Trend Survey of International Apparel Industry

The Project for Skills Development and Market Diversification of Garment Industry in Pakistan Public Private Partnership Task Force <Marketing Strategy> Trend Survey of International Apparel Industry November 2016 Hideaki Shimizu JICA Expert 1 Contents: 1. Introduction 2. World Apparel Market 3. Analysis of Major Export Countries 4. Analysis of Major Apparel Companies 5. Global Value Chain in the Apparel Industry 6. Business Trend of Apparel Industry 7. Status of Pakistan s Textile and Apparel Industry 8. Conclusion 2

1. Introduction 3 1 1 The Issues with Pakistan's Apparel Industry (1/2) POSITIVE SIDE Raw Cotton, Textile, and the Apparel industry of Pakistan are major contributors to the national economy in terms of exports and employment. World s 4 th largest cotton producer and the 3 rd largest consumer in the world. Contributes nearly one fourth to the industrial value added products, provides employment to about 40 percent of industrial labor force. 4

1 1 The Issues with Pakistan's Apparel Industry (2/2) 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Cotton Yarn export Value in 2012 & 13 in billion US dollars -1.38% 51.28% 4.89% 12.48% 47.10% 1.03% 9.13% 60.00% 50.00% 36.42% 40.00% 30.00% 23.42% 20.00% 10.00% 0.00% -10.00% Export value in million dollars 160 140 120 100 80 60 40 20 0 38.6 Global Clothing Exports (US$) 2013 in billion of dollars (Total Value) 2013 (Percentage of Global Exports) 25.6 5.1 0 3.7 3.7 3.3 1.7 1.3 1.1 1 1 36 31 26 21 16 11 6 1 Sharein global exports 2012 Countries NEGATIVE SIDE Pakistan Less competitive in the world apparel market India, Vietnam showing high growth rate (left) Pakistan still focuses on low value added goods majorplayerinrawmaterial industry but ranked 12 th in global clothing export. (right) 5 2. World Apparel Market 6

2 1 Apparel Exports (1/6) Apparel Export in the World Apparel Export in the World (Unit: million US) 2010 2011 2012 2013 2014 World Total 354,493 419,206 419,518 459,662 483,280 Asia 2010 2011 2012 2013 2014 China 129,820 153,774 159,610 177,414 186,607 Hong Kong 24,049 24,505 22,573 21,922 20,510 Indonesia 6,820 8,045 7,524 7,692 7,670 Viet Nam 10,390 13,149 14,443 17,148 19,544 Thailand 4,300 4,561 4,275 4,100 4,129 Cambodia 3,041 3,995 4,294 5,025 5,969 India 11,229 14,672 13,928 15,542 17,742 Bangladesh 14,855 19,214 19,788 23,501 24,584 Pakistan 3,930 4,550 4,214 4,549 4,992 Europe EU 28countries 100,695 117,407 109,853 118,639 126,587 Turkey 12,760 13,948 14,290 15,393 16,680 US USA 4,692 5,241 5,606 5,862 6,109 Mexico 4,363 4,638 4,449 4,530 4,618 Source: WTO 7 2 1 Apparel Exports (2/6) 0:=2010 200 World's Main Transition in Apparel Export Index for the recent 5 years (2010 2014: 2010=100) Unit: Mil. USD 400,000 Main Apparel Export Countries in Apparel Export Value for the recent 5 years (2010 2014) 180 160 140 120 100 Viet Nam Bangladesh India China Pakistan 350,000 300,000 250,000 200,000 150,000 100,000 50,000 Pakistan Viet Nam India Bangladesh EU 28countries China 80 2010 2011 2012 2013 2014 0 2010 2011 2012 2013 2014 8

2 1 Apparel Exports (3/6) USA 1% Indonesia 2% Viet Nam 4% Turkey 4% Bangladesh 6% Hong Kong 5% The Share of Apparel Export Value in 2014 (%) by Export Countries India 4% Mexico Pakistan 1% Thailand 1% 1% EU 28countries 28% Cambodia 1% China 42% Unit: Mil. USD 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 World's Transition in Apparel Export Value for the recent 5 years (2010 2014) 2010 2011 2012 2013 2014 Mexico USA Turkey EU 28countries Pakistan Bangladesh India Cambodia Viet Nam Indonesia Hong Kong China 9 2 1 Apparel Exports (4/6) Export Destination Details of Major Asian Exporting Countries(1/2) China (2014) Viet Nam (2014) Indonesia (2014) Others 40% Europe 20% North America 15% Middle East 0% Asia 31% Europe 17% Oceania 2% Middle East 4% Asia 21% Europe 20% Others 3% Oceania 2% Middle East 4% Asia 19% North America 52% North America 50% Europe + North America = 35% Europe + North America = 69% Europe + North America = 70% All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing Strategy) 10

2 1 Apparel Exports (5/6) Export Destination Details of Major Asian Exporting Countries(2/2) India (2014) Bangladesh (2014) Pakistan (2014) Oceania 1% Others 14% Asia 5% Middle East 17% North America 21% Europe 42% Middle East 3% Asia 5% North America 26% Oceania 2% Others 2% Europe 62% Oceania 1% Others Middle 3% East 3% Asia 2% North America 36% Europe 55% Europe + North America = 63% Europe + North America = 88% Europe + North America = 91% All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing Strategy) 11 2 1 Apparel Exports (6/6) Evaluation of Asian Countries Related to Textiles The Table below (made by JETRO) is the rankings of the Export Capability per item by relative evaluation based on their export amount ; 8 major Asian Countries with most Exports of Textiles. Average Monthly Wages($) Cotton Yarn/ Cotton Cloth (HS52) Export Capability Special Items Synthetic Textiles(54-56) Pakistan India Bangladesh Sri Lanka Indonesia Cambodia Vietnam China 185 230 100 143 250 162 185 424 B A D E F G C S D A E F B G C S Knit Wear (61) G C A F E D B S Ready- Made Clothes (62) E C A F D G B S Home Textile (63) B A D F E G C S Cotton Production Tariff 0% Europe Japan Japan/ Europe Data are from 2015. Bangladesh 2015/16. Indonesia, Cambodia, Vietnam are 2014. Export Capability is ranked in order of Value. [Source] UN Comtrade, Bangladesh Export Reconstruction Agency World Tariff, JETRO All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing Strategy) Japan Japan/ Europe Japan 12

2 2 Apparel Imports (1/2) World's Main Transition in Apparel Import Index for the recent 5 years (2010 2014: 2010=100) World Total of Apparel Import 260 600,000 240 220 200 China Korea 500,000 400,000 180 160 140 120 UAE 300,000 EU 28countries Japan 200,000 USA Hong Kong 100,000 100 80 2010 2011 2012 2013 2014 0 2010 2011 2012 2013 2014 13 2 2 Apparel Imports (2/2) Unit: Mil. USD 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Major Import Countries in Apparel Import Value for the recent 5 years (2010 2014) 2010 2011 2012 2013 2014 Others Russia Canada Hong Kong Japan USA EU 28countries The Share of Apparel Import Value in 2014 Canada 3% Hong Kong 4% Japan 8% Russia 2% USA 24% Others 8% EU 28countries 51% 14

3. Analysis of Major Export Countries 15 3 1 Country Profile China (1/3) Apparel Export of China Export Destination Details 200,000 180,000 160,000 140,000 120,000 100,000 Total 80,000 60,000 40,000 20,000 0 2010 2011 2012 2013 2014 Apparel Export of China (Unit: Million USD) 2010 2011 2012 2013 2014 Total 129,820 153,774 159,610 177,414 186,607 Oceani a 2% Others 40% China (2014) Middle East 4% Europe 20% Asia 19% North Americ a 15% 16

3 1 Country Profile China (2/3) World s largest exporter of textile and apparel. China is highly competitive in its goods sector due to its large supply of low cost labor and raw materials, all which have enabled the sector to attract foreign direct investment. Major strength of China: the textile and apparel sector of China encompasses all segments of the supply chain. Industry has the ability to produce any type of textiles and apparel products at varying quality levels. 17 3 1 Country Profile China (3/3) China has significant competitive advantages in apparel production including high labor productivity and access to local supplies of raw materials. It remains attractive for US buyer to import from China because Chinese firms tend to offer more value added services, react faster to changes in fashion and retailer demands, and meet customer product standards better than producers in other parts of the world. China has few internationally recognized brand names and few experienced apparel designers. China is starting to participate more actively in design and innovation. 18

3 2 Country Profile Bangladesh (1/3) Total Apparel Export of Bangladesh Export Destination Details 25,000 Bangladesh (2014) 20,000 15,000 10,000 Total Middle East 3% Oceania 2% Others 2% 5,000 0 2010 2011 2012 2013 2014 Apparel Export of Bangladesh (Unit: Million USD) Asia 5% North America 26% Europe 62% 2010 2011 2012 2013 2014 Total 14,855 19,214 29,788 23,501 24,584 19 3 2 Country Profile Bangladesh (2/3) Bangladesh is the second largest garment supplier of the world market, after China As global demand for cheap clothing rises rapidly, Bangladesh s position as the second biggest of textile and garments export in the world continues to hold strong, due to its large population and low labor costs. The rise of the readymade garments sector (RMG) creates about 4.2 million employment opportunities for the locals, and contributes significantly to the GDP. RMG of Bangladesh is powered by young, urbanized workers, where most of them are women. 20

3 2 Country Profile Bangladesh (3/3) Woven garments dominate the export earnings of the country. From BGMEA website it is seen that, production of knitted items is increasing (about 40% export earnings has achieved from knitted products.) The Cost effective strategy entails Cost reduction strategy and Labor productivity improvement. More than wages, improvement in labor productivity is the primary revenue generating factor. In order to survive in the world s most competitive RMG market, a country must develop new product items with a lot of variations. Vietnam, which is expected to grow fervently once the Trans Pacific Partnership (TPP) is ratified sometime next year, might threaten Bangladesh s current global ranking. 21 3 3 Country Profile Vietnam (1/3) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Total Apparel Export of Vietnam 2010 2011 2012 2013 2014 Export Destination Details Middle East 0% Asia 31% Vietnam (2014) Europe 17% Apparel Export of Vietnam (Unit: Million USD) 2010 2011 2012 2013 2014 Total 9,469 13,149 14,443 17,148 19,544 North Americ a 52% 22

3 3 Country Profile Vietnam (2/3) Vietnam has been seen as one of the fastest growing counties in apparel and textile exports during the last decade. One of the major challenges of Vietnams is in exploiting benefits from the Free Trade Agreements like TPP, EU Vietnam FTA that are expected to be adopted in coming time. Vietnam is highly appreciated for its political and social stability and for being an attractive market trading area for foreign investors. Strength of Vietnamese apparel industry is the large pool of labor force. 23 3 3 Country Profile Vietnam (3/3) Labor costs for textile and apparel industry are low in Vietnam, while skills are highly appreciated. Having the potential to excel in the global apparel industry lies in its ability to build close relationships with its importers and large consumption corporations around the world. Vietnam s commitment to economic reform and development has created attractiveness to investors, and opened up new markets and new partnerships. ForeignDirectInvestmentinVietnam stextileandapparelindustry continues to increase. 24

4. Analysis of Major Apparel Companies 25 4-1 World Top 10 Apparel Companies Name of Enterprise Headquarte rs Apparel Sales of 2015 Fiscal Year (million US$) 1. H&M Hennes & Mauritz AB Sweden 24,553 2. Industrias de Diseño Textil, S.A.(Inditex) Spain 22,763 3. Gap Inc. U.S. 15,797 4. Fast Retailing Co., Ltd. Japan 14,060 5. Associated British Foods plc (Primark) U.K. 7,813 6. NEXT plc U.K. 6,103 7. SHIMAMURA Co., Ltd. Japan 4,565 8. American Eagle Outfitters, Inc. U.S. 3,522 9. Abercrombie & Fitch Co., U.S. 3,519 10. Express, Inc. U.S. 2,350 Apparel Sales of 2015 fiscal year(million yen) has been 1US Dollar = 119.61yen calculated by using the exchange rate as of 30 th of December 1Euro=130.27yen 2015. 1British Pound =174.78yen 1Swedish Krone =13.99yen 26

4-2 H&M (1/3) 1. Cooperate Profile Headquarters Mäster Samuelsgatan 46A SE-106 38 Stockholm SWEDEN C.E.O Karl Johan Persson Established 1947 Business content Manufacturing and retailing of clothing and fashion goods Employee Number (November 2015) 104,634 Main Brands H&M, COS, Monki, Weekday, Cheap Monkey Annual Turnover (November 2015) 209,921 (1,000,000SEK) 2. Global Sales/Global Store Numbers Fiscal term Sales Elongation Rate msek % % 2013/11 150,090-100.0 2014/11 176,620 117.7 117.7 2015/11 209,921 118.9 139.9 Fiscal term 2013/11 2014/11 2015/11 Store Number Countries Yearon-Year Yearon-Year Elongati on Rate store country % % 3,132 53-100.0 3,511 55 112.1 112.1 3,924 61 111.8 125.3 27 4-2 H&M (2/3) 3. Sales by Category Fiscal Term Women s Men s Baby/Kids Fashion Goods 2015/11 45% 35% 5% 15% 4. Production Base by Region Region/Type of Factory Manufacturing Factory Processing Factory Tier 2 Factory Total Asia (11 countries) 1,220 1,103 241 2,564 Europe (16 countries) 474 214 60 748 Africa (5 countries) 19 8-27 U.S. 2 - - 2 Total(33 countries) 1,715 1,325 301 3,341 28

4-2 H&M (3/3) 5. Target Country for Production Base 1. In 2016, e commerce is starting in 11 countries such as Canada, Japan, South Korea, and also opening of stores in Puerto Rico which is a US commonwealth, New Zealand and Cyprus are planned, as well as Columbia in 2017. 2. The company s basic policy for production is cooperative relationship based on a long term plan, and therefore Ethiopia and Myanmar will be used as a production base for basic clothes, while clothing such as jackets with high added value for European market is expected to start in Bangladesh. 3. As of January 2016, the company has more than 1,700 garment factories in over 33 countries factories, and after the fire at a garment factory in Bangladesh in 2013, safety has become an urgent issue alongside working conditions and obeying minimum wages. 4. The rise of labor cost in Asian countries has been decreasing the profit margin, and in such situation Africa has become an important base for cheaper production. This has led to consideration of production in South Africa. 29 4-3 Inditex (1/3) 1. Cooperate Profile Headquarters Edificio Inditex Av. Diputación s/h 15143 Arteixo A Coruña Spain C.E.O Pablo Isra (Chairman and CEO) Established 1985 Business content Manufacturing and retailing of clothing and fashion goods Employee Number (January 2016) 152,854 Main Brands Zara Pulll & Bear Massimo Dutti Bershka Stradivarius OYSHO Zara home UTERQUE Annual Turnover (January 2016) 20,900 (million ) 2. Global Sales/Global Store Numbers Fiscal term Sales Year-on- Year Elongatio n Rate Fiscal term Store Number Countri es Year-on- Year Elongati on Rate m % % 2014/1 16,724-100.0 2015/1 18,117 108.3 108.3 2016/1 20,900 115.4 125.0 store country % % 2014/1 6,340 88-100.0 2015/1 6,683 88 105.4 105.4 2016/1 7,013 88 104.9 110.6 30

4-3 Inditex (2/3) 3. Sales by Category Fiscal Term Women s Men s Baby/Kids Fashion Goods Home Furnishing Products 2016/1 55% 35% 5% 10% The company mainly focuses on women with Zara, Massimi Dutti, Bershka and women s sale account for over 50%. 4. Production Base(Production Country) Region Number of Supplier Number of Production Factory EU 491 1,858 Non EU 160 1,042 Asia 759 1,816 Africa 135 307 Americas 80 359 Total (50 country) 1,625 5,382 Major Production Country (91% of all production) Number of Supplier Number of Production Factory Number of Material Processing Factory Spain 229 208 118 Portugal 156 856 394 Morocco 116 219 30 Turkey 158 610 416 India 129 151 100 Bangladesh 83 92 108 South East Asia 9 152 42 China 300 849 257 Argentina 60 65 68 Brazil 49 117 85 31 4-3 Inditex (3/3) 5. Future Country for Production Base The company already holds stores in 88 countries world wide, and from 2016 it aims to strengthen its e commerce It plans to open an online website for Denmark, Ireland, Italy, Luxembourg, Poland, Romania and Sweden in April, and by the end of the year to start online retailing for all products of the company s brands in every country in Europe. As for production, the company s policy is to conduct production and procurement of materials in countries close to big markets. Also, by conducting designing, procurement of materials, manufacturing of mainly the season s collections all in Spain, and delivering them by air to stores world wide, the company is trying to image itself as a Spanish brand. Additionally, it accepts factory inspections on unfavorable labor conditions positively, and seems reluctant to switch production sites for the sake of cheap labor. 32

4-4 Gap Inc. (1/3) 1. Cooperate Profile Headquarters 2 Folsom St. San Francisco, CA94105 USA C.E.O Art Peck (Chief Executive Officer) Established 1969 Business content Main Brands Designing, manufacturing and retailing of clothing and fashion goods Gap Old Navy Banana Republic Atheta Intermix 2. Global Sales/Global Store Numbers Employee Number (January 2016) Annual Turnover (January 2016) approx. 141,000 15,797(million US$) Fiscal term Sales Year-on- Year Elongatio n Rate Fiscal term Number of Stores (including FC) Country (including FC) Yearon-Year Elongation Rate mus$ % % store country % % 2014/1 16,148-100.0 2014/1 3,539 approx. 50-100.0 2015/1 16,435 101.8 101.8 2015/1 3,709 approx. 50 104.8 104.8 2016/1 15,797 96.1 97.8 2016/1 3,721 approx. 50 100.3 105.1 33 4-4 Gap Inc. (2/3) 3. Sales by Category Fiscal Term Women s Men s Baby/Kids Fashion Goods/Shoes etc. 2016/1 40% 40% 15% 5% The company s main brand is Old Navy which proposes casual fashion for all family members. The company s percentage for Baby/Kids is around 15% and is higher in comparison with other apparel companies. 4. Production Base(Production Country) <Manufacturing /Material Processing Factory Examined by the Company> Region 2014/1 2015/1 China 286 308 South Asia 299 302 South East Asia 291 331 Others 143 166 Total 1,019 1,107 34

4-4 Gap Inc. (3/3) 5. Future Country for Production Base In the first quarter of 2016, all of the company s brand saw a drop in sales. This made the company announce to close all Old Navy stores(53 stores) in Japan and close unprofitable Banana Republic Stores. Instead, the company decided to focus on North America, Mexico and China which are key for the development of the main brand Old Navy, and shift towards a Gap oriented strategy in Japan. 35 4-5 FAST RETAILING CO., LTD (1/3) 1. Cooperate Profile Headquarters 717 1 Sayama Yamaguchi City, Yamaguchi JAPAN C.E.O Tadashi Yanai Established May 1963 Business content Manufacturing and retailing of clothing and fashion goods Employee Number (February 2016) 43,059 Main Brands UNIQLO, Gu, PRINCESS TAM TAM Theory Contoir Des Cotonniers Annual Turnover (August 2015) 1,681,781 (million yen) 2. Global Sales/Global Store Numbers <UNIQLO> Fiscal term Sales Year-on- Year Elongation Rate Fiscal term Number of Stores Country Yearon-Year Elongation Rate million yen % % store country % % 2013/8 934,505-100.0 2013/8 1,299 14-100.0 2014/8 1,129,298 120.8 120.8 2014/8 1,485 16 114.3 114.1 2015/8 1,383,823 122.5 148.1 2015/8 1,639 16 110.4 126.1 36

4-5 FAST RETAILING CO., LTD (2/3) 3. Sales by Category Fiscal Term Women s Men s Baby/Kids Fashion Goods 2015/8 47.5% 41.3% 7.4% 2.5% 4. Production Base (Production Country) 1. The UNIQLO brand does not own any factories and all production are done by production subcontracting. 2. Production are in China, Vietnam, Bangladesh, Indonesia and in addition, production started in Turkey in 2014 and India in January 2015. 3. The company has placed production offices in Shanghai, Ho Chi Min, Dhaka, Jakarta, Istanbul and around a total of 400 quality/production progress management staffs and artisan team for teaching dyeing technology has been posted. 4. The company has negotiated directly with material manufacturers around the world and has been able to maintain its High Quality, Mass Stable Procurement, Low Cost. 5. Especially, the company is focusing heavily on material development of their main products. 6. A good example of this is heat tech which was developed with Toray Industries, Inc., 37 4-5 FAST RETAILING CO., LTD (3/3) 5. Future Country for Production Base 1. Despite struggles in Japan due to a warm winter in Japan, continuous opening of stores abroad led to higher sales as a whole. 2. The company aims to increase production bases near Europe and the US. 3. Especially in Mexico and South American which are near the US where the company is opening many new stores. 38

5. Global Value Chain in the Apparel Industry 39 5 1 Buyer Driven or Producer Driven Apparel, the end product of the value chain, has been the classic buyer driven global value chain. Buyer driven value chains are the ones in which retailers, marketers and branded manufacturers regulate the industry by setting up production networks in certain developing countries. In the buyer driven value chain, profits come from combinations of high value research, design, sales, marketing and financial services. In case of producer driven value chains, profits come from scale, volume and technological advances. Which type is yours? 40

5 2 Apparel Value Chain Activities To understand how the division of work occurs and how initiative to develop the workforce in the global value chain, six distinct value adding activities can be identified.(purchasing& Distribution is regarded as Logistics) The Global apparel value chain consists of five main stages which differ in the geographical location, labor and skill requirements, technology and the scale and type of enterprises. Following are the five stages in the global apparel value chain: Raw material, Component Networks, Production Networks, Export Networks, Marketing Networks. 41 5 3 Economic Upgrading (1/2) 42

5 3 Economic Upgrading (2/2) OEM (original Equipment Manufacturer) The supplying firm makes a product according to a design specified by the buyer; product is sold under the buyer s brand name; ODM(Original Design Manufacturer) ODM is a company which design and manufactures a product which is specified and eventually branded by another firm for sale. OBM (Original Brand Manufacturer) OBM is the upgrading by manufacturer from the production expertise of OEM to first, the design and then the sale of their own branded product. Product Upgrading The production of complex products, which requires increasing the capabilities of the firm through firm learning. As countries gain experience in the industry, they can move from low cost commodities to higher value added fashion goods that warrant higher returns as labor rates increase. Process Upgrading This reduces the cost and improves flexibility by improving production methods; it requires capital investment and better worker skills to operate new machinery and/or information and logistics technology. 43 6. Business Trend of Apparel Industry 44

6-1 The General Condition of the Fast Fashion Market Intensification of Competition between Fast Fashion Brands Differentiate through pursuit of trend Strengthening the Collaboration with famous designer and Celebrities Pursuit of comfortable fitting by functional materials Small lot production of the trendy items Shortening of the lead time from the planning to store display Fashion rental service Differentiate through pursuit of low price Strengthening the outlet store Increasing the frequency of sales Cutting the cost of opening a new branch by strengthening the E commerce Searching for the production base with lower cost Strengthening the image as Ethical Fashion&Sustainabiliy Organic, certificate of Better Cotton Initiative Supporting the producing country by fair trade Strive for reducing environmental burden by factories Strive for improving labor environment by cooperating with NGO and Producer s Cooperative Low price with timely fashion trend is the most important part but, in Bangladesh, harsh labor environment has been picked up by media which lead to the fall of the image of the brand. Since then, major apparel clothing makers started to strengthen the image of the Ethical Fashion. Donating part of profit for the development of educational environment and using environmentally protective materials are the ways to appeal and create the Ethical Fashion image of the brand. All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing Strategy) 45 6-2 Positioning Map of Fast Fashion Brand Pursuing scale limit and,at the same time, proposing items and promotions with freshness which keeps consumers in interest. Price High A/X ZARA Basic GAP A&F Trend OLDNAVY TOP SHOP UNIQLO H&M Price Low 46

6-3 H&M s Unique Selling Proposition The strength of H&M is creating a strategy format of marketing by adding values to low cost products 1. Merchandising Formation clearly described Classified standards = targeted by taste by item Basic Casual Trend Casual Mode Casual Sport Casual Accessory Inner wear Example: Outlet in NY Men s corner It is laid out around the open ceiling space sorted by taste, and same items are set in multiple zones. Designability Funcitionality P r ic e H&M high high low GAP Middle-high Middle-high middle 47 6-4 Checkpoints of Quality control (1/2) There will be heavier responsibilities for manufacturers to produce items with quality. It has become an era of consumers considering more about manufacturer s responsibilities to the quality of items. Quality control of Apparel Products Company with poor quality management Company with high quality management Not able to take the initiative when quality is poor Increase of complaints when quality is poor Increase of claim management when complaints increase Increase of request for discount Increase of request for Replacement Decline of the Brand Image No trust as a company Company with low-productivity Able to take the initiative of the business Actively address proposals as having confidence in quality no discount and replacement requests less time spent for follow-up services Improve profitability company with high-productivity 48

6-4 Checkpoints of Quality control (2/2) 3 Points of Quality Control Design color pattern style fit Fair price scent Pyramid of Quality control Sewing Well-made stitch yarn aspect fastener Material Cloth quality wellmatched cost 49 6-5 Hierarchy of Segmentation (1/2) It is important to know about the consumers to captivate the Fashion industry. To know the customers, there is a need of developing plans by classifying customers by genres. Skimming Innovator Follower Penetration 1. Skimming(5 %) have their own values and purchase products with high prices. 2. Innovator (15%) watches the trend of the layer for skimming, then creates own values. 3. Follower(35%) does not take initiatives, always wish to be normal level. 4. Penetration(45%) bargain hunters who are sensitive for prices, not its values. Public Private Partnership Task Force (Marketing Strategy) All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing St t ) 50

6-5 Hierarchy of Segmentation (2/2) Segmentation Story of Consumers sections Group Segmentation Sex Men Female unisex By age Less than 14 15-19 20-24 25-29 30-34 By Group Family Young-single DINKS Young Family Innovator Follower Penetration 3generation Middle single Elderly single Job - - Service Finance Creative Think tank Class Wealth Middle Lower View Advanced Neutral conservative Fashion Skimming Innovator follower Penetration Living Urban/local Station/suburbs Apartment/house Hobby Indoor Pc/game handicraft Watching DVD Reading books cooking Outdoor Golf Tennis Surfing trekking skiing 51 6-6 Three Elements for Branding In fashion industry, there is a need of creating strategy with long life-cycle by developing brands with brand strength; which will lead to increase of sales. Value 3 Elements for Branding Vision Innovator Concept Follower Sustainability of Branding Penetration 52

6-7 Principle of Business Growth (1/2) Fashion Industry seems to look new but it is actually an Industry with an old mold. In the new era, there is a necessity of creating simple strategy with clear concepts and marketing with a style which breaks the usual common sense. Business Objectives Innovator Target Target Follower Group with same goal=company (Integration) Penetration Vision Vision is the final goal(business Objectives) and to achieve the goal there are targets to be accomplished. The setting of the target will be important. The separation of the goal and target will be the hindrance of the company growth What is Principle Practical process of philosophy is the key for corporate planning. Growth potential actualization of idea/thought The thing is to hold on to a principle. 53 6-7 Principle of Business Growth (2/2) Conditions of Corporate Strategy Originality More unique Community-based Get closer Innovator Follower Strategy Value Create more value user-friendliness More convenient Penetration Concept 54

7. Status of Pakistan s Textile and Apparel Industry 55 7 1 Why is Pakistan s textile industry failing? GROWTH TREND OF PAKISTAN TEXTILE SECTOR 20 24.5 Growth in %age CAUSE (External) Global Recession hit the textile industry really hard. 4.1 5.2 11.23 8.4 4.05-0.7-1.78 1 0.8 1.45 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Years This graph is a clear indication that Pakistan is going through one of the toughest periods in history 0.5 CAUSE (Internal) High cost of production resulting from an instant rise in the energy cost Depreciation of Pakistani rupee raised the cost of imported inputs Double digit inflation and energy crises have affected the overall textile sector 56

7 2 Factors Affecting the Industry (1/3) 1) Cotton Production 30 20 10 0-10 -20-30 -40 Comparison of Pakistan's and World's cotton production trend of last five years 2011 12 2012 13 2013 14 2014 15 2015 16 Pakistan World Graph shows the production trend of cotton in Pakistan over the past few years. Cotton production fallen by 27.8% last year is alarming. Increase in imports of cotton to maintain the supply chain of to the textile industry. Pakistan is losing out in three different ways because of the falling cotton production. 1. Loss of revenue it can earn because of the increasing global cotton demand 2. The domestic apparel industry has to import cotton at a higher price which reduces its own competitive advantage 3. Loss from the cotton industry is not being compensated by a growing textile and apparel industry 57 7 2 Factors Affecting the Industry (2/3) 2) Labor Market Table 2: Average Wage Rate Countries US$ / hour USA 8 Dominican Republic 1.15 Malaysia 1.15 Mexico 0.85 Thailand 0.65 Indonesia 0.15 India 0.2 Bangladesh 0.18 Pakistan 0.22 Pakistan still lacks in educated and skilled labor for the textile industry. Some of the biggest problems in Pakistan s garments industry constitute negative attitude against female labor force, dangerous working conditions, and labor rights issues. These problems have overarching effects on production quantity, quality as well as the management of the textile industry in Pakistan. Pakistan is encountering some serious difficulties in finding middle management and skilled workers for textile industry 58

7 2 Factors Affecting the Industry (3/3) 3) Global Apparel Market Segmentation The structure of a typical apparel market Pakistan s production currently lies in the lower section of the product. There is a recommendation for the Pakistan s textile industry to shift to higher section of the pyramid as significant chunk of revenues generated by some of the progressing Global Apparel industries come from the export/sales of high value added goods. 59 7 3 Feedbacks from Buyers 1) Japanese Buyers Feedback on Textile Import from Pakistan Biz Fee Company Quality Price Delivery Quick Stable Lead Attitude Response Supply time A X B X X X X - X C - X - X - D X - - - X - E - X - X - X X F X X X X X X X G X X X X X X X H X X - X X I - - - - - - - J - - X - X - X - Point 8.5-1.5-7 -3-6.5-2.5-9 -5 Commun ication Symbol Evaluation Point Good 1 Not so bad 0.5 ー Average 0 Not so good -0.5 X Bad -1 This survey result was based on interviews with 10 Japanese textile trading companies conducted by JICA Expert in April 2015. All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing Strategy) 60

7 3 Feedbacks from Buyers 2) Major Comments on Japanese Buyer s Feedback Sorted List of the Above Evaluated Items with Order of High Points Rank Evaluated items Point 1 Quality 8.0 2 Price -1.5 3 Satble Supply -2.5 4 Biz Attitude -3.0 5 Communication -5.0 6 Quick Response -6.5 7 Delivery -7.0 8 Lead Time -9.0 Quality is good and acceptable. Price is not a big negative factor. (Although still considered high due to import duties.) Slow responses, delivery not on time, and long lead time Frustrated problem Timing of business is very important in Japan Missing timing of season or business is a big loss. Business Management must be improved more! All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing Strategy) 61 7 3 Feedbacks from Buyers 3) Other Notable Comments from Japanese Buyers Advantage: good quality of cotton raw material with stable cotton supply and vertically integrated production. Should have brand image strategy for better image to foreign buyers. It takes 2 months to receive the product after placing order while Chinese suppliers can do it in 1 week. Had a bad experience of late delivery from Pakistani supplier and they missed timing of selling the products. They do inspection by themselves visiting Pakistani supplier s factory since worrying about inspection quality of the supplier. Their Pakistani supplier could not supply the same quality of products stably and continuously. All Rights Reserved 2016. JICA, Public Private Partnership Task Force (Marketing Strategy) 62

8. Conclusion 63 8 1 Attribution of The Successful Nation The successful nations have the following attributes: 1. They invest heavily in their workforce through skill development and subsidized education. 2. They follow the global policies and norms to avoid any conflict from international agencies. 3. They encourage the movement from OEM to ODM and OBM through policies, trade zones and other incentives. 4. They work hard to ensure domestic security and stability in order to attract investments. 5. They work towards building and leveraging their relationships with other countries to score better trade agreements and MoU s. 64

8 2 Attribution of the Global Apparel Companies The major global apparel companies have the following attributes: 1. They invest in the R&D department which helps in maintaining flexibility in terms of responding to market demands and innovative solutions to the prevailing challenges. 2. They work towards building a brand name by focusing on the quality and design rather than competing solely on price. 3. They follow global policies and practices to ensure a positive image and to ensure a distance from scandals for instance. 4. They invest in sustainable practices, ensure employee safety standards, have strong quality checks in place and so on. 65 8 3 What Pakistan needs to do for Apparel Sector 1. Pakistan needs to focus on developing its apparel sector in order to rise from number 12 in terms of export revenue from textile and apparel products. 2. Pakistan needs to invest in their workforce more through skill development and management development to improve their performance on productivity and quality. 3. Since Pakistan relying on a handful of consumer markets for both low and relatively high value added textile goods has been proven harmful, expanding into a diverse market & product would be a prudent national strategy. 66

8 4 Way Forward for Pakistan 1. As globalization strategy and diversification of global value chain, Pakistani firms could invest in overseas countries more that are close to the large target markets. Bangladesh or some African countries are also candidates for investment because of its tariff advantages. 2. Identify and develop its superiority and differentiation to compete in the global market. 3. Pakistani firms could also explore niches in the large developing country markets that are becoming more open under the WTO regime. 4. The industry could also conceivably lead the way in the sphere of education by further raising the standards of the Textile Institute to improve its workforce skills in both operator and middle management level. 67 8 5 Requirement for the future development Political Stability &Infrastructure in Pakistan Reducing the possibility of terrorism and riot Securing safety of foreigners (non Muslims) Stable operation of the factory Differentiate through pursuit of trends Cordial reception to tariff and local cooperation in tax system Strengthening the price competitiveness by increasing the productivity Decreasing the cost by increasing the producing efficiency Strengthening the image as Ethical Fashion &Sustainability Achieving high yarn spinning, cotton production, dyeing and sewing technique Efficiency of the producing line Development of the functional fiber Differentiate through pursuit of low price Strengthening the brand of MADE IN PAKISTAN Strengthening the traceability of the material (cotton) Attestation of Better Cotton Initiative(BCI), production of color cotton branding of cotton Cooperation with government, local NGO, Producer s Cooperative and Apparel Company 68

The Project for Skills Development and Market Diversification (PSDMD) of Garment Industry in Pakistan Public Private Partnership Task Force <Marketing Strategy> THANK YOU This Presentation material is made based on research reports of Carnelian and Fuji Keizai respectively which were originally made upon request of this project(psdmd). 69