Term Paper

on

Diamond Porter Analysis of Textile

Industry of Pakistan – A Comparative
Advantage

By

Amna Alvi
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Table of Contents

 Introduction – Textile Industry and Pakistan

o Historical Background

o Current Situation

 Competitive Advantage

o Diamond Porter Model

 Literature Review

o Competitive factors Confronting Pakistan’s Textile Industry

 Conclusion

o SWOT Analysis of Pakistan’s Textile Industry

 Policy Implications

 Reference

Introduction
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Over the years, Pakistan is said to be the single crop economy i.e. cotton
and textile that claims the lion's share in terms of the contribution in the
national economy of Pakistan.

Despite efforts to bring in diversification in country's overall economic get-

up the textile sector continues to be the most important segment of the
national economy. Its share in the economy, in terms of GDP, exports,
employment, foreign exchange earnings, investment and revenue
generation altogether placed the textile industry as the single largest
determinant of the economic growth of the country.

Despite harsh international economic conditions, Pakistan's textile

industry has weathered the storm by coming out of the international crisis
in a very positive manner. During the year 2006-2007 exports were
controlled from falling and significant investment was made in value-
added expansion and in Balancing-Modernization- Replacement (BMR)
(Latif, 2000).

About 10 percent of the world cotton crop is produced in Pakistan, making

it the fourth largest producer in the world. The textile industry currently
accounts for almost 67% of Pakistan's exports, 20% of value-added
production and employs 35% of manufacturing labor.

Made of premium quality Cotton, the textile fabrics of Pakistan are

distinguished for their quality, texture, lustrous colour and rich
combination of superior designs and competitive prices.

That is why this sector have been chosen to analyze what are the
obstacles that are affecting the textile industry of Pakistan in achieving
competitive edge over other economies of the world.

Textile Industry and Pakistan – The innate relation:

Textiles, all fabrics made by weaving, felting, knitting, braiding, or netting,

from the various textile fibres. Textiles are classified according to their
component fibers into silk, wool, linen, cotton, such synthetic fibers as
rayon, nylon, and polyesters, and some inorganic fibers, such as cloth of
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

gold, glass fiber, and asbestos cloth. They are also classified as to their
structure or weave, according to the manner in which warp and weft cross
each other in the loom. Value or quality in textiles depends on several
factors, such as the quality of the raw material used and the character of
the yarn spun from the fibers, whether clean, smooth, fine, or coarse and
whether hard, soft, or medium twisted. Density of weave and finishing
processes are also important elements in determining the quality of
fabrics. The weaving of carpet and rugs is a special branch of the textile
industry1.

Since its inception, Pakistan has its roots in being an agrarian state with
indigenous cotton supply. In 1947, two textile mills were established in
the country as a colonial heritage. However, the Pakistani textile industry
has played a crucial role in the country’s industrial development.
Pakistan’s Industrialization began in 1950 with the textile industry at its
centre2.

Over the time, textile industry have depleted due to various complexities.
The difficulties faced by textile industry were partly due to limited focus of
the players and partly due to globalization. (Meier, 2007) During 1984-
1990 many of the spinning mills did not go for upward integration as raw
cotton suppliers were adamant in bringing down the prices. And so with
the globalization and ease of trading these intermediaries find it more
profitable for themselves to export primary goods. Having a look at the
exports composition of that time we can see it mainly comprised of yarn,
unbleached fabrics, and low quality made-ups that did not create much
demand in the international market. Ideally, Globalization was a mean to
reallocate units and resources, get maximum advantage, and highest
value addition, to attain competitive edge. Nevertheless, Pakistan failed to
attract much investment while other countries reallocated their units to
cheaper countries such as Indonesia and Thailand.

1
Amna Alvi (2005), ‘Textile Industry of Pakistan – An Overview’
2
Akbar Zaidi, ‘Issues of Pakistan Economy’
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Current Situation3:

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 Ready‐Made 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 melt‐down
globally. The Garment Sector & especially the Knit Garment Sector need
special focus in future policies.

It has an overall integrated structure with an important indigenous cotton

crop, increasing man-Made Fibre production, large spinning, weaving, and
knitting, dyeing/printing and finishing capacities as well as expanding
garment and home textile industries.

Structure of Textile Industry of Pakistan

3
Economic Survey of Pakistan (2010)
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Source: Textile Commissioner

Organization (July 2006)

The Textile & Clothing trade has increased, from US$ 212 Billion in 1990
to US$ 612.1 Billion in 2008. The clothing trade is growing at a faster rate.
Pakistan exported textiles worth $7.19 Billion and clothing worth $3.9
Billion in 2008. The year 2009 was dismal period. The industry was
confronted with problems of multiple natures. The global economic crisis
in Oct. 2007 had impacted the trade badly. Weaker demand in the
developed economies limited the expansion of global trade. The 12% drop

in the volume of world trade in 2009 was larger than most economists had

predicted. World trade and output are currently in a recovery phase. The
WTO Secretariat estimates that in year 2010 world exports in volume
terms will grow by 9.5%, developed economies’ exports will expand 7.5%.
The current decline in exports of all manufactured goods including Textile
& Clothing is visible in the quarterly data.

Source: Economic Survey of

Pakistan (2010)
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

US imports of textiles and clothing fell for the second year in succession in
2009, by 7.5% to 46.6 billion square meters equivalent (SME), following a
5.2% drop in 2008—which was the first decline since 2001. Within the
2009 total, fabric imports fell by 5.4%, imports of apparel by 6.1%,
imports of made‐up textiles by 8.5% and yarn imports by 18.4%. Of these
four categories, apparel continued to account for the highest share of
total imports. The average price of US textile and clothing imports fell for
the first time in three years in 2009, to a new low of US$1.74 per SME.

The period of heavy investment boom in most Textile Industry segments

between 2003 and 2007 came to an abrupt end in 2008. This investment
boom until 2007 was due to the phase out of traditional quota regime
under WTO – Agreement on Textile and clothing and China’s integration
into WTO structures. Global yarn and fabric productions were continuously
falling since the second quarter of 2008. Despite challenges, there are
fundamental aspects that promise a bright future for the textile industry
in general.

Competitive Advantage:

Theory of Competitive Advantage can be traced back to the initial

development of Economics as a separate discipline. Classical Economist
such as Adam Smith, Thomas Malthus, and specially David Ricardo gave
immense attention to producing what the nation is best at and then take
advantage of that edge through free trade.

However, all these economists talked about factor endowments (such as

Land, Labour, and Capital) and macroeconomics for the growth and
development. Using these factors effectively would give a country an
edge over others.

With the further development of study of Economics and overall economic

condition of the world with massive industrialization and liberalization of
trade, classical macroeconomic theory was insufficient to explain the
growth and development of some countries that lacked the availability of
the factors, of the kind mentioned in the theories. Some economists of
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

that time started to take into consideration other factors that could play
pivotal role in a country’s growth such as Technology, capital-labour ratio
etc. Still, no one thought about giving it a micro level look.

This is what Michael Porter discovered and came up with the six forces
model, through which any country can determine its strengths,
weaknesses, opportunities and threats (SWOT) and then put these into
consideration before making any decision. The Diamond Porter Model so
called because the six factors collaboratively work together to give a
country a picture of where it is standing.

Diamond-Porter Model:

Diamond Porter Model is presented by Michael Porter in his book ‘The

Competitive Advantage of Nations’. It helps in understanding the
competitive position of a nation in the global world.

Michael Porter integrated some knowledge of industrial economics and

business strategy to come up with a comprehensive solution to complex
problems in competitiveness. He believed that macroeconomic stability
itself does not guarantee prosperity and so tried to give competitiveness a
constantly evolving micro framework unlike macro overview of traditional
theories. He clearly distinguished between the competitiveness of the
firms from that of nations. In contrast to traditional theories of
comparative advantage which focuses on country’s factor endowments of
land, labour and capital, the diamond porter theory attempts to look at
factors affecting immediate business environment and productive
capacity of firms; factor input conditions, demand conditions, firm
strategy and rivalry, and the presence of related and supporting
industries. According to this theory, the process of economic development
is about improving this diamond so as to achieve higher and sustainable
productivity.
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

The traditional theories talk about labour specialization and efficient use
of available sources and economies of scale through large scale
production; however in view of diamond porter model the process of
specialization cannot be done with one firm, a cluster is needed that
results in efficiency gains. He gave examples of many cluster initiatives
that has driven competitiveness to a new level including Silicon Valley,
Financial Services in New York, and the Hollywood entertainment cluster.
Regarding the role of government in this model is to act as a catalyst,
establishing macroeconomic stability and providing stable political, legal
and social institutions to help companies improve their competitive
position.

To measure level of competitiveness, Porter introduced Business

Competitiveness Index (BCI) and Growth Competitiveness Index (GCI). BCI
captures a country’s standard of living and a broad perspective about
quality of microeconomic environment where as GCI sketch out economic
dynamism pointing towards quality of public institutions and
macroeconomic environment. Both indices though highly correlated are
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

individually critical to the measure of quality of micro and macro

dimension of the economy.

Hence from the diagram it can be clearly seen what six forces have
comprised the Diamond Porter Model:

i) Factor Conditions – Factors of Production such as physical resources,

human resources, capital resources and Infrastructure (Special
resources can be created to compensate for factor disadvantages)

ii) Demand Conditions – both in the domestic and foreign market

iii) Related and Supporting Industries – Supply chain industries (Upward

and Downward linkages e.g. providers of raw material, distributors
etc)

iv) Firm Strategy, Structure, and Rivalry – Organizational goal and

presence of intense rivalry

v) Government – Government interventions can affect all of the above

factors at local, regional, national and supranational or international
level

vi) Chance – factors that are outside the control of a firm

“A firm is profitable if the value it commands exceeds the costs involved

in creating the product. Creating value for buyers that exceeds the cost of
doing so is the goal of any generic strategy. Value, instead of cost, must
be used in analyzing competitive position ...” (Ibid)

To attain the competitive advantage, Michael Porter has catalogued three

types of generic strategies through which competitive advantage can be
pursued. These strategies are:

a) Cost Leadership – Firm sets out to become the lowest cost producer
in the particular industry (price wars)
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

b) Differentiation – Firm seeks to be the best performer in the industry

(having a special attribute in the product or service that others do
not offer)

c) Initiative Focus – Firm looks to exploit a niche market (targeting a

group within the market of that industry and create loyalty)

The strategies vary according to the position of the industry in the

diamond analysis besides its organizational structure and culture. For
example if a country’s industry is lying in the factor conditions that is it
has advantage over factors of production, then cost minimizing strategy
proposed by the Porter would be the plan to maintain its competitive
edge.
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Literature Review

In this section, the reviews have been organized according to the factor
forces of the Diamond Porter Model.

Diamond Competitive factors Confronting Pakistan’s Textile

Industry:

i) Factor Conditions:

As Textiles and Apparel cluster involves diverse set of activities

requiring different of inputs, a detailed analysis of factors conditions
across the value chain is required.

The recently announced increase in the minimum wages of the

workers has left the industries with higher cost of production. Once
having an edge over cheap availability of labour, Pakistan no longer
holds this competitive advantage since labour in Bangladesh and
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Vietnam are more low-priced (Hoekman & Winters, 2005). And so

the costs faced by the industry have largely offset the advantage of
cheap labour. The following diagram4 pictures the factor conditions
over the value-chain.

According to a study of Pakistani textile and apparel sector (Raptis,

2009) some of the garment units were over-staffed by 57 per cent.
That was an internal negative factor whereas external factors
included no duty-free market access to the EU and negative image
and perception of Pakistan abroad.

“Labour productivity is very low. Our regional competitors take 75

minutes to complete and produce one piece of cloth whereas we
take 133 minutes for the same work. We also waste 30 percent in
finishing and 12 percent in washing.”

(Mirza Ikhtiar Baig)

Moreover, the textile looms and other equipments have become

obsolete due to insufficient timely investment and modernization.
One of major reason might be the rising interest rate which has
crippled the small investors and made them risk-averse (Mukhtar,
2008). So, with inadequate capital, textile industry is unable to
equip efficient machineries for effective production. Although in the
current fiscal year, investments in the import of new textile
machineries have shown a gradual increase5 (14.2%), showing
better trend for future.

The companies are downsizing, production units are shutting down;

around 500,000 of the workers have already lost their jobs. After
surviving from the load-shedding scenario the industry has yet to
survive the gas load shedding scenario. LESCO has informed the
industry that it would not supply power for the additional load and

4
Diagram is extracted from one of my previous Assignments during Bachelors of
Business Administration (2005)
5
Economic Survey of Pakistan (2010)
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

only the sanctioned load will be supplied during the winter months
(Fayyaz, 2008). According to Pakistan textile industry association,
90 percent of Pakistan's textile industry is losing money losses and
facing closure. More than two months of production has been lost
due to power cuts and gas shortages.

The lack of Research and Development in the cotton sector of

Pakistan has resulted in low quality of cotton as compared to rest of
the South Asia (Mehta, 1996). Subsequently, due to low profitability
in cotton crops, farmers are shifting to other high return cash crops
such as Sugarcane. In Punjab alone, the cotton sown in 2008 was
less by 1.14 percent relative to that of last year.

Gaps in skill set of labour force only add to the problem of low
productivity. Informal apprenticeship mechanism (Shagirdi) is the
dominant form of skill transfer which eventually leads to
inconsistencies in product quality. Ultimately, these inhibiting factor
conditions, such as low quality of raw material, poor technology and
insufficient skills, lead to low value addition and high defect rates.
For example, 40% of exported fabric was grey in 2000—an indicator
of low value addition. Similarly, the defect rate at the
processing/printing stage was 10% (SMEDA, 2000).

ii) Demand Conditions:

Due to higher costs of production in Pakistan relative to Bangladesh

and India, Pakistan has lost much of its market since it was unable
to provide good quality cheaper raw material. Yet, Pakistan has
cheaper inputs of production as compared to other countries of the
world. Owing to the undiversified value added textile goods,
Pakistan does not have a vast network of trading partners. Only a
limited number of markets have been explored with limited number
of customers. Some of its trading partners are: USA, European
countries, Middle-East, Hong-Kong, Singapore, and Thailand etc.
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Pakistan has a very low share of the international textile market.

China tops the US market with a share of 36 percent followed by
Bangladesh 21 percent, India 18 percent, and Pakistan 13 percent.
Additionally, in the European market, China tops again with a share
of 29 percent, Vietnam 28 percent, India 19 percent, and Pakistan
only 1.5 percent (Baig, 2009).

However, on the bright side of current events, because of a global

shortage in availability of cotton, largely due to a shortfall in
Chinese crop, the foreign demand for Pakistan’s cotton yarn has
risen exceptionally in the current fiscal year of 2009-10. Chinese, in
particular, have procured huge quantities of yarn from Pakistan,
even though they are the fiercest competitor of Pakistan in the
world market. Textiles are exported in the form of Yarn, Fabric,
Readymade Garments, and Bed Wear & Made Ups. Past Global
Export performance of Pakistan’s textile can be viewed in following
table.

Export of Textile and Clothing (Us $ millions)

1990 2000 2004 2005 2006 2007 2008
104,3 157,2 195,5 202,6 220,3 240,3 250,19
World Textile
54 95 41 57 67 64 8
108,1 197,7 260,5 276,8 309,1 345,8 361,88
World Clothing
29 22 69 02 42 30 8
212,4 355,0 456,1 479,4 529,5 586,1 613,08
Total
83 17 10 79 09 94 6
Pakistan Textile 2,663 4,532 6,125 7,087 7,469 7,371 7,186
Pakistan
1,014 2,144 3,026 3,604 3,907 3,806 3,906
Clothing
10,69 11,37 11,17
Total 3,677 6,676 9,151 11,092
1 6 7
% of World
1.73% 1.88% 2.01% 2.23% 2.15% 1.91% 1.81%
Trade
Source: Ministry of
Textile-09
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

After the reduction in the quota in March 2010, local production and
demand has been improved but that has not contributed in the
windfall gain due to rising costs of production and loss of production
units due to laying-off of workers and load shedding.

iii) Related and Supporting Industries:

The growth of related industries in the textile cluster has largely

taken place in the informal sector in a very haphazard manner.
There are examples of organic clustering but a conscious effort on
the part of industry players or government to promote a cluster
based approach have always lacked. Generally, the capacity of
related and supporting industries is often weak with some
exceptions. Such as, Faisalabad—one of the largest textile
producing cities in Pakistan gives a good examples of organic
clustering and interconnection amongst the members. The upward
and downward linkages of the textile firms come under this caption.
Spinners, weavers, looming sector, jute etc are examples of the
downward linkages of the firms that provide raw materials to the
firms; whereas Apparels Garment, Towels, Hosiery etc are all
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

examples of the upstream (textile made-ups) industries that add

value to the yarn. These industries play a vital role in providing
employment opportunities for minority (women). Some of these
ancillary industries are operational at both large scale, and small
and medium scale level (Rehman, 2010).

Source: (Islam, 2006)

A few of these industries can be briefly discussed as follows:

a. 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) with 10.1 Million spindles and
114 thousand rotors in operation with capacity utilization of
89 percent and 60 percent respectively, during July – March,
2008‐09.

b. Cloth Sector: The objective is to convert yarn into grey cloth

that can be later dyed according to the demand. However, this
often has resulted in weaving of low quality cloth due to
variety of problems including poor technology, scarcity of
quality yarn, lack of communication facilities, and lack of
institutional financing for its development from unorganized
sector to an organized one.

c. 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, Carpets and Hosiery &
Knitwear & Readymade Garments including Fashion Apparels.
If efficiently functioned, this sector can earn huge profits for
Pakistan through value addition.

iv)Firm Strategy, Structure, and Rivalry:

Most of the firms are operating at small and medium level also
termed as cottage industries, making the textile industry highly
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

fragmented. Another important characteristic of the textile industry

is that firms are largely dominated by family owned businesses
which although may ensure trust and cost minimization but it also
adheres that government supports may rest in the hands of
selected few who has the power to control major part of the textile
products (Islam, 2006). Additionally, some lobbyists exist in the
current systems, who are engaged in practises that would give them
discretionary power to control input prices, making it expensive for
the firms. They can deliberately form a cartel to create artificial
shortages to raise the prices for higher windfall gains. Firms do not
only face competition from rival firms, rather rivals also include
smuggled goods. Most firms in the textile industry of Pakistan have
adopted cost cutting strategies so that they could charge competent
prices. Major players6 of the textile industry of Pakistan are as
follows:

a. Pakistan Textile Industries –

• Abdullah Apparels (Pvt.) Ltd

• Afroze Textile Industries (Pvt.) Ltd

• Al-Karam Textile Mills (Pvt.) Ltd

• Crescent Garment Industries (Pvt.) Ltd

• Baig Spinning Mills Ltd

• Dawood Cotton Mills Ltd

• Dewaan Textile Mills Ltd

• Al-Ameen Denim Mills (Pvt.) Ltd

• Ishaq Towel Factor

• Feroze Textile Mills (Pvt.) Ltd

b. Textile Industry Associations –

6
Extracted from the website of APTMA (www.aptma.org.pk)
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

• All Pakistan Textile Mills Association-APTMA

• Pakistan Cotton Ginners Association

• All Pakistan Cloth Exporters Association

• Towel Manufacturers Association

• Pakistan Readymade Garments Manufacturers and

Exporters Association

c. Agriculture Universities and Colleges –

• Pakistan Agricultural Research Council/ National

• Agricultural Research Centre

• Nuclear Institute for Agriculture and Biology

• Central Cotton Research Institute Multan

• National Textile University

• Textile Institute of Pakistan

• Pakistan Institute of Fashion Design

• Garment Weaving and Finishing Institute

d. Textile specific Research and Development Institutes –

• Pakistan Central Cotton Committee

• Textiles Commissioners Organization

• Pakistan Cotton Standards Institute

v) Government:

Due to imposition of high duties, Pakistan’s textile has no choice but

to raise its prices. Pakistan is purchasing cotton at higher prices with
the additional 15% duty on its import. And then along with the rising
costs of production and government’s contemplation, to charge
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

export duty to ensure local availability of yarn, have made it

impossible for Pakistan to compete against other major players of
textile in the global market such as China, Nepal, Bangladesh and
India. As a result of this, 50 textile units have been shut down
because of the declining and negative profits of the textile firms
(Ahmed, 2010).

Despite of this, the tightening on monetary policy and

corresponding expansion of the fiscal policy have drastically
increased the interest rates, due to which firms are lacking the
availability of capital and credit. And for up gradation of the
obsolete textile units, more capital investment is needed.

Subsidies provided by the government are inefficient to bring a

trickledown effect to the lower level workers. This could be the
reason of inefficient, un-willing and un-authoritative role of
government, and high levels of corruption.

According to the current status, government has taken some

initiatives to reduce the cost of doing business by introducing export
loan scheme by the name of Long Term Financing of Export
Oriented Projects (LTF-EOP); marketing and business facilitation
through Expo centre and exhibitions by Export Promotion Bureau to
attract potential buyers from all over the world; and for
infrastructural development Special Export Zone has been setup in
Karachi called as Textile City, Garment city has been established in
Lahore, Faisalabad and Karachi, and Skill development institute
have been initiated to train workers in the production of
contamination free cotton (Meier, 2007).

vi)Chance:

Pakistan’s textile industry has had many opportunities to explore

new markets and penetrate into largest market segments than the
current concentrated one. However, what seems to be lacking is the
will power of the firm owners. They always have this opinion that
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

government should provide them tax credits and subsidies so that

they could have more capital at hand for re-investments. By
improvising on the quality of cotton yarn and fabric, Pakistan can
reduce its costs, improve its exports and gain its comparative
advantage over other countries.

Conclusion

SWOT analysis of Textile Industry of Pakistan:

It can be inferred from the literature that Pakistan is laying at the first
force, i.e. Factor Conditions with limited or insufficient focus on other
forces. And so, to attain competitive advantage the appropriate strategy
according to Porter Model would be Cost minimizing Strategy. By Cost-
minimizing strategy the textile industry of Pakistan would be in a better
position to compete in the world market and can then proceed to the next
level i.e. product differentiation strategy to increase the product and
market base. For further examination of what can be inferred from the
study about the textile industry of Pakistan, SWOT analysis is done. SWOT
will draw a picture of the industry as a whole about its strengths,
weaknesses, threats and opportunities.

i) Strength

• Largest foreign exchange earner

• Largest employer of Labour force

• Availability of low-cost Labour and Land

 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

• Abundant in raw material (particularly Cotton)

• Availability of low-cost machinery

• Major part of textile goods are from man-made fibre rather than
synthetic one

ii) Weakness

• low-price image and reliability

• Incompetent marketing

• Noncompliance to Environmental and social regulation

• Inadequate infrastructure, including power, water

• Poor road network not able to provide foundation for a dynamic

industrial sector

• Deficient technology and outdated machinery leading to low

productivity and poor quality

• Lack of considerable up gradation of human resource skills

• Poor coordination among cluster players

• Lack of finance and capital to small enterprises

iii)Opportunities

• The state-of-the-art facilities at the Textile City which is being set

up at Karachi, is a good opportunity to help increase production
and competitiveness of textile products

• Enhanced market accessibility for Pakistan Textile products in

the Global Market

• Rising cost of China’s cotton due to excess of demand, is an

opportunity for Pakistan to take advantage of high priced world
market price
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

• With technological advancements, the textile industry can ensure

uncontaminated good quality cotton and cloth

• Pakistan is abundant in man-made cotton fibre that assures good

quality cloth. But the firm owners and investors must think of
ways synthetic textiles can be made so as to control the rising
prices of raw material

• The Textile Asia Exhibition provide opportunities to SMEs,

especially who instead of having the need to go abroad and see
various markets themselves are able to interact with all foreign
delegates, industrialists present here and showcase their
products

• Textile engineering sector will generate employment

opportunities. There is ample scope for qualified engineers in
mechanical, electric and electronics disciplines to boost this
sector

iv)Threats

• Declining world share in export of textile products means

Pakistan is losing some markets in the hands of others

• Limited Value Addition and low product differentiation

• Endemic issue of Political and Social volatility in the country

• Poor governance would repeal the Foreign Direct Investments

• India and China are giving hard time to Pakistan in terms of

advancements in technological innovation with strong
engineering process
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

• Insufficient investment in infrastructure and workforce would

result in efficiency loss and create impediments in future as well

• Lack of quality production would make customers switch to other

countries reducing the market segment

• Rise in prices of inputs due to IMF policies, would further

deteriorate the condition

Policy Implications

The need for improving business environment cannot be overemphasized.

Without improving the country’s image, enhancing the effectiveness of
legal and regulatory institutions, and upgrading the physical
infrastructure, direct incentives to local and foreign investors are less
likely to yield desirable results. The current government is well cognizant
of this need and has shown some visible progress in the macroeconomic
management to restore the confidence of investors and businesses.
However, there is need to do more on improving the governance side.

Key Challenges faced by Textile

Cluster
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

Factor Conditions
• Availability of quality raw
material
• Lack of skills
• Poor technology

Demand Conditions
• Increasing sophistication of
demand e.g. product and
process standards
• Increasing global
competition

Related and Support

Industries
• Gaps in the quality of local
supplies
• Poor coordination among
cluster players
• Lack of finance to small
enterprises

Context for Firm Strategy

& Rivalry
i) Addressing the Country Level Challenges:

Following steps are needed to address the critical issues that the
country as a whole is facing:

• Restore the autonomy of legal institutions

• Bring reforms in government agencies

• devise and launch a global communication program with the help

of international media to improve the image of the country

• Encourage private sector, increase public expenditure, and work

with international institutions such as the World Bank and Asian
Development Bank to improve the infrastructure particularly
Energy by exploiting the huge hydroelectricity and coal-power
potential available in the country
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

• Diversify the export portfolio by facilitating the development of

multiple clusters particularly in the areas of logistics and
communication, medical devices, horticulture, and tourism

ii) Addressing the Cluster Level Challenges:

As noted before, the current government has taken some very

important steps to upgrade the Textiles and Apparel cluster in
Pakistan.

• The emphasis of newly instituted policies and programs is to

increase the productivity and unit value realization through
increase uptake of better technology

• Greater value addition and product diversification

• Need for greater involvement of other actors by developing a

shared vision such as supporting industries and IFCs to
accelerate the progress

iii) Involvement of Private Sector and other IFCs:

• A transition from the existing low-end product concentration

towards a more diversified one

• High unit value product portfolio through easy access to quality

raw material, technology up gradation, skill development, and
R&D in product and process development

• A further shift towards facilitative role of government through

enhancing its role in financing R&D in product and process
development, promoting public-private partnerships, and
reducing the barriers to trade

• As textile sector is the major foreign exchange earner, therefore

we should increase our exports by improving both the quality and
quantity to meet the challenges of the post quota era
Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

• We must increase the quantity by increasing the capacity of the

existing mills and also by opening new textile mills. We should
also improve the quality of the existing machines

• APTMA and the government should join hands for bridging the
skill gap as there was a need to promote public-private
partnership in this regard to achieve the desired results

• Regular National Exhibitions can be very helpful in bringing out

the skills, the range of products and opportunities of group
collaboration. It will help the planners and large scale
engineering industry in defining the way for developing skills in
order to make this sector strong and viable

• The Ministry of Textiles Industry needs to be founded on active

private-public collaboration. It should be consumer-friendly and
services-oriented

• The Pakistan Government also needs to focus on the country’s

image building in the global market and Pakistan Consulate in
various countries need to play their pivotal role rather than
enjoying the Foreign Service benefits at the cost of the tax
payers

• Another resolution demanded that knitwear classes should be

introduced in the National Textile Engineering College,
Faisalabad, so that hosiery products of international standard
could be produced

• Stressed is laid upon the government to direct authorities

concerned for installing master treatment plants in industrial
areas so that effluent released by factories could be utilized for
irrigation purposes

• The tariffs should be reduced to control the prices of textile

goods
 Term Report – Diamond Porter Analysis of Textile Industry of Pakistan

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