Made-in-Pakistan: Improving Global Perceptions
The ‘Made-in-Pakistan’ label has the potential to become a symbol of repute, but this aspiration must be vigorously pursued. If we are to consider the increased digitization of markets in the wake of COVID-19 as an opportunity, with advanced tools and greater access to buyers, these tools must be used to address the international branding of our products, so that a label bearing our country’s name not only becomes a marker of great quality, but also a motivation to buy by choice. This would require an environment that facilitates exporting industries to focus on quality improvement through new processes, thereby developing new products and entering fresh markets.
Despite having low-tariff access to textile and apparel markets of the European Union, USA, Japan and China, Pakistan’s market share is low, which shows an inability to fully leverage our position as a textile-dominated economy, losing critical expansion opportunities to regional competitors. In addition, the EU and USA are now largely considered to be shrinking markets, and by continuing to focus on these rather than on expanding markets, our policies contradict global trends. Asian competitors have gained significant market shares from 2011-18 while Pakistan’s share decreased by 2.17%. It is not as if they possess something we don’t; rather their development of supporting policies, intelligent branding, market forecasting and diversification has helped them to excel.
China (33%) is the leading exporter of textiles in World followed by India (4.7%) & Bangladesh (4.6%). Pakistan’s share is only 1.7%.
When considering emerging textile markets, our best bet is to target those segments which have less market saturation by competitors. According to a report by the AfDB, Africa currently accounts for 1.9% of global trade, and trends have showcased it to be a major textile player in the near future. As stated by Hans Rosling, the African market is by far the largest potential market of the future. In order to preemptively capture this opportunity, we must enhance trade with Africa in order to secure a foothold in the fastest rising market in the world. Given that imports from China are restricted, South Africa is one country that offers ample opportunities for Pakistan to leverage. Furthermore, trade data for 2019 from Botswana, Mozambique, Lesotho, Swaziland, Namibia and South Africa has shown that despite growing demand, textile related exports from Pakistan to these countries added up to a mere $114 million. The demand for textile continues to rise in these countries, so to capture market share, the industry must focus on trade and connectivity and the Ministry of Commerce must facilitate it. Reduction in tariff and non-tariff barriers by both sides would serve as a catalyst for accelerated growth in bilateral trade.
While it is often assumed that manufacturing inputs in Pakistan come cheap, this disregards the poor productivity and very real hindrances in power and logistics that raise costs of doing business. With numerous policy setbacks, and energy and infrastructural impediments at each level, exporters have been so caught up in trying to manage day-to-day affairs and onerous bureaucratic hurdles that there is little revenue left to be competitive, let alone consider a marketing plan. There is also a shortage of skilled labor in textiles, chemicals and hosiery/bed linen. Firms regard inadequate institutional training and the low quality of education as the most important reasons for the lack of labor skills, thereby hindering competitiveness.
Pakistan’s textile industry comprises an entire value chain from cotton production to prêt-à-porter and export, although it is more concentrated in the lower value-added end of the chain. The fragmentation of the supply chain falls into two main sectors: the formal sector, which involves spinning units/textile mills, and the informal sector, where sewing, knitting, as well as clothing and towel production fall under the scope of SMEs and small cottage units. In a fast-paced global market, the primary reliance on traditional goods in Pakistan is becoming a burden rather than worth maintaining. Textiles and clothing have accounted for nearly 60 percent of Pakistan’s export basket for more than a decade, and while this allows for a significant advantage in this sector, that advantage is not being leveraged as well as it could be. Other South Asian economies have diversified their export baskets to not only capture an abundance of untapped markets, but to increasingly tap into high-value-added products that utilize advanced technologies in their production. Pakistan must mitigate its reliance on primary and traditional goods and machinery and shift towards the export of value added, nontraditional goods. Only then can the country market itself effectively as a textile supplier that meets the greatest number of needs of global consumers.
With a myopic focus on short staple fiber raw cotton, we are essentially relying on a shrinking market while neglecting the rapidly expanding market for MMF. The MMF tariff regime effectively prevents Pakistan from aligning its products in tandem with the rest of the world. More than 60% of world textile trade is in MMF materials, the demand for which has grown exponentially owing to the convenience it affords as a cheap material used in the production of the ever-relevant active-wear trend. However, the duty protection given to obsolete plants in Pakistan is denying the Pakistani industry any chance to compete in this booming market, internationally or domestically. This brings us to the issue of polyester staple fiber, a raw material of the industry upon which it would be unreasonable to apply any duties. Alarmingly, at present there is a 7% customs duty on the import of polyester staple fiber. This racks up the total import duties, which subsequently fall in the range of 20% including antidumping duty. Despite the antidumping duty on cheap Chinese materials having expired, the duty has been extended for a further year.
This highlights the need for a policy environment and a tariff structure which favors global market needs, which are likely to be linked to synthetic fibers for the foreseeable future. The goals of the industry must remain aligned with the demands of the market, and this requires the industry to equip labor with new technologies and train them in the latest skills, thus shifting them from primary to secondary and tertiary activities. Agriculture must diversify into high value-added products, reduce the loss of fertile land to real estate speculations, improve domestic marketing systems, improve water management and set up centers for agro-genomics. In addition to investment in increased capacity and technology, there is a need to improve local design capacity through new clusters for training, design and testing and better managerial practices. Furthermore, the quality of these products should not be compromised at any level, as creating more processed products that rank later in the value-chain is no objective if quality is not simultaneously improved.
When it comes to apparel and ready-made garments, brands that have made it global have some pre-existing structures that have been instrumental in their success. Firstly, they largely benefit from being rooted in a more globally appealing culture, i.e. Zara specializes in Western fast fashion and streetwear, which is largely adaptable and worn across the globe. After all, fashion is an off-shoot of culture and its transferability depends on the culture of the origin country. In comparison, our signature shalwar kurta does not have an international appeal, save for our diaspora. If Pakistani brands aim to go global they need to introduce product ranges that cater to a wider and more diverse audience. Secondly, success stories in the global space relied on the existing clusters of the origin country’s textile industries. To mimic this, siloed efforts within the private sector in Pakistan need to join hands and work towards mutual success. Thirdly, once a Pakistani brand decides to go global it will have to reconsider its existing linkages. A common theme among global success stories is the disruption or specialization of supply chain models. Apart from aiming to supply to these internationally acclaimed fashion brands, if Pakistani brands can realistically emulate their business model, it could be the impetus for a booming industry.
Pakistani brands that have adopted a similar business model and targeted international consumer include Khaadi and Rastah. Behind efforts to export more and provide the country with valuable jobs and foreign exchange, there is a lot of effort and craftsmanship that goes into creating textile products, representing local talent and skills that should be showcased to the world via effective marketing. Khaadi was launched back in 1998 by introducing hand-woven kurtas. With its launch, it gained recognition for its distinctive embroidery designs, which reflected our traditional wear with a modern look. Khaadi soon expanded to create Western cuts without compromising on the traditional patterns of Pakistani culture. Intricate embroidery and block printing represent our rich South Asian heritage in a globally appealing way, and Rastah is a brand that has managed to achieve a blend of traditional Pakistani patterns and designs with Western streetwear cuts and styles.
Product planning is a crucial marketing activity in the garments industry. However, it is contingent upon ensuring product quality, developing attractive packaging, constantly innovating, distributing through the best middlemen, and maintaining an efficient inventory management system. Pricing lower than other countries and providing discounts to buyers is essential for competitiveness. At the same time, quality certification and adherence to health, labor, and environment standards is of utmost importance for exporters. However, awareness of these standards remains limited, thereby hindering quality assurance, and the procedures to avail the facilities provided in this regard are unnecessarily complicated. Measures must be taken to raise awareness and simplify procedures so that the maximum number of products can be brought up to an international standard. Given that a number of Pakistani textile firms are domestically owned and vertically integrated, activities like designing and branding can play an instrumental role in bringing the textile sector greater acclaim. As another measure to ensure vertical integration and a more diversified product mix, international buying houses should be incentivized to open outlets in Pakistan, with supporting policies such as tax exemption and free office and warehousing space. This would enable a larger geographical spread and allow for the goal of new products, processes and markets to be streamlined.
The Textile Policy for 2020-2025 proposes certain marketing strategies that go hand-in-hand with changing consumer behavior and technological upgradation. The strategies are outlined below:
Showcasing Products: an exhibition plan is to be developed in consultation with textile stakeholders and support from the Ministry of Commerce. The Ministry of Commerce has already initiated process of holding virtual exhibitions. In addition, Pakistan’s first virtual fashion show took place in June 2020 in the midst of the COVID-19 pandemic, following a global trend of continuing the tradition safely. The plan also suggests holding the dedicated textile exhibition ‘TEXPO’ every year rather than alternate years, and expanding it to other countries.
Digital Marketing: this has already played a vital role in showcasing textile products and attracting new business. The Textile Wing, Ministry of Commerce has created a one stop E-Portal for this purpose. However, SMEs do not have ease of access to this portal, so measures are needed to make it more SME-friendly.
Market Access: The Ministry of Commerce is already in negotiation with developed and developing economies for market access. Competitor countries have taken bold steps by opening their markets, thereby securing access to major markets. Following this strategy, we must formulate a road map to increase market access, while remaining cognizant of the fact that this would be on a reciprocal basis and our market openness would also have to increase.
E-Commerce: Our first-ever e-commerce Policy is in the implementation phase, with the objective of giving open access to textile manufacturers/exporters to tap into business opportunities across the globe. Amazon has started registering Pakistan manufacturers and exporters including textiles. Ease of access must be granted to SMEs as well.
Exporters are presently allowed to retain / utilize 10% of export proceeds for marketing without requiring permission from SBP. Steps must be taken to extend this facility, allowing the establishment of development centers, design & marketing offices, near shore manufacturing, warehousing etc.
Moving forward, we must enable our textile industry to climb further up the value chain into original brand manufacturing (OBM) and original design manufacturing (ODM) categories. This will require support in development of skills eco-system around design and branding to capture higher value, and the development of fast-fashion design districts in Karachi and Lahore with strong academic linkages e.g., NCA and IVS. Furthermore, the industry must focus on the collection of relevant data. Hiring skilled graduates who can gauge emerging trends would make data collection more reliable and thereby significantly improve international marketing and branding. Finally, measures must be taken to promote private investment in the industry, contingent upon interest rate support and a reputation for never compromising on quality.
Some opportunities to attract investment and achieve expansion include the regional Textile Production-Consumption Hub, FTA 2nd phase with China, EU GSP+ until 2023 and a growing domestic market. CPEC in particular will allow the industry to leverage Chinese technology, efficiency and discipline to enhance its existing potential as well as to initiate new projects for higher value. CPEC’s improvements in infrastructure have improved trade routes, mitigated constraints to growth, and led to the establishment of Special Economic Zones (SEZs) to enable smooth supply chains, enhanced innovation and economies of scale. Remaining on this track, CPEC has the potential to significantly boost industrialization and double Pakistan’s exports in four years, while also generating around 2.3 million new jobs in the country.
It is essential to promote foreign collaborations and joint ventures to improve technology, marketing and manufacturing processes, to introduce new technology and build brands. Pakistan's export-oriented industries are 25 percent more productive than non-exporting firms, and their productivity increases as exports increase. However, inefficiencies cannot be exported, so these must be mitigated from all input materials before results can be seen. Since exports in Pakistan are labor-intensive, expansion in this industry is a way to ensure large-scale job-creation, and an increase in foreign currency to pay for required imports. With the right policies in place, a diversified set of high quality exports will provide a crucial uplift to economic activity and lead to a cycle of development and improvement in perception.