The Antecedents of competitiveness in the textile industry of Pakistan.

Abstract

The theory of comparative advantage was first described by David Ricardo (1817) the theory refers to the ability of an individual or a country to produce a particular goods or services at a lower marginal and opportunity cost over another. Theory gained a great criticism afterwards like,Roberts (1984) notes that the comparative advantage principles do not hold where the factors of production are internationally mobile. Criticism also supported by UtsaPatnaik (2005) and Ha-Joon Chang (2002).After more than hundred and fifty years theory of competitiveness was presented by Michael Porter in 1985, which addressed some of the criticism of the comparative advantage. Porter was of the view that cheap labor (that always remains present) and natural resources are not necessary for a good economy. He emphasizes productivity growth as the focus of national strategies. Comparative advantage can lead countries to specialize in exporting primary goods(goods directly attainable from the earth, usually the 3'Fs and M Farming, Forestry, Fishing and Mining) and raw materials that trap countries to low-wage economies due to terms of trade. Whereas competitive advantage attempts to correct for this issue by stress in maximizing scale economies in goods and services that gain premium prices (Warf, 2007). Pakistan is the 4th largest producer of cotton, which is the input of the textile sector. This natural edge gives the country a comparative advantage over the competitors. The exports of textile are 65% of the total exports of the Pakistan, containing 3% for raw cotton and 97% for manufactured or industrialized goods (Pakistan Bureau of Statistics, 2009-10) . Constitutes 46% of Manufacturing Industry, Employs 38% of country’s working population contributes 8.5% to the total GDP(SMEDA, 2005). The study was designed to find out the key determinants of the competitiveness of the textile industry of Pakistan. Survey was designed to conduct the research in the sector by using finance side, productivity side, supply-side and demand-side determinants to measure enterprises’ competitiveness. 183 Public Limited Textile companies listed at KSE (Karachi Stock Exchange) were taken as sample for the study. Data regarding four dimensions of competitiveness as mentioned earlier has been collected by dividing the dimension into sub dimensions, each sub dimension asked through various questions at likert scale. Exploratory factor analysis technique has been applied on these sub dimensions, to find out the key sub dimensions of each major dimension of competitiveness. The averages of these selected sub dimensions, labeled as new variables, with the title of their major dimensions of competitive position. The findings demonstrate that finance side determinants being explored by the factor analysis showing the highest average, being followed by the productivity, supply side and demand side determinants respectively.This indicates that various sub-dimensions were selected as the key determinants of the competitiveness of the textile industry of Pakistan by the factor analysis technique. These dimensions were as: two sub-dimensions from financial side (i) cost of capital and (ii) easy raising of funds from equity markets at compare to other regional competitors, five sub-dimensions from the productivity side (i) training facilities to workers, (ii) developing work attitude, (iii) learning organization, (iv) education facilities for workers at job, (v) potential to restructure and (vi) research and innovation facilities available for productivity. Eight sub-dimensions from supply side (i) low cost of local inputs, (ii) easy access to information, (iii) low cost of imported inputs, (iv) backward, forward & vertical linkages, (v) supply chain management, (vi) research and development facilities in supply, (vii) preferential policies, and (viii) ISO role in dealing with suppliers.Seven sub-dimensions from the demand side comprising of, (i) quality increases demand, (ii) access to local markets, (iii) access to abroad markets, (iv) role of government in finding new markets, (v) product differentiation increases demand, (vi) role of WTO for enhancing demand and (vii) elimination of quota regime. Data findings supports the above mentioned sub-dimensions aggregately forming the major dimensions which could be stated as the factors those are keeping the textile industry of Pakistan competitive at firm level.