Comparative advantage: American buyers still prefer Pakistani apparel

Published: October 24, 2011
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The Pakistani rupee has been depreciating, making the country a choice outsourcing destination.

The Pakistani rupee has been depreciating, making the country a choice outsourcing destination.

KARACHI: Despite the chronic energy crisis, the gas shortages, the bombings, the terrorism and the violence, Pakistani apparel is one of the lowest cost options for US-based buyers, cheaper even than Bangladesh, India and China, according to American buyers of textiles.

The cost differentials can be as high as 25%, substantial in an industry that generally operates on low margins for exporters. For example, a hooded sweatshirt, which is made at the rate of $12 a piece in China, is manufactured in Pakistan for $9 to $10. Similarly, a pair of jeans, whose manufacturing cost is $10 in China, costs $8 to $8.50 in Pakistan.

Edward Hertzman, director of business development at Synergies Worldwide, a global sourcing company, explains why that is. “The cost of labour in Pakistan is less than China, India and Vietnam,” said Hertzman, whose company placed $75 million worth of orders with Pakistani textile companies last year.

“As opposed to Bangladesh, Pakistan has its own supply of cotton and fabric, and has more small and medium-size factories. So it is able to accommodate smaller volumes and shorter lead times, which suites the American market,” Hertzman said.

Synergies Worldwide represents about 35 European and American brands and deals with over 80 factories in Pakistan besides operations in India, China and Bangladesh.

Top American brands currently outsourcing their apparel manufacturing to Pakistan include American Eagle, Abercrombie & Fitch, Hollister, Nike, Quicksilver, Kohl’s, Sears, Wal-Mart, Gap, Old Navy and Macy’s.

“The perception is that Pakistan is a difficult and dangerous place to work. That’s not true. I travel to Pakistan at least four times a year. I think Pakistan is a serious place to do serious business,” Hertzman said.

The tariff exemptions that Bangladesh receives from the European Union, under the Generalised System of Preferences (GSP), seems to actually count against Bangladeshi manufacturers among American buyers, since it means that their production capacity was used mainly by large European retailers, leaving little spare capacity for any American firms that want to buy from there.

Also, the lack of domestic cotton production capacity makes it difficult to operate a “just in time” logistics system with Bangladesh, a system that US retailers are used to.

“Americans need to understand that Bangladesh works best when running large, continuous programmes. Also, the buyer must plan for longer lead times for Bangladesh, as the fabric is imported and capacity is booked months in advance,” said Hertzman.

Meanwhile, the cost of apparel manufacturing has increased in China in the recent past. The government raised the minimum wage up to 21% in Jan 2011. With the renminbi getting stronger in the international market, Chinese products are becoming increasingly expensive for foreign buyers.

On the contrary, the Pakistani rupee has been depreciating, making the country a choice outsourcing destination.

Talking to The Express Tribune, Khurram Khalid, who works for an international buying house in Karachi, said China was gradually moving away from textiles. “Chinese are smart people. They know the real money is in hi-tech. Their economy is growing, so they’re moving towards production of specialised goods.”

Another advantage that Pakistan has over its competitors, especially Bangladesh, is good quality, home-grown cotton. Pakistan produces short-staple cotton, which is good for denim, flannels, fleece, knits, polo shirts and t-shirts.

Pakistan also produces fashion goods and niche products better than Bangladesh. “Pakistan has excellent washing, dyeing and finishing techniques, enabling it to create fashion-forward, value-added garments,” Hertzman said.

The readymade garment industry in Pakistan enjoys facilities like duty-free import of machinery and income tax exemption. The Textile Institute of Pakistan also introduced first-of-its-kind, four-year BBA (Honours) in apparel manufacturing and merchandising a few years ago to meet the demand of the apparel industry.

Published in The Express Tribune, October 24th, 2011.

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Reader Comments (14)

  • sana
    Oct 24, 2011 - 2:34AM

    this is great, but why have i never seen a made in pakistan label on anything in gap. whenever i see one at h&m it feels like a $5 discount, heh.

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  • 12344
    Oct 24, 2011 - 3:34AM

    i have seen made in pakistan label in my a&e, a&f, and hollister things.

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  • Oct 24, 2011 - 4:57AM

    i have seen shirts of polo brand at bay ,and sears ,i can tell u beautiful piece of work ,truly amazing ,one of shirt is made in pakistan .

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  • Oct 24, 2011 - 11:07AM

    Pakistan has and will have always competitive advantage in Textile, we need clear and better policies from Govt. end to boost industry.,

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  • Arman Yousaf
    Oct 24, 2011 - 6:40PM

    Since the electricity & gas prices are continuously trending towards ascending graph, so the point to ponder is that the price gap advantage will not stay longer.

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  • Atif Ahmed
    Oct 24, 2011 - 7:07PM

    Pakistan has the advantage of cotton but it’s more feasible for high priced product as the labor is more skilled than others in its region.

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  • optimist
    Oct 24, 2011 - 7:37PM

    In Burton & River Island (UK), almost all jeans are made in Pakistan. They are good quality but they dont sell them cheap.
    .
    An exporter friend of mine from Sialkot told me that China can never compete with Pakistan as China can only deliver very big orders at a competitive price. When it comes to few thousand pieces, Pakistan has a clear advantage over all other countries!

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  • Cautious
    Oct 24, 2011 - 8:55PM

    The USA is your largest export market – that will end if the USA/Pakistan relationship continues to deteriorate.

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  • Dr. Mahmood Ahamd
    Oct 24, 2011 - 9:13PM

    Yes Pakistan has comparative advantage in producing textile, but this advantage has not been fully transformed into competitive advantage, producing a better quality product at lower prices, still Pakistani value added products in textile are few compared to China, India and other small players. Simply we did not prepare well to compete after abolishing quota regime after 2005 WTO ruling .

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  • M.Akthar
    Oct 24, 2011 - 11:03PM

    We should stop exports to US & West and export only to Islamic Nations;

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  • Meekal Ahmed
    Oct 24, 2011 - 11:22PM

    I don’t know what explains it and it is nice to have somebody saying something good about the country. But it is not a depreciating rupee — that’s for sure.

    Once you adjust for our much higher domestic inflation compared to our competitors then the rupee has been APPRECIATING in real effective terms.

    So on price alone, the exporter will loose money in REAL terms and is forced to export with thin profit margins.

    It may be the shorter lead times or the better cotton that gives us the edge.

    As a developing country, textiles will forever condemn us to a low wage, low productivity economy, with low living standards.

    We need to move UP-MARKET and away from textiles to higher value, higher productivity and higher-paying jobs. That need not happen in absolute terms but as a share of our total exports.

    Sadly, however, the commodity composition of our exports has not changed much — if at all — in six decades.

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  • antanu g
    Oct 24, 2011 - 11:33PM

    @Cautious:
    why you have such a negative mindset mr.cautious. article is about business and u keep ranting of war…Recommend

  • Humayun Afzal
    Oct 25, 2011 - 12:19AM

    I do agree with Hartzman comments on the viability of doing business in Pakistan.But the problem is this that Pakistani manufacturing is not being treated fairly by Most of the Importing countries.For example Bangladesh is being treated as blue eyed by giving relaxations in duties by USA .If Pakistani manufacturers being given a fair play ground we could be far cheaper in producing and exporting textiles goods.

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  • Nousheen Zakaria
    Oct 26, 2011 - 12:24AM

    Good piece Kazim, not only Pakistan has good denim products but U.K brands like Marks and Spencer also stock a range of bed-linen and towel products from Pakistan, which are excellent in quality.

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