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SUPPLY CHAIN TERM REPORT

EXPORT BARRIERS FACED BY AL-KARAM TEXTILES


PREPARED BY

FURQAN MAHMOOD - 10917

TABLE OF CONTENTS
1.0 CURRENT SCENARIO................................................................................................................................ 1 2.0 INTRODUCTION TO AL-KARAM TEXTILES ................................................................................................ 1 3.0 LITERATURE REVIEW ............................................................................................................................... 2 3.1 Export problems for SMEs in Pakistan ............................................................................................... 2 3.2 Determinants of Export....................................................................................................................... 2 3.3 Internationalization Barriers ............................................................................................................... 3 3.4 Export support to SMEs owners ........................................................................................................ 4 3.5 Market study of EU textile industry to identify the trade barriers ..................................................... 4 4.0 EXTERNAL BARRIERS FOR AL-KARAM TEXTILES ...................................................................................... 5 4.1 COST OF RAW MATERIAL .................................................................................................................... 5 4.2 ENERGY CRISIS..................................................................................................................................... 6 4.3 GOVERNMENT SUPPORT & FDI........................................................................................................... 6 5.0 INTERNAL BARRIERS FOR AL-KARAM TEXTILES ...................................................................................... 7 5.1 OPERATIONAL EFFICIENCY .................................................................................................................. 7 5.2 COST OF PRODUCTION........................................................................................................................ 9 5.3 TECHNOLOGICAL CHALLENGES ......................................................................................................... 10 6.0 CONCLUSION ......................................................................................................................................... 10 7.0 REFERENCES .......................................................................................................................................... 10

TABLE OF FIGURES
Figure 1: Supply Chain of Al-Karam Textiles ................................................................................................. 1 Figure 2: Fluctuation in Cotton prices in the recent past .............................................................................. 5 Figure 3: Supply and Demand for Electricity ................................................................................................. 6 Figure 4: Current process of Accessories Procurement System..................................................................... 7 Figure 5: Proposed process for Accessories Procurement System ................................................................ 8 Figure 6: Comparison of current and proposed process ............................................................................... 9

EXPORT BARRIERS FOR AL-KARAM TEXTILES

1.0 CURRENT SCENARIO


The Pakistan textile industry contributes more than 60 percent (USD 9.6 billion) to the countrys total exports. However, currently this industry is through turmoil period and facing great decline in its growth rate. There are several reasons backing this major problem prime of them being the global recession, internal security concerns, the high cost of production due to increase in the energy crisis, expensive raw material(cotton) etc. With my capacity of knowledge and seeking advice from the major players in the market, it can be said that Pakistans textile industry can once again be brought back on winning track if government takes serious actions in removing or normalizing the above mentioned hurdles. Additionally, the government should provide subsidy to the textile industry, minimize the internal dispute among the exporters, withdraw the withholding and sales taxes etc. Purchasing new machinery or enhancing the quality of the existing machinery and introducing new technology can also be very useful in increasing the research & development (R&D) related activities that in the modern era are very important for increasing the industrial growth of a country.

2.0 INTRODUCTION TO AL-KARAM TEXTILES


The Al-Karam group was founded in March 1986. They are manufacturer and supplier of distinguished fabric for apparel, home and industrial markets with clients all over the world. It is a vertically integrated textile mill with almost the complete supply chain of a textile industry under one roof.

RAW COTTON FROM SUPPLIER

SPINNING

WEAVING

WET PROCESSING

STITCHING & PACKING

SHIPPED TO CUSTOMER

Figure 1: Supply Chain of Al-Karam Textiles

Al-Karam textile is renowned for its high quality distinguished products with timely shipments to its customers. But due to the fact that the overall textile industry is facing tough challenges, these impacts have also jolted Al-Karam badly. And to add salt on the wounds, their internal operational activities have also contributed to the drastic results in the recent past. This report will highlight some of the major issues (both internal and external) faced by Al-Karam textiles.

EXPORT BARRIERS FOR AL-KARAM TEXTILES

3.0 LITERATURE REVIEW


In order to formulate this report, I went through some articles related to the topics which are individually discussed below.

3.1 Export problems for SMEs in Pakistan


Authors Name: Jamshed Khan Khattak, Muhammad Arsalan and Muhammad Umair Publishing Year: November 2011 Publishing Source: Pakistan Textile Journal The purpose of this study is to identify the barriers and challenges which Pakistani Small Medium Enterprises are facing in the country, and the affects of these challenges and barriers on Small Medium Enterprises. Researcher selected specific Textile Industry for his findings and he choose more than 20 textile Small Medium Enterprises for his study. Small and Medium Enterprises always plays a vital role to support the countrys economy and countrys GDP; SMEs generate huge number of employments in the country as well. Historically SMEs were not considered as significant players, only the large manufacturing firms or industries had the control of the entire industry. But now the time and the situations have changed, because when other developing countries of Asia like Bangladesh, India, Japan, Taiwan have developed on their SMEs then most of the economic analyst started to believe in the capabilities and the potential of the Small and Medium sized Enterprises. SMEs play a very vital role for the development in any country, the potential and their capabilities are even applied in the rich and the developing countries as well. In the Pakistan the concept and the belief of Small and Medium sized Enterprises is increasing day by day, but at the same time they have to cope up with current tragic situation of industry. I agree to the point of researcher that of the contribution of the major barriers and problems which are faced by industry is more from the external side rather than the internal forces. They include non-availability of natural resources, high prices of electricity and the poor strategies and policies by the government.

3.2 Determinants of Export


Authors Name: Elizabeth Lefebvre and Louis A. Lefebvre Publishing Year: 1998 Publishing Source: Journal Article of Small Business Economics Vol.10 This paper examines the relationship between the export performance and technological aspect of the SMEs. Firms when compete across the national borders, they face a lot of hurdles and competition. This competition could get intense due to the change in the technology. That is why technology plays an important role in determining the positioning of the SMEs in the foreign market. The paper argues that the investment in the R&D wont suffice to get a
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EXPORT BARRIERS FOR AL-KARAM TEXTILES

competitive edge in the overseas market. Other R&D related factors have to be taken into consideration. One of the factors includes the investment in the human capital in terms of highly qualified technical personnel. Other factors include; R&D strategies, collaboration with the external parties and the use of different sources of information for R&D related activities. Whenever it comes to managing business in the foreign market, cultural issues, regulation issue, organizational capabilities, managerial competence and other different factors are taken into account. Technological issues are hardly discussed. This paper explores the impact of technology related issues on the export performance of the firms. Having a technological edge or product is an important part of export success. The behavior of how the SMEs operate in the foreign market depends on the intensity of the technological driven competition. The export performance of the firms not only depends on the technology, but also, how efficiently the firms use technology in bringing innovative products. A clear R&D approach and access to key technological information are also crucial.

3.3 Internationalization Barriers


Authors Name: Viviene Shaw Publishing Year: 2004 Publishing Source: Journal Article The paper discusses the barriers to internationalization within the context of the New Zealand firms. It has been observed in many studies that, firms internationalize when they are in their growth phase or when they have firmly established themselves in the domestic market. At these stages, firms aggressively involved in the expansion of their business activities. Entrepreneurial New Ventures are the pillar of the economies. The understanding of how the managers and owners of ENV perceive barriers to overseas market is an important aspect. New Zealand is a small country and is renowned for its small business activities. A study of New Zealand firms can give a solid grounding of the overall operational activities of the ENV and how they can be applied globally. This study has divided the barriers to internationalization into five areas; the domestic and the international markets, managerial, financial, industry related, firm related. There is no specific stage of the firm at which the barriers to internationalization could exist. These barriers could differ from firm to firm. Since entrepreneurs are defined as the risk takers, therefore, ENV would take greater risk. Furthermore, the entrepreneurs compared to managers would perceive barriers to internationalization differently. The first part of the study discusses the participation of ENV in the foreign market. The second part of the study examines behavior of the entrepreneurial ventures that have gone to internationalization and those that havent. Those firms that are still operating in the domestic market will be divided into two groups; those that are planning to go international in the next 2 years and those that remain domestic with no plans of going international. The study is conducted using a mail survey. Around 5000 questionnaires are prepared.

EXPORT BARRIERS FOR AL-KARAM TEXTILES

3.4 Export support to SMEs owners


Authors Name: Eileen Fischer, and A. Rebbeca Reuber Publishing Year: 2003 Publishing Source: Journal Article The focus of this research is the expansion of the SMEs in the foreign market. The policy makers all around the globe have one thing in common when it comes to SMEs, which is, to make the participation of SMEs across the local border as efficiently as possible. This is due to the fact that, Small and medium sized firms play an important role in the growth of the economy. Support programs that are available to the SMEs in taking business across the border include; information regarding the foreign market, providing contacts of agents or brokers, financial help or any other kind of assistance that would be beneficial to the firm to operate in the overseas market. To support SMEs in the export channel, countries have designed their own forum through which they assist their SMEs to expand the business to the foreign soil. Despite of the different programs offered by the countries, SMEs show inefficiency or lack of interest. Arguers put forward their opinion that the programs are not properly segmented. Firms have to be divided into segments, normally three segments. The 1st segment consists of firms that are inexperienced and lack knowledge of domestic market with no export. The 2 nd segment consists of those firms which have properly established themselves in the domestic market and are ready to expand their business to the foreign land. The 3rd segment caters to firms that are regularly involved in the export activities. The paper explores the implications of all the three segments of export program and suggests an additional approach based on the theory and the empirical study.

3.5 Market study of EU textile industry to identify the trade barriers


Authors Name: Dehousse, Katelyn Ghemar, and Philippe Vincent Publishing Year: 23rd March 1999 Publishing Source: Textile Market Access Study The researcher had researched on the access to market of textile industry of Europe. The major objective of the researcher was to find the barriers in export textile goods between Europe and the third world countries which is actually the supplier of European market. Actually the complete study is based on three major objectives; these objectives are: To find out the trade barriers which have been implemented by the third world countries To evaluate such barriers which are being faced by Europe in its export To assess the legality under the international rules and some international agreements.

The methodology that researcher had chosen is to collect information from the European market, and to gather some information from the third world countries as well, and then he did analysis on the basis of gathered information. Researcher then did research country by country.

EXPORT BARRIERS FOR AL-KARAM TEXTILES

Researcher researched on more than 24 countries which actually are the exporters of textile goods and material. He also did research on Pakistans Textile Industry, in which he found out some facts that are followed. Pakistan is fourth largest exporter of textile goods and raw material in the world. Pakistan has high quality cotton and other material. Pakistan produces high quality products which actually the European market and USA demand, but the negative aspect is that Pakistan is facing problems in export because of the tariff on export and the increasing prices of goods, so thats why Pakistan is lacking in its export area. However, as far as resources and competency is concerned, Pakistans textile industry is no behind its immediate competition.

4.0 EXTERNAL BARRIERS FOR AL-KARAM TEXTILES


4.1 COST OF RAW MATERIAL
Prices of cotton & other raw material used in textile industry fluctuate rapidly in Pakistan. The rapid increase in the price raw material affects the cost of production badly. The increase in raw material prices fluctuates rapidly due to double digit inflation & instable internal condition of Pakistan. Due to increase in the cost of production the demand for export & home as well decreased which result in terms of downsizing of a firm. Hence the unemployment level will also increase. Government should take serious step to survive the textile industry. In order to decrease the price raw material for textile we need to increase our production capability. Simultaneously, the government should make arrangement for introducing international system of Cotton Standardization in Pakistan to enhance quality and value of Pakistan lint cotton by utilizing the technical services of Pakistan Cotton Standard Institute.

Figure 2: Fluctuation in Cotton prices in the recent past

EXPORT BARRIERS FOR AL-KARAM TEXTILES

4.2 ENERGY CRISIS


As a consequence of load-shedding the textile production capacity of various sub-sectors has been reduced by up to 30 per cent. The joint meeting of APTMA & other related organization was held at APTMA House to formulate a joint strategy to address the alarming electricity crisis being faced by the textile industry. The meeting unanimously decided to constitute a joint working group of electricity management for the textile industry in the larger interests of the value chain of the textile industry. The load-shedding of electricity cause a rapid decrease in production which also reduced the export order. The cost of production has also risen due to instant increase in electricity tariff. Due to load shedding some mill owner uses alternative source of energy like generator which increase their cost of production further. Due to such dramatic situation the capability of competitiveness of this industry in international market effected badly.
25000 20000 15000 10000 5000 0

Firm Supply (MW)

Peak Demand (MW)

Figure 3: Supply and Demand for Electricity

4.3 GOVERNMENT SUPPORT & FDI


The government of Pakistan has not been able to provide any kind of favorable policy or support incentive for the major money minting industry nor there has been any kind of subsidies granted as promised by the leaders. On the other hand, Government of Bangladesh is offering industrial loan at a special interest rate of 9 to 11% to support their readymade garment industry (Shah, 2011). Due to the global economic crises, unpredictable policies, energy crises, and international situation, FDI declined by 31.2% in 2008-09 as compare to the last fiscal year. In the current fiscal year, this situation further worsted and declined by 44.7% (Economic Survey 2009-10).

EXPORT BARRIERS FOR AL-KARAM TEXTILES

5.0 INTERNAL BARRIERS FOR AL-KARAM TEXTILES


5.1 OPERATIONAL EFFICIENCY
Al-Karam Textiles has been lagging behind in few of its operational processes in todays competitive world of textile industry. In such a situation it is necessary to match up to the industries best practices of the leading manufacturers. There are several processes identified in the operational route of AKTM as in-efficient and cumbersome but of prime importance being Accessories Procurement Process. This process has also lots of non-productive and time consuming activities faced by the merchandiser. The system is so designed that there is no tracking of the goods inward and outward movement plus heavily relies on the merchandiser to perform all the tasks from making the purchase order to continuous follow-up with the store in-charge for the receipt of the goods.
STEP 1 Forwards the new/repeat order MERCHANDISER Sends the Rate and Invoice after Delivery STEP 3 SUPPLIER

Authorized documents returned back

STEP 4 PO, Invoice and DC forwarded

Delivery Challan

Goods Delivery

Authorized Invoice for Payment

STEP 6

STEP 7

PURCHASE MANAGER

STEP 5 For Authorization

GENERAL MANAGER STORE

ACCOUNTS DEPARTMENT

Figure 4: Current process of Accessories Procurement System

Problems in the current process: Lingering Process due to which a lot of time is wasted; around 100 minutes. A Lot of Non Value Added work is done (Step # 4,5,6 and 7) No record of previously ordered accessories which are left unused with the store No tracking of the new orders; whether they are received at store or not

STEP 8

STEP 2 Payment

EXPORT BARRIERS FOR AL-KARAM TEXTILES

After the examination of current process, it was compared with the famous case study of the inventory management by Toyota Company; this gave a better designed and structured process for AKTM with the desired objectives as: Reduction in time to make purchase orders and invoices Removal of non value added activities Traceability of the goods received and issued Record for all balance goods held with store

MERCHANDISERS / PURCHASE OFFICER


Purchase Order Generation
STEP 2 Order forwarded to Supplier

PURCHASE MANAGER

STEP 1

SUPPLIERS

Invoice forwarded to Accounts

Authorizes and Enters into the Online System

Goods delivered to Store

Payment

STEP 6

STEP 3

STEP 2

STEP 3

STORE

Entry of Goods receipt into the Online System

ONLINE SYSTEM

ACCOUNTS DEPARTMENT

STEP 4

PO quantity and Received quantity forwarded to Accounts STEP 5

Figure 5: Proposed process for Accessories Procurement System

Advantages and Impacts of the proposed system: Elimination of non value added activities from the shoulders of Merchandiser Reduction in time from generation of purchase orders to submission of invoices for payment Proper record and traceability of the ordered goods and balances being held at store

EXPORT BARRIERS FOR AL-KARAM TEXTILES

Since the system is now online, proper tracking of goods will be maintained by linking up the PO generation and goods receipt at store in the online system

Figure 6: Comparison of current and proposed process

5.2 COST OF PRODUCTION


The cost of production for AKTM is relatively high than other competing organizations and the prime suspects being: High Wastages / Shortfalls Procurement on long credit terms High Overheads Inappropriate forecasting Improper capacity utilization

After thorough discussion with different head of departments it was concluded that to overcome these issues we need to take immediate action on the following: Stringent quality parameters and ensure that these are followed at every step Creating and maintaining SOPs for different operations Bulk buying to access the volume discounts and where possible procure on cash for a discounted price Minimize overheads by eradicating unnecessary overtime and running economy drive A team need to be formulated that help in forecasting through in-depth data analysis and help in efficient capacity utilization

EXPORT BARRIERS FOR AL-KARAM TEXTILES

5.3 TECHNOLOGICAL CHALLENGES


New and advance technology has resulted in competition around the world and now efficiency and productivity are important factors for a nation. The usage of traditional methodologies and machinery has resulted in low performance of man and machines. AKTM has still not moved to the adoption of modern software like SAP etc which has resulted in inefficient capacity utilization and efficient production.

6.0 CONCLUSION
Pakistans textile industry is going through one of the toughest periods in decades. The global recession which has hit the global textile really hard is not the only cause for concern. Serious internal issues also affected Pakistans textile industry very badly. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Pakistan's textile exports in turn have gone down during last three years as exporters cannot effectively market their produce since buyers are not visiting Pakistan due to adverse travel conditions and it is getting more and more difficult for the exporters to travel abroad. Pakistans textile industry is lacking in research & development (R & D).The production capability is very low due to obsolete machinery & technology. Pakistan is facing high cost of production due to several factors like the hike in electricity tariff, the increase in interest rate, energy crisis, devaluation of Pakistani rupee, increasing cost of inputs, political instability, removal of subsidy & internal dispute. The global recession also hit badly the textile industry.

7.0 REFERENCES
Laderman, D. & Rubinao, E. & Olarreaga, M., 2008, Trade Specialization in Latin America: The impact of China and India, Kiel Institute Research, vol. 10, pp. 1-146. Spence, M., 2003, Evaluating Export Promotion Programs, Small Business Economics Journal, vol. 20, no. 4, pp. 83-103. Fischer, E. & Reuber, A., 2003, Targeting Export Support to SMEs Owners International Experience as a Segmentation Basis, Small Business Economics Journal, vol. 20, no. 4, pp. 69-82. Pinho, Jose C. & Martins, L., 2010, Exporting Barriers: Inside from Portuguese Small-and Medium-Sized Exporters and Non-exporters, Journal of International Entrepreneurship, vol. 8, pp. 254-272. Bernard, A. & Wagner, J., 1997, Export and Success in German Manufacturing, Weltwirtschaftliches Archive, vol. 133.

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