Textile Industry Issues

Keywords: Pakistan, export competitiveness, exporting procedures, certifications JELL classification: OFF. 1 . Introduction At a time when many developing countries are rapidly expanding their exports, Pakistan continues to struggle to accelerate the export of manufactured goods. It is generally believed that the country’s exports are not competitive In International markets and that Pakistan s, therefore, unable to expand its market share. In particular, firms often complain of the lack of an investment-conducive climate, which impedes business expansion and exports.

Against this backdrop, the objective of this study is to carry out a systematic investigation of firms’ perceptions of the barriers to exports in various productive sectors of the economy, as well as to suggest possible remedies. This analysis is based on a survey of exporters based in Lahore, complemented by a study of the determinants of export performance at the macro-level. Vice-chancellor, Pakistan Institute of Development Economics, Islamabad. Chief of Research, Pakistan Institute of Development Economics, Islamabad. Joint Director, Pakistan Institute of Development Economics, Islamabad.

Senior Research Economist, Pakistan Institute of Development Economics, Islamabad. 104 Rasher Mamas, Jeez Ghana, Mussel du Din, Atari Manhood The study conceptual framework is built around the notion of competitiveness, defined as “the set of institutions, policies, and factors that determine the level of productively of a country’ (World Economic Forum, 2009). Thus defined, environment as well as of circumstances prevailing in the global market. In the last three decades, the environment for exporters has changed drastically on both these fronts.

In most of the world, the reforms undertaken during the sass and later have curtailed government interventions in markets and reduced many forms of trade barriers. This has created a general atmosphere favorable to business activities, competitiveness, and growth. A substantial body of empirical work has identified factors in domestic and foreign markets that promote or hinder export activities at the micro- and macro-level (see, for example, Baby & Slater, 1989; Bellboy & Did Mambo, 011; Madsen, 1987; Zoo & Stan, 1998).

Studies on Pakistan have analyzed export performance at the macro- as well as micro-level. Kafka and Nazi (2001) analyze the determinants of export performance at the country level; Measure, Hanson, and Cornfield (2009), and Din, Ghana, and Manhood (2009) take up these issues at the firm level. There is also a body of empirical literature that emphasizes introspection on the part of firms regarding internal and external problems as an element in assessing the hindrances that exporters face. These studies add firms’ perceptions as an important ingredient to their models.

Admittedly, perceptions can deeply be influenced by firms’ own capabilities and internal circumstances. However, since entrepreneurs are keenly aware of the environment in which they operate, one can safely assume that there is a positive correlation between actual problems and those perceived by the firm as problems. Viewed this way, firms’ perceptions can greatly facilitate our understanding of the actual problems they face. Some researchers analyze the difference between the perceptions of exporting and misreporting firms as a tool to empirically investigate the constraints to export.

For a sample of small exporting and misreporting US firms, Yap (1985) finds that exporters and nonstarters have different perceptions about export barriers. Named, Julian, and Malaria (2005), however, find no significant differences in the perceptions of Malaysian exporters and nonstarters concerning different export barriers. Other studies focus on the managerial perceptions of exporting firms alone. For example, Axing (1988) analyzes how managerial perceptions influence the export performance of machine tool manufacturers in the US and Canada.

Export Barriers in Pakistan: Results of a Firm-Level Survey 05 Specifically, she considers exporters’ perceptions of the benefits of exporting rather than selling in the domestic market. She finds that perceptions of the complexities associated with exporting and managers’ work experience in foreign countries are related to the percentage of exports relative to firms’ total sales. Shoran, Viperous, and Perfidies (2010) focus on small and medium firms in India. Their study evaluates exporters’ perceptions of the problems they face in the EX. market.

The study covers the leather, footwear, and textile and clothing sectors, and broadly categorizes export robbers as either external-foreign or internal-foreign. The first includes customs valuation and clearances, administrative and documentary formalities, foreign organizational structure. The study results show that the problems of exporting firms are largely external-foreign. Garrisoning, Propaganda, Tint, and Cowhand (2009) identify and analyze the problems faced by Indonesian exporters in small and medium enterprises (Seems).

They use data collected through a questionnaire designed to assess the problems perceived by SEEM owners/managers. These include bureaucracy, product quality, export procedures, lack of promotion, and competition. Respondents were asked to rank their problems from 1 to 5 on a Liker scale. The findings suggest that export barriers are due mainly to inadequate training/ information as well as impediments from government authorities and agencies. The authors recommend equipping Seems’ management with training and information to overcome these obstacles.

Our study is in line with the empirical work described above. The main objective is to evaluate exporters’ perceptions of the problems they face in exploiting their full competitive potential in export markets. In addition, the duty suggests policies that might be required to ensure that Pakistanis exporters are able to take full advantage of the increased market access brought about by the new trading environment. We hope that the recommendations that follow from this analysis help enhance the export competitiveness of Pakistanis manufacturers.

The rest of the study is organized as follows. Section 2 sets out the conceptual framework that helps identify the core issues, and spells out the salient features of the questionnaire used in the survey. Section 3 discusses the main findings of the survey, while Section 4 concludes the discussion. 06 Rasher Mamas, Jeez Ghana, Mussel du Din, Atari Manhood 2. Conceptual Framework Export competitiveness is a complex issue. The factors that affect export competitiveness vary over time, and across sectors and geography.

To keep the analysis manageable, we identify some common features that generally help improve the business environment by reducing risks, costs, and time, thus motivating entrepreneurs to invest more in terms of money and effort. The major constraints to creating a good business environment are categorized under: 0 0 Lack of trained labor Financial inputs Energy Physical infrastructure Bureaucratic rudder Institutional rigidities This broadly classifies the obstacles that manufacturers/exporters face in most instances, but these obstacles do not affect all sectors uniformly.

As pointed out in Section 1, we adopt an indirect approach to assess how these factors can impact business performance. We have relied on respondents’ Judgments regarding the intensity of the obstacle, having asked them to rank each issue according to their perception of its severity. We then use the rankings to provide a general assessment of the incidence by sector of these obstacles. 2. 1 . The Survey and Questionnaire The Industry and the Pakistan Institute of Development Economics.

A purposive sampling approach was used to cover 40 firms/companies in the following sectors: textiles, garments, food processing, cement, chemicals, hosiery/bed linen, automobiles, and construction materials. The questionnaire comprised the major components described below (see Appendix 3 for the detailed questionnaire). 2. 1. 1 . Firm-specific Characteristics This section covers firm-specific characteristics such as major activity, location, and quantitative information on the firm’s human resources.

Such information provides insights into how firm-specific 107 characteristics can influence the firm’s perception of different issues. Information on the number of workers employed makes it possible to classify the firm by size. 2. 1. 2. Activities and Problems Currently Faced in Exporting Although the World Banks world trade index emphasizes procedural requirements for exporting goods, it was not possible to prepare a similar index. Instead, firms were asked to indicate their perception of the activities and problems they currently faced in exporting.

These activities included pre-shipment activities, inland carriage ND handling, customs clearance and release, and international carriage and handling. 2. 1. 3. System of Certification Many international standards have been developed to ensure quality and a guarantee that goods are produced under satisfactory social and environmental conditions. In our survey, firms were asked to indicate their awareness of these standards. They were also asked whether they were certified to these standards or if such a system was currently being developed or planned.

The survey included the following standards (see Appendix 1): International Organization for Standardization (SO) 9000 ISO 14000 Hazard Analysis ND Critical Control Point (HACK) Social Accountability Standard (AS) 8000 Occupational Health and Safety Standards (SHOOS) Reappear Traceability WTFO- Related Agreements and Negotiations 2. 1 . 4. Most of the World Trade Organization (WTFO)’s agreements came into force in early 1995. However, there are wide differences in how different exporting companies reacted toward these agreements.

Some companies were quick to respond and promptly engaged in active negotiations, either directly or through umbrella companies, however, 108 lagged behind in such activities and, consequently, encountered serious obstacles in dieting the criteria set out in these agreements. The study questionnaire asked firms to state their position with respect to the following agreements (see Appendix 2): o oho Agreement on Technical Barriers to Trade Agreement on Sanitary and Photo-Sanitary Measures Agreement on Pre-Shipment Inspection Agreement on Intellectual Property Rights Shipping and Logistics 2. . 5. Shipping and logistics includes a wide range of areas, such as customs performance, physical infrastructure, inland transport, and efficiency in cargo handling. Their smooth functioning helps provide goods and services on time and at a lower cost. Firms’ perceptions of these issues can identify important bottlenecks. The survey also sought firms’ suggestions for improving the trade logistics environment. 2. 1. 6.

Major Sociopolitical Hindrances Sociopolitical hindrances pertain to general obstacles that adversely affect the working environment. The survey identified the following constraints and asked for firms’ perceptions of them: Corruption Injustice Bribery Political interference Terrorism Lack of infrastructure Market imperfections Most responses to various issues and obstacles are ranked on a Liker scale of 1 to 6, depending on the nature of the problem. This enables us to cluster responses at specific ranks, as shown in Table 1. 09 Table 1 : Countries ranked by competitive industrial performance index Rank Country Pakistan Singapore China India Bangladesh Iran Nepal Indonesia Malaysia Thailand 200066 1 31 51 769897 38 13 26 200567 3642 75 82 91 40 2027 200963 1 54269 83 94 43 27 25 Various measures taken to create a business friendly environment have also had an impact. Within the South Asian Association for Regional Cooperation (SCARCE) region, Pakistan ranks higher than India, Bangladesh, Nepal, and Bhutan in terms of ease of doing business (Table 2).

Table 2: Economies ranked by ease of doing business Country Singapore Maldives Pakistan Bangladesh Sir Lankan Nepal India Bhutan Afghanistan 2007 1 53 748889 100 134 138 162 2011 1 79 105 12289 107 132 142 160 Source: World Bank, Doing business in South Asia for 2007 and 2011. 110 3. Key Findings of the Survey Firms’ General Characteristics Based on the number of workers, 38 percent of the firms surveyed were large-scale enterprises employing 300 workers or more. Twenty-four percent were medium firms employing 101 to 300 workers. The proportion of small firms with up to 100 workers was 38 percent.

Seventy-five percent of the firms surveyed were involved in manufacturing, and 20 percent in trading. Only 2 percent were multinational companies, while 2 percent were involved in other activities. Textile firms comprised the highest percentage (21 percent) of total firms surveyed, followed by food industries (1 5 percent), garments (13 percent), and cement (10 percent). Firms engaged in chemicals, hosiery/bed linen, general imports, automobiles, and construction materials each accounted for 5 percent; 15 percent were engaged in other activities.

General importers and cement rims employed the highest percentage of skilled labor, while chemical and textile firms employed the lowest percentage. Reasons for Shortage of Skilled Labor Lack of institutional training was the most frequently reported reason for the shortage of skilled labor (35 percent of firms), followed by the low quality of education (30 percent). Reduction in Cost if Labor Becomes Productive If high levels of labor productivity are achieved, it can reduce a firm’s costs.

However, firms have different perceptions of the extent of this cost reduction. The highest percentage (35. 5 percent) said that costs would fall by 1-10 percent, 29. Percent said they would fall by 11-20 percent; and 12. 9 percent said that costs would remain unaffected. Duration of Finance The majority of firms (60 percent) appeared to use short-term financing, implying that most of them use it for working capital needs. 111 Firms using medium-term and long-term finance accounted for 4 and 36 percent, respectively.

Importance of Location A firm’s location has an important bearing on its high demand for output, and availability of skilled labor are important factors when deciding where to locate a firm. The surveys figures showed that high demand for output (34 percent) and availability of skilled labor (27 percent) were the most frequently cited reasons for choosing a particular location. Cheap availability of inputs (21 percent), when added to availability of skilled labor, indicates that inputs played a more important role in deciding a firm’s location.

Fuel (Electricity and Gas) as a Percentage of Total Cost Fuel as a percentage of total cost was highest for cement- producing firms (35 percent), and lowest for garments and automobiles (2. 17 and 2. 6 percent, respectively). Problems Related to Electric Supply Frequent load-shedding ND power failures seriously affect industrial performance in Pakistan. Some firms have tried to solve this problem by using electricity generators and UPS. The survey showed that about 23 percent of firms used a UPS and 38 percent used generators to meet their electricity requirements.