JICA-TDAP Activities for Textile Sector Hideaki Shimizu, JICA Advisor to TDAP

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1 JICA-TDAP Activities for Textile Sector 2015 Hideaki Shimizu, JICA Advisor to TDAP November 30, 2015

2 CONTENTS 1. Summary of JICA-TDAP Activities Pakistan's Textile Export to Japan 3. Feedback from Japanese Textile Experts 4. Analysis of Differentiation Strategy for Japanese Market

3 1. Summary of JICA-TDAP Activities List of Major Activities in 2015 N o Mon. Activities Type of Activities 1 Jan Support for PJBF Export Delegation to Japan Promotion 2 Feb Support for Japanese Delegation for EXPO Pakistan 3 Jul Support for SCCI Delegation to Japan 4 Jul Website on Guide for Trade with Japan 5 Aug Pakistani Textile Delegation to Bangkok Export Promotion Export Promotion Biz Information Enlightenm ent Sector All Sectors All Sectors Sports Goods &Surgical Instruments All Sectors Textile Remarks Business Dialogue and B2B Meetings were arranged in Tokyo for PJBF Delegation to Japan. Supported B2B Meetings at EXPO Pakistan for Japanese Delegation. Supported B2B Meetings in Tokyo & Osaka for SCCI Delegation to Japan. Established website for providing business information of Japan to Pakistani Exporters. Arranged Pakistani Textile Delegation to visit Japanese textile factories in Bangkok for learning difference.

4 1. Summary of JICA-TDAP Activities List of Major Activities in 2015 N o Mon. Activities Type of Activities 6 Sep Mango Promotion in Export Japan Promotion 7 Oct Japanese Textile Export Delegation to Pakistan Promotion 8 Oct Textile Workshop in Lahore & Karachi 9 Nov Survey on Differentiation Strategy Enlighten ment Enlighten ment Sector Agricultural Foods Textile Textile Textile Remarks Supported Pakistan mango Promotion in Japan Arranged Japanese Textile Delegation to visit Pakistan for B2B meetings and factory visits in Lahore& Faisalabad. Held Textile workshops in Lahore & Karachi on textile production, quality, and inspection related issues inviting 2Japanese textile experts. Made survey and analysis on differentiation strategy for textile sector in terms of export to Japan.

1. Summary of JICA-TDAP Activities 2015 1-2 Highlights

Delegation to Bangkok, Thailand Period: Aug17-19, 2015

delegation to Bangkok Visited Japanese textile

their direct experiences & information on production

5 1. Summary of JICA-TDAP Activities Highlights on Textile related Activities Pakistan Textile Delegation to Bangkok, Thailand Period: Aug17-19, 2015 Place: Bangkok, Thailand Arranged a Pakistani textile delegation to Bangkok Visited Japanese textile factories and inspection companies Purpose: Getting their direct experiences & information on production control, quality control, and inspection to help their production improvement.

1. Summary of JICA-TDAP Activities 2015 1-2 Highlights on Textile

Textile Business Mission 2015 Period:October 12- October 15, 2015 Place:

6 1. Summary of JICA-TDAP Activities Highlights on Textile related Activities Pakistan Now! Textile Business Mission 2015 Period:October 12- October 15, 2015 Place: Lahore and Faisalabad in Pakistan Arranged Japanese textile delegation to Pakistan. B2B meetings and networking events with Pakistani textile exporters as well as factory visits were made. Japanese Delegates: 12 persons mainly from home textile companies. Pakistan Exporters : 19 companies participated B2B meeting with Delegation B2B Meeting Delegates & TDAP Members Factory Visit Networking at Faisalabad

1. Summary of JICA-TDAP Activities 2015 1-2 Highlights on Textile related Activities Pakistan Japan Textile Workshop Period: October 12&16, 2015 Place: Lahore

Invited 2 Japanese textile experts Mr. Yasuhiro Shoda 1) Expectation to Pakistan Textile Industry Lecturer:Mr. Yasuhiro Shoda, Sr.

7 1. Summary of JICA-TDAP Activities Highlights on Textile related Activities Pakistan Japan Textile Workshop Period: October 12&16, 2015 Place: Lahore (Oct12) & Karachi (Oct16) Held Textile workshop in Lahore & Karachi Theme: improvement of cost down, production control, and quality control, etc. Invited 2 Japanese textile experts Mr. Yasuhiro Shoda 1) Expectation to Pakistan Textile Industry Lecturer:Mr. Yasuhiro Shoda, Sr. Researcher, JTIA 2) Good Factory& Bad Factory to Export to Japan Lecturer: Mr. Hisao Nishiyama, General Manager,QTEC Presentation materials are available at JICA-TDAP Website Mr. Hisao Nishiyama

8 2. Pakistan s Textile Export to Japan 2-1 Pakistan s Export to World & Japan Pakistan s Export s during and Value in $ Thousand Export to World Export to Japan %Change %Change G R A N D T O T A L 23,667,294 25,109, % 182, , % TEXTILE GROUP 13,164,027 13,433, % 102,000 92, % AGRO & FOOD GROUP 4,249,894 4,325, % 23,028 19, % ENGINEERING & MANUFACTURES GROUP 2,574,077 2,961, % 14,863 20, % MINERALS & METAL GROUP 677,964 1,147, % , % OTHER ITEMS 3,001,332 3,242, % 41,253 48, %

9 2. Pakistan s Textile Export to Japan 2-2 Textile Export to Japan Sector Wise Export to Japan July-June Value in 000 US$ VAR % Change Textiles 102,000 92,766 9, Cotton Yarn 29,843 35,189 (5,346) (15.19) Yarn Other Than Cotton Yarn 3,410 1,642 1, Cotton Fabrics 32,237 26,175 6, Readymade 15,033 10,542 4, Knitwear 10,782 9,038 1, Textile Madeups (Excl. Bedwear & Towels) 2,508 2, Bedwear 2,342 1,326 1, Towels 5,050 6,125 (1,075) (17.55) Tents & Canvas Synthetic Textiles Shows Increased Products

10 2. Pakistan s Textile Export to Japan 2-3 Key Factors for Increasing Textile Export to Japan Expanding Business Opportunity in the China Plus One Trend It is obvious that the business trend of China Plus One (to secure other Asian suppliers besides China) has been accelerated rapidly in Japan and expanded to South Asian countries including Pakistan also. It is a great business opportunity for Pakistan to increase market share in Japan. Therefore, it is necessary for Pakistan to make positive promotion activities in Japan.

11 2. Pakistan s Textile Export to Japan 2-3 Key Factors for Increasing Textile Export to Japan Improvement on Quality, Inspection, and Delivery Japanese companies are always concerned about quality, inspection, and delivery. This is one of crucial issues for increase of textile export to Japan. For improving these matters, -> wide range of educational activities through technical workshops shall be arranged for textile related people. -> useful to introduce feedbacks through direct guidance by Japanese buyers or experts at Pakistani textile factories.

12 2. Pakistan s Textile Export to Japan 2-3 Key Factors for Increasing Textile Export to Japan Import Duty Issues The tariff problem is still a major barrier with regard to Pakistani textile export to Japan. Pakistan Japan Joint Dialogue held on Nov 10, Both sides would consider Early Harvest Program for textile to solve tariff issues. This is still first step. However, it would be better to continue lobby activities on this issue together with major Japanese buyers for practical solution to be agreed by both countries.

13 2. Pakistan s Textile Export to Japan 2-3 Key Factors for Increasing Textile Export to Japan Differentiation Measures BCI Cotton The Better Cotton Initiative (BCI) is a not-for-profit organization stewarding the global standards for Better Cotton, and BCI Cotton was originally started from Pakistan. BCI exists to make global cotton production better for the people who produce it, better for the environment and better for the sector s future, by developing Better Cotton as a sustainable mainstream commodity. Although organic cotton is widely known in Japan, BCI cotton is hardly recognized yet. BCI Cotton can be a good brand image for Pakistan cotton to compete with other competitor countries. This would be one of examples to utilize as a differentiation measure for Pakistan textile.

3. Feedback from Japanese Textile Experts 3-1 Good Points (1) High Level of Technology and Skill in Production Introducing high technology and sophisticated IT system in production management and

14 3. Feedback from Japanese Textile Experts 3-1 Good Points (1) High Level of Technology and Skill in Production Introducing high technology and sophisticated IT system in production management and human resource management. Investing for Installment of the latest machinery of weaving and spinning and automation enable to maintain high quality of products. Satisfying level of skill of operators results in high efficiency especially in stitching operation.

15 3. Feedback from Japanese Textile Experts 3-1 Good Points (2) Well-acknowledgement of Evaluation by Customers Acknowledge and adopt to international level of compliance, CSR, ISO and other certifications.

16 3. Feedback from Japanese Textile Experts 3-2 Issues to be Improved (1) Management Higher FOB Price than Competitor Countries Productivity, Cost-benefit, Return on Investment (ROI), and labor-saving rate should be analyzed in detail seriously. More indirect staff (=administrative staff and merchandiser) seen relatively more in Pakistan than in competitor countries. Insufficient in Prevailing Philosophy of Costdown Management class should review of management principle and fundamental issues. It is necessary to keep in mind that downsizing, systemization, KAIZEN all the time for achieve sufficient cost down.

17 3. Feedback from Japanese Textile Experts 3-2 Issues to be Improved (2) Production and Products Problems in Production Systematization Too many goods-in-process causes impurity and insect problem and unnecessary human costs. Need to distinguish human operation factors from automation. High dependency on machinery technology Problems in Quality of Products Lower quality of yarn products due to rough-management of fly waste and raw cotton mixing process. Unevenness of quality(whiteness) of cotton fabric is fatal but caused by inadequate installment of pre-treatment equipment.

18 3. Feedback from Japanese Textile Experts 3-2 Issues to be Improved (3) Sector Structure Lack of Know-how on Production of Value-added Yarn the Apparel & Garment Sector Dependency on mass production and export low materials and lowvalue products. The worldwide demand for highly value added yarn (count 50 to 80) has increased and necessary for a variety of garment production. Advanced technical skills for product merchandising (eg. patternmaking and grading) and finishing should be inquired. Lack of Understanding of Synthetic Fiber Material Facts and big potential of synthetic fiber is ignored. (eg. high functionality and diversification of final products)

19 3. Feedback from Japanese Textile Experts 3-3. Recommended Solutions Production Management Review and Establish Production Plan and Work Flow To improve productivity and cost reduction, eliminate waste of resource by review of production schedule, personnel plan, and facility and process design. Enforcement of Middle Management Class Workers It will be effective to enforce middle-class managers who are responsible for actual operation in factories. Acceptance of advice by Japanese experts and willingness to improve their defect points show great potential.

20 3. Feedback from Japanese Textile Experts 3-3. Recommended Solutions Marketing Strategy Improvement of Image and Stereotype of Nation Spread the positive image of A diligent producer with excellent vertical-integrated advanced factories from Raw cotton fiber rather than harmful rumors caused by terrorists and terrible incidents Promotion of Economic Advantages by Policies Participation in international trade partnership framework and agreement of FTA/EPA would be beneficial. (eg. tariff reduction and exemption) Understanding of the Japanese Market Japan s requirements are unique and differ widely from Western countries (eg. Quality standard)

21 4. Analysis of Differentiation Strategy for Japanese Market 4-1 Japanese Buyers Comments on Pakistani Textile Products (1) 1 Categories Quality of Cotton Comments Few requirements. (Will rely on other countries when in need of high quality cotton). Not a big expectation for importing fine/middle yarn. 2 Processing Technique 3 Design Demand for decrease in the defect rate. Improve the precision of inspection Not high expectation in design when OEM order. Require to produce the product precisely as designed by Japanese companies. 4 Function Not expect to import products with high functionality. 5 Delivery date Apparel sector require lead time within 3months from the order date. -> Only low price and simple designed products can be ordered.

22 4. Analysis of Differentiation Strategy for Japanese Market 4-1 Japanese Buyers Comments on Pakistani Textile Products (2) Categories 6 Production Lot Comments Need production of small lot and wide variety. Demand for reducing the volume of supply lot. 7 Price Although the price per product is low, it is not desirable considering the low quality and a long time spent on lead time.

23 4. Analysis of Differentiation Strategy for Japanese Market 4-1 Japanese Buyers Comments on Pakistani Textile Products (3) Comments Summary Japanese companies are not seeking high standards. Pakistan companies often do not try to meet the demands of Japanese counterparts, resulting in a break off of transaction. Cannot advance into the Japanese market unless they stop requesting Japanese companies the same condition of transaction they have with the U.S. and European partners. The situation will not change just by demanding Japanese buyers their change or improvement from Pakistan companies.

24 4. Analysis of Differentiation Strategy for Japanese Market 4-2 The Problems and Needs on Improvement for Pakistan Products (1) Categories 1 Quality of Cotton 2 Processing Skill Comments Quality is not satisfactory since Pakistan cotton is made of thick fiber. Contamination of impurities in raw material are reported because inspection is not conducted at the stage of procurement of low material. Bad reputation for their processing skills. Only accept orders with very simple process without complicity. The product is roughly made for most of the workers are male. 3 Design Difficulty in corresponding with product with a complicated design. 4 Function Probably cannot deal with products with high functionality.

25 4. Analysis of Differentiation Strategy for Japanese Market 4-2 The Problems and Needs on Improvement for Pakistan Products (2) Categories 5 Delivery Date 6 Production Lot Comments Cannot(or intentionally cannot )accomplish quick delivery. Within 3-month delivery is difficult. Takes 1 month for marine transport because of the transshipment in other country such as Singapore Not respond to the requirements of small lot production. Reducing the lot volume will be required. 7 Price Low price but not desirable, considering the low quality and the time spent on lead time. Labor costs are not low as women labor-force are not fully used). High transport cost due to no privilege of import duty.

26 4. Analysis of Differentiation Strategy for Japanese Market 4-2 The Problems and Needs on Improvement for Pakistan Products (3) Comments Summary Lack of information about what kind of product the companies of Pakistan actually produce. If Pakistan strongly desire to advance into Japanese market they should be giving more effort. Eg 1. Participating in exhibition in Japan Eg 2. Having Japanese staff in Tokyo as representatives Real price is low. However, factors such as long time for delivery, large lot, low quality make Japanese companies feel that Pakistan product is not low cost as a whole.-> No demand for a renewal transaction. Most Pakistan companies do not accept the complicated order which lowers the labor effectiveness per time because most of the workers are contract employees.

27 4. Analysis of Differentiation Strategy for Japanese Market 4-3 Positioning analysis of comparison by countries ~Risk v.s. Reward~ High Bangladesh Vietnam China Myanmar Pakistan Reward Japan Low Low High Country risk Country risk of Pakistan is very high due to existence of extremist groups and being next to Afghanistan while low reward(=low cost), which is why Pakistan is thought to be less favorable. If Pakistan companies failed to deliver products on time, it may affect the reputation of the Japanese companies badly. Therefore it is the general view that there are very few Japanese companies which take such risk and try to advance in Pakistan.

4-4 Differentiation factors with Pakistan products and other countries China Although

From raw material to final product, China can make high quality products.

Although evaluation of exporting is at top-level, due to the foreign exchange rate and

Vietnam Little concern about safety and disadvantage of high inflation rate.

Utilizing a large work force of women. Bangladesh Myanmar Little concern about safety.

Wages of workers are inexpensive, good in the production of apparel/garment.

Importing yarn and fabric from others. Expected to grow significantly in the future.

28 4-4 Differentiation factors with Pakistan products and other countries China Although the quality varies, correspond to very high quality products. From raw material to final product, China can make high quality products. Can respond flexibly to small lots and short delivery times. Although evaluation of exporting is at top-level, due to the foreign exchange rate and the increase in the worker s wages, production costs are rising. Vietnam Little concern about safety and disadvantage of high inflation rate. Wages of workers are inexpensive, good in the production of apparel /garment. Utilizing a large work force of women. Bangladesh Myanmar Little concern about safety. Degree of discrimination against women is low. Utilizing a large work force of women. Wages of workers are inexpensive, good in the production of apparel/garment. Apparel manufacturers from EU& the U.S. had been actively advancing since Importing yarn and fabric from others. Expected to grow significantly in the future. Concerned about security. Since wages of workers are inexpensive, looks attractive to advance into, even taking into consideration the risk and security. Underdeveloped Infrastructure (eg. power, water sewage, roads, etc.) is concerned. 110

29 4-5 Factor Comparison between Pakistan and Others Procurement of raw materials China Developing Country Pakistan Able to correspond to the production of fine yarn, cotton, and fabric. Regardless of the type of cotton, mainly focus on imports. Textile Developed. Gradually growing. Developed. Regarding their domestic product (thick yarn, course count yarn), they are able to correspond to the production of cotton and fabric. Garment Industry Developed. Rapidly growing. Developing, but not as much as other developing countries. The quality of the final product Reached the same level as Japan with high quality. Quality is low, but rapidly growing. Advancement of Japanese inspection companies, the defect rate sense of security Very low. Only one Japanese inspection company (bedding group) has advanced, still high defect rate. Production Lot Even if there is contract manufacturing, many companies are able to take in small lots. Small lot is difficult in the case of contract manufacturing. Factories of Japanese companies (group), small lot production is carried out. In the case of contract manufacturing, there are no companies that cater to small lot production. Specialized Area Not limited to the type of raw material. Universal type from labor-intensive type to equipment industry type. Not limited to the type of raw materials, Strong in apparel products that require labor-intensive tactics. Strong in equipment-industry and fabric products. Limited to products that use thick yarn and ultra-thick yarn (towels, denim, heavyweight products).

4-6 Differentiation Factors for Pakistani Products 1.

- Thick garment: jeans, chino pants, T- shirts, etc.

- Heavyweight products:work gloves, mattress, etc. - Canvas products:bag, purse, miscellaneous goods, canvas, etc. 2.

that have fleece lining are produced in factories in Pakistan.

-> More recognition of Pakistani goods: industry stakeholders recognize and know Pakistani products already sold in

-> More interaction and dialogue: To see and feel the products actually distributed in Japan, they would like to

30 4-6 Differentiation Factors for Pakistani Products 1. Competitive Items - Fleece, hair raising type: sweatshirts, hoodies, leggings, nightgowns, pajamas, etc. - Thick garment: jeans, chino pants, T- shirts, etc. - Towel material: blanket, mop, toilet linen (Lid cover, toilet seat cover, mat), bath mat, etc. - Heavyweight products:work gloves, mattress, etc. - Canvas products:bag, purse, miscellaneous goods, canvas, etc. 2. Strategy in Promotion of Pakistani Fast Fashion Products Fact: In the SPA of Western fast fashion brand, sweatshirts that have fleece lining are produced in factories in Pakistan. Many of these fast fashion brands are imported and their quality is accepted in Japan. -> More recognition of Pakistani goods: industry stakeholders recognize and know Pakistani products already sold in Japan, which may lead to an increase in demand of these products. -> More interaction and dialogue: To see and feel the products actually distributed in Japan, they would like to participate in exhibitions and seminars, interact, and exchange ideas. 3. Fair Trade and BCI Cotton Products with certification of fair trade and BCI can draw great attraction in the future, especially from some SPA and fast fashion brand regarding as their CSR initiatives. Fair trade and BCI promotion will be an easy approach for support measures from JICA in terms of labor and environmental protection.

Trade Development Authority Government of Pakistan **** No. TDAP-PA/JA/QTEC/2012 Karachi, October 5, 2012

Trade Development Authority Government of Pakistan **** No. TDAP-PA/JA/QTEC/2012 Karachi, October 5, 2012 Secretary General, Pakistan Hosiery Manufactures and Exporters Association (PHMA), Karachi Subject: