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Challenges for Pakistani Textile Industry - Adil.Iqbal - 03-25-2009
What will be the biggest challenge for the Textile Industry to overcome the current turmoil within next 12-24 Months?
- kamranACA - 03-25-2009
Dear,
I enlist following in the order of severity
1. Power and gas crises
2. Short supply from downstream/supportive industries due to above crises
3. Lack of export orders on good prices due to stiff competition with China, India and Bangla Desh
4. Anti-dumping duty imposed to almost all industries in textile sector
5. Quality (rejection/damaged production) issues due to lack of state of art production facilities, low quality raw materials and inefficient labor
6. Increase in input costs specially of raw material, labor and utilities
7. Shortage of liquidity in market and available low interest based export finances unless some big steps are taken by SBP. (However, I foresee that interest rates would be falling a great deal in the very short tenure)
8. Improper supply chain management and deviations from export terms due to internal/local failures
9. Law and order situation and political strikes
10. Non-availability of subsidies and R&D.
Regards,
KAMRAN.
- awaisaftab - 03-25-2009
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Adil.Iqbal</i>
<br />What will be the biggest challenge for the Textile Industry to overcome the current turmoil within next 12-24 Months?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Dear Audil,
In my opion you should post the above topic on economics forum rather than Accounts and Audit Forum. In my opinion the shortage of electricity is the biggest challenge for our whole industry.
Secondly we should not rely only on the export of textile dairy products have also big market and being one of largest milk producing country we should enhance export of dairy products, our export of dairy products almost nil. Pl read my thread entitled Why economy of Pakistan is underdeveloping on economics forum.
Regards,
Awais
- admin - 03-25-2009
Topic moved to 'Economics' and thread title modified to make it clearer for site visitors.
- kamranACA - 03-25-2009
Admin,
I wish to convey my reservation for moving this topic to 'economics' since it had a great bearing to the audits of all textile sector industries, cost accounting options, decision making process, capital maintenance and managing of return on capital employed in the era of crises.
We could identify the financial bottlenecks in detail and suggest financial remedies, modes of financing where collaterals (specially liquid ones) are already losing their worth, maximization of throughput and profit taking from managing of exposure in foreign currency based monetary assets and liabilities.
Interest rates are coming down, and after CJ's reinstatement we are seeing expansion in stock market even on cash based transcations. I guess market would be around 7.5k to 8.5k at 100index in a short span of time. When CFS would be allowed the market will take a jump and the lost wealth of the people will revert and all the cows will eventually come back to home. There is only a need to manage the resources and application properly and decide how to bifurcate the activity among operating, investing and financing activities. The one's who would be managing their issues at these fronts will be the winners. Example is of Nishat Mills Limited. The EPS declared carries a bigger portion of return on sale of investments whereby they made profit taking through investing activity in the times when operations were down and margins were not that good despite of devaluation trend of Pak rupee.
On their side, the auditors are required to have detailed knowledge of the whole sector in which their client works. The business risk, challenges, mitigating factors, process re-engineering and cost cutting, everything has bearing to cost/financial accounting and audit. I wonder if some economist would come up to identify, pinpoint and take measures to address these issues at industry level. The economists sitting in finance division and SBP have their own role at macro level but nothing has so far been done since last five years to revive the textile sector. We can however see some instances of words without actions. The export rebate has been eliminated. Nothing could be subsidized in post WTO concept. The R&D was already facing severe criticism and has vanished.
We witness that composite units are not disclosing their segment results under IAS 14 and IFRS 8. Very few of us know the reason behind that is only the threat of anti-dumping duty. People re-shuffle the costs from one segment to the other when they have to prove the things to the tribunal hearing the anti-dumping cases, mostly at Dubai and Brussels. This way they keep on transferring costs among the segments to prove the cost structures. This carries grave importance for auditors who have to opine on the accounts, as well as accountants who manage such things.
Now every one has to survive at his own. The economists of a country have very meager role to undo certain problems, where the crises is so severe that our Higher Education Commission (HEC) has already declared itself insolvent.
In my view this thread should have been at its place. We can discuss the issues with textile sector (the major foreign exchange earning sector) at length that can benefit the readers and create ideas of common benefit and interest.
However, these are my views and every one has a right to dissent.
Regards,
KAMRAN.
- Adil.Iqbal - 03-26-2009
Admin,
I still have a feeling that this question was to be asked on the audit and accounting forum. As I want to discussed the issue beyond the Electricity and Gas problems.
However, as explain by KAMRAN everybody has his own point of view.
Dear Kamran,
Sorry for the late response.
Pls clarify if we overcome the Power & Gas and law & order situation can we still be able to compete internationally???
Pls also discuss the interest rate & borrowing costs impacts on the industries success.
Thank you in advance.
Adil Iqbal
- kamranACA - 03-26-2009
Dear Adil
Please let me know, which segment of textile sector you are related to.
This is important since textile has a variety of processes and industries, each of which has novelty in the surrounding circusmtances and environment and as such these may need separate consideration.
Regards,
KAMRAN.
- kamranACA - 03-26-2009
Dears,
I may be coming on this point in detail somewhat later, but to me, if power/gas crises is overcomed along with law and order situation and other impediments, then every thing will depend upon available funds (equity as well as debt) and economy of scale.
We have an inclination of deviding the businesses of ancesstors instead of growing them as united units. I am not referring to big giants but the medium industry at large faces this problem. This squeezes the resources and everything vanishs in losses and quality rejections. Please remember every thing in business specially in textile will depend upon capital structure, available funds and economy of scale.
Efficient utilization of resources, efficient and skilled labour, innovative techniques, state of the art facilities, quality raw material inputs and other things will follow, which of course will depend upon funds.
I foresee that interest rates would now be coming down drastically. We may be seeing interbank rate at around 7% to 8% in upcoming days. Remember my words 7% to 8%. Still, export refinancing would be inevitable at some very nominal service charge of 3% to 4%. SBP may also introduce (which I can only hope for) some scheme of low rate long term financing for import of value adding plant, machinery, components and parts in order to encourage the BMR.
In fact there is a need to shift some of the profit proportions from banking sector to textile sector so that both sectors may be showing acceptable contribution to GDP growth and returns. Here lies the role of economists and strategy makers. Let's see what they would be coming up with.
Regards,
KAMRAN.
- awaisaftab - 03-26-2009
Dear Audil,
There is nothing personal between me and you. I felt that this topic should be posted on economics forum and expressed my opinion accordingly.
Can you tell me which books of accoutning and audit discusses the problem of taxtile industry. I had been always read the problems of textile sector,agriculture sector and industrial sector in the books of economics even in my my M.A (Economics) and ICMA Foundation.
I have no objection on the posting of this topic on Accounting and Audit Forum if you you were discussing the problems of textile sector in respect of accounting ,cost accounting and audit .
Regards,
Awais
- kamranACA - 03-26-2009
OMG!!! I am speechless.
- awaisaftab - 03-26-2009
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by kamranACA</i>
<br />OMG!!! I am speechless.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I have corrected my mistake one should realize his mistakes rather insisting on his or her mistakes.
Awais
- kamranACA - 03-26-2009
The above quotation (after required editing) was not about mistake.
- Adil.Iqbal - 03-27-2009
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by awaisaftab</i>
<br /><blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by kamranACA</i>
<br />OMG!!! I am speechless.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I have corrected my mistake one should realize his mistakes rather insisting on his or her mistakes.
Awais
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Awais,
U seems to have an issue of making other feel down upon !!!!
As a matter of fact we (me & Kamran) have already stated our point of views. But being a member of this forum I accept all the criticism but constructive.
I hope matter is clear now and we can move forward.
One last request please correct urself my name is Adil not Audil...
Thank You and lots of Regards !!!!
Adil
- Adil.Iqbal - 03-27-2009
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by kamranACA</i>
<br />Dears,
I may be coming on this point in detail somewhat later, but to me, if power/gas crises is overcomed along with law and order situation and other impediments, then every thing will depend upon available funds (equity as well as debt) and economy of scale.
We have an inclination of deviding the businesses of ancesstors instead of growing them as united units. I am not referring to big giants but the medium industry at large faces this problem. This squeezes the resources and everything vanishs in losses and quality rejections. Please remember every thing in business specially in textile will depend upon capital structure, available funds and economy of scale.
Efficient utilization of resources, efficient and skilled labour, innovative techniques, state of the art facilities, quality raw material inputs and other things will follow, which of course will depend upon funds.
I foresee that interest rates would now be coming down drastically. We may be seeing interbank rate at around 7% to 8% in upcoming days. Remember my words 7% to 8%. Still, export refinancing would be inevitable at some very nominal service charge of 3% to 4%. SBP may also introduce (which I can only hope for) some scheme of low rate long term financing for import of value adding plant, machinery, components and parts in order to encourage the BMR.
In fact there is a need to shift some of the profit proportions from banking sector to textile sector so that both sectors may be showing acceptable contribution to GDP growth and returns. Here lies the role of economists and strategy makers. Let's see what they would be coming up with.
Regards,
KAMRAN.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
What u saying is to reduce the financing cost.
But I dont think that Govt would take such steps as present situation is also not good for Banking sector. We are also facing foreign pressure regarding IMF loan. Will they allow us to reduce the Financial Charges?? However, Govt may allow special benefits to this particular sector as it needs special steps for revival.
Well pls discuss importance of other factors in increasing our sales, like labour, raw material, electricity, and unstable fuel charges...
Are the above stated costs lower enough to compete in international market???
Best Regards
Adil Iqbal
- kamranACA - 03-27-2009
Adil,
My point was not to reduce the finance charge. Rather, I explained that liquidity, availability of funds (equity+debt) at appropriate gearing level, capacity to incur and hold and economy of scale would be determining the survivals.
I, however, said that finance should be made available to the textile sector at cheaper rates and this is the area where economist have to concentrate. This was mentioned to draw a line (as per my apprehension) between the role of economists and others.
I guess, going for value addition products and processes and the BMR/revamp of existing facilities is very important. Further, our competition is primarily with China and then India and Bangla Desh. The textile units at China are of such scale that our normal entraprenuer can't even think about. The solution could be uniting of interests to achieve the economy of scale and compete with the people who can serve any order by using the production facilities available within one premises. We know so many orders don't come to Pakistan because none of our industry can isolatedly serve it and ensure timely supply. So, either uniting of interests (at least by isolated family concerns or otherwise) or enhancing the production scale through new investment can achieve the objective. This is in fact very hard task to be achieved.
Our production people are largely unskilled and inefficient. The CEO of a large stitching unit at Karachi told me that the efficiency of a skilled woker at Bangla Desh is many times better than the efficiency of our skilled worker. We can see it every where be it stithcing, CMT, packing, loading, shifting, processing, dyeing or whatever. This is also a big challenge and may need investment on HR areas, training and dissemination of all policies and procedures. If we analyze per worker pieces of output, or sales per worker, or throughput per worker, we may come to know that a greater difference exists even at Pakistan from one industry to the other. At least, people should compare the similar industries to calculate workers per spindle, per machine, per piece of out put and other such analysis, to judge where does one fall. Lay offs may be necessary where inefficiency is evidenced.
Apart from it, industries have so many adhoc based appointments, e.g unnecessary peons, security, admin, cooks, helpers, sweepers, time keepers and so on who in fact do nothing except for increasing the costs. In my view there is a need of very efficient time office to and attendance system. The people wandering hither and thither un-necessarily must be identified and fired out. Outsourcing could be an alternative to save costs and must be analysed.
The costs which you are pointing out are off course unbearable given the competition in the market. Still, our industry faces anti-dumping and opponents prove it always. I can only comment that unless the ecomomy of scale is achieved and large and diversified composite units are in place survival would be very difficult, although it may not be impossible. This needs funds.
Do you know Six Sigma? Some Pakistani industries are following six sigma approaches to reduce the costs. Even in textile sector I have seen its implementation. This, if doing nothing, at least increases the awareness to reduce the costs. Its implementation and training is also costly for small industries.
These are a few comments. The subject is very large and cannot be summed up in short posts. I would request you to raise very specific queries if you like so that every question could be specifically discussed.
You may also provide us the insights which you have experienced at this sector.
If some one will discuss other sectors in the way textile is being discussed, it would be good to concentrate and share the knowledge.
Regards,
KAMRAN.