Chapter 1:

Introduction

1.1 Importance of the Spinning Sector

1.2 Research Objectives
1.3 Benefits of the study
1.4 Limitations

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Introduction
The Importance of the spinning Sector:
Spinning is the first process in the cotton value chain that adds value to cotton by
converting into a new product i.e. conversion from ginned cotton into cotton yarn since
spinning is the beginning of the value chain, all the value is added later; the process of weaving,
knitting, processing, garments and made-ups and all these process depend on this process.
Spinning sector has received highest attention and resources followed by weaving and then
various sub-sectors of value-added segments.

Increase in the cost of production makes spinning sector uncompetitive. It can produce
finished goods and absorb increase in the cost of production to a large extent because of the
higher return. It appears quite difficult for Pakistan's textile sector to live more on production of
yarn and grey cloth than on production of finished products and garments as the return ratio
between yarn and garments is around 1:20.

Spinning is to turn fiber into yarn. It can be natural fibers (cotton, Wool, Silk) or
manmade fibers (polyester, Acrylic). Spinning also entails production of manmade filament yarn
(yarn that is not made from fibers). Final product of spinning is yarn. Cotton value chain starts
from ginning that adds value to it by separating cotton from seeds and impurities. However,
you can call the spinning process, such as the first in the chain that add value to cotton by
converting to a new product i.e. conversion of raw ginned cotton into cotton yarn. Spinning is
the process of incorporation and all subsequent value additions i.e. Weaving, Knitting,
Processing, Garments and Made ups, depend upon it. Any difference in the quality of the
product spinning puts a direct impact on the entire value chain

According to a presentation on the Textile City by the Ministry of industries, following

are the prices of the average unit prices of textile products in accordance with the 2001-2002 of
goods which highlight the value added as the commodity moves through the value chain.

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 Product (Using a base of 170 Kg of Cotton) Price in Dollar $
Raw Cotton 119
Cotton Yarn 253
Cotton Fabric (Grey) 579
Finished Fabric 603
Knitwear 1401
Woven Garments 1561

One bale of cotton (170 Kg) will earn about US$ 119. When the raw bale is converted
into yarn then the added value pushes this amount to US$ 253. When the yarn is treated to
form a gray fabric then it can almost be sold at about U.S. $ 579. This gray fabric when
processed and finished raises the value of U.S. $ 603. However, once processed and finished
fabric is made into clothing, so the net result of these is more than double the value of
processed fabric and they come around the value of $ 1401 U.S. for knitwear and state U.S. $
1561 for woven garments. This fact alone highlights as to how important this sector is and as to
how much it can contribute.”

The existence of a healthy economy is one in which the distributions of income and
employment are clean. Spinning industries can provide employment opportunities to be a
source of revenue for the masses. This sector can absorb the masses who are illiterate, but who
have skills to meet this manufacturing which many other industries can not.

Research Objectives

The research has been focused on the following objectives

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To what extent (If any) have the Textile Vision 2005 strategies been applied / implemented
by the manufacturers?

Have the manufacturers actually applied the strategies posted in the textile vision 2005
manual which serves as a guide to survival and growth of the textile industry of Pakistan. If they
have then to what extent have they been implemented?

Why are the strategies not being applied?

The textile vision 2005 manual was put forward to ensure that the Pakistani textile
industry thrives in the free trade era but were the recommendations put forward by it simply a
theoretical guide with no practical approaches? Why are the manufacturers not riding on the
bandwagon of success or the wagon that was provided had no wheels to run on?

What policies are competitors implementing and how can those policies and which policies
can be implemented in spinning industry of Pakistan for a better future?

In the light of tough competition of textile exports, Pakistan must compete with other
producers similar in conditions and comparative advantage. The Pakistani Textile industry's
biggest competitors are China, India, Indonesia and Turkey. The cost of power in Pakistan is
comparatively high. Studying and reviewing their policies which will be beneficial if they are
implemented

What strategies have been put forward by the Textile Vision 2005 to ensure Pakistan’s textile
industry thrives in the cut throat competition without the quota?

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 With the coming of the WTO (World Trade Organization) and the abolition of trade
quotas Pakistan has to deal with some serious competition in order to make its mark on the
global textile trade. The SMEDA (Small and Medium Enterprise Development Authority) has put
forward some recommendations for the textile sector which comprises roughly 65 % of our
total exports, the manual is a SWOT (Strength, Weakness, Opportunity and Threat) analysis of
the sector aimed at providing a guideline for the current and future players of the Pakistani
textile industry to effectively utilize their resources and bring up in front of them potential
products and export markets which will ensure that they will thrive in the fierce competition.

Benefits of the Study

The research will help us identify the reasons as to why the manufacturers of yarns are
not following the recommended strategies put forward for them in order to prosper in the era
of free trade.
The study will help point out issues and hindrances faced by the manufacturers and
their views in regards to improving the situation. This would help out in perhaps formulation of
another Textile Vision manual which would be a more refined version and thus we believe
would point to strategies which will help the Pakistani market differentiate from other
exporting markets and thus emerge as a leader in textile exports. Another benefit that we
initially did not visualize was that conducting this study will help us reveal the missing link
between the sectors, why it is that all the sectors (primary, secondary and tertiary) of textiles
are not properly aligned so as to provide both stability and continued sustenance to the field?
This last point we believe now has been the major cause of holding the industry back, as a
competitive environment, we require professionalism and integration which is not being
achieved due to the lacking of this alignment.

Limitations

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 Despite our best efforts over the period of almost a year there are a certain limitations that
are associated with the research.
 The primary research findings were restricted to the boundaries of Karachi as we simply
lacked the resources to venture out in other regions.
 There was a lacking of published data with regards to specifics products and product
types and therefore product diversification results could not be pursued in detail.
 Lack of time

 People not so co operative

 Lack of professional expertise

 Lack of availability of published data

Chapter 2

Literature review:

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1.1 Over view on spinning trade analysis
1.2 Product category analysis:

1.3 Industry Structure

1.4 Critical country perceptions

1.5 Three scenarios

1.6 Recommendations presented in Textile

Vision 2005

1.7 Value addition strategy as present in the

textile vision 2005

Literature Review

Spinning Trade Analysis at a Glance

The growth of the spinning industry has been slowed in the early years of Pakistan, but
later its speed accelerated. By 1980/81, more than 4 million spindles were been installed, and
by the end of last century, over 9 million spindles were installed. Of these, about 70% were

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operational and consumed over 13 million bales. This trend continued and in the 2007/08
season, our domestic cotton consumption rose to a record level of 16.5 million bales.

The end of the quota regime in 1996 and the emergence of a free market greatly helped
many countries in the east, such as Pakistan, China, India, Bangladesh, Vietnam and Sri Lanka,
to increase their textile production and export to USA, EU and other countries in the west.
These countries had an advantage over other western countries because of an abundant
availability of raw materials and cheap labor. As such, Pakistan increased its capacity to produce
textiles significantly, with the addition of new machinery and modernized equipment occurring
mostly by the start of the new century. Yarn production grew by more than 50% over a 12 year
period (from 1996 to 2007), but yarn exports increased nominally by only 12%. This means that,
because of domestic weaving capacity, substantially increased because of use of yarn.

This is a case of value-addition. If a clothing production, domestic use and export charts
reviewed, it is easy to see that in the 10 year period from 1996 to 2005, the production of cloth
increased by 42%, and domestic use by 33%. But exports have increased by an astonishing 58%.
This confirms that Pakistan seeks increasingly to learn more about the value added in textiles. If
we look at the figures of Pakistan’s annual textile exports in terms of value in U.S. Dollars, we
find textile exports have grown by about 74%, while garments increased by about 92%, and
made-ups, including bedding, increased by about 125% from 2000/01 to 2007/08.

The global recession in the economy and financial sectors, beginning in the U.S. in July
of 2008, has engulfed other heavy consumer countries in the EU. Countries in the East, such as
China, India and Pakistan, have lost most of their textile exports that were being moved to
these western nations; in short, we have all been adversely affected. In view of the decreasing
demand for textile goods from the U.S. and EU, the production in China and India have also
slowed down,

Product category analysis:

The spinning includes the following:

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 a) Cotton yarns
 Cotton yarn (not sewing thread) 85% or more cotton, not retail
 Cotton yarn (not sewing thread) less than 85%cotton, not retail
 Cotton yarn (not sewing thread) put up for retail sale
 Cotton, carded or combed

b) Wool
 Yarn of wool or of fine animal hair, put up for retail sale
 Yarn of fine animal hair, not put up for retail sale
 Yarn of combed wool, not put up for retail sale
 Yarn of carded wool, not put up for retail sale

c) Silk
 Silk yarn (other than yarn spun from silk waste)
 Yarn spun from silk waste, not put up for retail sale
 Silk yarn& yarn spun from silk waste, put up for retail sale

d) Man-made fibers
 Synthetic filament yarn, not put up
 Artificial filament yarn, not put up
 Sewing thread of man-made filaments
 Artificial filament yarn, not put up
 Man-made filament yarn, put up for retail sale
 Synthetic mono>/=67dtex,...,syn tex mat wd</=5mm

Cotton Yarn

The cotton yarn has great importance in cotton yarn export. Cotton Yarn is the first

largest product category in Yarn, in value terms and has maintained a steady growth in global

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trade. Over the period the export rate of growth has gone down but a stabilized growth is

expected in the coming years. Asia constitutes the largest market of Yarn Export and consumer.

In 2009-2010 China is the major consumer of cotton yarns and largest buyer on cotton yarn

from Pakistan. Hong Kong is second and KOREA is the 3d largest buyer.

Pakistan is also present in Top five exporters in this particular category. In June 2010,

spun yarn was exported to 84 countries. Of these, Asian destinations accounted for 46% of

export value, while West Europe accounted for another 16%. South America followed closely

with a share of little over 15%. Middle East was in the fourth place with a share of 14%.

However a threat prevails due to an increased pressure on prices fluctuations and uncertain

cotton cultivation.

Combed cotton yarn Of the 43 million kgs of cotton yarn exports, 33 million kgs were combed
yarn with a unit value realization of US$4.08 per kg [2010]. This shows combed yarn has a
significant importance.

Carded Cotton yarn Of the 43 million kgs of cotton yarn exports, 4.58 million kgs were carded
with a unit value realization of US$2.2 per kg.

Major exports of cotton yarn

VALUE IN 000 $

Cotton Yarn 2009-2010 2008-2009 Variation

China 577,297 287,872 289,425
Honk Kong 208,818 196,698 12,120

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 Bangladesh 76,109 79,919 (3,810)
Korea 57,158 46,552 10,606
Portugal 43,918 45,460 (1,542)

Source: TDAP

Man-made fibers

Polyester Yarn is the second largest product category in Yarn, in value terms and has maintained
a steady growth in global trade. The export of Man Made yarns showed a drastic downfall after
the quota removal in 2005 but in 2008-2009 it again showed increase in exports.

It is again seen that Asia is the largest consumer on Man Made yarns. United Arab Emirates is
the biggest buyer of Pakistan in Synthetics yarn. United states of America 2 nd and united
kingdom 3rd largest buyer.

Polyester Spun Yarn Export of polyester spun yarn declined further in June 2010 both in terms
of volume and value. Unit price realization continued improving. However, export compared to
preceding two months was higher in June 2010. During the month, 889,000 kgs of polyester
spun yarn was exported worth US$2.58 million

Major Exports of Yarns other than Cotton

VALUE IN 000 $

YARN OTHER THAN

2009-2010 2008-2009 Variation
cotton yarn

3,971 2,921
Portugal 6,892
4,932 1,043 3,889
China
4,610 1,292 3,318
Turkey
Italy 3,016 456 2,560

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 1,985 1,236
Hong Kong 749

Source: TDAP

Wool

Pakistan exports wool mostly to Asian countries. Pakistan major exports of wool are to India
followed by United Kingdom, Afghanistan and china. Quantity exported is not as huge as cotton
and synthetic yarn

SILK

Mostly woven silk fabrics are exported to other countries from Pakistan which includes UAE,
Mexico etc. It has negligible share in the export of silk yarn.

Industry Structure
Domestic Textile Spinning Industry is characterized by the presence of horizontal units.
There are processes that add value to the final product giving different categories of yarn that
affects the achieved cost, quality and hence price of the product, its id necessary that we take
in account the dimension of the available infrastructure.

Pakistan spinning industry comprised of approximately 461 units, consisting total

spindles 10513000 and Rotor machines of quantity 157995, concentrated mainly in Karachi,

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Faisalabad, Lahore and Islamabad. Pakistan Spinning industry is based on ginning industry and
raw cotton.

Sind

Year Units Spindles Rotor

2006-2007 119 2132000 60748
2007-2008 119 2132000 62748
2008-2009 119 2132000 62748
Source: collected from APTMA statistical data.

Baluchistan

Year Units Spindles Rotor

2006-2007 10 127000 14016
2007-2008 10 127000 14962
2008-2009 10 127000 14962
Source: collected from APTMA statistical data.

Punjab

Year Units Spindles Rotor

2006-2007 309 7349000 75068
2007-2008 309 7349000 80068
2008-2009 309 7349000 80068
Source: collected from APTMA statistical data.

NWFP

Year Units Spindles Rotor

2006-2007 17 812000 200
2007-2008 17 812000 200
2008-2009 17 813000 200
Source: collected from APTMA statistical data.

Kashmir there are 6 units consisting 94000 spindles in 2006-2009

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Impacts affecting Spinning Sector
Lack of skilled labor, quality control and insufficiently skilled managerial staffs are the
main problems faced by the industry. In our textile industry there are some other major issues
such as export of yarn that our local market is suffering from and the price of yarn is affecting
the local manufacturers. As due to the price of cotton yarn has touched high prices which in
result giving end product (apparel garment) high cost thus the garment industry is suffering. In
mid 1980s Pakistan used to be a preferred supplier for buyers in the American, Japanese and
European Markets. Pakistani products were superior in quality and were competitively priced.

However the edge was lost as the industry refused to evolve with changing market
realities. The initial good quality reputation with foreign buyers was also lost by the
unscrupulous activities of the industry itself, it should not be difficult to regain buyers' trust by
offering consistency and reliability.

Three scenarios

Low road

 Exports will grow at historic patterns.

Do-able

 Export growth rate will match the growth rate of import markets.
 Market shares will grow in ignored markets.
 Cotton production will increase.
 Share of Man-Made Fiber will increase.

High Road

 Value Added Products (Made-ups) will be the engine of export market.

 Product and Market mix will be diversified.
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Product Mix Shifts

To achieve higher growth in exports, the product mix in the export if Textile products
has to be changed as under

Existing Do-able High road

(1997)
Yarn 21% 20% 14%
Made Ups 22% 19% 29%
Fabrics 32% 32% 25%
Garments 25% 28% 31%

Besides broadening of export product portfolio with extra pus in synthetic and man-
made fibers, fabrics and garments, High Road Scenario was based on achieving higher market
share of unexplored, non-traditional textile markets. Based on the assumptions of the High
Road scenario, in which the textile sector of Pakistan was envisioned to align itself with the
changing global trends by increasing the share of value added products like garments and
made-ups in exports, it was estimated that Pakistan will be able to acquire 5th position with
regards to its Asian competitors. It is pertinent to mention here that the exports of the Asian
countries for 2005 were estimated using a historical growth rate which does not take into
account extra ordinary measures adopted by any country to enhance the exports of textile
products.

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Recommendations presented in Textile Vision 2005
 In order to move the spinning industry in the direction of higher value added yarns,
Government should design incentives driven by value addition. Export refinance facility
is used by all the yarn exporters irrespective of the yarn count. Export refinance should
not be provided to all types of yarns. It should be limited to only yarns of 40 Nc and
above. This will make the spinners looking towards manufacturing higher counts for
export purposes. In this manner, a better utilization of Pakistani cotton can be achieved.
 BMR is an important need of spinning industry. Government should facilitate the
availability of credit at easy terms to the industry. Credit for capital investment should
be provided by linking it with the export performance of the manufacturer. Incentives in
the shape of relief on import duties should be provided on machinery imported for BMR
purposes.
 Pakistan’s spinning industry is heavily dependent upon local cotton and its performance
is directly linked with local cotton production. There is a strong need to weaken this
link.. Pakistan spinning industry should be de-linked from local cotton by allowing free
availability of imported cotton. By allowing duty free imports of cotton, the effect of
uncertainty prevailing in the spinning industry due to uncertain cotton produce in the
country will be minimized. The spinners will know that they are not limited by the
supply of cotton. In case of a bad cotton crop in the country, they can always run their
mills on imported cotton. There will be no fear of shortage of cotton that can lead to a
crisis situation in the industry.
 Other route of decreasing the reliance on cotton is moving towards manmade fibers.
Current spindles utilization for manmade fibers is very low in Pakistan compared to
competitors. Major reason for this is the protected manmade fibers industry. Import
duties on manmade fibers make the raw material expensive for the spinning industry

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 thereby making it non-competitive in yarn export market. Blended yarn sold in the local
market at higher prices compared to international prices erodes the competitive edge of
weaving industry also. There is a need to rationalize the duty structure on imports of
manmade fiber that are produced in Pakistan. The duty should be reduced in a phased
manner and ultimately removed completely.
 There are many manmade fibers that are not manufactured in Pakistan. Spinners have
to import these fibers to compete internationally. Import duties on such fibers should
be removed completely. This will not be a major revenue loss to the Government
because such fibers are imported in small quantities. Compared to this revenue loss,
anticipated export earnings through these products will be much higher.

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Value addition strategy as present in the textile vision
2005

Export Rebate

Export rebate, currently for the spinning industry contributes significantly towards the
lack of productivity focus in the industry. Furthermore, this incentive has been repetitively
abused through fraudulent claims by both, exporters and non-exporters. Withdrawing of
rebates and rationalization of duties on imports would majorly promote industry
competitiveness.

Final Product Export

As spinning is the initial step for adding value in textile chain. From 1990 to 2000, the
world export trend has shown a shift of textiles to clothing in the proportion of 60:40 to
40:60.Pakistan, on the other hand still focuses largely on textile items such as cotton, yarn and
grey fabric, instead of the value added segment of garments. To encourage the increase in
production of spinning, export rebates and incentives should be shifted from raw materials and
apparel intermediaries to higher value products such as finer count yarns and high density
fabrics.

Import on Synthetic Raw Materials

Being cotton producing country, we tend to neglect blended yarns which are an area of
great opportunity for our industry. A great increase in demand in synthetic fibers has been
witnessed over the years, in fact compared to the blend ratio of yesteryears (20:80), the current
one has increased in gigantic proportion (45:55), and the process of industrial evolution is as
fast as ever with new innovative blends being developed every day.

Furthermore, the global demand for „performance wear‟, which includes water, fire,
chemical and wrinkle resistant items, is also increasing rapidly. Blended fabrics, which are made
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up of different types of yarns categories, also tend to fetch higher value in the global market
along with their need for specialized fabrication technology.

Keeping in view the above factors, there’s a clear need to expand our range of spinning
by diversifying into blends. With a strong base in weaving and knitting, this will allow growth in
our textile industry and promote the export of blended apparels from Pakistan.

Joint Ventures

Pakistan textile industry as a whole has been lacking in potential foreign collaborations
and joint ventures. Many of our competing countries (e.g. Bangladesh, China, and Korea etc.)
have attracted foreign collaborations successfully and now are enjoying the benefits of transfer
of technology as well as the transfer of marketing expertise. Our textile industry and spinning
industry specifically also needs to concentrate on this area.

Joint venture for developing a Vocational Training Institute with foreign universities for
developing course outlines and training laboratories could also be made possible to enhance
knowledge in the development of new products.

Export Promotion Bureau and Board of Investment (through the investment friendly
policies) can play very effective role in this regard. Serious efforts should be made to establish
effective joint ventures with foreign companies in the areas of yarn manufacturing and
marketing.

Role of Government Departments

Many of the Government agencies dealing with industry were established with the
objective to facilitate, support and protect the labor class and to cater to the problems of
workers. Unfortunately, because of the mutual consensus of the corrupt factory owners and
the corrupt officials of these departments, the original objective of benefiting the workers is all
but lost. There are too many agencies interfacing with the industry, and the implementation of

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many such laws has in fact become a serious retardant for the entry of new, educated
entrepreneurs especially in the SME sector.

Improper record keeping by the industry allows corrupt officials to find illegal means of
making money through harassing the employers. This is a common practice followed by corrupt
officials.

Social Security, Labor and EOBI departments carry out whimsical inspections. There’s no
schedule set for these inspections. Labor laws should be reviewed to safeguard the interests of
both the employer and the employee. As elsewhere in the private sector all over the world, the
employer should have the freedom to set performance criteria and accordingly hire and fire
employees. There is great potential for deriving a formula for one window operation of
payments and approvals which allows the entrepreneurs to focus on running the business
rather than dealing with Govt. agencies.

Chapter 3:
Methodology
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CHAP # 3 Methodology
Research methodology

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 This research project consists of two studies; the subjective or exploratory study as well
as an objective study.

Primary study

The exploratory part of the study deals with an overview of the garment industry, the
practices observed and problems faced.

Secondary study

This includes the publications, research and figures that are available. However, there is
data available in this regard, but we also considered the following data sources;

Statistical data

1. Federal Bureau of Statistics

2. Trade Development Authority of Pakistan
3. State Bank of Pakistan
4. World Trade Organization
5. APTMA
6. ITCN

Literature Review Material

1. Textile Vision 2005 Manual, SMEDA

2. Published articles and journals
3. Web journals and other web sources
4. Magazine articles
5. Pakistan Textile Journal

Interviews and Questionnaires

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 Throughout the study we also conducted several interviews of experienced personnel
involved in the manufacturing and the export of garments. This enabled us to get their opinions
and views about the garment industry, the overview of the industry, the strengths, weaknesses,
the future opportunities and the threats faced by the industry.

For the purpose of gathering information we designed a questionnaire. The

questionnaire contains various open ended questions to gather information regarding the
general practices of the industry and the extent of implementation of the recommendations
provided be the textile vision 2005 manual.

The primary targets of our questionnaires are the following

 Manufactures and Exporters of spinning yarns.

 APTMA
 Textile Chairman

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