Lack of value addition keeps knitwear industry subdued
Insertion into global chain will help Pakistani producers
Insertion into global chain will help Pakistani producers. PHOTO: FILE
LAHORE:
Having a viable and efficient value-added sector contributes immensely to a country’s economic development.
The degree and extent of value addition increases the size of the economy and makes it competitive, which is important from the perspective of export-led, sustainable development. On this basis, the role of knitwear industry becomes significant — one of the highest value added industries in the textile value chain.
However, the knitwear industry in Pakistan has been unable to realise its full potential. Pakistan’s share in world knitwear exports is declining since 2005. The post quota regime has brought a lot of changes in the structure across the country.
Although international competition brought efficiency, yet this could not be translated into welfare gains. The meaning of welfare gains is that the industry could not enhance sizeable employment opportunity for Pakistan.
During July-December 2015, Pakistan’s exports of knitwear declined by around 3% in dollar terms as compared to the previous year. However, the exports went up by 3% in quantity terms.
The industry could not fetch higher prices for their products in the global market. This shows that global demand for knitwear is rather weak. When global demand for any product is weak, the only option left is to go for value addition since value-added products can maintain and fetch higher prices.
Unfortunately, our knitwear sector is not poised for value addition.
Pakistan left behind
Researchers in the field of development usually argue that insertion or participation of the domestic industry into the global value chain would increase the chances of ‘economic upgrading’ which means that knitwear firms in developing countries may upgrade either their processes or products or upgrade to other functions such as design, logistics, branding and marketing.
By insertion into global value chains, Pakistan’s knitwear firms would be able to improve their processes. Although process upgrading enables firms to survive in the export market, yet it does not help them to attain value added functions. In the post quota environment, most of the knitwear firms are able to improve their processes.
Making a higher value added product is known as product upgrading. A handful of firms manage to produce slightly higher value added products; but those innovations are not imitated by other domestic firms. Hence gains are restricted to a few firms and are not reflected in the exports figures yet.
Lack of skills
Designing a garment is a very complicated and challenging task which requires proper education and training and knowledge of consumer preferences, latest trends and fashions. Therefore, it becomes one of the core competencies of global buyers. Although designing is a high value added function, yet developing countries’ suppliers cannot attain this capability with ease since they cannot compete with the designers of developed countries.
Branding and marketing are the highest value added functions. These are the core competencies of global buyers and they invest heavily to maintain and retain their position. If developing countries’ firms try to establish their brands in the international market, they have to compete with global buyers who have enormous resources and clout.
In short, the only niche function is logistics which is another higher value added function. Interestingly, it is not a core competency of global buyers; they are happy to surrender this capability since they are interested in customised services at their doorstep. The developing countries may acquire this capability by investing in logistic capabilities. The private sector should take lead in setting up a logistic firm and the government may provide necessary support in nurturing the firm. Such targeted intervention may even outweigh the so called benefits of devaluation.
The writer is an Assistant Professor of Economics at Lums
Published in The Express Tribune, February 1st, 2016.
Having a viable and efficient value-added sector contributes immensely to a country’s economic development.
The degree and extent of value addition increases the size of the economy and makes it competitive, which is important from the perspective of export-led, sustainable development. On this basis, the role of knitwear industry becomes significant — one of the highest value added industries in the textile value chain.
However, the knitwear industry in Pakistan has been unable to realise its full potential. Pakistan’s share in world knitwear exports is declining since 2005. The post quota regime has brought a lot of changes in the structure across the country.
Although international competition brought efficiency, yet this could not be translated into welfare gains. The meaning of welfare gains is that the industry could not enhance sizeable employment opportunity for Pakistan.
During July-December 2015, Pakistan’s exports of knitwear declined by around 3% in dollar terms as compared to the previous year. However, the exports went up by 3% in quantity terms.
The industry could not fetch higher prices for their products in the global market. This shows that global demand for knitwear is rather weak. When global demand for any product is weak, the only option left is to go for value addition since value-added products can maintain and fetch higher prices.
Unfortunately, our knitwear sector is not poised for value addition.
Pakistan left behind
Researchers in the field of development usually argue that insertion or participation of the domestic industry into the global value chain would increase the chances of ‘economic upgrading’ which means that knitwear firms in developing countries may upgrade either their processes or products or upgrade to other functions such as design, logistics, branding and marketing.
By insertion into global value chains, Pakistan’s knitwear firms would be able to improve their processes. Although process upgrading enables firms to survive in the export market, yet it does not help them to attain value added functions. In the post quota environment, most of the knitwear firms are able to improve their processes.
Making a higher value added product is known as product upgrading. A handful of firms manage to produce slightly higher value added products; but those innovations are not imitated by other domestic firms. Hence gains are restricted to a few firms and are not reflected in the exports figures yet.
Lack of skills
Designing a garment is a very complicated and challenging task which requires proper education and training and knowledge of consumer preferences, latest trends and fashions. Therefore, it becomes one of the core competencies of global buyers. Although designing is a high value added function, yet developing countries’ suppliers cannot attain this capability with ease since they cannot compete with the designers of developed countries.
Branding and marketing are the highest value added functions. These are the core competencies of global buyers and they invest heavily to maintain and retain their position. If developing countries’ firms try to establish their brands in the international market, they have to compete with global buyers who have enormous resources and clout.
In short, the only niche function is logistics which is another higher value added function. Interestingly, it is not a core competency of global buyers; they are happy to surrender this capability since they are interested in customised services at their doorstep. The developing countries may acquire this capability by investing in logistic capabilities. The private sector should take lead in setting up a logistic firm and the government may provide necessary support in nurturing the firm. Such targeted intervention may even outweigh the so called benefits of devaluation.
The writer is an Assistant Professor of Economics at Lums
Published in The Express Tribune, February 1st, 2016.