TABLE OF CONTENTS

1.1.1 GDP Growth: __________________________________________________________3 1.1.9 FDI:__________________________________________________________________7

2.1 MFA:.....................................................................................................................28 2.2 Tariff:...................................................................................................................28 2.3 Quota:...................................................................................................................28 2.4 Technology: .........................................................................................................28 2.5 OPT:.....................................................................................................................29 2.7 Product Form: .....................................................................................................29 2.8 Price: ...................................................................................................................29 2.9 Costs: ...................................................................................................................29 2.10 Subsidies:............................................................................................................29 2.11 Manufacturing Efficiency:................................................................................30 2.12 Social Compliance:............................................................................................30 2.13 Lease Financing:................................................................................................30 2.14 Industrial Loans:...............................................................................................30 2.15 Micro-Finance Enterprises:..............................................................................30 2.16 Capital Budgeting:.............................................................................................30 2.17 Cash flow technique:..........................................................................................31 2.18 Training:.............................................................................................................31 2.19 Job Rotation:......................................................................................................31 2.20 Job Enrichment:................................................................................................31 2.21 Labor Turnover:................................................................................................31 2.22 Data:...................................................................................................................31 2.23 Primary Data:....................................................................................................31 2.24 Secondary Data:.................................................................................................32 2.25 Morabaha Financing:........................................................................................32 2.26 Ijara Financing:.................................................................................................32

CHAPTER 1: INTRODUCTION
1.1 Overview of Pakistans Economy:
Pakistan is a developing country with an agrarian economy. More than 80 % of the GDP accounts for the agricultural output. In the recent years many reforms have taken up by the government to cope up with the WTO and initiate the long run growth of the economy. Now let us look at the past economic performance of Pakistan, which will give us a better idea of the emerging sectors and issues in the Pakistans Economy. Pakistan has lived through a difficult and testing period. After five years of hard work the complexion of economy has changed altogether. It is no longer fragile and its balance of payments is no more vulnerable to external shocks. Wideranging structural reforms, prudent macroeconomic policies, financial discipline and a consistency and continuity in policies, not seen before, have transformed Pakistan into a stable and resurgent economy in 2003-04. The stage is now set for economic growth to accelerate with the private sector expected to play the leading role in taking the economy on a higher growth trajectory. Notwithstanding the major successes on the socio-economic front, the progress made so far is not commensurate with the country's considerable potential. Although stronger, the economy of Pakistan has many challenges lying ahead. Maintaining and building on the macroeconomic stability; and sustaining and further accelerating the growth momentum will be the continuing challenges. Linked with these are the challenges of job creation, poverty alleviation, minimizing social inequality and strengthening the country's physical infrastructure. At the micro level, growth creates employment opportunities, increases income and reduces poverty. To achieve 7-8 percent growth in the next three to four years sectors like agriculture, small and medium enterprises (SMEs), housing and construction, oil and gas, and information technology and telecommunications will have to play the central role. Of these, agriculture, SMEs and housing and construction are expected to generate pro-poor growth - essential in addressing the income distribution issue. With the country's population growing at less than 2

2.0 percent per annum over the next three to four years, real per capita income is projected to rise by 5.5 - 6.0 percent per annum. This is the growth in per capita income which will be required to substantially reduce poverty and unemployment in the country. Good quality infrastructure is essential for promoting and sustaining strong growth, necessary to reduce poverty. Pakistan has already moved to a higher growth trajectory and has targeted a 7-8 percent rate in the next three to four years. To achieve and sustain this Pakistan needs to invest heavily in infrastructure -water, power, roads, highways, ports, transport and communications. Heavy investment in infrastructure is also needed to take advantage of Pakistan's strategic location in the region for expanding regional cooperation in trade and commerce. In particular, Pakistan can serve as a bridge between East and West Asia, as well as the entry port for Afghanistan and the Central Asian Republics. Sound macro economic policies, financial discipline, continuity of policies, political and regional stability will be the key to sustain the momentum. Now let us look at some of the key macro-economics indicators of Pakistan for the year 2003 04: 1.1.1 GDP Growth: Real GDP growth, once again, surpassed the target (5.3 %) with a headline number of 6.4 percent during 2003-04 compared to last year's 5.1 percent rate. This buoyant growth was aided by a 13.1 percent and 5.2 percent growth in the manufacturing and services sectors, respectively. The performance of agriculture fell short of the target by growing at 2.6 percent against a target of 4.2 percent and last year's achievement of 4.1 percent. When compared with other developing countries in general and East and Southeast Asian countries in particular, Pakistan's growth performance has been quite impressive. Developing nations grew, on average, by 6.1 percent while East and Southeast Asian countries like Hong Kong, Singapore, Korea, Indonesia, Malaysia, Philippines, Bangladesh and Sri Lanka registered growth rates ranging from 1.1 percent to 5.5 percent in 200304. Few countries in the region, namely China, India and Thailand grew faster 3

than Pakistan during this period. Fiscal stimulus in the shape of large public sector spending and a conducive interest rate environment provided important support to this growth picture in Pakistan. 1.1.2 Investment:

Total investment rose to 18.1 percent of GDP in 2003-04 against 16.7 percent last year. Most importantly, fixed investment rose sharply to 16.4 percent of GDP against 14.8 percent last year. What is highly encouraging is the significant rise in private sector investment -from 11.2 percent to 11.7 percent of GDP. Two interrelated sectors, construction and ownership of dwellings grew by impressive rates of 23.5 percent and 25 percent respectively, implying heavy investment in the housing and construction sector. National savings as a percentage of GDP remained at around 20 percent on account of a significant improvement in the current account balance. It is noteworthy that the national savings rate has increased by 8.3 percentage points since 1998-99. 1.1.3 Inflation:

Tame inflation has also been one of the hallmarks of this government's macroeconomic policies. The rate of inflation as measured by changes in the Consumer Price Index (CPI) averaged 3.9 percent during the first ten months of the current fiscal year against 3.3 percent in the same period last year. Food and non-food inflation averaged 4.9 percent and 3.1 percent respectively as against 3.1 percent and 3.4 percent during the same period last year. Core inflation remained quite subdued owing to prudent macroeconomic policies pursued during the year and averaged 3.3 percent against the headline (overall inflation) number of 3.9 percent for the ten months of the current fiscal year. 1.1.4 Poverty:

The macroeconomic policies and reform programs pursued over the last five years have not only made the economy healthier but also set the stage for taking the economy on a higher growth path. Have such policies and programs improved the

living conditions of the people? Have they reduced poverty and improved social indicators? The results show that the incidence of the poverty at the national level has declined by 4.2 percentage points with both urban and rural poverty showing significant decline in 2004 compared with 2000-01. Other social indicators and the indicators representing the living conditions of the people have exhibited significant improvements over 2000-01 as well as over 1998 Census results. For example, the number of Households living in one room homes shows a significant decline while that of households living in 2 to 4 rooms houses have increased significantly in 2004 compared with 1998. The other indicators of living conditions such as major source of drinking water, the type of toilet used, sanitation, the use of electricity as a source of lighting and the use of gas as cooking fuel, show a significant improvements over the last 3 to 6 years. Furthermore, all education related statistics show significant improvements with the gross enrolment at the primary level increasing from 72 percent to 87 percent a 15 percentage points increase. These results are highly encouraging as they show that strong economic growth along with massive spending on social sector and poverty related programs are now beginning to yield dividends in terms of declining poverty and improvements in living conditions as well as in social indicators. 1.1.5 Per-Capita Income:

The per capita income in dollar terms increased by 12.0 percent from $ 582 last year to $ 652 during the outgoing fiscal year. Last year per capita income in dollars grew by 15.7 percent on the back of a massive increase in net factor income from abroad resulting in a two year per capita income average growth rate of 13.9 percent per annum. 1.1.6 Balance of Payments:

Pakistan's external balance of payments gained further strength during the year under review. Both exports and imports registered robust growth; healthy increases in foreign exchange reserves continued despite heavy pre-payment of

external debt; and the current account balance continued to remain in surplus for the third year in a row. A strong and broad-based recovery in the global economy also helped firm-up demand for Pakistani exportable goods. The inflow of workers' remittances continued its rising momentum, albeit at a slower pace; the exchange rate remained stable; and a substantial increase in FDI was recorded. 1.1.7 Exports:

Exports grew by 13.1 percent during July-April 2003-04 against a hefty increase of 20.8 percent during the same period last year. When viewed against the backdrop of stellar growth (20.8%) last year, a higher double-digit growth rate in exports is one of the major achievements of the outgoing fiscal year. Given the performance of the first 10 months of the current fiscal year exports are likely to cross the target of $ 12.1 billion for the whole year. The higher unit values of exports, deeper penetration into the European and US markets, a sharp decline in the Export Refinance rate, and a competitive exchange rate have contributed to the surge in exports during the year. The surge in exports is underpinned by a strong growth in textile manufacturers and 'others' exports Textile manufacturers, accounting for 65.4 percent of total exports, registered an increase of 14.3 percent while 'other' exports covering 9.2 percent of total exports, grew by a hefty 48.6 percent. Almost 71 percent of the contribution to overall export growth came from textile manufactures and 26 percent came from 'other' exports. 1.1.8 Imports:

Imports grew by 19.0 percent during the first ten months (July - April) of the current fiscal year against a hefty increase of 22.5 percent in the same period last year. Most importantly, non-food non-oil imports are up by almost 32 percent against 23.5 percent last year. The exceptionally strong growth in non-food nonoil imports is one of the leading indicators of a surge in domestic economic activity. The salient features of this year's performance of imports include: impressive growth in the import of the machinery, chemical, metal and textile groups. The petroleum group registered a decline of 7.7 percent on account of

27.4 percent decline in the imports of petroleum products. The major contributors to this year's rise in imports are the machinery group (27.1 %), followed by the agricultural / chemical group (22%), and metal group (7.0 %). As a result of the developments in exports and imports, the trade gap has widened from $ 1251.5 million to $ 2011.4 million during the first 10 months of the current fiscal year, showing a deterioration of 60.7 percent. Given the stronger than anticipated surge in domestic economic activity, the widening of the trade gap in the short-run is quite normal. 1.1.9 FDI: Pakistan has succeeded in attracting $ 760 million in foreign direct investment (FDI) during July-April 2003-04 against $ 696 million in the same period last year, thereby registering an increase of 9.3 percent. By the end of the current fiscal year, FDI is expected to cross $ 1.0 billion on account of the issuance of two cellular licenses amounting to $ 291 million each, the half proceeds of which are expected to be received before the end of the fiscal year. The bulk of the FDI has come in the oil and gas, transport and communication, and banking sectors. These three areas have accounted for 71 percent of the FDI this year. Almost 85 percent of the FDI has come from Switzerland, the United States, the United Kingdom, the UAE and Saudi Arabia. 1.1.10 Privatization: The privatization program has progressed at a much faster pace this year. By endMarch 2004, Pakistan had completed or approved 139 transactions with gross proceeds of Rs.134 billion. Of this, a sum of Rs.33.1 billion was received during the first nine months (July-March) of the current fiscal year. A new feature of the privatization program has been the offering of shares to the general public through the stock market, which was well received. For example, in the case of OGDCL, 97,000 applicants purchased shares whose subsequent value increased by over Rs.8 billion. The response in the SSGC offering has been even greater with over a

quarter million small applicants receiving shares through a transparent balloting process. 1.1.11 Agriculture: The slippage in agriculture was mainly attributable to the weak performance of both the major and minor crops. Major crops, accounting for 34 percent of agricultural value added, grew by 2.8 percent against an impressive recovery of 6.9 percent last year. The performance of two major crops, cotton and wheat, was lackluster as the cotton crop suffered from pest problems in Southern Punjab while wheat production was adversely affected by the lack of rain in March when the formation of wheat grain takes place. The size of the cotton crop is estimated at 10.0 million bales - 1.6 percent lower than last year while that of wheat is estimated at 19.767 million tons against a target of 20.0 million tons, a shortfall of 1.2 percent. The performance of rice and sugarcane - the other two major crops has been modest at best with the rice crop estimated at 4.848 million tons - 8.3 percent higher than last year and sugarcane at 53.419 million tons - 2.6 percent higher than last year. These two crops are highly water intensive and the improved availability of water helped increase their production. Minor crops, accounting for 12 percent in agricultural value added showed a 'weak' performance, growing by only 1.7 percent. 1.1.12 Manufacturing: One of the most important developments of the year has been the sharp acceleration in manufacturing growth. Overall manufacturing grew by 13.4 percent in 2003-04 against a target of 7.8 percent and last year's 6.9 percent. This impressive growth was underpinned by the highest ever growth recorded in largescale manufacturing which accounts for 68 percent of overall manufacturing, and exhibited broad-based growth of 17.1 percent against a target of 8.8 percent and last year's 7.2 percent. Improvements in the macroeconomic environment, a decline in the cost of capital, the availability of consumer financing at affordable rates, strong growth in exports and a general feel good mood in the economy have

been responsible for this unprecedented growth in large-scale manufacturing. Over the last four years, the large-scale manufacturing sector has grown at an average rate of almost 10 percent per annum thereby increasing its share in GDP from 9.6 percent to 11.8 percent. Major industries that registered double-digit growth include: sugar, cement, cooking oil, jeeps and cars, motorcycles, motor tyres etc. During this fiscal year, Pakistan succeeded in attaining; a higher than targeted growth in real GDP, powered by stellar growth in large-scale manufacturing and a continuing robust performance in services; a double-digit growth in per capita income, reaching $ 652; a strong rebound in investment, particularly in private sector investment owing to a rare confluence of various positive developments on the economic scene; low inflation and an investment-friendly interest rate environment; an unprecedented increase in credit to the private sector; sharp increases in the consumption of electricity and gas reflecting rising levels of economic activity; a reduction in the fiscal deficit; on target tax collection; a buoyant stock market with an all-time high aggregate market capitalization; a double-digit growth in exports and imports; workers' remittances maintaining their momentum with the current account balance remaining in surplus for the third year in a row; a continued accumulation of foreign exchange reserves and stability in the exchange rate; a sharp decline in the public and external debt burden; a lowering of the interest cost through the pre-payment of $ 1.17 billion of high cost external debt; and a successful return to the international capital markets through the floatation of a Eurobond. From the grassroots perspective, the incidence of poverty has declined by 4.2 percentage points over 2001 figures. Other social indicators such as enrolment in primary, middle and matric levels; access to sanitation, safe drinking water, housing, electricity and gas have all showed marked improvements. Two successive years of strong growth along with over Rs.860 billion of cumulative spending over the last five years on social sector and poverty related programs is now beginning to bear fruit. Notwithstanding these improvements, much remains to be done, and this is that critical juncture in time when maintaining momentum

through policy stability is paramount. While socio-economic and macroeconomic policies pursued during the year have had a strong influence on this across-theboard improvement, an increasingly broad and dynamic global recovery with industrial production and global trade picking up sharply, have aided Pakistan in this endeavor.

1.2

Role of Textile Sector in Pakistans Economy:

The demand for textiles in the world is around $18 trillion, which is likely to be increased by 6.5% in 2005. China is the leading Textile exporter of the world's total exports of US$ 400 billion in 2002. Country wise major market shares of the textile exporting countries are: China: $ 55 billion, Hong Kong: $38 billion, Korea: $35 billion, Taiwan $16 billion, Indonesia $9 billion. Pakistan is considered to be the 5th largest resource in world of 2 million M. tons of raw cotton. 1.7 Million M. Tons converted to yarns, fabrics and finished products. Though Pakistan has emerged as one of the major cotton textile product suppliers in the world market with a share of world yarn trade of about 30% and cotton fabric about 8%, having total export of $ 7.4 billion which accounts for only 1.2% of the over all share. Out of this Cotton fabric is 0.02%, Made-ups is 0.18% and Garments is 0.15%.Pakistan is an established, reliable long-term supplier of textiles, apparel and home textiles therefore enhance sourcing from Pakistan. Textile products are a basic human requirement next only to food. This industrial sector in Pakistan has been playing a pivotal role in the national economy. Its share in the economy, in terms of GDP, exports, employment, foreign exchange earnings, investment and contribution to the value added industry; make it the single largest determinant of the growth in manufacturing sector. Textile share of over all manufacturing activity is 46%, export earning is 68% and value addition is 9% of GDP and as a provider of employment 38%. In spite of the government's efforts to diversify exports as well as industrial base, the textile sector remains the backbone of industrial activity in the country.

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Now let me review the important sub-sectors for the textile products, which are being focused in this research thesis. 1.2.1 Bed wear & Linens:

Bed wear is an important value-added sub-sector of textile sector. Bed wear products include bed sheets, pillow covers, quilts etc. In made ups bed wear & linens sub-sector is the second largest in terms of production and exports and shares 28% of total textile made-ups market. Its share has increased from 26.3% as a sub category and has grown by 4% per annum if total exports are analyzed. A major chunk of the Pakistani Bed Linen industry is in the informal sector. According to industry sources, there are 150 units producing Bed Linen in the organized sector and the rest of the units are in the unorganized sector. There is no data available on these units. The Bed Linen industry may be large or small depending upon the number of operations carried out by a unit itself. It involves weaving/knitting, processing and stitching. A Bed Linen manufacturer may be buying fabric from outside and converting it into final product after processing it in- house. Or the processing is subcontracted and manufacturers are just cutting, stitching and packing in their own premises. Vertically integrated units are smaller in number and they operate in relatively upper market segments since it is easy to control the quality in a vertically integrated operation. All these factors have led to a competitive advantage for Pakistan over other countries in the Bed Linen industry, resulting in extra-ordinary growth during the past few years. The projected growth rates in the said sector are also very high and promise good growth opportunities to new entrants in the industry. More details concerning this sector are discussed in the later part of the research thesis. 1.2.2 Garments & Made-ups:

Garments alone are a global annual market of more than US$ 113 billion. While total global exports of Made-ups are around US$ 13 billion, USA and the European Union are the two largest markets for garments and other apparel

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products with a combined share of 73% in total global apparel imports. In 1997, over 59% of textile and 70% of clothing exports originated from Asia. Apparel is a rapidly changing business with very short product life cycles and consumer preferences. Responding quickly to these changing demands is vital for the success of garment exports. Pakistan with total exports of US$ 1.24 billion has a meager share of 1% in the global apparel market. Exports of Made Ups in the corresponding period have been around $1 billion. The apparel export product mix from Pakistan is heavily tilted towards men's wear and knitted garments. In Made Ups major export items are woven bed linen, towels and tents. Major export markets for made ups from Pakistan are Germany, U.K., Netherlands, Italy USA, and Japan. However in tents and canvases major export partners of Pakistan are Saudi Arabia, Kuwait, Syria, UAE and other Muslim Arab countries. The major thrust of garments and madeups exports from Pakistan is on the USA market. The European Union is the second largest market for garment manufacturers from Pakistan. Major markets that Pakistani manufactures have so for not been able to explore are the Japanese, Far East and Middle East markets. These markets demand high product standards and in return offer higher unit price realizations. The shift towards newer product and non-traditional markets can only be brought about by more emphasis on synthetic garments, development of a marketing and research infrastructure for the industry. The production of garments and made-ups in Pakistan is concentrated mainly in Lahore, Faisalabad & Karachi. These three clusters have their own specialties. Faisalabad caters more to Home Textile; Lahore is the home of Knitwear & Karachi lives up to its reputation of being the mini Pakistan. Karachi has established itself both in Knit as well as Woven side of the industry. In Lahore all major units are vertically integrated & are involved in knitting, dyeing, finishing & stitching. A major reason to set up vertically integrated units is the desire of the manufacturer to have full control over all the processes involved & to ensure that right products are delivered at the right time. Specialized and commercial units have not been successful to position themselves to cater to the needs of the export oriented garment industry. This has hindered

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the growth of a parallel & independent downstream industry. At the same time it has limited the growth of the parent garment industry. Karachi industry on the other hand is divided into specialized commercial units. There are specialized units for fabric development and for commercial dyeing. This enables the industry to take the advantage of specialization that eventually reflects into product flexibility and cost competitiveness. Exports of T-shirts, Cardigans, jerseys and pullovers from Pakistan were $55 million in 1997 which gives Pakistan a share of 1.7% in total world exports. One of the reasons of smaller Pakistan exports in the category is that a large portion of t-shirts from Pakistan gets reported under men's wear. It is evident that Pakistani manufacturers and exporters have totally overlooked a category of this huge size. Hosiery and nightwear has been combined into one category. This category includes briefs, nightdresses, undergarments, brassieres, tights, vests and other hosiery items for both men & women. This is the fourth largest category with a share of 10% in total apparel trade. Total world imports in this category have been $17 billion in 1997.

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Source: Economic Survey of Pakistan 2003 - 04

Source: Economic Survey of Pakistan 2003 - 04

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All the discussion truly proves the importance of the textile sector to the Pakistans economy. Keeping this in view Pakistans Government is putting efforts to make textile industry world class and competitive. Some of the important steps taken in this direction are as under: Government has crafted a clear Road map Textile Vision 2005. Textile Vision-2005 has been directed towards an open, market-driven, innovative and dynamic textile sector, which is internationally integrated, globally competitive and fully equipped to exploit the opportunities created by the Multi Fibre Arrangement (MFA). Pakistan, at present, holds 8th position in textile exports in Asia. Pakistan can achieve the 5th position in Asia in the textile exports as has been targeted in the Textile Vision 2005. As a part of this Road Map Government will: a) b) c) Encourage value added sectors and vertical integrated units Facilitate investment capacity & quality, encouraging Joint Ventures Try to Minimize contamination in cotton from the producers Government to Encourage the Elimination of irritants Government will try to reduce Duty and increase tax free imports Provision of Subsidies Encourage out-bound investments Government has decided to ask industrialists to increase emphasis on Manufacturing efficiency and Social Compliance. Under Textile Vision 2005 announced by the Government of Pakistan, will cover measures such as improvement of cotton quality, project finance, promotional measures, and marketing strategies and deregulate quota policies. Emphasis is being laid to improve and increase textile exports by 25 %. Government will also help industrials in enhancing and improving branding requirements in quota free countries. Furthermore creating awareness for value addition will be important. Government will encourage direct marketing through bilateral and multilateral economic groups. As textile business constitutes a significant part of Pakistans Economy so government has drafted a friendly policy for supporting Textile Sector. 15

1.2.3

Government Policy Framework & Support for Textile Sector:

The government seems to have realized the importance of a robust textile industry in the national economy and has decided to pull it out from the protracted recessionary spell after giving it financial support at the concessional rates. But now there appears to be change in the perceptions of textile tycoons too as it won't be now easy to sell even "soft- spin" cotton yarn on the world markets. The cry for the modernization, therefore, is apt and needs to be heard by the official quarters. Moreover, the expected implementation of WTO from January 1, 2005 also poses great problems. No one could deny the fact that modernization and balancing of the industry, as a whole was long overdue but it has been delayed for a variety of reasons, including the volatile cotton production, world recessions and high local prices. "The new millennium world textile demand signals a major shift in the perception of textile consumers and the local spinners have rightly received them", said an official of the commerce ministry. The textile industry has, itself before the official nod, launched a massive revamping program to replace the obsolete spinning and weaving machinery to enter the sophisticated world of automation to cater to the needs of new millennium's textiles demand. However, government realizing the importance of this sector has also supported it greatly in recent years, adding it among its most preferred sectors like agriculture, Information Technology, Leather and few other industrial sectors. Some of the strategies used for development of textile and clothing industry are as under: o o o a) Textile has been placed as a core category for enhancing exports from Pakistan Export target enhance to US$ 10 billion Pakistans additional efforts to make overall industry world class and competitive by: Liberalization of Imports

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b) c) d) e) o o o o o o o o o o o o

Reduced tariffs Review of labor laws to confirm with international needs Availability of Rupees And Foreign currency Finance Increased emphasis on Environmental management Deliberate departure from traditional fiscal incentives approach to Policy direction. Sound macro economic frame work Capacity development of exporting enterprises Improve social and physical infra-structure De-regulation and de congestion Greater Market Access Refine export finance Product Market diversification Value addition Step up capacity building of Small & Medium Enterprises (SMEs) Imports/exports registration order repealed. Setting up of Pakistan Intellectual Property rights Organization (PIPRO) for better protection of intellectual rights.

Some of the Strategic Support programs which have been started are as under:

So, realizing the importance of the Textile sector of Pakistan government has really urged the investors both from home and abroad to make significant contributions in this segment. Hence, it is safe enough to assume that the textile sector of Pakistan is full of opportunities for both new and existing investors. Furthermore, its importance will be enhanced with the implementation of the WTO agreement in the year 2005. Now before pointing out to the specific opportunities WTO will offer to the new entrants let us review what WTO and WTO Agreement actually are. It will be followed by the discussion on the opportunities being offered by the WTO to new entrants.

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1.3

WTO Organization and Agreement:

On January 1, 1995, a new organization came into existence by the name of World Trade Organization. This new organization replaces the General Agreement on Tariffs and Trade (GATT) and will superwise and oversee the most ambitious global trade accord ever. The Uruguay round of trade talks ended with the signing of accord that is about 500 pages long which contains resolutions that affect a wide variety of subjects both directly and indirectly. The signing of this accord could allow Citibank to open more branches in Pakistan. It could result in the closing up of thousands of factories across the country because of accusations of environmental pollution. It could reverse our efforts to make Pakistanis computer literate. It could threaten our carpet exports because of social dumping. It could rake in profits for our garments and footwear exporters. The list goes on. But like all agreements, the WTO Agreement as its loopholes and provisos, it qualifications and conditions and its schedule of commitment which can help protect infant industries and restrict market access. So, did the Marakish Agreement achieve nothing more than a new and improved label? The answer depends on how the world implements the accord. 1.3.1 Objectives of WTO Agreement:

Recognizing that their relations in the field of trade and economics endeavors should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and spending the production of and trade in goods and services, while allowing for the optimal use of the worlds resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development.

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Recognizing further that there is a need for positive efforts designed to ensure that the developing countries, and specially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic developments. Being desirous of contributing to these objectives by entering into the reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations. A group of 117 countries agreed on 15 April 1994 to set up a world trade organization to implement, administer, operate and further the objectives of the multilateral trade accord. The basis of the WTO Agreement is the premise that free trade god for all. By lowering tariffs and quotas the playing field will be leveled and everyone will have the opportunity to compete in a free world market. Studies have estimated that by removing restrictions, world income is likely to grow by over $200 billion a year by the year 2002. This growth will be shared by all countries, albeit disproportionately the developing countries are likely to experience slower growth in their income. 1.3.2 Salient Features of WTO Agreement:

The GATT accord is expected to reduce tariffs around the world by an average of 40 %. This will make consumers happy because the prices of imported goods will decrease. It will make exporters glad because reduce prices will stimulate increased demand for their exports. However, developing country industrialists with large excess capacity or inefficient plat and management who were previously protected by prohibitive import duties will have to face price as well as quality competition. According to WTO agreement developed nations, which were restricting the imports of textiles ad clothing have to phase out the MFA (Multi-fiber agreement) quantitative restrictions on the import of fibers, textiles and apparel. Quotas are to be totally lifted over a staggered period of 10 years. This will mean that Pakistani

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apparel exporters ca sell as many T-Shirts in America as US buyers want. However, restrictions of importing T-Shirts fro India, Bangladesh and Hong Kong will also be removed and Pakistani Short exporters will have to be competitively priced. This agreement has also introduced new patent and copyright protection laws for intellectual property. We will now have to pay top dollars for computer software. Pirated software will be confiscated and destroyed. The computer revolution that is sweeping across the developing countries may come to a grinding halt unless software manufacturers in the west adopt LDC user friendly policies. While pirate shops will have to go underground, authorize dealers of computer software and vendors of audio and videocassettes and CDs will experience a massive growth in their sales. The recent introduction of time warner videos in Pakistan shows the tremendous market opportunities available. Even though time warner video rental rates are over 100 % higher than those of pirate videos the introduction of quality product ahs been well accepted in the market appropriately priced computer software can also take off. The WTO agreement also addresses the problem of trade in services including banking and insurance a country cannot indefinitely limit market access to the foreign firms I the service sector based on quantitative restrictions on the number of service suppliers or the total value of service transactions or the number of service operations. For example, if a foreign bank, which already exists in a country, applies to open ad additional branch, it is seeing market access. If the procedure for licensing of new branches is less onerous for domestic banks than it is for foreign banks, then the country can be accused of discriminatory restrictions. 1.3.3 WTO & Tariff reductions:

The results of the market access negotiations of the Uruguay round of talks has been the agreement to reduce tariff rates o non-agricultural goods by about 40 %. These rates have bee annexed to the agreement I the form of national schedule of concessions.

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The tariff reduction program agreed up to is to be implemented I 5 equal rate reductions unless otherwise specified by a country. First such reduction has come into effect on January 1, 1995 and the final rate is to become effective within a period of 4 years. Pakistan has been very liberal I its tariff reduction a d market access program and has already announced reduction in tariffs on several important product categories. On January 1, 1995 Pakistan slashed by 50 % of tariff on an item of interest to both the US and Europe Cotton ad Silk Fabrics. Our Textile Mills will now have to compete with European and US Fabrics under protectionist offences that have been lowered from 70 % (plus 15 % sales tax) to 35% (plus sales tax). The government has also committed itself to reducing average tariffs from the current 70 % to 45 % in 1995 to 1996 and 35 % in 1996 to 1997 use to working under a regime of import restrictions and licensing. Pakistans industrial sector has numerous inefficient and obsolete factories. The tariff reduction that will come into effect will result in a shake out and inefficient producers will have to shape up or close down. 1.3.4 Tariff Reductions & Government Revenue:

Pakistan relies heavily on indirect taxation for government revenue. Import duties and sales tax on imports account for over 40 %of total government revenue and a reduction in tariffs is expected to cut heavily into this source of funds. This may exacerbate the budget deficit. However, the government is banking on the success of its taxation reforms to bridge the gap. First, reduction in import tariffs compounded with restrictions and monitoring of Afghan Transit Trade may result in a reduction in smuggling. More imports will come I through the legal channel thereby generating import duty income for the government. Secondly, introduction of VAT a broad based General Sales Tax is likely to increase revenues. And, finally, greater sectoral coverage of income tax through the inclusion of agricultural income in the tax net is expected to yield sufficient revenues to bring down the budget deficit to 3 % of

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GDP by 1996 97. If the political will to enforce all aspects of tax reforms program is lacking, we may end up with lower import duty collections and a yawning deficit. 1.3.5 The WTO Agreement & Textile Imports:

World Trade in Textiles and clothing is heavily restricted and subjected to quantitative restrictions. USA and Canada as well as most of Western Europe have shuttered out suppliers of clothing and textiles from Asia, Latin America and several other regions to protect their own over-paid workers One of the major achievements of Uruguay round of trade talks is the agreement to phase out MFA and put a end to quotas on textiles and clothing. The phasing out of Quota is scheduled to take place over a 10 year period in three phases. The first began on January 1, 1995 when the quotas imposing countries lifted quotas on several items allowing the free import of a number of textile ad clothing products from Pakistan. According to the agreement 16 % of total 1990 imports of textiles were integrated into the GATT free from quotas on January 1, 1995. These products are from a specific list in the agreement and have to include items from each of the following categories: Fiber and Yarn, Fabrics, Textile made-ups and clothing. On January 1, 1998, in the second phase, an additional 17 % of 1990 imports were integrated followed by a further 18 % of 1990 imports in January 2002. All the remaining products would be integrated on January 1, 2005. Between each phase, the level of quotas imposed on the products that remained under the restrain is to be reduced by a speedy enhancement of quota limit according to MFA; annual growth levels accepted for most categories are about 57 %. These are to be increased by 16 % I phase 1 by 25 % during phase 2 and by 27 % in phase 3. This means that a product that remains under quota for the entire duration of 10 year phasing out period will have its quota level enhanced by 5.8 %every year between 1995 98 from the existing level of 5 %. In phase 2 (9982002) the annual growth level will be enhanced to 7.25 % a din phase 3 (2002 2005) this will increase to 9.2 %.

22

During the initial 3 years there will be a marginal opening up of the Textile and clothing sector. Between 1998- 2002 the level of integration will be only 33%. It is only after the 7th year of accord begins in 2002 that 51 % of the textile products under the quotas will be freed. The developed courtiers have, therefore, the delayed the opening up of their textile sector to unhindered foreign competition but they have negotiated with developing countries like Pakistan and India to lower tariff level on imported fabrics and textile products. In fact, Pakistan has already agreed to allow the import of foreign fabric and childrens garment at a nominal tariff level of 35 %. This lowering of tariff level took effect on January 1, 1995.

1.4

Post WTO scenario and Opportunities:

It is important to mention here that the major share of the textile exports is directed to three economies i.e. USA, Canada and Japan. USA offers the greatest potential among these markets. In other markets Pakistan exports in the form of Quotas. It has been decided in the Uruguay Round, 1994 that the trade in textiles and clothing will be completely liberalized. The restrictions in the form of MFA (Multi-Fiber Arrangements) will completely be eliminated by 2005. Implication is trade will enter a more competitive world. There will be no guarantee in the form of quota for our exports. The quotas are imposed mostly on our high value added products (like fabrics, garments etc). As said earlier, this has badly affected the growth of textile industry and has reduced competition. As far as the utilization of these quotas is concerned Pakistan has not been always able to utilize existing quotas due to the problems in quota administration. There are also fears that if the liberalization proves too damaging for the Developed Countries markets, they will go for other safeguarding measures like for instance, imposition of technical standards, Rules of Origin or anti-dumping actions. It is also important to mention here that the industries in the west have undergone massive restructuring throughout the eighties. In order to offset the rising wage costs, producers in these countries have gone in for highly automated, labor 23

saving technology in both weaving and spinning. This has to a considerable extent, neutralized the low wage cost advantage of developing countries in the production of yarn and fabrics. Result is the low labor intensity as far as the production in developed countries is concerned. Emphasis is on product up gradation, i.e., to produce defect free, high quality output. This has been possible with the rapid development in electronic control systems and the development of computer aided designs. The strategy is to produce totally different products, to the one imported from the developing countries. However, such technological innovations have yet to effect significantly the manufacture of clothing, where sewing accounts for 90 percent of the value added labor-intensive activity. Labor saving innovations are confined to designing and cutting operations, but these have not provided an effective encounter to the low wage advantages of developing countries. To counter this low-wage advantage, the clothing firms in developed countries (especially in Europe) have adopted two different strategies. First one is the Demand for Market Oriented Strategy. That is to increase their market power, by producing high price fashion clothing for the markets with relatively rigid consumer demand, product differentiation through the promotion of brand names and advertising, and also by increasing the efficiency of distribution. With an increase in market power, they can easily transfer rising cost to consumer in the form of rising prices. Second kind of strategy is Supply Oriented Strategy. This involves relocation of low wage activities to low wage areas. This has been referred to as outward processing trade (OPT), sub-contracting labor-intensive activities to low wage areas, under guaranteed buy back arrangement. Such type of trade activities is exempted from any kind of quota restrictions. . 1.4.1 Textile Made-ups:

Bed sheets, Towels and other textile made-ups supplied by Pakistan are among the cheapest the world barring China. Quotas affect exports of most of these items. The WTO agreement will provide greater market access to our exporters ad we should be able to increase our exports of such products.

24

The current cotton crisis has pushed up eth cost of raw material yarn for made-ups manufacturers and they are experiencing difficulties in exports at their traditional low prices. What is required is that exporters of made ups should invest in upgrading their marketing skills and cater to the higher level of the market. Providing institutional linen in bulk plain white Towels and bed Linen- may generate export sales. Admittedly, they require more marketing efforts but they are long-term saviors. 1.4.2 Garments and Knitwear:

The clothing sector possesses the biggest promise for delivering Pakistan out of under $ 10 billion exporters club. Our knitted t-shirts are in great demand in the US and Europe and quotas on the exports of T-shirts have been stifling growth in this sector. Once the quotas are removed we should experience a tremendous growth in the demand for a large number of our clothing goods. However it is unclear as to when quotas on these items will be reduced. It seems most likely that quota on major clothing exports will only be lifted in 2005.This will mean that there will be no significant change in our exports of garments and knitwear for the next ten years. As the phasing out of MFA involves the lifting of restrictions of different categories during different periods, it is likely that Pakistans exports of, for example, trousers, will become quota free while exports of trousers from in India and Hong Kong will continue to remain under quotas. These opportunities have to be seized and efforts have to be made to get our foot in the door as soon as possible. There will be continued resistance from the west to our clothing exports as is evident from the following statement made by the president of US Amalgamated Clothing and Textile Workers Union: (By signing) the accord without toughening its labor standards, congress and the administration are putting millions of US jobs at risk by linking the American

25

economy to those of countries that lag dramatically behind America in wages and work standards. (Supporting this agreement is to) rob children and young adults of their youths. The (WTO) should include mechanism to enforce internationally recognized workers rights, including outlawing child labor, and set environmental standards. If such social dumping or environmental dumping objections are given weight age, the west will continue to have a ploy for limiting our clothing exports. As it is, the first phase of abolishing quotas has shown that the west is planning to take the harder decisions later. By only abolishing quotas on such items as umbrellas and fabrics for making parachutes, it is obvious that apparel exporters need not celebrate such yet. Long-term prospect for growth in Pakistans garments and knitwear exports, however, are quite positive. In the last five years, garments exports have grown from $394 million to $613 million while hosiery (knitwear) exports have grown from $274 million to $509 million. The textile exports sector aided by Export Promotion Bureau-is making investments in improving fashion designing and upgrading skills in manufacturing by setting up a dozen textile training institutes and fashions design school. By the time quotas on the exports of apparel are lifted, these institutes should have turned out enough trained professionals to meet the quality requirements of an unfettered world of competition. The preceding discussion is sufficient to prove the significance of the textile sector of Pakistan Economy in the overall World market. Especially after the implementation of WTO World market will offer a wide array of opportunities to all the third world country producers and distributors of the gray cloth, woven cloth and home textiles. Being one of LDCs (Least Developed Countries) Pakistan enjoy low cost advantage due to low cost of labor and raw material. Moreover, being an agricultural country, Pakistan enjoys a comparative advantage in cotton and other inputs. Beneficiaries of WTO will not only include the large and established producers of Pakistan like Sitara Group of Industries, Saphire Textiles, Chenab Limited, Amtex Group, Zahid Jee Textiles and many more but

26

also smaller producers of gray cloth, vendors of home textiles and home textile intermediaries. Hence, world market will be a heaven for the textile and ancillary businesses in Pakistan in the post WTO scenario. New entrepreneurs with flair of setting up their own textile business can really do a great deal to set up their own export oriented venture. How such opportunities can be capitalized properly, these have been discussed in detail in the proceeding chapters.

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CHAPTER 2: LITERATIRE REVIEW

This research study deals with setting-up a new textile export enterprise in the Post WTO scenario. For that matter this research study makes a number of assumptions. First of all the markets being studied and the projects being discussed are considered independent of each other. Secondly, the recommendations at the end as to pursue which of the course of actions are taken on the basis of the Net Present Values of the projects and on the basis of the subjective assessment. Thirdly, the external environment for the proposed new textile venture is supposed to be comprising of both local Pakistani as well as international environment. Entrepreneur is assumed to make decision in his own personal capacity and on the basis of the best available information. List of some of the important terms and phrases used in the project are as under:

2.1 MFA:
Multi Fiber Agreement (MFA) is a restriction imposed by the world markets on textile products and clothing also called as Marginal Fiber Agreement.

2.2 Tariff:
A government tax levied on goods, usually imports, shipped internationally and is considered to be the most common type of trade control.

2.3 Quota:
A limit on the quantitative amount of a product allowed to be imported into or exported out of a country in a year.

2.4 Technology:
It is the current state of-the-art. It has short typical length. E.g. Composite engine, 16 bit computer

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2.5 OPT:
Outward Processing Trade involves sub-contracting labor-intensive activities to low wage areas, under guaranteed buy back arrangement. Such type of trade activities is exempted from any kind of quota restrictions.

2.6

Product:

Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organizations, and ideas. e.g. 4-wheel drive car, 16-bit PC.

2.7 Product Form:

Variant of product. It has very short typical length. E.g. Open-top 4-wheel drive, 16-bit notepad PC

2.8 Price:
The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

2.9 Costs:
Costs set the floor for the price that the company can charge for its products. The company wants to charge a price that both covers all its costs for producing, distributing, and selling the product and delivers a fair rate of return for its effort and risk. Costs can be Variable or Fixed.

2.10 Subsidies:
Subsidies are a method of price reduction via cost sharing, whereby the concerned government shares a portion of the cost of the product to reduce its ultimate price being offered to the consumer.

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2.11 Manufacturing Efficiency:

It is a measure of actual output over effective capacity involved in the process of manufacturing. Generally it is expressed as a percentage of the effective capacity. Efficiency = Actual Output / Effective Capacity

2.12 Social Compliance:

Social Compliance involves complying with the basic norms, values and cultural system existing in the society so as to avoid any harm or dismal. Social compliance helps in building appositive image of the organization at large.

2.13 Lease Financing:

It is a for of financing under which it is a contractual agreement in which the owner of an asset (lessor) agrees to allow the use of an asset by another party (lessee) in consideration of periodic lease rental payments for a specified period.

2.14 Industrial Loans:

This is the money provided to the industry with defined terms, conditions for repayment and at certain interest rate and to be paid over a specified period of time mentioned in the contract.

2.15 Micro-Finance Enterprises:

Microfinance Enterprises are defined as the firms which provide small size loans to their customers at a high interest rate, with an aim of alleviating poverty while ensuring financial sustenance.

2.16 Capital Budgeting:

The process of generating, evaluating, selecting and following up on capital expenditure projects. The method employed to evaluate the worth of capital expenditure are known as capital budgeting techniques.

30

2.17 Cash flow technique:

The actual receipts and payments by a firm used to estimate the time a project can take to fully recover its investment.

2.18 Training:
Training is a mode of improving the workers capabilities, productivity, effectiveness and skill at their job, and is generally followed by employee appraisal.

2.19 Job Rotation:

This is a process whereby the workers are rotated timely in between their jobs to improve their job skills and productivity.

2.20 Job Enrichment:

This is a process whereby individuals are extended vertically in terms of the tasks involved in the job, without increasing recognition, authority or compensation.

2.21 Labor Turnover:

This defined as the number of people leaving their jobs in an organization in a particular period or frame of time.

2.22 Data:
Data is defined as raw facts and figures generated from observations or some sort of experiment.

2.23 Primary Data:

Raw material collected at first hand in response to specific questions is known as primary data. Its characteristics are that it is obtained directly for the purpose of the survey which is being undertaken, and is, as yet, unanalyzed.

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2.24 Secondary Data:

Data which has already been collected for another purpose and used by the researcher is called as secondary data.

2.25 Morabaha Financing:

This is a mode of sale and purchase of commodities. The agreement is made between the bank and a customer, whereby bank purchases a commodity ad sells the same to customer on a deferred payment basis.

2.26 Ijara Financing:

Clients Use Ijara Financing mainly for financing purchase of plant and machinery. If assets subject to lease are to be freshly acquired, Bank may appoint an agent (could be the client) to do so on its behalf. If client ahs already acquired the equipment, Bank will purchase it from Client and lese it back.

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CHAPTER 3: RESEARCH METHODOLOGY

I have used the following ways to gather data:

3.1

Executive Interviews:

I interviewed a number of executives of small businesses which are currently working in their respective textile export businesses.

3.2

Employee Survey:

I surveyed and questioned many employees from many local as well as large organizations in textile city Faisalabad.

3.3

Internet Survey:

I used internet as a source of collecting information for my thesis. I searched a wide variety of website both for local textile groups as well as financial institutions and banks and regulatory bodies like Export Promotion Bureau.

3.4

News Paper and Articles:

I searched a number of Local as well as international journals like financial times and business recorder as well as local news papers like the Daily dawn as a source of secondary information.

3.5

Books and Academic Papers:

I also skimmed through my notes and academic papers while collecting information for compiling my paper. They served an important purpose by giving me an even more clear understanding of the topic.

3.6

Limitations Faced:
People were hesitant and scared of giving the exact information Biasness to answer questions

Main limitations of the various techniques are as follows:

33

Environment in the future may change, while the data collection is as per the present scenario Internet Search provided information for the past

34

CHAPTER 4: FINDINGS & ANALYSIS

WTO offers a great deal of opportunities to the Textile and ancillary businesses for export purposes, however, a proper assessment of all available opportunities is important. However before I move on to the choices available with the new entrepreneur, it is imperative to discuss about the particulars of an export business; what is an export business, what are the procedures and what are the documents required.

4.1

EXPORT BUSINESS:

Exporting is merely a selling but when it is selling at home, it does not bother you because you are in personal contact with a buyer for which you do not need to comply with several procedural requirements including filling and exchanging of a lot of documents. But the difference comes when you intend to sell to some one who is thousands of miles away from you, speaking different language, having different customs, preferences, currency and import regulations. In order to facilitate trade with other countries, certain sets of rules have been developed by the trading nations over the centuries, which are normally followed in foreign trade today. The International Trade is governed by rules made by the World Trade Organization (WTO). Details on WTO can be obtained from Information Advisory Centre (IAC) of the EPB. 4.1.1 Selection of a Product:

If one wants to enter export trade, the first thing he has to do is to decide about the product, which he intends to trade. He should have intimate knowledge about the product and sources of supply. If entrepreneur has varied sources of supply, he will have no problem in procurement and shipment. But if he produce the product himself at effective cost and exercise quality control, then he can become a successful exporter within shortest possible time. He can also analyze which products are exported to which country. This information is available in the IAC of EPB.

35

4.1.2

Opening of an Office:

After selection of product, business may open an office, give it a name, print letterheads, install phone and fix a signboard on the business premises. 4.1.3 Registration for Export:

Next step is to register the firm as an exporter for-five years from the nearest office of the EPB against payment of fee of Rs.1,500/- only. The registration is renewable for next five year after payment of fee of Rs. 500/- only. 4.1.4 Selection of Market:

The exporter cannot go to every country in the world to persuade people to buy his product. Even the largest international firms do not trade with the whole world and not every country can or will buy what a particular exporter may sell to them. In view of scarce resources and shortage of experienced marketing personnel, the exporters should be selective and concentrate on markets, which could yield the best results. For this one has to examine i. The economic position of the country ii. Size of the Market and whether it is expanding or shrinking. iii. Market growth in a given product. iv. Unit price of the product. Whether it is more or less than other countries v. Import regime in the importing country. vi. Location of the market etc 4.1.5 Quoting a Price:

It is easy to quote price at home. For this one has just to calculate cost of production with packing and transportation charges and add profit. But in case of export, quoting of price means many things. For this one has to examine several things including the following: i. What price to charge to remain competitive abroad?

36

ii. While calculating prices one has to think about all the cost including, packing, insurance, credit, agents commission, octroi duties, documentation fee, marking charges, transportation charges, export duties etc. iii. For securing good price one has also to check up price of the same product abroad. If there is a good mark up in price in foreign market, one should not loose sight of it. EPB can help you get price information further its trade offices posted abroad. 4.1.6 Signing of a Contract:

When prices are accepted then a contract is signed with the firm for supply of goods which becomes binding on both the buyer & seller. Contract is a document, which normally contains. i. Name of exporter ii. Name of importer iii. Item of sale iv. Unit price v. Total quantity vi. Terms of delivery (FOB, C&F, CIF etc.) vii. Terms of payment (Consignment, deferred payment, LC irrevocable, LC confirmed, revolving LC) viii. Mode of shipment (Sea, Air, Road) ix. Currency in which transaction will be made. x. Validity period of a contract & delivery period. xi. Shipping marks if any. xii. Arbitration clause. 4.1.7 Terms of Delivery:

When the exporter is making an offer, he quotes the price of his product. If the offer is accepted then a contract is signed between the buyer & the seller. The contract includes terms and conditions under which goods are delivered.

37

The buyer sitting in the overseas market is normally not interested to receive charge of goods at one's factory site but he may be interested to get charge of goods on FOB basis which means free on Board at airport or seaport. It means that charges of the consignment are fully paid up to that point and the rest of the freight is paid by the buyer. Terms of delivery are not only important for quoting price but it also makes clear as to who is responsible for the goods if anything goes wrong. The most frequently used terms of delivery are as under: 4.1.8 Financing for Export:

The exporter should accept order, which he can fulfill easily. He should have the necessary finances or access to finances for effecting shipment and the capacity to wait till the sale proceeds are received. In this connection, term of payment plays an important role, as it should be timed to keep you solvent at the time of need. For export pre-shipment and post-shipment credits are available from the Govt. on concessionaire rate. The exporter can make use of it. Financing has been discussed in detail in the later part of the thesis. 4.1.9 Packing:

Packing should be sea, air and roadworthy. The container should be in a position to carry contents to the destination in perfect condition. For reduction in cost most economical packing material be used. Pakistan Packing Institute can help you. 4.1.10 Transport: Light and costly items are normally sent by air whereas as heavy items are shipped by sea. In each case the most economical mode should be used to reduce cost. 4.1.11 Insurance: Insurance is necessary to recover cost in case of loss. But where the exporters are sure that the chance of loss is minimal they do not insure consignment. In case the buyer insists on Insurance then it must be done.

38

4.1.12 Documentation: The following documents are normally used in exports: 1. E-Form (Through authorised Commercial Bank). 2. Shipping Bill (Through authorised Clearing agents). 3. B/L or AWB (Through Clearing agents) 4. Commercial Invoice 5. Packing List 6. Certificate Country of origin (Through Chamber) or 6(a) GSP (Through EPB) 7. Textile quota Export licence/visa document required for textile items under quota restraint 8. Pre-shipment certificate through EPB for certain textile item s for exports to management textile item. 9. Export contract registration details 4.1.13 Post Shipment Documents: 1. Textile quota Export licence/visa document required for textile items under quota restraint 4th copy of shipping (through customs) bill to be used for rebates on bank/sales tax refund/textile quota. 2. BCA (Bank Credit Advice) to be received from commercial banks after foreign exchange is received. The BCA is considered proof for the purpose of rebates, refinance scheme etc.

4.2

CHOICES FOR THE NEW ENTERPRENEUR:

After getting enough details about exports as a business now the entrepreneur should analyze the opportunities available to him. The preceding chapter has provided sufficient details concerning WTO and the opportunities it gives to the new businesses especially the small entrepreneurs looking to set up their new business in Textile or related Products. Through the discussion in this chapter I have narrowed down 4 options as a possible course of business for the new entrepreneur: Export of home Textile and Bed Linen 39

Export of knitwear Export of Polo T-Shirts Export of Mens Undergarments

These options will now be studied in detail in the proceeding chapters. The various areas of these particular businesses will be studied in full detail including their marketing, finance, feasibilities and human resource needs. This will enable us in drafting a comprehensive business plan for a start up exports based enterprise. In all these feasibilities cost of debts are taken well above average to judge the projects viability on stricter and more stringent terms and conditions.

4.3

BED LINEN:

Bed Linen is among the largest sector in terms of production and exports amongst all the made ups in Pakistan. Pakistan is a major exporter of Bed Linen in the world and the basic reason for the development of this industry in Pakistan is the existence of a huge infrastructure of weaving in formal & informal sectors. The informal sector is also known as Power Loom sector. Most of the products in Bed Linen are made from low-density fabrics of wider widths. This fabric can be easily manufactured on Power & Auto Looms, which forms the major chunk of weaving industry of Pakistan. The competitive edge in cotton has also played an important role in development of Power Loom industry, as the staple length of cotton produced in Pakistan is suitable for medium count yarn, which is used to produce low-density fabrics. The cost of a low-density fabric is low compared to a fabric meant for garments. Processing of the fabric meant for Bed Linen is done through printing and dyeing, and Pakistan has an exceptional infrastructure of such printing and dyeing in Faisalabad, Karachi and Lahore. 4.3.1 Marketing:

Bed Linen is an important value-added sub-sector of textile sector. Bed Linen products include bed sheets, pillow covers, quilts, etc. Textile made-ups are one of the most valuable and important commodities being traded internationally. In 40

1999, the international textile made-ups trade value was above US$ 11 billion, which can be divided into six major categories i.e. towels & cleaning cloths, bed wear & bed linen, blankets, curtains and furnishings, canvas products and table linen. Major exporters of textile made-ups include China, Pakistan, Turkey and Portugal exporting nearly 47% of the total international market of textile made- ups. a) Global Trade of Bed Linen:

In made ups, Bed Linens sub-sector is the second largest in terms of production and exports, and shares 28% of total textile made-ups market. Its share has increased from 26.3% as a sub category and has grown by 4% per annum if total exports are analyzed. The total exports of Bed Linen in 1999 were $ 3,260 million. Within different products of Bed Linen, non-knit Bed Linen of cotton was the largest product in terms of international exports. In 1999, total exports of this product were $2.09 billion, which constituted 64% of the total exports of Bed Linen. Knit Bed Linen is the smallest category with only 10% share. The rest of the 26% was accounted by Bed Linen of textile materials other than cotton. The export market size of this product was $844 million. China is the main exporter of bed Linen as a whole and exported 21.34% of the Bed Linen market in 1999. Pakistan which had the second largest share i.e. 20.89% in 1999 had a phenomenal growth of 16% per annum in last five years and then was Portugal, capturing 11.67% of Bed Linen market. The textile made-ups industry has been on a slow growth, for the last five years 1 with an average annual growth rate of 3%, and 1999 was the worst year for textile made-ups products (3% decline in international exports) which is the only year with negative growth in last five years. USA has been the biggest importer of Bed Linen for the last five years and shared 22.5 % of total imports with a value of US$ 688 million in 1999. Germany was second with approximately 14.46 % of world imports.

41

MAJOR EXPORTERS OF BED LINEN IN WORLD

Source: Smeda.org.pk

MAJOR IMPORTERS OF BED LINEN

Source: Smeda.org.pk

42

Major Exporters of Bed Linen in World

30 25 20 Share in world 15 market (% ) 10 5 0 China 25 20 Share in world market (%) 15 10 5 0 USA Gremany UK France Japan Netherlands Hong Kong Pakistan Portugal Turkey USA France Mexico other

Major Importers of Bed Linen in World

43

b)

Pakistan Export of Bed Linen:

Pakistan being the second largest exporter of textile made-ups, has increased its share in the international market from 6.6% to 10.1% in previous five years by earning a foreign exchange of US$ 1.18 billion in 1999 and an average growth of 15% per annum. According to Federal Bureau of Statistics data, Pakistan exports for the year 2000-01 were about US$ 1.3 billion. Some of the leading importers from Pakistan include USA, which imported 24.9% of Pakistans Bed Linen, UK, which imported nearly 12.1% and Germany, which shared 11.39% of the Pakistan exports of Bed Linen in 1999.

44

PAKISTAN TRADING PARTNERS

Source: Smeda.org.pk

Pakistan Trading Partners

25 20
Share in %

15 10 5 0
USA UK Gremany France Netherlands

45

In 1999, Bed Linen accounted for $681 million in foreign exchange earnings, which was approximately 57.4% of total textile made-ups exports of Pakistan. The share has increased from 54.4% which shows that Pakistan exports of textile made-ups as a whole has increased at a much lower rate than this sub category. In Pakistan, the Bed Linen market has increased by an annual average of 16% in last five years with a high growth in 1996 and 1999, i.e. by 25% and 20% respectively. Looking at the international perspective, Pakistans share of the Bed Linen market has increased from 13.65% in 1995 to 21% in 1999.

PAKISTAN EXPORT OF BED LINEN

Source: Smeda.org.pk Looking at the break-up of Pakistani Bed Linen exports, it has been found that about two third of the total value exported is accounted by just one category which is non-knit Bed Linen of cotton i.e. 70% of the total Bed Linen exports. This is in line with the world trend since this category is the largest category in the global exports with 64% share. A table showing Pakistani exports to 7-digit SITC codes has been attached in the appendix. 4.3.2 a) Production & Operations: The Product:

The proposed stitching unit has been defined to manufacture bed sets. The general product mix and sizes are defined as follows:

46

Description Twin Set Full Set Queen Set King Set

Number 1 1 1 1 1 2 1 1 2 1 1 2

Items Flat Fitted Pillow Flat Fitted Pillow Flat Fitted Pillow Flat Fitted Pillow

Measurement 168x244 cm 178x230 + 20 cm 51x76 + 15 cm 206x244 cm 178x230 + 20 cm 51x76 + 15 cm 229x257 cm 196x241 + 20 cm 51x76 + 15 cm 274x257cm 244x244 + 20cm 51x76 + 15 cm

The proposed project will produce the products on the basis of following proportion: Description Twin Set Full Set Queen King b) Proposed Capacity: Production Percentage 12.5 % 50 % 25 % 12.5 %

The proposed capacity of the project is based on 8-hour single shift and will produce 1,000 Bed Linen sets per day with 20 stitching machines. The proposed project with 20 machines will produce 1,000 sets of Bed Linen per day on the basis of 8- hour single shift. In the first year, the capacity utilization of the project will be 75%, with annual growth rate of 5 %. The maximum capacity utilization of the project is 95%. The details regarding the capacity of the project are given below: Description Maximum Production per Day Production Capacity Per Year Capacity Utilization first Year (75%) c) Production Process:

1000 Sets 300 000 Sets 225000 Sets

47

Process flow Diagram

The grey fabric is provided to printing & processing unit and printing charges are paid to get printing according to the given designs and colors. The other possible option used in the market is to directly buy printed fabric from the market and convert it into Bed Linen. Once the bed sheet is stitched, final inspection is done. All the sheets are checked for any defective stitching or loose threads and then they are packed in polyethylene bags along with insert, which is the printed material with brand name etc and card called stiffener. d) Raw Materials: Printed Woven Fabric Stitching Thread & Other Accessories Packaging Material

Following is the list of raw materials required fro the process:

The major raw material used in the Bed Linen is printed woven fabric, which is manufactured on Power/Auto Looms or Shuttle-less Looms. Majority of the Bed Linen manufacturers procures yarn and converts it into woven grey fabric by paying conversion charges to the looms units. Stitching thread and packaging material are easily available in the local market. Packaging material consists of stiffener, which is of cardboard material, an insert,

48

which is a printed material with companys name and design and polythene bag, which is the plastic cover. e) Machinery: Machinery Details Description Cutting Machine Lock Stitch (Single Needle) Safety Stitching Over Lock (5 Thread) Other Equipment Electric Wiring (per machine) Machine Base Tool Total (Rs) Machines Required 1 18 Cost / Machine (Rs.) 85 000 32 500 85 000 2 18 18 1000 1500 18 000 27 000 885 000 Total Cost (Rs.) 85 000 585 000 170 000

All the required stitching machinery is easily available in the market. The stitching machinery is available in quite a diversified range of suppliers & origins, i.e. Japanese, Italian, Chinese, Korean and Taiwanese origin. There is a substantial difference between their prices. European and Japanese machinery is 2 to 3 times more expensive as compared to Chinese or Far Eastern machinery. Second hand machinery of different origins is also available in the local market. Apart from the regular equipment some extra equipment for office set up and related things is also required the details have been disclosed as follows: Other Equipment Details Number Description Furniture & Fixture Office Equipment Telephone Set Fax Computer Printer Cost / Machine (Rs.) 90 000 1500 7000 35000 7000 Total Cost (Rs.) 90 000 3 000 7000 35000 7 000 49

2 1 1 1

Air Conditioner Carpeting Total Cost 4.3.3

1 300 Sq. feet

45000 20

45 000 6000 193000

Human Resource Aspect:

The stitching operators will be paid on piece rate basis. The rates are derived after an extensive research from the market concerning the prevalent wages. The stitching operators will be paid at a rate of Rs.8 per set. The rates given in the below table:

Human resource Details Description Administrative Staff CEO / Owner Marketing Manager Accountants Security Guards Total Direct Labor Production In charge Stitching Supervisor Cutting Master Finishing Supervisor 1 1 1 2 1 1 1 1 Required Salary/Monthly (Rs) 30000 12000 7000 3000 10000 10000 8000 5000 Salary/Yearly (Rs) 360000 144000 84000 72000 660000 120000 120000 96000 60000

50

Rowing Inspector Clippers Packaging Staff Final Table Inspector Technician/Electrician (part time) Total Direct Labor

2 3 3 2 1

4000 2500 2500 2500 1500

96000 90000 90000 60000 18000 750000

4.3.4 a)

Project Feasibility & Economics: Building Requirements: Building Requirements Description Production Area Cutting Area Inspection Room Raw Material Store Finished Goods Store Management Building Free Space Total Required Area (sq. ft) 1600 400 700 400 400 300 700 4500

It is recommended that this project should be started in a rented building, as this will reduce the initial capital cost of the project. An appropriate premises is

51

generally available in many commercial/industrial areas of the main clusters of Bed Linen. One year rent will be paid in advance. Rent Cost Building rent cost (@ Rs.15000 per 4500 sq. ft) Monthly Rent (Rs) 15000 Annual Rent (Rs.) 180000

b)

Total Project Cost: Project Costs Plant & Machinery Furniture & Fixtures Office Equipment Pre-Operating Costs Total Fixed Cost Raw Material Inventory Advance Building rent Pre paid Insurance Working Capital Total Investment in Project (Rs.) 885000 90000 103000 137000 1215000 2170680 180000 32340 2383019 3598019

The project costs are as under:

The following financing plan is advised: Equity Debt Long Term Loan Short Term (Running Finance or any other possible option) 50 % 50 % 1799009 1799009

1799009

52

Total Debt

1799009

Major portion of investment is required for working capital, due to which the debt recommended for the project is in form of short term because majority of investment will be in raw material etc.

c)

NPV for the project: IMPORTANT PROJECT RELATED ASSUMPTIONS 300000 Sets 75% 225000 Sets 95% 7.27 34.75/meter 5.55 meter 10 8.5 15 1% 2% 3% 0.25 2.50 0.75% of Sales Revenue $1= Rs.60/10 20% 50% 50%

Annual production capacity Capacity utilization (1st Year) First Year production utilization Maximum Capacity utilization Weighted average sale price ($) Grey fabric 35 x 35/76 x 56 112(Rs) Weighted average consumption Fabric per set Printing cost per Meter (Rs) Stitching & cutting cost per set (Rs) Packaging cost (Rs) Administrative overhead (% of sales) Office Expenses (stationery, entertainment, etc.) Insurance rate (Annual) Sea freight cost of export per set ($) Forwarding/ Clearing cost per set (Rs) Tax treatment Dollar conversation rate Project life (Years) Discount rate for calculation of NPV Equity Debt Depreciation:

53

Depreciation is being calculated on the straight line basis. Assuming a salvage value equal to the 10 % of the sum of Plant & Machinery, Furniture and Fixtures and Office Equipment, Depreciation = 0.1 (885000 + 90000 + 103000) = 107800 This depreciation will be discounted in the last year of the project as the equipment will be liquidated at the end of the project. FORMULAE: Revenue (Rs.) = Weighted average sale price ($) Dollar conversation rate Amount Produced Costs, Expenses & Taxes / Set (Rs.) = (Weighted average consumption Fabric per set Grey fabric cost per meter) + (Weighted average consumption Fabric per set Printing cost per Meter) + Stitching & cutting cost per set + Packaging cost + (Sea freight cost of export per set Dollar conversation rate) + Forwarding/ Clearing cost per set + Office Expenses + Insurance + Admin Overhead + Tax Total Cost Expenses & Taxes = Costs, Expenses & Taxes / Set Amount Produced + (Office Expenses + Insurance + Admin Overhead + Tax) % Sales Revenue Year 0: INITIAL CASH OUTLAY = Rs.3598019 Year 1: Revenue = 7.27 60 225000 = Rs.98145000 Costs, Expenses & Taxes = (5.55 34.75) + (5.55 10) + 8.5 + 15 + (0.25 60) + 2.5 + Insurance (3% of sales) + Office Expenses (2% of Sales) + Admin Overhead (1% of Sales) + Tax (0.75% of selling price) = 289.3625 + 6.75% of Sales Hence, Total Cost Expenses & Taxes = 289.3625 225000 + 6.75% 98145000 = Rs.71731350

54

So, Total Contribution Margin = 98145000 71731350 = Rs.26413650

Year 2 10: Revenue = 7.27 60 300000 = Rs.130860000 Total Costs, Expenses & Taxes = (5.55 34.75) + (5.55 10) + 8.5 + 15 + (0.25 60) + 2.5 + Insurance (3% of sales) + Office Expenses (2% of Sales) + Admin Overhead (1% of Sales) + Tax (0.75% of selling price) = 289.3625 + 6.75% of Sales Hence, Total Cost Expenses & Taxes = 289.3625 300000 + 6.75% 130860000 = Rs.93433537.5 So, Total Contribution Margin = 130860000 93433537.5 = Rs.37426462.5 Present Value of Cash Inflows (Using 20 % Discount Rate) = [(26413650 + 4.031 37426462.5) 0.833] + 107800 0.162 = 147691470 Hence, the NET PRESENT VALUE (NPV) FOR THE PROJECT = Present Value of Cash Inflows Initial Cash Outlay = 147691470 3598019 = Rs.144093451

55

CASH FLOW PATTERN FOR THE BED LINEN PROJECT CASH INFLOW / YEAR 0 1 2 3 4 5 6 7 8 9 10 NET PRESENT VALUE (OUTFLOW) (3598019) 26413650 37426462.5 37426462.5 37426462.5 37426462.5 37426462.5 37426462.5 37426462.5 37426462.5 37426462.5 + 107800 144093451

A positive Net Present Value worth Rs.144 million suggests that the project is financially viable and the entrepreneur is highly suggested to go for the project.

4.4

KNITWEAR:

During the past few years, exports of knit garments from Pakistan have been on a rise. According to the industry sources, there are 343 knitting units in Pakistan, majority of which are located in the cities of Lahore and Karachi. This has provided an opportunity to garment manufacturers & exporters to concentrate on expansion. Comparatively, rate of expansion in the garment stitching has been higher than that in fabric manufacturing. This has led to an increasing gap between supply and demand of knitted fabric. Establishing commercial, specialized, small or medium size circular knitting units can fulfill this increasing demand of fabric.

56

Some of the major players of the knitting industry are shown in Table on next few pages. These units mainly fall in the category of integrated units and are customers of commercial knitters. The world trade figures of knit fabrics have also shown positive growth during the past few years which also opens the opportunity of exporting the fabrics directly, in greige as well as in finished forms. Total global trade value of knit fabric for the year 1998 was about $10.7 billion. Major importers of knit fabric are Hong Kong ($1.8 billion), China ($1.6 billion), USA ($834 million), France ($562 million), Germany ($542 million), UK ($425 million) and Italy ($354 million). Export of knit fabric from Pakistan was $60.16 million (Source: FBS) in the year 1999- 2000, which has decreased from the $61.40 million (Source: FBS) in the year 1998-1999. Major trading partners of Pakistan in knit fabric exports are shown in Table.

57

KNITTING CLUSTERS IN PAKISTAN

Source: smeda.org.pk

Number of Knitting Units in Pakistan

250 200 150 Number 100 50 0

Lahore

Karachi

Faisalabad

Sialkot

Gujranwala

58

MAJOR KNITTING UNITS

Source: smeda.org.pk

59

Major importers of knit fabric in World

1.8 1.6 1.4 1.2 Amount ($ 1 Billion) 0.8 0.6 0.4 0.2 0 Hong Kong China USA France Germany UK Italy

PAKISTANS TRADING PARTNERS FOR KNIT FABRIC

Source: smeda.org.pk

60

Pakistans Trading Partners for Knit Fabric

25 20 15 $ Million 10 5 0

4.4.1 Marketing: A commercial circular-knitting unit has three types of target customers: Knit garment manufacturers, having vertically integrated units with units. The small and medium scale garment manufacturers, who don't have any vertical setups and are dependent on commercial knitting units for their fabric requirements. Commercial exporters of garments, who outsource their fabric requirements to commercial knitting units. The key success factors for the business will be: insufficient knitting capacity. Such units have to outsource their fabric requirement to commercial knitting

UAE

USA

Bahrain

UK

Qatar

Oman

Germany

Italy
61

Strong marketing skills/knowledge is required from entrepreneur Assurance of high consistent quality Assurance of on time delivery Competitive rates Cost efficiency Better services to the customer i.e. claim settlement etc. Better communication development with customers

Major threats for the business are: Asia pacific markets are emerging as new players in the world knitwear trade. China, Hong Kong, Vietnam, Korea can give tough time in the coming years. NAFTA is also one of the biggest threats Good technical expertise is not easily available Sometimes spare parts are not available in the local market and require high lead times to import, which may lead to production losses.

4.4.2 Production and operations: a) Proposed Capacity:

1,550 Kg/fabric per day (4 Circular Knitting Machines) b) Process flow:

62

c)

Raw Material:

In case of commercial knitting, all the raw materials are provided by the garment manufacturers. The main raw materials are as follows: d) Yarns of all types (cotton, blended etc.), greige & dyed. Normally, the count ranges from NE 20/1 to NE 30/1 Lycra Yarn Machinery Cost:

The optimal Machine combination for a commercial circular knitting unit is shown in Table. The prices mentioned in the Table are for new machinery of the Far East origin. Knitting Machine Costs Knitting Machinery Single Jersey Interlock Rib Initial cost of machines Machines Required 2 1 1 Cost / Machine (US $) 28000 30500 31300 Total Cost in(Rs.) with US $ at 61) 3416000 1860500 1909300 7185800

Knitting Machines Cost with Duties & Taxes Machine Import cost Customs duty Sales tax Income tax Total Cost (Rs.) 10% 15% 5% 718,580 1,185,657 454,502

63

Others (Custom Clearance, transportation etc.) 3% Cost of importing machines Machine Rs.15,000/machine installation cost Cost of installed machinery with duties Other Equipment Details Type of Machine Generator Air Compressor Inspection Machine Weight Scale, Cloth Cutting & other tools Electric wiring(@ Rs 25,000/machine ) Other equipment (Total) Total Cost Of Machinery & Equipment (Other Equipment + cost of installed machinery with duties) Cost (Rs.) 200,000 150,000 200,000

215,574 2,574,313 60,000

9,820,113

30,000 100,000

680,000

10,500,113

Circular knitting machinery is available from a diversified range of suppliers/ origins i.e. Japanese, German, Italian, Chinese, Taiwanese, Singaporean, Korean and Hong Kong.

64

The prices may vary substantially depending on the origin and source of its supply. European and Japanese machinery is two to three times costlier if compared with Chinese or Far Eastern machinery. Second hand machinery of different origins can also be obtained from the local market. e) Location & Utilities:

The clusters of knitting industry exist predominantly in Lahore, Karachi and Faisalabad. Most of the garment manufactures are based in these major cities, so it is recommended that such unit should only be started in these areas. The following utilities are essential to the existence of the firm: Electricity Telephone Fax Human Resources:

4.4.3

For a unit of 4 circular knitting machines, the manpower requirements will be as follows:

65

Manpower Requirements for Unit of Four Knitting Machines Positions Knitting Master Machine Operators Helpers Accounts/Store Clerk Electrician (Part time) Security Guards Total Manpower cost Breakup Direct cost Indirect cost No. of personnel 1 6 4 1 1 2 Salary/Month 15,000 4,000 2,500 5,000 1,500 3,500 Salary/Annu m 180,000 288,000 120,000 60,000 18,000 84,000 750,000 426,000 324,000

These requirements have been drawn on the basis of a 12 hour shift for operators and it is further assumed that one operator can manage two machines, however in the start; three operators are recommended to operate 4 machines. 4.4.4 a) Project Feasibility & Economics: Building Requirements: Space Requirements Space Requirement/Land Cost Yarn & Fabric Store Machine Space Management room Area/Machine (sq.
ft.)

Required Area
(sq. ft)

125 275

500 1100 150 66

Total area required (sq. ft.) Land cost @ Rs.500000/4500 sq. ft.

1750 194444

Building Construction Cost Building Construction Cost Yarn & Fabric Store Machine Space Management room Total Building construction cost Cost (Rs./ sq. ft.) 350 350 600 \ Construction Cost 175000 385000 90000 650000

It is recommended that this project should be started in a rented building, as this will reduce the initial capital cost of the project. One year rent will be paid in advance. Monthly Rent (Rs) 15000 b) Total Project Cost: Project Costs Machinery & Equipment Furniture & Fixtures & Office Equipment Pre-Operating Costs Total Capital Costs Equipment Spare Part Inventory Advance Building rent Pre paid Insurance Working Capital Total Investment in Project (Rs.) 10500113 41000 185446 10726559 11106 180000 527056 718161 11444720 Annual Rent (Rs.) 180000

The project costs are as under:

67

The following financing plan is advised: Equity Debt Long Term Loan Short Term (Running Finance or any other possible option) Total Debt Interest rate 16 % 50 % 50 % Interest rate 12 % 5722360 5722360 5004199 718161 5722360

Major portion of investment is required for working capital, due to which the debt recommended for the project is in form of short term because majority of investment will be in raw material etc. c) NPV for the project: PRODUCT MIX Product mix Production Capacity (kg) Production (kg) Single Jersey 58.05% 511500 296926 Interlock 16.10% Rib 25.85%

82352

132223

IMPORTANT PROJECT RELATED ASSUMPTIONS Price Per kg Single Jersey (Rs.) Price Per kg Interlock (Rs.) Price Per kg Rib (Rs.) Knitting Charges Per kg Single Jersey (Rs.) Knitting Charges Per kg Interlock (Rs.) Knitting Charges Per kg Rib (Rs.) Administrative Overheads(of Revenue) Insurance rate Pay Roll Production Staff Direct Electricity Tax treatment Project life (Years) Discount rate for calculation of NPV Equity 8.86 14.77 11.82 6 12 10 0.2 % 3% 426000 515882 0.75% of Sales Revenue 5 16% 50%

68

Debt Depreciation:

50%

Depreciation is being calculated on the straight line basis. Assuming a salvage value equal to the 10 % of the sum of Plant & Machinery, Furniture and Fixtures and Office Equipment, Depreciation = 0.1 (10500113 + 41000) = 1054111 This depreciation will be discounted in the last year of the project as the equipment will be liquidated at the end of the project FORMULAE: Revenue (Rs.) = Sale price per kg Amount Produced (Jersey) + Sale price Amount Produced (Interlock) + Sale price Amount Produced (Rib) Costs, Expenses & Taxes / Set (Rs.) = (Knitting charges per kg (Jersey) Amount Produced) + (Knitting charges per kg (Interlock) Amount Produced) + (Knitting charges per kg (Rib) Amount Produced) + Pay Roll Production Staff + Direct Electricity + Factory Overhead as percentage of sales + Administrative Overheads (%age of Revenue) + Variable factory overheads + Insurance rate + Tax Total Cost Expenses & Taxes = Costs, Expenses & Taxes / Set Amount Produced + (Office Expenses + Insurance + Admin Overhead + Tax) % Sales Revenue

Year 0: INITIAL CASH OUTLAY = Rs.11444720 Year 1 5: Total Revenue = 2632247 + 1216743 + 1562873 = Rs.5413863

69

Total Costs, Expenses & Taxes = (296926 6) + (82352 12) + (132223 10) + 426000 + 515882 + Insurance (3% of sales), Admin Overhead (0.2 % of Sales), Tax (0.75% of selling price) 3.95 % = 5033892 + 3.95 % of Total Revenue = Rs.5247740 So, Total Contribution Margin = 5413863 5247740 = Rs.166123 Present Value of Cash Inflows (Using 16 % Discount Rate) = 166123 3.274 + 1054111 0.476 = 1045644 Hence, the NET PRESENT VALUE (NPV) FOR THE PROJECT = Present Value of Cash Inflows Initial Cash Outlay = 1045644 11444720= (10399076) CASH FLOW PATTERN FOR THE BED LINEN PROJECT CASH INFLOW / YEAR 0 1 2 3 4 5 NET PRESENT VALUE (OUTFLOW) (11444720) 166123 166123 166123 166123 166123 + 1054111 (10399076)

Financially this project is not feasible as a negative NPV worth Rs.10399076 suggests. However, on the basis of subjective assessment or market attraction this project can be an option for the entrepreneur. However, this will be a really very risky ask then from the entrepreneurs point of view.

4.5

MENS UNDER-GARMENTS:

In the recent years, garments sector has been growing swiftly and now holds a vital position in the textile sector.

70

Garment manufacturing is the last link of the textile value chain and consequently, is the highest value-added sector. Within the garments area, mens undergarment is an important sub-sector, and its products are briefs and vests. Generally speaking, garments manufacturing is a rapidly changing business having very short product life cycles and rapidly changing consumer preferences. However, mens undergarments are unique in the sense that there has been very little change in the product, design, fabric, etc. since long. Mens undergarments hold a good market in the world. USA is the biggest market for these products in the recent years. For Pakistan, the major thrust for exports of mens undergarments is on USA market. European Union is the second largest market. Major markets that Pakistani manufacturers have so for not been able to explore are the Far East and Middle East markets. These markets demand high product standards and in return offer higher unit prices. In Pakistan, mens undergarments manufacturing units are fulfilling 80% of the local market demand, whereas, 20% of the local market demand is met through imports. Another success unit is factor that for mens are no undergarments manufacturing there

complications in the stitching process and skilled stitching expertise is easily available. Machines are readily available in the market and enough facilities are available for their maintenance. 4.5.1 Current Industry Structure: The mens undergarments manufacturing industry of Pakistan has been modernized in the recent years due to increase in trend of value added products. Heavy dependence on imported mens undergarments has now been decreased due to the setup of quality units. 71

Initially, high quality mens undergarments were imported. But now modernized units with latest machines have contributed a lot by providing high quality products to the local market. Out of total 4,000 garments stitching units, the share of mens undergarments units is approximately 10%; 400 units with a diverse range of stitching capability. According to industry sources and machinery suppliers, there are 12,500 stitching machines being used for manufacturing of mens undergarments. Most of these undergarment manufactures are small units having less than 20 stitching machines. There are 150 units with 20 and above stitching machines and 250 units with less than 20 machines. Some of the famous brands of mens undergarments that are available in the local market are CHASE, JOCKEY, GRACE & CAPTAIN. Mens undergarments Stitching units are located in major cities of the country. The most important of these are Karachi, Lahore & Faisalabad. A few units are also located in Hyderabad and Multan. 4.5.2 Marketing: a) International Market: Total global trade of mens undergarments is more than $897 million in the year 1999. USA is the largest importing country with a share of 45% and a total value of $406 million. USA is a rapidly growing market with an average annual growth rate of 15.4% in value terms. Japan is the second largest importer in this category with imports of $126 million. United Kingdom is the third largest importer with total imports of $44 million. Other major countries importing undergarments are listed in Table on the next page.

72

Belgium, Saudi Arabia, Korea, Australia, Austria & Poland are growing markets for mens undergarments products. b) World Exports:

Out of the total global trade for exports, China is the largest exporting country with a share of 24.6% and a total value of $178 million. The average annual growth rate in value terms of China is 2.7%. USA is the second largest exporting country having a share of 14% and a total value of $ 103 million. Pakistan is the third largest exporting country having a share of 6.3% and a total value of $46 million. Pakistans average annual growth rate has been 2.3%. Other major countries exporting undergarments are listed in the table on next few pages. Bangladesh, Egypt, Brazil, Tunisia & Macau are other competing countries in the line of exports of garments.

73

MAJOR IMPORTING COUNTRIES 1999

Source: Smeda.org.pk

74

Major Importing Countries for Men's Undergarments

5 4.5 4 3.5 3 Share in % 2.5 2 1.5 1 0.5 0

MAJOR EXPORTING COUNTRIES

Mexico

France

Hong Kong

Germany

Source: Smeda.org.pk

Italy

Spain

Netherlands

Canada

75

Major Exporting Countries for Men's Undergarments

5 4.5 4 3.5 3 Share in % 2.5 2 1.5 1 0.5 0

Mexico

Costa Rica

Israel

Italy

Portugal

Hong Kong

Hungary

UK

c)

Exports from Pakistan:

According to the sources from industry, 35% of the mens undergarments produced are consumed in the local market and 65% are exported. So there is a good potential for the business of mens undergarments in exports, but it requires aggressive marketing and establishing contacts with the multinational buying houses as well as with the foreign customers in order to get good business. The countries to which special attention for exports shall be given are the Far Eastern & Middle Eastern countries, such as Dubai, Jordan, Bahrain, Japan, Vietnam, Hong Kong, Thailand, Indonesia, Malaysia, Korea, Bangladesh, Sri Lanka, etc.

76

Mens undergarments units are directly involved in exports. The export figures of mens undergarments from Pakistan can give an idea about the potential and scope of this business. The average annual growth rate of Pakistan for exports of undergarments from 1995 to 1999 is 2.27 %. This shows the trend of exports of mens undergarments. Pakistan is ranked third in the line of exporters of world statistics.

TREND OF EXPORTS WITH TRADING PARTNERS OF PAKISTAN (VALUE IN $US)

77

Source: Smeda.org.pk

Major Trading Partners of Pakistan in Men's Undergarments

30 25 20 Share in % 15 10 5 0 World USA Italy UK France Belgium Spain Germany

d)

Local Market:

78

The size of the local market is estimated to 35% of the total production which is 98 million undergarments per annum. The calculations are shown below: Size of Local Market

e)

Market Segments:

The market for mens undergarments can be divided into three segments. Lower segment includes undergarments worn by men in rural areas and the men in urban areas. In the lower income slab, population taken is office staff, labor, etc. This segment accounts for almost 35% of the total market Middle segment includes men in middle and upper income slabs in the urban areas. It accounts for about 55% of the total market. Upper segment includes the men in upper income segment of the society and accounts for 10% of the total. f) Key Success Factors:

There is a good potential in the mens undergarments business despite the fact that a good number of units are already in

79

operation. This is due to the fact that the trend of usage of undergarments of all sorts is at rise. The commercial viability of this undergarments manufacturing unit depends on regular business orders, i.e. enough orders to operate the unit for at least 300 days a year. This requires aggressive marketing efforts at the entrepreneurs end. The local as well as foreign markets have to be identified and approached in order to get the business and to keep the unit running efficiently. Following are some other points that have to be ensured to make the business successful: Assurance of high consistent quality Surety of products on time delivery Competitive Rates Cost efficiency through better managerial techniques Better communication development through aggressive

marketing g) Major Threats:

Like any other business, there are certain threats for mens undergarments unit. The major threat to the business is credit factor. This is also related to the competition. The customers may ask for credit facility for a longer period, this can disturb the cash cycles of the unit. This can be tackled by making same policy for all customers, so there will be no complaints from customers and cash cycle will not be disturbed. 4.5.3 Production & Operations: a) Products:

80

The products included are vests and briefs. The installed equipment can produce undergarments of different sizes. One lock stitch double per needle shift (8 can produce The 8-12 size dozens of the undergarments hours).

undergarments depends on the requirement of the customer. Following sizes of undergarments are normally produced on these machines. These are: Vests in the sizes of Small, Medium, Large and Extra Large Briefs in the sizes of Small, Medium, Large and Extra Large

The product mix considered for this study is as follows: Vests 30% Briefs 70%

The stitching machines can produce different sizes of garments. The details of the production are as follows: Estimated Production Details (8-hour shift basis) Average undergarments produced per shift Average undergarments produced per month Average undergarments produced per year Note: Sizes of the garments taken in the above production chart are medium and large. b) Proposed Capacity: 2,500 dozens undergarments 30,000 dozens undergarments 100 dozens undergarments

The proposed capacity is 100 dozens undergarments per shift (8 Hours). Working time estimates are given in the following table: Description Per Day Working Per Month Working Time 8 Hours 25 Days (excluding holidays) 200 hours 81

Per Annum Working c) Process Flow Chart:

300 Days/6000 hours

d)

Raw Material:

The basic raw material for an undergarment is knit fabric. The other raw materials are elastic and sewing thread. The sewing thread used for undergarments stitching is cotton and synthetic. It is available in a variety of colors. In order to match the sewing thread with fabric, dyeing can also be used, or imported sewing thread can also be used. Elastic is only used in briefs. On an average, fabric constitutes 70% or more of the total cost of the raw material. In case of vests, fabric constitutes more than 85% and in case of briefs more than 70% of the total cost. Required raw materials and their approximate costs are following: Raw Material Cost of local fabric Cost of elastic Rs.150 to Rs.300 per Kg (depends on the quality) Depends on the quality, normally ranges from Rs.7 to Rs.10 per meter Depends on the quality and make (Source: Industry)

Cost of thread

The following utilities will be required: Electricity

82

 e)

Telephone Fax Machinery details:

Mens undergarments unit can be started, by using any number of machines but it is suitable to start the project with a suggested set of machines. Keeping in view the industry norms & conditions, it will be more economical and viable to start the project with 16 stitching machines. For mens undergarments unit, machines of different makes and origins are available in the market. The prices of machines depend on make, origin and working capacity. The machines available in the market are attached in the appendix.

Machines of different Makes (ATTACH IN THE APPENDIX) Stitching Machines Juki Shangong Woosun Jack Pegasus Pfaff Singer Wilcocks Kansai Cutting Machines Eastman KM Westman & Camel Origin Japan China Japan Japan & China Japan German Japan UK Japan UK & USA Japan China

The Japanese machines are most advanced in the field of undergarments manufacturing. Their production capacity is

83

highest as compared to other machines and can give variety of products other than mens undergarments. The Japanese machines are also expensive, while the similar Chinese machines are comparatively cheaper, but their quality of work is not same as that of Japanese Machines. Second hand machines are also available in the market. The price of used machines is comparatively lower and goes up to maximum one half of the price of new machinery (depending upon the make and origin of the machinery). However, the quality of work is obviously not same. The Far East (Korean, Hong Kong) machines are also available in the market and are cheaper than Japanese machines. The project has been proposed for brand new machines. It is recommended to start and set up the project with Japanese machines in order to get the high quality work. The machinery required to set up the mens undergarments unit is given below in the table. Following set of stitching machines is required for manufacturing of mens undergarment on an eighthour shift basis. The prices given below are a mix of brand new Japanese, German, Chinese and UK machines. Machinery Details Stitching Machines Lock Stitch Double Needle Over lock Flat Lock Zigzag 3-Step Total 6 4 2 2 2 16 Number Cost per Machine 109000 61000 76000 25000 25000 654000 244000 152000 50000 50000 1150000 Total Cost

84

Other Equipment Equipment Cutting machines Irons Scissors Stitching Stool / machine Wooden Box / machine Tables Cutting Tables Pressing Iron Tables Inspection Tables Installation & 85 16 2 16 16 16 150 1,200 150 150 150 2,400 2,400 2,400 2,400 2,400 Number 1 4 16 16 Cost per Machine 35000 1000 100 200 Total Cost 35000 4,000 1,600 3200

Wiring cost per machine Total

325

5200 61,000

Other Office Equipment Item Furniture & Fixtures Computer Printer Air Conditioners Electrical Appliances Total Requirement 1 1 1 1 Cost 50000 25000 4000 25000 16000 120000

4.5.4 Human resources: For a unit of mens undergarments with the proposed capacity, the human resource requirement is given in the Table. Positions Chief Executive Master Office Assistant/Comp uter Operator Supervisor Stitchers & technical staff Peons & Helpers Security Guards (Rs.3,000/guard ) Total 4.5.5 a) Project Feasibility & Economics: Building Requirements: 1 1 Required 1 1 Monthly Salary 20000 10000 5000 7500 Per piece rate 2500 6000 Annual Salary 240000 120000 60000 90000 Per piece rate 60000 72000 642000

2 2

86

Building Requirements Type Large Hall (For installation of machines) Store (For Storing Raw Material) Designing & Cutting Room (For Designing & Others) Office (For Official Work) Wash Room Total Required Area (sq. ft) 640 450 180 120 50 1440

It is recommended that the machinery unit may be established in a rented building, which can be easily found in the industrial zones. The maximum rent for a building having covered area of 1,440 sq. feet can be Rs.10000 per month. b) Total Project Cost: Account Head Plant & Machinery Furniture & Fixtures Other Equipment Pre-Operating Costs Total Capital Cost Raw Material Inventory Advance Building rent Pre paid Insurance Working Capital Total Investment in Project The following financing plan is advised: Equity Debt Long Term Loan Short Term (Running Finance or any other possible option) At interest rate of 14 % 50 % 50 % At interest rate of 17 % 1032465 1032465 (Rs.) 1211000 50000 70000 75000 1406000 499000 120000 39930 658930 2064930

The project costs are as under:

87

c)

NPV for the project: IMPORTANT PROJECT RELATED ASSUMPTIONS 360000 90% 324000 100% 97200 226800 108000 252000 50 30 16.02 13.34 2% of Sales 3% of Sales 4.17 5.83 10 25%

Annual production capacity Capacity utilization (1st Year) First Year production utilization Maximum Capacity utilization Total Vests Exported (30 % of total exports) 1st Year Total Briefs Exported (70 % of total exports) 1st Year Total Vests Exported (30 % of total exports) 2 10 Years Total Briefs Exported (70 % of total exports) 2 10 Years Export Price per Vest (Rs.) Export Price per Brief (Rs.) Weighted Average cost of the raw material per vest (Rs.) Weighted Average cost of the raw material per brief (Rs.) Admin Overhead Insurance rate (Annual) Average wage rate per Vest Average wage rate per Brief Project life (Years) Discount rate for calculation of NPV Depreciation:

Depreciation is being calculated on the straight line basis. Assuming a salvage value equal to the 10 % of the sum of Plant & Machinery, Furniture and Fixtures and Other Equipment, Depreciation = 0.1 (1211000 + 50000 + 70000) = 133100

88

This depreciation will be discounted in the last year of the project as the equipment will be liquidated at the end of the project FORMULAE: Revenue (Rs.) = [Export Price per Vest Total Vests Exported] + [Export Price per Brief Total Briefs Exported] Costs, Expenses & Taxes / Set (Rs.) = (Total Vests Exported Weighted Average cost of the raw material per vest) + (Total Briefs Exported Weighted Average cost of the raw material per brief) + (Total Vests Exported Average wage rate per Vest)+ (Total Briefs Exported Average wage rate per Brief) + Insurance + Admin Overhead Total Cost Expenses & Taxes = Costs, Expenses & Taxes / Set Amount Produced + (Office Expenses + Insurance + Admin Overhead + Tax) % Sales Revenue Year 0: INITIAL CASH OUTLAY = Rs.2064930 Year 1: Revenue = (50 97200) + (30 226800) = Rs.11664000 Costs, Expenses & Taxes = (16.02 97200) + (13.34 226800) + (4.17 97200) + (5.83 226800) + Insurance (3% of sales) + Admin Overhead (2% of Sales) = 6310224 + 5% of Revenue Hence, Total Cost Expenses & Taxes = Rs.6413470 So, Total Contribution Margin = 11664000 6413470 = Rs.5250530 Year 2 10: Revenue = (50 108000) + (30 252000) = Rs.12960000

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Total Costs, Expenses & Taxes = (16.02 108000) + (13.34 252000) + (4.17 108000) + (5.83 252000) + Insurance (3% of sales) + Admin Overhead (2% of Sales) = 7011360 + 5% of Sales Hence, Total Cost Expenses & Taxes = Rs.7659360 So, Total Contribution Margin = 12960000 7659360 = Rs.5300640 Present Value of Cash Inflows (Using 25 % Discount Rate) = [(5250530+ 3.463 5300640) 0.8] + 133100 0.107 = 18899559 Hence, the NET PRESENT VALUE (NPV) FOR THE PROJECT = Present Value of Cash Inflows Initial Cash Outlay = 18899559 2064930= Rs.16834629 CASH FLOW PATTERN FOR THE BED LINEN PROJECT CASH INFLOW / YEAR 0 1 2 3 4 5 6 7 8 9 10 NET PRESENT VALUE (OUTFLOW) (2064930) 5250530 5300640 5300640 5300640 5300640 5300640 5300640 5300640 5300640 5300640 + 133100 16834629

A positive Net Present Value worth approximately Rs.17 million suggests that the project is financially viable and the entrepreneur can also opt to follow this option.

4.6

POLO T-SHIRT FEASIBILITY:

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Exports of knitted garments from Pakistan have been on a rise during the last few years. The availability of suitable raw material, development of certain skill levels and introduction of international brands with local garment manufacturers are some of the favoring factors for further expansion of knit garments industry in the country. The quotas phase out factor in the year 2005 is also opening new doors of opportunities in the global trade of garment exports in the coming years. It has been forecasted, that in the coming days of post quota scenario, specialized and small or medium size garments stitching units will be able to perform in a better way. The reason for this is a lower cost structure and more developed and concentrated skills to produce the best possible products as per the requirement of international customers. 4.6.1 Current Industry Structure:

The garments and apparel industry of Pakistan, especially the knitwear segment, is characterized by heavy presence of vertically integrated units. Garments industry comprises of approximately 700 vertically integrated units in the knitwear sector. There are approximately 4,000 garment units with a diverse range of stitching capability including leather, knit and woven garments, with 160,000 industrial and 450,000 domestic sewing machines. There are about 1,000 stitching units manufacturing T-shirts for export. Out of these, 400 units have 30-50 machines and 600 units have 50-300 stitching machines. The industry is characterized by majority of the manufacturing units located in few major cities. Major concentration of the industry is in Lahore and Karachi. Other hubs are Faisalabad, Gujranwala, and Sialkot.

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4.6.2

Marketing:

In view of the fact that main raw material and skilled manpower is available in Pakistan, scope for garment exports from Pakistan is unlimited. Effective marketing plays a very crucial role for making this business a success. Export orders can be generated either through local or foreign buying houses that have their presence in the country and source export orders for foreign customers from local industry. The other way to get export orders is through direct marketing in the international markets while initiating contacts with potential customers directly and/or through participation in international trade fairs, exhibitions etc. In the absence of export orders, other factories that have excess export orders can also provide sub-contract work on CMT (cut, manufacture & trim) basis. a) Guidelines for Garments Export Business:

In order to enter into the export business of garments, following basic guidelines can provide help to any new comer in this business: Ensure best quality at all costs. This is a basic key for a successful exporter in the garment exports. Commitments with buyers regarding quality, price and shipment are basic essentials to enter and grow in the export business. Pakistan has lost much business and goodwill due to this factor alone. Therefore, for any newcomer, commitments with the buyers should be met very seriously. Initially, it is recommended that a new exporter should avoid to deal in expensive quota items or to enter in quota markets. Concentration should be on non-quota or low priced quota garments and on those categories of garments where

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newcomers can get share of the cheap quotas at the time of auction. Buying expensive quotas is the main hurdle due to which new exporters become noncompetitive in the international markets. Concentration on non-quota markets like Japan, Hong Kong, South Africa etc. can provide a competitive edge to new exporters. Sourcing of export orders, through several apparel buying houses based in Pakistan, can be a good startup point of marketing efforts. The prices offered by these buying houses might be lower than those of direct orders, but at least they can be good entry point and learning experience for new exporters. Many garment factories are considering it worthwhile setting up their overseas offices and warehouses in the potential markets. Overseas office cannot only assist in sales, but also keep the garment factory continuously informed about the latest design changes, buyers requirements and market trends. Warehouses of supplier(s) in the customer's country make it convenient for the customer to make the purchase decisions effectively as in this case customer gets the required products on LDP (Landed Duty Paid) basis and without any hassle of being involved in shipment and import procedures. The professional visit marketing staff and owner(s) fairs, should and regularly international clothing shows

exhibitions. Such events provide very promising opportunities to penetrate in the international markets, meeting new customers and negotiating orders4. In order to be successful in the market, it is very important to be active and quick in response to the customers. Being

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flexible

with

buyers

regarding

their

requests

and

requirements can help to develop mutual understandings with them. Many buyers themselves guide the manufacturer in correct designing, fabric and accessories selection and procurement, improvements in production and quality control etc. Regular subscriptions with local and foreign textile trade and fashion magazines will ensure the flow of latest marketing and trade information to the exporter. Being the export-based unit, tax exemptions are available on earnings and profits. Also, government offers re-finance facilities, incentives in terms of rebates, and duty free machinery imports. b) Total Market Size and Growth:

Total global trade value of T-shirts and other related knitted garments is more than $33 billion. USA is the largest importing country with a share of 29% and a total value of $7.4 billion. USA is a rapidly growing market with annual growth rates of 10% in value terms and 7% in quantity term. Germany is the second largest importer in this category with imports of $4.5 billion. However, German market has been stagnant during last many years and has grown by only 1%. Japan is the third largest importer with total imports of $3.8 billion. Other major importers are given in the table on next few pages. Kenya, Tunisia, Zimbabwe, Algeria and other African countries are growing markets for T-shirts.

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INTERNATIONAL MARKET STATISTICS

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Source: Smeda.org.pk

INTERNATIONAL MARKET STATISTICS

14 12 10 Share in % 8 6 4 2 0 Hong Kong France UK Netherlands Belgium Switzerland Italy Others

c)

Key Success Factors:

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The total commercial viability of this proposed stitching unit depends on the regular supply of export orders, i.e. at least 300 days per year production. This requires very aggressive marketing efforts at the entrepreneur's end and the concerned management team. Following are other key points that can be taken as the key success factors for any export based stitching unit: Assurance of high consistent quality Surety of on time delivery Competitive rates Cost efficiency Better services to the customer i.e. claim settlement etc. Better communication with the customers

To run a garment manufacturing set-up is a full-time job, and requires continuous hard work and attention. Anyone, who is not prepared to put best possible efforts, concentration and hard work, should not enter in this business. d) Threats:

Quota factor (price and availability) plays a major role in defining the trends of exports of knitted products from Pakistan, and directly affects the exports of knitted garments. The labor force at the lowest level i.e. skilled/semi skilled manpower, machine operators are quite unorganized. Their job behavior and seriousness about the completion of any assigned job is sometimes quite unpredictable. Stitching expertise is not available at the very best possible level. This restricts the industry only to the production of basic garments and it cannot enter in the production of high quality or fashion garments.

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In case of CMT based unit, the requirement of credit and/or delay of payments from customer side might cause disturbance in the cash cycle. Asia pacific markets are emerging as new players in the world knitwear trade. Competition from China, Hong Kong, Vietnam, and Korea is likely to increase in the coming years. NAFTA is also one of the threats. 4.6.3 a) Production & Operations: Product:

The unit will produce sports t-shirts. b) Proposed Capacity:

The proposed Capacity for the unit is 2000 Garments/Day (52 Stitching Machines). c) Process Flow Chart:

d)

Raw Material:

The main raw materials used in the manufacturing of Polo Tshirts are listed below: Printed or dyed knitted fabric (may be 100% Cotton or Polyester/Cotton in different ratios) Buttons Threads

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 e) f)

Labels Zippers Packing material Utilities Requirements: Electricity Telephone Fax Machinery Requirements:

The following utilities will be required:

Following combination of stitching machines is required for manufacturing 2,000 knitted Polo T-shirts per day. Approx. prices for Japanese origin machinery as given below: Stitching Machinery Required Stitching Machinery Stitching Machinery Required Lock Stitch (Single Needle) Safety Stitching Overlock (3 Thread) Safety Stitching Overlock (4 Thread) Flat Lock Button Hole 7 1 228000 264000 15960000 264000 4 105000 420000 27 12 Number 1 95000 50000 96000 95000 1350000 1152000 Cost per Machine Total Cost

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Machine Button Stitching Machine Total

124000

124000

53

5001000

Other Equipment Other Equipment Steam Boiler with 3 irons Factory fixture (wooden tables, stools, boxes etc) Machine Installation & Electric wiring cost Total Total 161000 166000 53000 380000

Total Cost of Machinery & Other Equipment Main Machinery Cost Other Equipment Total 5001000 380000 5381000

Garments stitching machinery is available in quite a diversified range of suppliers origins i.e. Japanese, Italian, Chinese, Korean, Taiwanese and Hong Kong origin. However, there is a substantial difference between their prices. European and Japanese machinery is 2 to 3 times more expensive as compared to Chinese or Far Eastern machinery. Second hand machinery of different origins is also available from the local market.

4.6.4

Human Resources:

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For a garment-stitching unit of 52 stitching machines, following manpower is required:

Positions Chief Executive Production Manager Production Planning officer Cutting Master R & I Supervisor Cutting Helper Sampling Stitcher Stitching Supervisor Rowing Inspector Machine Operator5 Helper (Machine Operator) Final table inspector Finishing Supervisor Clippers Stain Remover Spot Washer Iron Presser Rafo Packing Staff Commercial

Required 1 1 1 1 1 2 2 1 2 52 4 7 1 6 1 1 3 1 3 1

Monthly Salary 50000 13000

Annual Salary 600000 156000

8000 12000 4000 3000 5000 8000 4500 7000 2000 2200 5000 2500 3000 2500 6000 2500 2500 10000

96000 144000 48000 72000 120000 96000 108000 4368000

96000 184800 60000 180000 36000 30000 216000 30000 90000 120000

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Manager Accounts Officer Technician/Electri cian Security Guards Total

1 1 2 96

5000 3500 3000

60000 42000 72000 7024800

4.6.5 a)

Project Feasibility & Economics: Building Requirements: Building Requirements

Description Fabric & Accessories inventory Store Cutting Room Sampling Room Stitching Room Inspection Room Packing Room Finished Garment Store Total factory area Management Building Total area required (sq. ft.)

Required Area (sq. ft) 3540 600 400 1300 1400 1400 3000 11640 2000 13640

Construction Cost Land & Building Construction Cost Land cost (Rs.) Factory area Management building Total construction cost 102 Cost per unit (Rs./sq. ft.) @ Rs.600000/4500 sq. ft 350 600 Cost 1818667 4074000 1200000 5274000

Total Cost (Land & Building)

Rs.7092667

It is recommended that this project should be started in a rented building. This will educe the initial capital cost of the project. An appropriate shed is normally available in many commercial/industrial areas of under mentioned clusters. Rent Cost Building rent cost (@ Rs.10000 per 4500 sq. ft) b) Total Project Cost: Project Costs Machinery & Equipment Furniture & Fixtures Office Vehicles Office Equipment Pre-Operating Costs Total Capital Cost Equipment Spare Part Inventory Advance Building rent Pre paid Insurance Working Capital Total Investment in Project The following financing plan is advised: Equity Debt Long Term Loan Short Term (Running Finance or any other possible option) Total Debt 12% 698300 3753650 50 % 50 % 16% 3753650 3753650 3055350 (Rs.) 5381000 205000 682000 180000 361000 6809000 15900 360000 322400 698300 7507300 Monthly Rent (Rs) 30000 Annual Rent (Rs.) 360,000

The project costs are as under:

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c)

NPV for the project: IMPORTANT PROJECT RELATED ASSUMPTIONS Annual production capacity Capacity utilization Sale price per garment ($) Raw Material & Labor Costs 588000 100% 2.5 58656000 2% 1% 10 2 1 5% (of Sales) 0.75% of Sales Revenue $1 = Rs.60/10 17% 50% 50%

(Rs.) Based on estimates from the current industry Factory Overhead Office expenses (stationery, entertainment etc) Textile quota (Rs per garment) Land/Truck freight cost (Rs per garment) Forwarding/clearing cost (Rs per garment) Insurance rate (Annual) Tax treatment Dollar conversation rate Project life (Years) Discount rate for calculation of NPV Equity Debt Depreciation:

Depreciation is being calculated on the straight line basis. Assuming a salvage value equal to the 10 % of the sum of Plant & Machinery, Furniture and Fixtures, Office Vehicles and Office Equipment, Depreciation = 0.1 (5381000 + 205000 + 682000 + 180000) = 644800 This depreciation will be discounted in the last year of the project as the equipment will be liquidated at the end of the project FORMULAE:

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Revenue (Rs.) = Sale price per garment ($) Dollar conversation rate Annual Capacity Production Costs, Expenses & Taxes / Set (Rs.) = [Textile quota (Rs per garment) + Land/Truck freight cost (Rs per garment) + Forwarding/clearing cost (Rs per garment)] Annual Capacity Production + Raw Material and Labor Costs + (Factory Overhead + Office Expenses + Insurance + Tax) % Sales Revenue Year 0: INITIAL CASH OUTLAY = Rs.7507300 Year 1 10: Revenue = 2.5 60 588000 = Rs.88200000 Costs, Expenses & Taxes = ( 10 + 2 + 1) 588000 + 58656000 + (2 + 1 + 5 + 0.75) % 88200000 =66300000 + 8.75 % of Sales Hence, Total Cost Expenses & Taxes = 66300000 + 8.75% 88200000 = Rs.74017500 So, Total Contribution Margin =88200000 74017500 = Rs.14182500 Present Value of Cash Inflows (Using 17 % Discount Rate) = 14182500 4.659 + 644800 0.208= 66210385 Hence, the NET PRESENT VALUE (NPV) FOR THE PROJECT = Present Value of Cash Inflows Initial Cash Outlay = 66210385 7507300= Rs.58703085

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CASH FLOW PATTERN FOR THE BED LINEN PROJECT CASH INFLOW / YEAR 0 1 2 3 4 5 6 7 8 9 10 NET PRESENT VALUE (OUTFLOW) (7507300) 14182500 14182500 14182500 14182500 14182500 14182500 14182500 14182500 14182500 14182500 + 644800 58703085

This project is giving a Net Present Value worth approximately Rs.59 million, which is a tremendous amount and hence makes the project financially very attractive. So, it is highly suggested that the project should be undertaken given the appropriate finances are available.

4.7

SOURCES OF FINANCE:

The new entrepreneur has a number of options available in the form of bank loan both short and longer term. Almost all the commercial banks in Pakistan are offering the financing facility for exporters and especially textile exporters. This

106

section of the research thesis discusses the various commercial banks and other techniques for financing the newly proposed project for textile products. Small and Medium Enterprise Development Authority (SMEDA) and SME Banks both offer a wide array of loans for the new and established entrepreneurs for financing new or existing projects. Loans worth and collaterals tend to vary. These loans are easy to seek but the mark ups are higher. Here are the details. 4.7.1 SME Bank:

Any commercially viable business proposal can qualify for banks financing. However, in the first instance the Bank tries to help and support enterprises, 1. Which use indigenous raw material? 2. Add value 3. And is export oriented SME Bank extends financial assistance through its Program Lending and Project Lending Schemes. The Bank generally adopts a Program Lending approach for financing credit needs of certain sectors. According to Program Lending Scheme, specific sectors with large SME presence are identified and lending schemes are designed for these sectors or sub groups. By doing so, the Bank expects to reach large number of SMEs. Project Lending Scheme is for those enterprises that are commercially viable and do not fall in the category of program lending scheme. Under this scheme working capital and medium-long term financing facility is available for qualifying enterprises. The financing criteria and credit analysis for this category of borrowers varies on case to case basis. For obtaining financial services or assistance from the Bank, the applicant should fulfill the following criteria or more specifically called the General Lending Criteria: a) General Lending Criteria: Borrowers

The list of borrowers includes Individuals/Sole Proprietors, Partnerships and Companies, who;

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o Are not defaulters. o Are able to contribute equity1. o Have the necessary experience and qualification. o Enjoy good reputation & preferably are regular tax-payers. Sectors

The lending facilities are available for SMEs in the sectors of textiles, gems & jewellery, marble & granite, engineering vendors and any other viable/profitable enterprise. Financing

The Bank provides financing Up to 50% of the total project cost i.e, debt: equity ratio is 50:50 Mark Up

The mark up rate is 15% to 18% or 3%-8% above the prevailing discount rate of SBP2 whichever is higher. Repayment

The repayment of loan is linked to the cash flows of the project, which are separately projected by the bank. The banks projections are based on the business plan and the financial statements of the client, which are provided at the time of submitting application for a loan. The repayment is scheduled according to the cash flow of the client. It could be either on monthly basis or quarterly basis. However, the total repayment period does not exceed 7 years with varying grace period3 of upto 12 months. Securities

These include Mortgage of land, building and fixed assets having approximate forced sale value 70% approx. of value of loan. Professional evaluator of banks choice assesses the forced sale value. b) Step 1: The Loan Process:

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 The applicant has to fill a Business Proposal Form (Annex I) with different type of details mentioned in it. The credit department assesses the information filled in this form. If they find the information satisfactory, the applicant is called for a meeting. (The process may take a week for completion) Step 2: The credit officer visits the business sight of the client to check the business viability of the project. The client may be asked to provide the evidence of his cash flow to prove his worth e.g. books of accounts, stock reports etc. The applicant fills the Loan Application Form (Annex II) and submits to the bank along with following documents. O Copy of National Identity Card. O Financial Statement/Accounts of past three years of businesses. O Salary Certificate and Bank Statement. O Last Wealth and Income Tax return filed. O Attested copy of property documents being offered as collateral for the project After this credit department carries out the evaluation and appraisal of the loan request. The bank obtains legal opinion certificate from the lawyer for the clearance of the title of clients property and gets the property evaluated from professional evaluator of their choice. If all this turns out to be acceptable, the case is forwarded to the Provincial Chief for final approval. (This process may take a month or two.) Step 3: If the loan is not sanctioned the bank informs the customer about the fate of his application. Bank may or may not communicate reason for rejecting a grant of loan. If the loan is sanctioned, then 1. In pre-disbursement stage legal documents are prepared and executed. 2. The collateral is mortgaged in banks favour.

109

3. A cross cheque is issued or account is credit or overdraft is allowed. 4. The business assets are insured i.e. stocks, machinery etc. The total estimated expenses for the process 6 1) Banks Processing Fee Structure Upto Rs.0.050 million From over Rs. 2 million to 10 million From Rs. 10 million to 20 million Over Rs. 10 million 2) Mortgage Fee 2 % of the value of finance. 3) Legal Opinion Fee Rs.500-1,000 4) Evaluation Charges Rs.3, 000 5) Insurance 0.5% of loan amount & 0.5% of value of collateral Step 4 Effective Utilization of Loan: If you have revolving credit facility, withdraw funds only when desired. Try to credit account with your daily sales. It will reduce the mark up cost and reflect good operational activity at the time of next loan review. If you are availing term finance, to ensure payments on time try to match your cash flows with installments due date. In case, you foresee delay in payment of any installment inform your bank upfront. This will establish your credibility. Dont waste your money in any dubious transaction to make big money. Dont waste money on purchase of non-productive assets. c) Some Tips for Getting Finance: Nil Rs.15 000 Rs.20 000 Rs.25, 000 From over Rs 0.050 million to Rs. 2 million 0.5% of loan amount.

The borrower cannot borrow beyond 60% of the business value therefore; the entrepreneur should not request a loan beyond that limit. The value of short-term liabilities should not exceed the value of short-term assets; entrepreneur account accounts should reflect the same. The entrepreneur should show the real picture of the business. Dont exaggerate since banks always find ways to assess the real picture.

110

 Entrepreneur should not hide anything; be candid and honest in reporting. It will help establishing credibility. The entrepreneur should operate through his bank account. A healthy turnover in the bank account will support his claims about future business prospects. The banks normally take 2-3 months for the processing of loan, so entrepreneur should plan early and be patient during the process, but do follow-up progress on his application. 4.7.2 Export Finance Scheme (EFS):

The Export Finance Scheme is a crucial instrument for the facilitation of exports in Pakistan. The State Bank of Pakistan provides this financing facility to the exporting community, which principally aims at boosting and enhancing exports in Pakistan. This scheme is primarily for both direct and indirect exporters. Financial institutions provide export finance to the exporters at both pre/post shipment stages. This scheme operates in two parts, Part II and I. The Export Finance Scheme is available at a substantially lower rate than other commercial financing, this is due to the governments continued commitment to promote and shelter export oriented businesses. Under part I of the scheme, export financing is provided to an exporter against either an export order or an irrevocable letter of credit. Both direct and indirect exporters may benefit from this scheme. However, this scheme may only be availed by first time exporters or manufacturers for exporting, i.e. direct and indirect exporters. However, under part II of the scheme, the financing is provided on the basis of previous years performance and may therefore only be availed by experienced exporters. The financing limit is 50% of the last years export performance, which is available on a revolving basis like a cash credit account. The exporter has to realize a 2.0 times of daily average finance availed during the current year otherwise a penalty is imposed on exporters. The most prominent differentiation between the two types i.e., Part I & II financing is their mode of operation. Part I facility is basically allowed on transaction basis whereas; Part II facility is a revolving credit. However, both finances are at concessional rates.

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The export finance scheme under part I & II can be utilized by the following types of exporters or businesses: a) Direct Exporter (DE):

DE is the one who actually exports eligible commodities. DE may be working as commercial exporters or a trading company. b) Indirect Exporter (IDE):

IDE represents manufacturer or supplier of goods or materials that are to be used as inputs for exports. c) Small and Medium sized Enterprise (SME):

SME is one that reports exports up to equivalent of US$ 2.5 million1 of exports during last fiscal year. d) Emerging Direct Exporter (EDE):

1. EDE as indicated by name is a new exporter. 2. The interest rate of this financing facility is 8% per annum. 3. However, exporters can not avail the EFS on commodities included in the Negative List, a copy of which is enclosed in annexure I. 4. State Bank of Pakistan reserves the right to reject application submitted by the bank of any particular exporter. State Bank also has the right to delay sanction of financing facility to any exporter if it is sure that exporter has misused the facility. Therefore, decision of the State Bank pertaining to this matter will be binding upon banks/exporters. 5. EFS under part I & II together may be utilized by the exporter given that facility availed less than one part is not in duplication of the other part of EFS. 6. The maximum period of export credit for direct exporters is 180 days and for indirect exporters it is 120 days. But for exporters of carpets & rugs, specially hand knotted and man made which require more time for manufacturing, it

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was decided on 24th October,2001 to relax the provision up to 270 days (both pre/post shipment). 7. Export finance is available both on pre/post shipment stages.4 8. The limit for selling of export payments (realized in foreign currency) has increased from 120 days to 180 days. 9. Exporters may avail the exchange rate prevailing on the date of realization of export proceeds. 10. Exporters showing growth in exports by 10 % may retain up to 50% of the additional export earnings in foreign currency accounts. This amount may be utilized for import of machinery/ equipment and raw materials and for meeting expenditure on export business promotion. 11. Exporters in the Services' Sector including IT-enabled services to retain up to 35% of export earnings. 12. In order to promote exports and to ensure that Small & Medium, Emerging Direct, Direct and Indirect Exporters have access to the credit facilities; the Government has set up a Pre-shipment Export Finance Guarantee (PEFG) agency. The agency has already become operational and many exporters have applied for benefiting from this scheme. The cover obtained by the exporters from the PEFG agency substitutes for the collateral requirements of banks and hedges against the financing risks of commercial banks against manufacturing, non-performance, non-delivery risk and non-payment by the exporters. 13. To promote the financing for the Indirect Exporters, the Government is setting up an Export Product Upgrading Matching Grants Fund. The Export Promotion Bureau has been handed over the responsibility of management of this fund. The purpose of establishment of this new fund is to provide incentive to Direct Exporters establishing Inland Letter of Credit/issuing Standardized Purchase Order and for Indirect Exporters receiving it. 14. Exporters may now submit complaints regarding the Export Finance Scheme before a complaint cell "Export Cell" working in the Banking Supervision Department. Export Cell is composed of representatives from Exporters'

113

Associations, Chambers and Export Promotion Bureau and meetings are carried out on quarterly basis to review the progress of the scheme and address collective problems of exporters. Commercial banks have also been advised to establish Export Cells for exclusive handling of the cases/documentation relating to the Export Finance Scheme. 15. Export finance facility can also be availed for export of wheat under part I at pre shipment stage by the exporters of private sector only.5 4.7.3 Commercial Banks:

Apart from these sources some commercial banks have also been offering some really good financial products. A few of them along with their respective rates are as follows: a) Bank Al-Falah:

Working Capital Finance is provided by bank Al-falah, whereby they give loans to finance raw material like cotton for spinning unit and for traders of textile (like to purchase the knitwear to sell abroad). However, generally they dont extend the loans to the traders. Pledge Financing is a mode of financing in which they give loans using the factory or spinning unit as the collateral. They also give the pledge loans using yarn as the collateral at a rate of 4.5 6 %. Again the client is subjected to subjective assessment. Things which can be pledged to get the loans include cash, house, factory, foreign currency, land, and building. For greater liquid things like foreign currency, cash etc you have lower markups as compared to the less liquid assets like land, building etc. 75% Margin maintained in the security while awarding a loan. For example, on Rs.10000000 75% margin means 10000000 / 0.75 = Rs.13333333 Hence, Rs.13333333 is maintained as a security.

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While awarding loan they also ask for the projected financial statements. In general for getting a loan the entity needs to prepare proper a feasibility report for the project. The report has to be prepared by professional accountants. Running finance and Over Draft facility is available at a rate of 5 7 %. Term Finance facility is available for a period up to 3 months. Money has to be returned by this time period. They also follow SBP Export Refinance Policy, loans extended at a rate ranging from 3 3.5 %. However, at such a lower rate the loans are only awarded to the bigger and credible corporations. Stringent terms are being defined for the smaller and lesser reputable corporations. Generally they follow a conservative approach for the case of traders. The rate ranges from 2.5 12 %. The pre shipment and post Shipment loans are also available. Means when you are about to send anything abroad and you need some sort of financing you apply for the money and get it. Similarly once you have shipped anything you get the money. b) Askari Bank :

The rate of loans at Askari Bank varies from 3.5,5 9, 10 %. They also offer Export Refinance Facility as per SBP directives. Running finance is available for the traders with a better repute. Rest the products are same as other banks in market. The client is subjected to the subjective assessment and based on the relationship with the bank. c) Bank Al-Meezan:

Islamic banking system is prevalent in this bank. They either lent out the machine to the businesses or arrange the machine for the businesses but do not actually give money to the borrower for the project. For that arrangement they charge a rate as their rent and which is not regarded as the interest. d) Bank Al-Baraka:

They offer 2 types of financing: Moraba financing whereby the Money is lent out for specific purpose. Rate is 3, 4 10% normally and 5 7% for small firms. 2 nd

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type of financing is Ijara Financing, whereby they lease and the rate is linked to KIBOR and a specific markup. Floor and Ceiling are fixed and the rate is charged in between. For more details about the Moraba & Ijara financing refer to the appendix.

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CHAPTER 5: RECOMMENDATIONS
In this research study so far I have so far studied WTO and opportunities arising for the textile and related export businesses after the termination of MFA (Multi Fiber Agreement) in January 2005. In this regard I presented the opportunities in detail for 4 lucrative markets i.e. Bed Linen, Knit wear, Mens Undergarments and Polo T-shirts for men. A detailed feasibility study for setting up either of the businesses was also presented. Given the four product markets are offering equally attractive and lucrative opportunities for the new entrepreneurs, now let me present a few of the recommendations which will help the new entrepreneur in deciding which textile market or product category he should be entering. Following are a few recommendations which might help: In comparing the NPVs for the 4 possible projects with their respective initial investment, the following results were observed:

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NET PRESENT PROJECT Bed Linen Knitwear Mens Undergarments Polo T-shirts VALLUE (Rs.) 144 million (10 million) 17 million 59 million

Initial Investment 3.6 million 11 million 2.1 million 7.5 million

NET PRESENT VALUE OF THE PROJECTS COMPARED

160 140 120 100 NPV 80 (Rs. Million) 60 40 20 0 -20

Bed Linen

Knitwear

Mens Undergarments

Polo T-shirts

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INITIAL INVESTMENTS OF THE PROJECTS COMPARED

12 10 Initial Investment (Rs. Million) 8 6 4 2 0 Bed Linen Knitwear Mens Undergarments Polo T-shirts

NPV / INITIAL INVESTMENTS OF THE PROJECTS COMPARED

40 35 30 25 20 15 10 5 0 -5

NPV / Initial Investment

Bed Linen

Knitwear

Mens Undergarments

Polo T-shirts

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Bed linen project has got the maximum Net Present Value as against the Investment of 3.6 million, which means NPV / Investment of 40. This figure is 0.91 for knitwear, while 8.1 for Mens Undergarments and 7.87 for Polo T-shirts. So, it is evident that the entrepreneur should forget about the Knitwear project as far as financial viability is concerned. Against an initial investment of Rs.11 million the project is giving a negative return of Rs.10 million, hence making NPV / initial investment figure 0.91. Although the financial figures show that the project might not be feasible, through a subjective assessment if the entrepreneur is still convinced about the attractiveness of the market he can take up this project. However, this will be a risky proposition. The Bed linen project seems to be financially sound with a higher amount of Net Present Value and relatively lower initial investment. NPV/Initial Investment figures are exceptionally higher with a value of 40. Financially this project appears to be tempting for the entrepreneur to go for it. However, still it is advised that the entrepreneur should also subjectively asses the project, market attractiveness and feasibility. Mens Undergarments and Polo T-Shirt projects can make the entrepreneur to waver as the values of NPV / Initial investment are narrowly the same i.e. 8.1 for Mens Undergarments and 7.87 for Polo T-Shirts respectively. Owner can earn some good profits as against not very high initial capital investments. So, to abridge I suggest that if owner has an initial amount worth Rs.10 million to start a business with, he should go for any 2 of the 4 projects prioritizing them as Bed Linen, followed by Mens Undergarments, then Polo T-Shirts and finally the knitwear segment. The entrepreneur should go for SME mode of financing. For that matter he should invest at least 50 % his won capital while apply for the loan for the rest from the SME bank. SME bank is suggested as they also offer part-time consultancy as well as assistance from time to time. Otherwise the entrepreneur can go for Islamic mode of financing from the Bank Al-Meezan or the Bank Al-Baraka. This mode of financing is relatively cheap.

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It is suggested that entrepreneur should prepare a detailed feasibility study from a paid professional to present the idea in front of the SME Bank. This will make their project more credible and give them a better estimate of their future profitability of the project.

An important aspect of the whole project is the human resources for the new enterprise. It is suggested that unlike the traditional practices in the textile sector human resources should be dealt with carefully. The process begins with the proper recruitment of educated labor force, followed by their proper retention and awarding them the incentives from time to time.

Entrepreneur should try to meet the client physically before receiving orders from them. It is suggested that the entrepreneur should tour abroad before accepting an order; this will help in increasing the credibility of the customer. Furthermore, before entering into deal with any customer the entrepreneur should check the credentials of the customer, his credit worthiness and future prospects of the relationship with the customer.

Lastly, it is advised that entrepreneur should try to keep himself in good health and physically be very active. It is important because if the entrepreneur is not in a very healthy state it can hamper his business in the future.

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CHAPTER 6: CONCLUSION
Textile sector is a highly dynamic sector. The things change abruptly while quick moves are required to keep pace with the market and the competitors. This research study has addressed the issues and opportunities arising as result of the abolition of MFA in January 2005. It further assumed that how a new entrepreneur willing to set up his own textile export business can capitalize the opportunities arising. I explained the various possible options, worked out their feasibilities, studied the export business in detail and especially tried to address the issue pertaining to the documentation and other specifics of the export businesses. I also studied the financial aspect of the whole proposed new venture. A number of possible options to finance the business were discussed. Finally I recommended that the Bed linen sector is the most attractive segment to enter in and the Entrepreneur should also subjectively asses any of the 4 segments before deciding the sector to enter into. So, this research study offers a complete set of solutions for any one who wants to know about the opportunities rising in the Textile Sector in the year 2005 and wants to further explore the ways to capitalize those opportunities. I would like to thank all who helped me throughout the course of this research study and helped me in achieving my aim.

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