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Business trends

Pakistan garment makers chase rivals in India and Bangladesh

Zara, H&M and Amazon fuel demand for cheap, nimble suppliers

OSAKA -- Pakistan garment companies are fighting hard to break into the supply chains of some of the world's biggest fashion brands as the country races to catch up with Bangladesh and other Asian apparel heavyweights.

The battle is fierce, however, as customers like Zara and H&M demand high quality and low costs from their suppliers, all on increasingly tight time tables.

Kay & Emms, a garment maker based in Faisalabad, says it is benefiting from clients' desire to diversify.

"We are getting more benefit because the customers are thinking that they are not 100% safe while putting all of their eggs in one basket that is either China or Bangladesh," Faisal Waheed, sales and marketing general manager at Kay & Emms.

Compared to the traditional leaders in garment production -- China, Vietnam and Bangladesh -- Pakistan is still a minor player, and the pressure on companies to reduce costs is intense.

"There is always a war-footing situation," Waheed said. "Every customer is cost-conscious, because they know they have the buying power around the globe. They have a lot of suppliers in their basket -- Cambodia, India, Bangladesh, China and Pakistan. If you don't act on war footing, you will be losing business."

Pakistan has been hailed as an "attractive sourcing base" by industry executives including Spencer Fung, CEO of Hong Kong-based supply chain giant Li & Fung, as garment production for Western brands continue to shift to lower cost countries.

Kay & Emms is still small by global standards, with an annual turnover of just $50 million and 2,300 employees, but it is growing at an annual rate of 60%. About a fifth of its sales comes from Zara, a brand belonging to Spain's Inditex. Kay & Emms has been supplying jogging pants, hoodies, crew neck shirts, pullovers and zipper jackets for Zara since 2014, but it was a hard-earned success, according to Waheed.

"After an effort of more than four, five months, we got the first order," Waheed said. "It was quite hard to get into their business."

Zara is a demanding customer, Waheed. "It is cost-conscious, quality-conscious and time-conscious." But his company was after the prestige of doing business with the world's biggest apparel company. Zara releases new items every three to four weeks, rather than on a four-season cycle. "It compels us to develop new fabrics and garments," Waheed said. "That's harder, but more exciting."

Pakistan's cost-competitive garment makers are drawing attention from multinational brands, even though the country's growth lags behind more dynamic markets such as India or Bangladesh. Pakistan is still recovering from the U.S. war on terror, which has stirred Islamic insurgency and has left tens of thousands dead near the border with Afghanistan.

Inditex officials say their company is always looking for new suppliers to give them a chance to work with the company and expand its own supplier base.

Globally competitive Pakistani exporters remain few and far between. The economy still centers around production of cotton, a commodity, while manufacturers have been slow to embrace automation. But those that have gained a global foothold may benefit from the country's depreciating currency -- the rupee has lost a third of its value in the last two years, which makes Pakistani exports cheaper.

The election of former cricket star Imran Khan as prime minister last year and his government's commitment to fiscal reform under the International Monetary Fund has also raised hopes that the country will finally deal with its economic challenges and avoid a return to military rule. The IMF approved a $6 billion aid package for Pakistan in July and is now seen to be working with other donor agencies such as the Asian Development Bank to create an industrial development plan by the end of the year.

Bilateral assistance from countries like Japan is also on its way to keep Pakistan's reform effort on track. Though its economic outlook remains tough in the near term, the youthful population of more than 200 million is an attractive market.

"Japan may be trying to check the influence of China and build a presence in Pakistan," said Hideaki Shimizu, senior researcher at International Development Center of Japan.

Last month, IDCJ invited a dozen or so officials from Kay & Emms and another Faisalabad-based garment maker, Masood Textile Mills, to a networking event in Osaka. The companies visited the central Japanese city of Toyoda, where Toyota Motor is based, to help them learn how to reduce costs and increase production without sacrificing the product quality.

The group visited the automaker's Tsutsumi Plant, which produces the Prius and other models. At a mock production line for radiators, the visitors discussed how to make the production line more efficient by coming up with different line layouts and moving the place of parts around.

The group also visited a museum run by sewing machine maker Brother Industries and learned about networked sewing machines that allow users to grasp what's happening in the entire production line real time.

The global shift to online retailing is further intensifying cost competition, a trend that could benefit Pakistan.

Leading the shift is Amazon, which offers cheaper apparel that can be customized to individual shoppers' tastes and delivered quickly.

Masood Textile, the largest knitwear maker in Pakistan, started supplying to Amazon three years ago, said Raja Amjad Ali, general manager for planning at the company. Business with Amazon currently accounts for just 2-3% of total sales, Ali said, but is growing 5-10% a year.

It was Masood who approached Amazon about potentially doing business together.

"The garment industry is like that," Ali explained. "If we don't know the trend or research the market or go by the way the market is behaving, no garment manufacturer can survive."

The size of Masood's workforce went from about 3,000 a decade ago to more than 16,000 currently, he said. Of those, 12,000 are in the sewing division and the remainder involved in spinning, knitting, dying and processing. Production capacity has quintupled over the same period.

Chinese garment makers looking to export to the West are also attracted to Pakistan, which has duty-free access to many Western markets due to its status as a less developed economy.

In 2014, China's Shanghai Challenge Textile acquired a stake in Masood through a share purchase from existing shareholders. As of June 2018, Shanghai Challenge and Zhejiang Xinao Industry held 37% of Masood's ordinary shares, according to the company's annual report. Masood share prices soared around the time of the Chinese acquisitions, before dropping to a quarter of 2015's peak this year.

The Chinese side and Masood have since set up a 51-49 joint venture, giving the Chinese partners a foothold in the Pakistani market.

The move is part of a broader push by China to develop economic ties with Pakistan under Beijing's Belt and Road Initiative.

In addition to bringing in investment, China's overtures have also led to an influx of Chinese business people and workers, particularly on construction projects. Whereas Westerners doing business in Pakistan tend to stay only a few days at a time, their Chinese have more often settled in and become a part of local communities.  

"They are still at an initial stage," Masood's Ali said about Chinese investors in Pakistan. "They are first trying to learn our environment and our industry. ... They still haven't made a huge investment, but they are interested in making huge investment."

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