PAKISTAN IN THE APPAREL,

MEDICAL DEVICES AND OFFSHORE

SERVICES GLOBAL VALUE CHAIN

1
 METHODOLOGY

• Global Value Chain Analysis

• Global analysis
– Review of academic & grey literature
– Interviews with industry expert
– Analysis of global trade data (UN Comtrade)
• Pakistan analysis
– Academic & technical studies
– Interviews with more than 65 stakeholders (majority private sector)
– Sialkot, Lahore, Karachi, Islamabad, Faisalabad
– Datasets:
• Pakistan Customs Authority firm-level data (imports, exports, 2014/5-2016/7)
• Registries of US, UK, Japan regulatory agencies
• PSEB (State Bank of Pakistan)
• P@SHA
© 2019 Duke GVC Center
 PAKISTAN IN THE MEDICAL
DEVICES GLOBAL VALUE CHAIN

3
 PAKISTAN IN THE MEDICAL DEVICES GVC (2017)

Contract manufacturer of precision metal instruments

Research &
Components Post-Sales
Product Assembly Distribution Marketing & Sales
Manufacturing Services
Development

Final Market
Software Products Segments
Prototype Assembly Capital Training
Development
Cardiovascular
Equipment
Process Electronics/Electric
Development al Components Packaging Therapeutic Consulting
Orthopedics
Devices
Regulatory Precision Metal Surgical &
Works Sterilization Medical General Complaints
Approval Management
1853 firms Instruments Surgery
(US$346M)
Process Plastics
Infusion Maintenance/
Development Extrusion & Disposables
Systems Repair
Molding
Sustaining Weaving/ Consumables
Engineering Knitting Textiles Others
(US$7M)

Input Buyers
Suppliers
Wholesale Doctors &
Resin Metals
distributors Nurses

Hospitals Individual
Chemicals Textiles
(Public/Private) Patients
© 2019 Duke GVC Center
 PAKISTAN IN THE MEDICAL DEVICES GVC

Export Oriented→ US$355M (2016)

PRECISON METAL
INSTRUMENTS
<0.1%
98% Global MD
Total

1,135 150K FIRMS WITH

EXPORTERS
(2015-2018) WORKERS 85 EXPORTS
>US$1M
© 2019 Duke GVC Center
 OPPORTUNITIES FOR UPGRADING
Short to Medium Term
• Short Term-Process upgrading:
Increase production efficiencies
– Incorporate new technologies
and processes
• Medium Term-Market
Diversification: Move into
emerging markets
– Asia-Pacific
© 2019 Duke GVC Center
Long Term
• Product Diversification: Move
into disposables and
therapeutics
– Leverage existing capabilities
of most successful firms
– Competitive low-cost labor
• Intersectoral Upgrading: Move
into related industries
– Beauty Supplies-Less
Regulated
– Medical Textiles
 POLICY RECOMMENDATIONS: SHORT & MEDIUM TERM

Process Upgrading Market Diversification

• Facilitate certification of • Target new markets in Asia→ facilitate

firms in ISO 13485
– Information & negotiate loan facilities
– Added benefit of improving quality
perception
• Reduce duties for capital
equipment (beyond EPZs)
firm network development
– Trade fairs, trade missions, match-making
events, detailed suppliers guide with
consulates, facilitating buyers visits to Pakistan
• Support firm certification for new
markets
– Information sessions on emerging regulatory
requirements

• Align training efforts with firm • Negotiate access for suppliers to foreign
government procurement programs
needs

© 2019 Duke GVC Center

PAKISTAN IN THE APPAREL
GLOBAL VALUE CHAIN

8
 Pakistan in the Apparel GVC
Pre-Production
Design Apparel Production Distribution Marketing & Sales
Logistics
(ODM) (CMT) (OEM) (OBM)
(OEM)

Product Categories
Creative Design Sourcing Cutting Branding
Woven Knit
Trousers Sweatshirts
Technical
Design Sewing Retailing
Woven Knit
CAD Shirts Shirts

Finishing Dresses/skirts

Misc. & Accessories

Raw Materials Components Coats Underwear

& Inputs (Textiles)

Natural Fibers Yarn Production Suits/ Hosiery/

(cotton, wool) formal socks
Fabric
Synthetic Fibers Bras Baby
Production

Trim Knit

Machinery Woven Pakistan’s Share of Global Exports, 2016

Non-essentials 0-1% 6-10%

Fabric Finishing
1-3% 10-20%
3-6% > 20%
 PAKISTAN IN THE APPAREL GVC

Export Oriented→ US$5.7B (2016)

Trousers (top
category)
< 1.5%
50% of Global Apparel
Exports

Cotton-based
apparel

83% 54%
EU-15 share of
exports

4,954 2.5 million FIRMS WITH

© 2019 Duke GVC Center

EXPORTERS
(2016-17)
Textile & Apparel
Workers 473 EXPORTS
>US$1M
 OPPORTUNITIES FOR UPGRADING
Short to Medium Term
• Product and process upgrading:
Solidify positions in certain product
categories such as trousers by
increasing direct connections with
buyers, boosting FDI and
strengthening human capital
• Product upgrading: Improve
product mix by type and material
by simplifying tariff regimes
© 2019 Duke GVC Center
Medium to Long Term
• Functional upgrading: Taking
advantage of integrated supply
chain and domestic ownership by
moving into OBM activities such as
design and branding
• Social upgrading: Increasing
number of women workers in the
sector
 POLICY RECOMMENDATIONS: SHORT to MEDIUM TERM
Product and Process Upgrading
• Convene forum of global buyers
– Coordinated outreach effort to buyers sourcing from
Pakistan to yield valuable insights
– May help reduce security concerns
• Exploit integrated supply chain and increase
presence in fast fashion
– Accessories & trim capacity (labels significant import)
– Human capital (skilled operators) & technology
• Strategy to improve cotton supply
– Substandard quality; imports increasing
– Support cotton producers or eliminate import tariffs
© 2019 Duke GVC Center
Product Upgrading/Diversification
• Overhaul duty drawback systems
– Issues: Complicated, require significant investments in manpower and
refunds often delayed.
– Allow indirect exports so component suppliers can sell to final product
exporters (for example, if a fabric manufacturer needs to import MMF
yarn, it must export the fabric to get the drawback).
– Complexity also hinders FDI accustomed to one-stop EPZs
– Reduce import tariffs and taxes on inputs
– Consider incentives that promote sustainable upgrading (R&D, capital
investments, training)
• Automation through training programs
– Pakistan has higher labor costs than some competitors
– Help product diversification requiring different machines
• Promote FDI
– Assist with knowledge of how to produce other types of apparel and to
provide connections to other buyers
 PAKISTAN IN THE OFFSHORE
SERVICES GLOBAL VALUE CHAIN

13
 PAKISTAN IN THE OFFSHORE SERVICES GVC

Source: Authors based on PSEB (2018); Field Research (2018)

© 2019 Duke GVC Center
 PAKISTAN IN THE OFFSHORE SERVICES GVC

Entry in GVC: mid-2000

Late engagement, driven by expats,
ITO
Export Oriented → US$655 M (2017)
KPO
BPO
BFSI

concentrated in SMEs and

rudimentary exports

0.2% of GDP (2017) G R

CA
1,752 active IT-BPO companies (2017) 15 %

15,000 export-oriented FTE

0.1% of total IT-BPO world exports
th
28 in top 55 GSLI by A.T. Kearney
Source: Authors based on PSEB (2018)
© 2019 Duke GVC Center
 OPPORTUNITIES FOR UPGRADING

Short to Medium Term Medium to Long Term

• Process Upgrading in the BPO segment • Functional Upgrading to Vertical

Increase participation in global
market
– Expand employable talent
– Upskill existing and future human
resources
• Product Upgrading in the ITO segment:
Develop worldwide recognition as a
qualified IT provider
– Engage Pakistani-American and Diaspora
Industries:
Move into specific verticals
– Leverage existing capabilities of most
successful firms in BFSI, Healthcare
and Energy
– Explore Gaming and Security

© 2019 Duke GVC Center

 POLICY RECOMMENDATIONS: SHORT to MEDIUM TERM
Process Upgrading in the BPO segment
• Introduce basic computing, soft-skills and
English-language courses in the core teaching of
intermediate education
– Basic BPO: voice and accent training, customer handling,
cultural issues of US
– Advanced BPO (automation impact): critical thinking,
complex problem solving, active learning
• Incentivize upskilling BPO employees’ conditional
on 5% cash reward
– Support for current FTE and new hires
– Focus on soft-skills and English language
• Ease visa procedures for potential clients, global
standards experts and industry personnel
– Visa restrictions to travel visits hurts firms’ expansion
– Expedite visas for experts from certifying bodies
© 2019 Duke GVC Center
Product Upgarding in the ITO segment
• Increase employability of IT graduates by
encouraging knowledge dissemination
– Encourage professors from Tier-I universities to
provide seminars and workshops in Tier-II/III
universities
– Focus on experiential training
• Encourage IT companies to offer internships
– Target students from Tier-II/III universities
– Accelerate students’ learning process and increase
exposure to corporate environments
• Encourage private education institutes to
provide English-language training for IT
professors from Tier-II and Tier-III universities
– Professors from Tier-II/III are not fully competent in
English-language
– Equip professors through special tax treatment to
private education institutes
 Three key trends characterize the country’s GVC
participation

• Concentration in low-value stages of the GVC and

limited upgrading
• Low-cost labor, but with quality limitations
• Driven by local firms with no foreign presence

© 2019 Duke GVC Center

 Key Takeaways for Pakistan upgrading in GVCs

• Industry coordination
• Human capital development
• Trade Policies
• Infrastructure
• Security and safety
• Bureaucratic procedures

© 2019 Duke GVC Center

 Opportunities

• Pakistan has a great opportunity to excel in the offshore

services industry
• It needs to implement as fast as possible the
recommendations focused on human capital development,
FDI attraction and industry promotion

© 2019 Duke GVC Center

 Thanks!

Karina.stark@duke.edu

© 2019 Duke GVC Center