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Domestic and export marketing of yarn in Pakistan.

Pakistan textile industry occupies a pivotal position in Pakistan economy. The textile industry accounts for 8 per cent of GNP and 41.1 per cent of total employment in the large scale manufacturing sector. Textile sector contributes nearly 60 per cent of total exports receipts. Raw cotton and textile group had about 67 per cent share in total exports during 1990-91 as compared to 42.78 per cent in 1980-81.

More than 75% of Pakistan textile industry is just engaged in yarn manufacturing. Yarn is the blood of all textile industry of the world. Its marketing has vital importance at national and international level. Yarn marketing in Pakistan operates in dual ways: i.e. directly by spinning mills and indirectly through agents. Some yarn producers sell it in domestic and foreign markets directly. Mostly its marketing is accomplished by agents inside the country and by spinning mills themselves mostly outside the country.

Domestic yarn market is generally known as local yarn market. It depends mostly on agents, dealers and brokers. Main yarn markets are located at Faisalabad and Karachi. However, small yarn markets are at Lahore, Kasur, Gujranwala, Multan, Kamunki, Jalalpur Jattan, Chunian, Jhang, etc. The function of these markets is to provide raw material for the consumers, i.e. power-looms and weaving mills, hosiery units towel, tent, canvas, blanket, sewing thread, velvet, carpet, embroidery thread and other manufacturing units who purchase yarn according to their requirements for their individual units with the passage of time. These markets are an alternative source for commercial exporters who export small quantity of yarn as compared to the export by the spinning mills directly.

Pakistan yarn market consists of agents (50%), dealers (25%), brokers (15%), middlemen (6.5%) and traders (2%). There are 1.5% mill's own shops in the yarn market.

Faisalabad Yarn Market

There are 325 yarn shops in Faisalabad yarn market from which only 216 shops are registered by Pakistan Yarn Merchants Association (Punjab and NWFP Zone). It is the largest market of the country. It covers 74.43% of yarn sale within the country. In this market nearly 27,542 bags are sold daily.

Karachi Yarn Market

There are 280 yarn shops in Karachi yarn market from which only 248 yarn shops are registered by Pakistan Yarn Merchants Association (Sindh and Balochistan Zone). It is the second largest market of the country. It covers 23.71% of yarn sale within the country. In this market, nearly 8,771 bags are sold everyday.

Lahore Yarn Market

There are only 35 shops in Lahore yarn market. There are some other brokers of yarn scattered in Lahore. It covers 1.86% sale of yarn within the country. In one day 690 bags are sold by Lahore yarn market. Scattered brokers sell 940 bags daily to consumers at 1% commission.

Mostly yarn prices are settled by considering two important factors.

1. Yarn prices in the export markets.

2. Day to day selling policies of spinners who decide to withhold sales in one or more days in order to encourage higher prices on the supply-demand basis.

The price of yarn from week to week fluctuate in the yarn market. The average fluctuation of prices is in the order of 4% to 5%. Mostly price fluctuation vary for those counts of yarn which are mostly used by consumers like 20/1. The yarn which has higher demand in local and export market has higher prices.

Marketing practices include packing, storage and transportation. 100% packing charges are paid by spinning mills themselves. In Pakistan 98% yarn is packed in polypropylene bags and 2% in cotton bags. For transportation, trucks (65.08%), trailers (18.06%), animal vans (2%) and Suzuki vans (14.86%) are used. Only 17.12% agents, brokers and dealers store yarn for sometime before selling.

The marketing cost of yarn upto yarn market includes transportation cost, commission to dealers and agents and brokerage paid to the brokers by spinning mills in the case of Faisalabad yarn market.

In Pakistan yarn markets, 21.03% combed yarn, 62.72% carded yarn and 16.25% soft yarn is sold.

In yarn markets of Pakistan, 34.48% yarn is sold in domestic market, 62.19% in the local market and 3.33% is exported.

Towel units purchase 14.21%, powerlooms and weaving mills 34.76%, middleman 10.22%, hosiery units 24.02% and 16.79% yarn is purchased by velvet, carpet, tent, canvas, blanket, sewing thread, embroidery thread manufacturing units etc. 81.11% consumers always purchase yarn from the same shops.

Domestic yarn buyers are located in the following areas:-

Faisalabad, Karachi, Hafizabad, Jalalpur Jattan, Sheikhupura, Sialkot, Mian Chunno, Hyderabad, Tando-Adam, Rahim Yar Khan etc.

Terms of payment are cash and credit generally. Sale of yarn from the yarn market is 52.32% on cash and 47.68% on credit. Duration of credit sale is one week (35.98%) and two weeks (64.02%) normally.

The safeguard of credit is based on the four factors of the buyer:

1. Good-will of the buyer. 2. Market reputation of the buyer. 3. Financial position of the buyer. 4. Running business condition of the buyer.

Main problems in yarn market become the source of dispute. These may be: Delay payment (31.45%), non payment (10.84%), yarn quality drawback (34.28%), price fluctuation (14.74%) and yarn countwise problem (8.69%). These problems and disputes are settled mutually (58.35%). By Pakistan Yarn Merchants Association (6.22%) and (35.43%) disputes are remained un-settled.

Suggestions

1. Government must provide legal credit security in the yarn market.

2. Cash security in the yarn market is the need of time.

3. There must be yarn testing laboratories in yarn markets to check yarn counts, weight of bags of yarn, quality of yarn and its uniformity.

4. There must be complete ban on market speculation, hedging and artificial shortage.

5. Yarn Merchants Association must be powerful in order to settle disputes of yarn markets.

6. There must be training system of marketing arranged by Pakistan Yarn Merchants Association to aware dealers, agents, or brokers with the modern scientific marketing system.

Export of Yarn

Pakistan textile industry is highly export-oriented. Yarn is mainly exportable item. Since 1955, country started export of yarn. Growth in yarn export remained fairly continuous at an average annual increase rate of 10.5%. There was rapid growth in export of yarn throughout sixties upto 1972-73 when 49% of total production of yarn was exported. Pakistan emerged as number one exporter of yarn in early 1970 to 1972-73 taking almost 40% of world textile trade in 1973. From 1973-74 to 1977-78, there was slump in the export market. Therefore Pakistan export of yarn decline from 26.5% of its total production of yarn in 1973-74 to 20.1% in 1977-78. The slump in export market of yarn was due to the following reasons:-

1. The release of Japanese yarn stock to foreign markets at competitive prices in order to make up for the losses it suffered because of recession.

2. Many Japanese buyers imported huge quantity of yarn from South Korea where they had joint-venture because of good quality yarn.

3. Changing fiscal policies of Government that adversely affected the agreements of yarn export between foreign buyers and Pakistani sellers because of price settlement problems.

4. Increased competition from South Korea and Taiwan in the export of yarn in international market.

5. Restrictions imposed on imports of certain counts of yarn by Indonesia.

6. Dumping of textile goods in the world markets by speculators following the oil crisis.

Yarn export from 1980-81 went on increasing. In 1981-82, export of yarn was 95.232 million Kgs. which increased to 291.953 million Kgs. in 1988-89. It was 67.38% increased of yarn export during that period. In 1990-91, 501.072 million Kgs. of yarn was exported. It was 47.48% of production. But in 1991-92, 505.863 million Kgs. yarn was exported. It was 42.57% of production as shown in the table.

The first slump in the yarn market occurred in seventies when Pakistan exported 49% of yarn of its total production. Now it was the second time in 1990-91, when Pakistan exported 47.64% of its total yarn production.

There are some reasons for the second slump in the yarn export as under:-

1. Devaluation of Indian's currency (30%) and Chinese currency.

2. Dumping of yarn in international markets by international speculators following the oil crisis.

3. Fluctuations in the Government fiscal policies.

4. More cotton production in the world.

5. Entry of 17 million bales of Russian Federation in the free market.

6. Shortage of good quality cotton within the country due to flood and viral disease.

7. Higher prices of cotton.

The yarn market has many competitors such as South Korea, Taiwan, Malaysia, Indonesia, Nicaragua, India, Turkey and China. Malaysia and Taiwan compete Pakistan in African markets, Turkey and Egypt in the European markets, Korea mostly in the Middle-East and Nicaragua in the American markets. India and China all over the world. In future, Philippine and Bangladesh will be our main competitors in the yarn export market. We can defeat our competitors in the international yarn markets by improvement in quality through adoption of new machines and modern technology in textile sector. Market competition is based on the quality (62.71%), price (29.92%), and political situation (7.77%).

The world demand of yarn is increasing 2.5% per year because of its use in weaving, knitting and others with increase in population, fashion and industrial use of yarn.

Pakistan's image as supplier to world markets has declined while the strength and posture of competition has increased. The customers of importing countries state positively that they are not interested in supplies from Pakistan rather they preface China, India, South Korea and Taiwan.

Foreign buyers understand Pakistan as an un-sophisticated market of some developing countries, therefore, they do not accept Pakistan delivery and quality.

The import markets demand higher quality, competitive prices, excellent customer services and deliveries in time.

The causes of low prices for Pakistani yarn in foreign markets are:

1. Large variation in yarn counts as compared to standard variation.

2. Large variations in yarn strength and twist which are directly related to count variation.

3. Yarn irregularity and uneven structure.

The variation in yarn counts may be due to number of factors.

1. The quality of raw material used.

2. The mechanical imperfection of drafting system.

3. Tension in drawing.

4. Simplex and ring not correctly applied according to the material and size used.

The main problems of our textile industry are:

a) Lack of standard control.

b) Inadequate laboratory for quality control.

c) Lack of proper training.

d) Inadequate intermediate and final inspection techniques.

e) Lack of technical skill in spinning less, more in weaving and knitting sector.

Due to untrained and unskilled operators result is:

a) Low productivity b) Poor quality c) Excessive waste

Pakistan's image and reputation in the world markets is established as:

* Low quality merchandise

* Cheapest prices (at least 7% to 15%)

* Unreliable deliveries, shortages, frequently failed to honour contracts, demand for re-negotiation of prices, incomplete orders shipped, bulk supply different from the original samples.

* Misuse of brand names in export and domestic sale of yarn.

Many of Pakistan's textile mills were founded at a time when the demand for low priced cotton textiles was greater than the supply capacity. But today it is reversed.

It is the caution for today that the world's supply capacity for textiles is in excess of demand, even if demand increases dramatically, the world supply capacity will remain greater than demand.

The declining Pakistan's image in the export market is due to the following reasons:

1. Political uncertainty in Pakistan itself.

2. Fear of Government nationalization policy towards its textile industry.

3. Export failure due to non supply of:

* Consistent quality.

* Delivery to agreed time schedule.

* Complete orders with the correct product or volume.

* Un-acceptable delays in communication concerning complaints, claims and general customer service.

Successful suppliers should meet the requirements of the buyers in terms of:

* Contracts: Product, volume, quality, delivery schedule, price terms, presentation.

* Product Specification: Quality consistency.

* Service: Pre and post sales, Complaints/Claims.

* Mutual respect, understanding of each other's problems and a close rapport.

Important key factors for Pakistani exporter in the buyer's market are as under:

1. Quality consistency. 2. Quality guarantee. 3. Product range versatility. 4. Unit price selling and buying. 5. Price stability over a period of time. 6. Credit terms versus letter of credit. 7. Customer service:

* Pre sales

* Post sales: complaints and claims.

8. Contracts honouring. 9. Delivery lead times:

* Delivery according to schedule.

10. Exporter's image in world market places. 11. Selling methods 12. Order size flexibility. 13. Packaging and presentation 14. Net effect on market acceptability.

Trading in buyer's market requires a close rapport between exporter and importer built on:

* Mutual Trust

* Mutual Confidence

* Mutual Understanding of each other's problems.

Pakistan in the import market is "a square peg in a round hole". There it is need to improve:

* Manufacturing methods

* Quality, Service and price.

* Management and supervision.

* Active marketing functions

* Direct sale to end consumers in country and in the world.

Domestic and Foreign Markets Demands Following Points:

1. Improvement in manufacturing methods and product standards.

2. Improvements in productivity to reach an optimum level of competitiveness in the world's markets.

3. Functional quality control systems to overcome quality inconsistency.

Future marketing and expert of yarn is anxious for the following points:

a) Management expertise b) Equipments modernization c) Production methods d) Training techniques e) Quality levels f) Marketing expertise

This can be achieved by:

* Training management

* Upgrading technical staff

* Developing supervisors

* Training operators

The future demand of yarn depends on the following points:

1. Population increase

2. Standard of living increase

3. Overall increase in textile consumption due to expanding weaving and knitting capacity.

4. Seasonal changes in design, colour, fashion etc.
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Author:Ibrahim, Muhammad
Publication:Economic Review
Date:Oct 1, 1993
Words:2320
Previous Article:Devaluation or no devaluation - a case for Pakistan.
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