Benchmarking Pakistan's Textile and Clothing Exports

6.1 Performance of Pakistan's Textile and Clothing Exports

Here we benchmark Pakistan's exports of textiles and clothing (T&C). Pakistan's T&C exports in 2001, $6.8 billion, lay between those of Thailand ($5.8 b.) and Indonesia ($7.9 b.). PRC was by far the largest exporter in this industry, with values approaching $55 billion in 2001 (Figure 16).

In terms of growth rates, Pakistan was a modest performer. As Figure 16 [PDF 21KB | 1 page] shows, its growth over 1990-2001, 4.5 per cent per annum, was below that of its neighbours but above that of high wage countries like Korea and Hong Kong. The world growth rate for T&C exports was 4 per cent; after a spurt during the 1980s, it slowed down to one of the slowest growing segments of world trade in the 1990s. Therefore, in terms of market positioning for future growth, it was clearly an undesirable segment.

Pakistan, however, is heavily reliant on T&C exports, and this reliance has hardly changed over time. Given that global T&C markets are relatively stagnant, entry is relatively easy and the industry offers few technological and skill spillover benefits, this specialisation does not bode well for future growth: Pakistan must diversify into faster growing and technologically more advanced products. Most East Asian Tigers also started with a strong reliance on T&C exports but over time quickly moved into other activities. Electronics offered the main avenue for diversification but it was not the only one.

As Figure 18 [PDF 21KB | 1 page] shows, Pakistan comes next only to Bangladesh in its dependence on T&C products. Even PRC, with its dominance of T&C markets, is rapidly reducing the share of the industry in exports (down to 20.5 per cent by 2001). Of the East Asian economies, only Hong Kong raises its reliance on T&C exports, and it is the only Tiger economy whose exports have been declining in absolute terms.

The T&C industry contains some 100 products at the 4-digit SITC (Rev. 2) level, and some of these are growing faster than others. The ability to specialise in dynamic products and to move from slow to fast growing products (flexibility) is an important aspect of competitive performance within the industry. Another aspect is product sophistication: some T&C products are more sophisticated than others, and there is a presumption that these offer greater scope for value addition. This section benchmarks Pakistan in terms of positioning in dynamism, flexibility and sophistication in the T&C industry, using a set of different measures all based on available trade data.

6.2 Dynamism and Flexibility of Textile and Clothing Exports

Dynamism and flexibility are assessed in terms of the 'market positioning' matrix discussed in section 5.3 above. To reiterate, the four positions in the matrix in order of desirability are: champions (dynamic products in which the country is gaining market share, the best position for an exporter), achievers in adversity (stagnant products in which the country is gaining market share), declining sectors (stagnant sectors in which the country is losing market share) and underachievers (dynamic products in which the country is losing market share, the worst position).

Table 10 [PDF 29KB | 1 page] shows Pakistan's market positioning relative to PRC, India and Indonesia. The share of champions has risen in all four countries, but Pakistan has the lowest share of champions of the group in both years. In 2000, it also has the highest share of declining sectors and underachievers. PRC and Indonesia have the highest shares of champions while India is more similar to Pakistan - but with a higher share of achievers in adversity (products gaining market share in stagnant products).

While Pakistan's overall positioning appears relatively weak, it is 'flexible' in raising significantly the share of exports in the dynamic segment ('champions' plus 'underachievers') over time, with a gain of 18.4 percentage points, which is a little more than the gain of India at 15.8 percentage points.

Indonesia raises its share by 5.2 points but maintains a high share in dynamic products in both years. PRC starts with a smaller share of dynamic products in 1990 than Indonesia (if higher than Pakistan or India) but raises it by an impressive 25 points.

Now consider Pakistan's performance for its 10 largest T&C exports during 1990-2000. Figure 19 [PDF 47KB | 1 page] shows the distribution of these products over the matrix for Pakistan. (The size of the bubble is related to the 2000 export value.) Products above the line for world growth rate (4.54 per cent per annum in the 1990s) are dynamic products in world trade, and those to the right of the vertical line are products in which Pakistan gains market share. The top right segment of the figure shows the champions, the bottom right achievers in adversity and so on. Figure 20 [PDF 54KB | 1 page] shows the same information for PRC.¹¹

It appears that the leading 10 T&C exports of PRC are better positioned than those of Pakistan, with more champions than achievers in adversity. Table 11 [PDF 23KB | 1 page] shows the values of and world market share changes for each of the top 10 T&C exports for Pakistan, India and PRC. Note the similarities as well as differences between the product ranges of these countries.

Table 12 [PDF 30KB | 1 page] shows a different performance measure, the world market shares of Pakistan and comparators in the 10 fastest growing T&C exports in the world in the 1990s. This allows us to assess how each country is doing in the most dynamic global exports. The results are somewhat different from those of the flexibility exercise.

Each of the countries in the table gains market share in the 10 products taken together. PRC continues to be the leading performer with the largest gain, an increase of a massive 8.6 percentage points. India comes next in the group, with 1.4 points. The lowest gain (0.4 points) is by Pakistan. More interestingly, Pakistan loses market share in 5 of the 10 dynamic products. India and Indonesia lose in 2 products each while PRC and Sri Lanka raise shares in all products. Pakistan's overall market share gain is due predominantly to one product, undergarments knitted of cotton, which, fortunately, are also the fastest growing T&C export in the world. However, it is also a very simple product in which entry is very easy, and is vulnerable to competitive erosion. Pakistan's market share losses in 5 of the 10 dynamic products are worrying, but without further investigation, we cannot evaluate their cause or significance.

6.3 Sophistication of Textile and Clothing Exports

We now consider sophistication of textile and clothing exports at the 4- digit level. The 100 products that fall under this industrial category show a fairly wide range of sophistication (see the statistical appendix). The sophistication score for the industry is calculated independently of the scores assigned to all 181 manufactured products at the 3-digit level (reviewed in section 4.3 above), but most T&C products rank fairly low in terms of manufacturing sophistication.¹²

Figure 21 [PDF 35KB | 1 page] shows the average sophistication score of T&C exports by Pakistan and comparators; here the scores range from zero to 100 for textile and clothing products only. The scale is thus quite different from that used to assess total exports, with the top in T&C being relatively low on the overall scale. Two advanced exporters, Japan and Korea, are also shown for comparison.

Pakistan ends the period with the lowest average sophistication level in the group. Japan and Korea, as expected, have the highest levels. They are followed by Indonesia, Sri Lanka and PRC. India is second from bottom in the group. Over the 1990s nearly all the countries in the chart see a decline in their sophistication scores, a manifestation of the rapid relocation of most T&C products to low wage economies. The only exception is Bangladesh, which moves into more sophisticated products; this is, however, probably due to the very low level of sophistication it started with in 1990. Korea has the smallest decline of the other countries; combined with its high average sophistication score, this suggests that it has managed to shift production into more complex products while relocating simpler ones to cheaper sites.

Pakistan's relatively low score in 2000 suggests that it is specialising in low value-added segments of the industry. This is explored further by dividing T&C products into four groups according to product sophistication scores and tracing distribution of exports by countries over these groups. Figure 22 [PDF 46KB | 1 page] shows the 1990 and 2000 distributions for Pakistan and five comparators, with SL1 being the most sophisticated T&C products and SL4 the least sophisticated.

This figure shows interesting differences in the evolution of T&C sophistication over the 1990s. Pakistan's structure remains stable with a very low share of highly sophisticated products SL1, a moderate share of SL2 and very high concentration in SL4. Indian exports start fairly similar to Pakistan's but then shift more towards SL3 products, with corresponding losses in SL2 and SL4. Bangladesh moves significantly from the lowest level to SL2 and SL3, with SL1 remaining steady at a very low level. PRC shifts from SL4 to SL2. Japan's structure is practically unchanged, with SL levels 1 and 2 dominating its T&C exports. Korea shifts its structure upwards, with the top two levels gaining over the bottom two. Again, the rapid upgrading of Bangladesh's T&C exports is noteworthy.

In 2000, Pakistan has the highest share of SL4 category products (nearly 55 per cent) in its T&C export basket. All other countries in the figure with similar wages - India, Bangladesh and PRC - have much lower shares, the lowest being Bangladesh with only 13 per cent. (Recall from Figure 17 [PDF 21KB | 1 page] that Bangladesh also records the highest export growth rate in the industry in 1990-2001.) While it is beyond the scope of this paper to analyse this in greater detail, there are important policy issues here in terms of evolution and drivers of product upgrading in Pakistan relative to its main competitors.

6.4 Some Final Thoughts

Given the prime importance of textiles and clothing to Pakistan's exports, the analysis here, simple as it is, has some disturbing implications. It is clear that overwhelming specialisation in this industry is not desirable for Pakistan's future competitiveness: it is unlikely to yield sustained growth in a world where dynamism resides increasingly in technology-intensive products. Our analysis suggests that over the period studied, even within the T&C industry, Pakistan's performance is weak in several aspects.

Pakistan's textile industry has invested substantially in new equipment and technologies in recent years. It is well placed, given its raw material base and vertical integration across stages of production, to continue to be a major T&C player once quota restrictions are lifted. However, its major competitors are also investing heavily in upgrading the industry, and most are also upgrading their skill and design base and moving into better quality products. It is not clear if a raw material base will suffice for Pakistan to maintain a strong export position if it does not match its competitors in terms of technology, skills, designs and quality. The data here suggest, albeit indirectly, that it is lagging in this. It continues to focus on the least sophisticated products. It has a low share of champions and is losing market share in many of the most dynamic global T&C exports.

There are many issues here that need more detailed benchmarking and analysis than is possible in this paper. It would appear imperative to undertake such an effort quickly if Pakistan is to formulate and implement a coherent strategy on export competitiveness.

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