Letter to the Editor: ‘Textiles Will Continue to Flourish in Pakistan’
May 10, 2011 EDITOR’S NOTE: Last week, Cotton International ran a news brief on the emphasis Pakistan puts on its textile industry, including the introduction of the first-ever “Five Year National Textile Policy.” This week, we received the following response to that story, addressed to The Editor and signed, “A Spinning Mill Owner in Pakistan.” The letter has been edited for clarity.
In the long term, the only countries that will remain competitive in textiles production will be India, Bangladesh, China and Pakistan–and, for slightly higher-end garments, Sri Lanka. Pakistan will continue to have a long-term advantage in terms of being competitive as a producer of textiles, mostly due to the availability of relatively cheap labor (though not as cheap as, for example, Bangladesh). For these reasons, it was important and appropriate that the government create a comprehensive Five Year National Textile Policy.
However, the real issues in Pakistan have more to do with raw materials and the government’s inability to provide help or subsidies. Pakistan might be the only country where a level playing field for textiles production exists, because the government is simply too poor to provide any sort of industrial subsidies despite the importance of the textile industry to the country. This means that Pakistani manufacturers have to become that much more efficient in order to compete with manufacturers from competing countries.
With regard to raw material, the level of competition gives the retailer significant buying power, which sometimes leads to uncertain business relationships. The ability of the retailer to cancel orders, delay shipments, or renegotiate prices (sometimes forcefully) leads manufacturers to become uncertain when trying to calculate how much raw material to cover, and how far in advance.
This, in turn, leads to ineffective hedging strategies that leave manufacturers exposed to serious risks—and no ability to effectively use trading tools to protect themselves. Combine this risk and the market’s relative lack of sophistication with regard to futures, options, and hedging strategies, and you end up with a very serious issue.
Manufacturers in Pakistan generally have to learn hard lessons during periods of high raw material volatility, the results of which we are now seeing. The sudden and sharp price declines in the cotton market have left a lot of manufacturers with high-priced inventory (of raw material, intermediate products, and finished products) that is now losing value, and which will probably significantly affect their balance sheets in the next period.
Manufacturers have also learned–the hard way–that speculating on the market, especially above a certain price level, is too big a risk to take.
Over the long-term, Pakistan’s future lies with textiles, especially in the value-added fields (finished goods). There are still problems that need to be resolved, including power shortages and sharp increases in the costs of living (especially food), but the expertise of manufacturers here–combined with inexpensive labor and relatively low operating costs–means that Pakistan should continue to remain competitive.
With that in mind, a textiles policy that attempts to protect, or at least contribute, to the industry makes sense, especially given its importance to the national economy. As long as manufacturers can learn to effectively protect themselves from risk and deal with raw material volatility in a more sophisticated manner, especially with the help of retailers of the end product, textiles should continue to flourish.
The facts and figures speak for themselves, in that they demonstrate the ability of the industry to hang on, even in tough times, and illustrate the importance of textiles to Pakistan’s growth.
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