier this year, Pakistan imposed restrictions on yarn exports. The industry, confident of its competitiveness, fought for and achieved a governmental commitment to maintaining free import and export of raw cotton and yarns. This year, despite a shortage of raw cotton and record prices, free trade has been maintained and about 400,000 bales of Pakistani raw cotton have already been registered for export.
This year’s wild fluctuations in raw material prices mean that customers and suppliers need to work together more closely. Back-to-back sale purchases are also essential to minimizing risks, and many producers are taking steps to vertically integrate their operations.
In spite of this, the trend for long-term contracts between retailers and end purchasers may be restricted due to price risks, something that is becoming a global phenomenon.
Energy shortages are another challenge for the industry, but the government has announced that it will implement solutions to those problems.
The most important advantage that Pakistan’s textile industry has–in addition to its textile infrastructure and investment in skilled human resources–is the potential for growth in raw cotton production.
Earlier this year, even the more pessimistic estimates put the crop size at more than 14 million bales.
Unfortunately, the massive flooding we endured not only caused human misery but also substantial damage to the cotton crop. The country’s opening stocks for 2010/11 were already quite low, and with consumption expected to increase after the global economic recovery, Pakistan was surely not in a position to afford crop failure.
These factors, together with global high prices of cotton, have had a clear influence on domestic cotton prices, which remain highly volatile.
Solutions start at home
To meet the challenge of improving local supply, efforts are being made to bring the necessary changes to domestic cotton production in order to satisfy domestic consumption, both from a quantity and quality perspective.
Potential for further increases in acreage is presently limited, but yield could be improved significantly through the adoption of improved agricultural techniques and the use of genetically modified seeds.
Pakistan also has developed a competitive edge: a relatively good timeframe of harvesting between the intercrop season of other major northern hemisphere crops. The trend of preseason sowing during February and March has gained momentum after it was successful in the Punjab province, where about 80 percent of Pakistan’s cotton is grown.
The share of preseason sowing is expected to grow from 15 percent in 2010 to as much as 30 percent in the 2011/12 season as farmers try to get maximum benefit from the current record price levels. Shifting from routine sowing in May/June to preseason sowing will play a crucial role in the overall improvement of quality and crop size in coming years.
The yield achieved in a preason crop is significantly higher because the evolution of early-maturing seed varieties has enabled farmers to harvest before pests and the cotton leaf curl virus can devastate the crop.
In addition, it provides growers with an opportunity to dispose of their seed-cotton with high net returns during the ideal timeframe: early season, when both domestic and foreign demand for raw cotton is high.
Pakistan’s raw cotton production and textile industries are definitely positioned for significant growth. There is a new vibrancy among Pakistan’s key market participants and it is easy to see if you take a closer look at the strides and achievements the industry has made in the last few years.
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