INSTITUTE OF BUSINESS MANAGEMENT (IoBM)

ANALYSIS OF PAKISTANI INDUSTRY

TERM RPORT-2024

SECTION CODE: M-19725

INSTRUCTOR: DR. ASGHAR ALI

PRESENTED BY:

FATIMA ASHRAF (20201-28013)

MAHEEN KHAN (20201-27393)

ZEHRA FAROOQUI (20201-27252)

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 ACKNOWLEDGEMENT:

First of all, we would like to thank Almighty Allah, without His mercy,
nothing could have been possible.

Then we would like to express sincere appreciation to our respected

teacher, Dr. Asghar Ali, for his useful guidance, constructive comments,
and endless encouragement throughout the project and also throughout the
semester, in which we have learned many new things in the field of
Pakistan’s Industries. We hope this will help us in the practical world ahead.

Moreover, we are also grateful to the Institute of Business Management

(IoBM) for giving us the right direction to show our skills and abilities.

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 Table of Contents

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 Executive Summary
The cotton industry is integral to Pakistan's economy, significantly contributing to foreign
exchange earnings and employment. This report explores the industry's history, geographical
distribution, general characteristics, competition types, legal and regulatory issues, international
market presence, and major companies. It also addresses the challenges faced by the industry
and proposes solutions for future growth and sustainability. The industry is crucial yet faces
significant hurdles including pest infestations, regulatory challenges, and environmental
concerns. Strategic improvements and technological advancements are essential for maintaining
competitiveness in the global market.

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Introduction
Economic Significance: Cotton is Pakistan’s most important cash crop, contributing to 55% of the country’s
foreign exchange earnings.

Agricultural Prevalence: About 26% of farmers grow cotton, which occupies over 15% of the total cultivated
area, mainly in the provinces of Punjab and Sindh.

Production Distribution: Punjab, with its dry conditions, grows about 65% of the cotton, while the more
humid Sindh accounts for the remainder.

Textile Industry: Cotton serves as the raw material for Pakistan’s largest agro-industrial sector, the textile
industry, which employs 17% of the workforce, earns 60% of foreign exchange, and contributes 8.5% to GDP.

History
Earliest Period of Cotton Production: The earliest known traces of cotton cultivation were found at
Mehrgarh, near the city of Quetta in modern-day Pakistan. Cotton threads were discovered on a copper bead at a
burial site dating back to the Neolithic period (around 6000 BC). These mineralized threads were identified as
cotton (genus Gossypium), making Pakistan one of the first regions where cotton was cultivated

During the Indus Valley civilization, which covered parts of present-day eastern Pakistan and northwestern
India, cotton cultivation became more widespread. Archaeobotanical evidence of cotton seeds dates back to
5000 BC in Mehrgarh, although it’s unclear whether they belonged to wild or cultivated varieties. Cotton cloth
was used in the Indus Valley cities of Mohenjo-daro and Harappa around 2500 BC. Cotton pollen has been
recorded at Balakot as well.

Pre-Partition Era (Before 1947): Cotton Cultivation in Pakistan

 Long history dating back centuries.

 Pre-partition, grown in Indus Valley, Punjab, Sindh.
 British colonial administration promoted exports to Lancashire textile mills.

Early Years of Independence (1947–1960s): Pakistan's Independence and Cotton Industry

 Inheritance of significant cotton industry infrastructure.

 The government focused on expanding cultivation and establishing textile mills.
 Improvements have been made in cotton varieties, irrigation systems, and agricultural practices.

Green Revolution (1960s–1970s): Green Revolution's Impact on Cotton Production

 introduced high-yielding cotton varieties.

 Modern farming techniques increase production.
 Adoption of irrigation technologies, chemical fertilizers, and pesticides.

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Nationalization and Government Intervention (1970s–1980s): Pakistan's 1970s Nationalization of Industries

 Nationalized textile mills.

 Inefficiencies and challenges in the cotton and textile sectors.
 fosters growth and competitiveness.
 Cotton production increases despite government intervention.

Liberalization and Privatization (1990s–2000s): Pakistan's Economic Liberalization and Privatization in

the 1990s

 Deregulation of the cotton and textile industries was initiated.

 Privatization of textile mills led to renewed investment and modernization.
 Adoption of GM cotton varieties in the early 2000s increased yields and reduced pesticide use.

Modernization and Globalization (2000s-Present): 21st Century Pakistan's Cotton Industry

 Modernized and globalized through precision agriculture, mechanization, and digitalization.

 Transformed farming practices and value chain management.
 Emergence as leading global cotton-producing country.

LOCATION
Karachi is the largest cotton textile center in Pakistan; Faisalabad is the second largest.

Factors affecting its location

WHY KARACHI?

 Sufficient labour is available from all over the country

 Imported machinery is saved from additional transportation cost as Karachi is located at the port
 There are no extra transport charges on export of cotton goods.
 A large domestic market for cotton products exists because of hot and humid climate of Karachi and
adjoining areas
 The availability of power supplied by korangi Thermal Power Station, Karachi nuclear power Plant, and
Bin Qasim thermal power plant
 Linkage to the rest of the country by efficient transport system
 Availability of capital and experienced entrepreneurs

WHY FAISALABAD?

 Located close to the cotton belt of Punjab

 A labor force is available from adjoining areas
 Large local market in thickly populated province of Punjab
 Favorable government policies for, e.g., infrastructure

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WHY HYDERABAD?

Located in the cotton-producing areas of lower Sindh

 There is a large local market in Sindh.
 Not far from the port.
SMALL COTTON MILLS

WHY in small centres in Northern Punjab and Sindh?

 Domestic market.
 Enjoy favourable government policies like tax holidays and other incentives.

WHY QUETTA?
 To utilize the cotton produced in Baluchistan.
 Domestic market in Baluchistan

Cotton Processing Chain

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By products:

1. Cotton Liners
Cotton linters are fine, silky fibers which adhere to the seeds of the cotton plant after ginning. These
curly fibers are typically less than 1/8in, 3mm long. Linters are traditionally used in the manufacture
of paper and as a raw material in the manufacture of cellulose

2. Cotton Seeds
 The cottonseed that remains after the cotton is ginned, is used to produce cottonseed oil,
which after refining can be consumed by humans like any other vegetable oil.
 The cottonseed meal that is left is generally fed to livestock.

Cotton and its classification

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Distribution of International Cotton Production

Importance of the cotton textile industry

 In Asia, Pakistan is the 8th largest exporter of textile products

 Cotton is the basic cash crop of Pakistan, so Pakistan is the 3rd largest exporter of raw cotton
 Cheap labour and raw Cotton are available
 It provides employment to 38% of the work force in the country, which amounts to a figure of 15
Million. However, the proportion of skilled labour is very low as compared to that of unskilled labour.
 2nd largest supplier of cotton yarn with 26% share of the international market

Issues of the Industry

 Farmer Reluctance: A major factor is the reluctance of farmers to grow cotton, influenced by
several challenges.
 Productivity Issues: Problems such as a narrow genetic base, one-dimensional breeding, and
pest diseases contribute to low productivity per hectare.
 Quality Seed Shortage: The persistent unavailability of quality, certified seeds adversely affects
cotton yields.
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  Crop Failures: The high incidence of crop failures due to insect and pest attacks is also a
significant concern.

Regulatory Issues

The cotton industry in Pakistan is heavily regulated by various government policies and regulations aimed at
ensuring quality standards, promoting exports, and supporting farmers. These policies include regulations on
seed certification, pesticide use, quality control, and trade agreements.

 Seed Certification and Regulation: Pakistan's Seed Certification Agency regulates cotton seed
quality, ensuring farmers use only certified seeds, but issues like counterfeits and inadequate
enforcement can hinder its effectiveness.
 Pesticide Regulation and Environmental Concerns: The Pakistan EPA (Environmental Protection
Agency) and Ministry of National Food Security and Research regulate pesticide use in the cotton
industry, but misuse and overuse pose significant environmental and health risks.
 Quality Control and Standards: The Pakistan Standards and Quality Control Authority (PSQCA)
sets standards for cotton products, but inconsistent compliance can lead to issues like adulteration
and substandard products.
 Trade Policies and Export Regulations: Pakistan's cotton industry relies heavily on exports, with
trade policies affecting competitiveness and influenced by international dynamics like tariffs, quotas,
and agreements.
 Government Support and Subsidies: The Pakistani government offers subsidies to the cotton
industry, but their effectiveness and fair distribution are under scrutiny due to concerns about
corruption and market dynamics.
 Labor Regulations and Social Responsibility: Pakistan's cotton industry faces labor rights and
social responsibility challenges, including child labor, poor working conditions, and fair wages,
necessitating regulatory oversight and ethical sourcing initiatives.

SWOT ANALYSIS
Strengths:
 Availability of raw material
 Cheap labour
 Export focused

Weaknesses
 Lack of research and development
 Dependency on cotton
 Low labour productivity
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  Insufficient infrastructure
 Inadequate quality standards
 Technological advancement

Opportunities
 International marketing and collaboration
 Clothing production
 Development in Global economies
 Domestic market

Threats
 International competition
 Increased cost
 Energy crises
 Environmental concerns
 Government policies

Technological State
Biotechnology and GM Cotton:

 Adoption of genetically modified (Bt) cotton to combat pests like the cotton bollworm.
 Benefits such as reduced pesticide use and increased yields.
 Concerns regarding seed quality, pest resistance, and regulatory issues.

Mechanization and Agricultural Machinery:

 Increasing prevalence of farm machinery like tractors, planters, and harvesters.

 Role of mechanization in reducing labor requirements and improving productivity.

Precision Agriculture Technologies:

 Adoption of remote sensing, GIS, and GPS for optimizing resource use and decision-making.
 Benefits in monitoring crop health, soil moisture, and pest infestations.

Seed Technology and Hybrid Varieties:

 Advances in seed technology leading to development of high-performing hybrid varieties.

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  Importance of seed treatment technologies for pest and disease management.

Information and Communication Technology (ICT) Solutions:

 Use of mobile applications, online platforms, and agricultural advisory services.

 Role in disseminating information, providing agronomic recommendations, and facilitating market
access.

Research and Development:

 Ongoing initiatives by research institutions, universities, and agricultural organizations.

 Focus on breeding for stress resistance, sustainable agronomic practices, and climate change adaptation.

Irrigation and Water Management:

 Challenges of water scarcity in cotton cultivation.

 Adoption of water-saving irrigation techniques like drip irrigation and moisture sensors.

PESTEL ANALYSIS:
POLITICAL:

 Government Policies: Throughout history, the government of Pakistan has exerted considerable
influence over agricultural policies, particularly those concerning cotton. Production levels and farmer
profitability have been impacted by supporting prices for cotton as well as subsidies on inputs like
insecticides and fertilisers. Policy modifications, such as adjustments to pricing or subsidy
arrangements, directly affect production costs and, in turn, the profitability of the sector.
 Political Stability:The supply networks and cotton production have been hampered by periods of
political turmoil, government transitions, and policy uncertainty in Pakistan. For example, harvesting
and processing processes can be disrupted by political protests or conflicts in cotton-growing regions,
which can result in shortages and price volatility.

ECONOMICAL:

 In order to meet the increasing demand for cotton, it has to be imported, and due to this, a huge amount
of foreign exchange has to be spent to import cotton.
 If cotton is destroyed by a lot of pests, then local market and the export of cotton will be affected, and
Pakistan will be short of revenue if cotton is destroyed by a lot of pests. This means that there would be
a decrease in the crop yield, and then exports of cotton would drop, and the cotton industry would be at a
loss. It will have to invest more money to grow new crops, which is a burden on the economy.
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 SOCIAL:

 Farmer Reluctance: A major factor is the reluctance of farmers to grow cotton, which is influenced by
several challenges.
 Productivity Issues: Problems such as a narrow genetic base, one-dimensional breeding, and pest
diseases contribute to low productivity per hectare.
 Quality Seed Shortage: The persistent unavailability of quality, certified seeds adversely affects cotton
yields.
 Disease Impact: Diseases like CLCV and pink bollworm have caused significant losses in cotton crops
in Punjab for over 25 years.
 Crop Shift: There is a noticeable shift from cotton-wheat zones to sugarcane and maize cultivation due
to these challenges.

TECHNOLOGICAL:

 Technology developments: From agricultural methods to processing procedures, the cotton business
has seen a number of changes throughout the years due to technological breakthroughs. Productivity and
efficiency have increased with the use of precise agriculture technologies, better seed types, and
contemporary machinery. For example, yields have increased and the need for chemical pesticides has
decreased with the introduction of genetically modified cotton cultivars with features like pest
resistance.
 Adoption of Biotechnology: Pakistan's cotton industry has adopted biotechnologies like GM cotton
since 2000, impacting production, pest management, and farmer livelihoods. However, challenges like
pest resistance and regulatory issues persist.

ENVIRONMENTAL:

 Climate Change: Rising temperatures and changing climatic conditions have led to a reduced area for
cotton cultivation
 Weather Extremes: Heavy rainfall or drought during the growing season can severely damage the crop.
 Crop Failures: high incidence of crop failures due to insect and pest attacks is also a significant
concern. Diseases and pests pose a serious threat to Pakistani cotton growers. Chemical fertilisers and
pesticides can be expensive and bad for the environment to use.

LEGAL:

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  Trade Agreements: The import and export of cotton and cotton products are impacted by international
trade agreements and tariffs, which in turn have an impact on Pakistan's cotton sector. Trade agreements
can put limits on trade flows or offer opportunities for market access, such as preferential trade
agreements with partner countries or regional trade blocs. Pakistani cotton's competitiveness in
international markets is also impacted by trade restrictions and tariffs levied by importing nations.
 Intellectual property rights in cotton farming can hinder research, innovation, and technology transfer,
potentially leading to patent infringement or licensing disputes, affecting agricultural innovation and
technology accessibility.

OVERALL ANALYSIS

 The cotton industry in Pakistan is characterized by high entry barriers

 Limited bargaining power of suppliers
 Fragmented buyer base
 Low threat of substitutes
 Intense competitive rivalry.

PORTER'S FIVE FORCES

THREATS OF NEW ENTRANTS

 High Entry Barriers: The Pakistani cotton sector faces significant entry barriers due to high capital
needs for land, equipment, infrastructure, and economies of scale, making it difficult for newcomers to
compete.
 Government rules: New entrants may encounter challenges like government regulations, land
ownership laws, agricultural policy, quality standards, environmental restrictions, and licensing criteria.
 Access to Distribution Channels: Well-established companies usually have strong ties to suppliers and
buyers, as well as established distribution networks. The market reach of new competitors may be
restricted by their difficulty gaining access to these channels.

BARGAINING POWER OF SUPPLIERS:

 Limited Bargaining Power of Cotton Growers: Pakistani cotton growers frequently deal with issues
like low profitability, reliance on seasonal conditions, and restricted access to resources and financing.
Their ability to negotiate is thus limited, particularly when interacting with major cotton processing
firms.

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  Dependency on inputs: Providers of inputs for agriculture, such as pesticides, fertilisers, and seeds,
have some sway, especially if they provide specialised or unusual items. However, their negotiating
power is somewhat diminished by the availability of several suppliers and substitute inputs.

BARGAINING POWER OF BUYERS

 Fragmented Buyer Base: The buyer base in the cotton industry is fragmented, ranging from textile
manufacturers to traders and exporters. Large textile companies may have more bargaining power due to
their scale and ability to influence prices.
 Price Sensitivity: Buyers in the textile industry, both domestic and international, are often price-
sensitive due to competition and market dynamics. This limits their individual bargaining power, as they
cannot easily dictate prices to cotton suppliers.
 Switching Costs: Switching between cotton suppliers may entail costs related to quality assurance,
logistics, and relationship-building. However, the presence of multiple cotton suppliers in Pakistan
offers buyers some flexibility and reduces switching costs.

THREATS TO SUBSTITUTE

 Limited Substitutes for Cotton: Cotton remains a primary raw material for the textile industry, with
few direct substitutes in terms of cost, performance, and versatility. While synthetic fibers like polyester
and viscose are alternatives, they often cater to different market segments or have distinct properties.
 Brand Loyalty: Established textile brands and manufacturers may have brand loyalty built around
cotton products, making it challenging for substitutes to gain market share.
 Innovation in Alternative Fibers: Technological advancements and consumer preferences for
sustainable materials may pose a long-term threat to cotton if viable substitutes emerge. However, the
widespread adoption of alternatives would likely require significant investment and consumer
acceptance.

.COMPETITIVE RIVALRY

 Intense Competition: The cotton industry in Pakistan faces intense competition, both domestically and
globally. Domestically, there are numerous cotton growers, ginners, and textile manufacturers vying for
market share. Internationally, Pakistan competes with other cotton-producing countries in terms of
quality, price, and reliability.
 Price Competition: Price competition is common in the cotton industry, driven by factors such as
global market trends, currency fluctuations, and supply-demand dynamics. Companies must continually
innovate and optimize their operations to remain competitive.
 Product Differentiation: Product differentiation through quality, variety, and value-added services can
help companies stand out in the competitive landscape. However, differentiation may be limited in
commodity markets where price is a primary consideration.

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Types of competition present in industry
Price Competition:

 Price competition is prevalent among cotton farmers, ginners, and traders.

 Farmers compete to sell their cotton produce at the best price to ginners and traders.
 Ginners and traders compete with each other to procure cotton from farmers at competitive prices


Quality Competition:

 Quality competition is significant, especially among ginners, textile manufacturers, and exporters.
 Ginners compete to produce high-quality lint by effectively removing impurities during ginning
processes.
 Textile manufacturers compete to source high-quality cotton fiber to produce superior textiles and
garments.
 Exporters compete to meet international quality standards and specifications to access lucrative export
markets.

Technological Competition:

 Technological competition among seed companies and machinery manufacturers and agricultural
service providers involves developing superior cotton varieties, providing advanced farming equipment,
and offering technological solutions to improve farm operations.

Market Access Competition:

 Market-access competition is observed among textile manufacturers and exporters.

 Textile manufacturers compete for market access to domestic and international buyers by offering
competitive prices, quality products, and timely delivery.

Policy and Regulatory Competition:

 Competition exists among policymakers and industry associations.

 Stakeholders compete to influence policy decisions that impact the competitiveness and sustainability of
the cotton industry, including issues related to subsidies, tariffs, trade agreements, and environmental
regulations.
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Problems for the industry:

 Lack of Research and Development in the Cotton Sector

 Lack of Modernized Equipment
 Finance Bill to Burden Industry Further
 Increasing Cost of Production
 Internal Issues Pose a Larger Threat for Pakistan's Textile Industry
 Effect of Inflation

Problems faced by the people

 Cotton is the top crop, consuming around 85% of applied pesticides.

 Heavy consumption of pesticides and poor irrigation practices turn the fields barren and contaminated
with salt and pesticides.
 Drinking water pollution, childhood illnesses, including blood diseases, and birth defects are observed.
 Cotton and textile workers have an increased prevalence of both obstructive and restrictive lung function
patterns when compared to control subjects.

 Secondary pest outbreaks, ecosystem imbalance, and crop failure are some other side effects. The
experience of undesired effects from the application of pesticides in cotton fields has been a global
reality.

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Matthews, a full-time farm worker since the age of seven, is all too familiar with the effects of pesticides. In a
single day's work with plants saturated in heavy chemicals, Matthews has lost her finger and toenails.

RECOMMENDATIONS:
 Investment in Research and Development

Significantly boost investment in R&D to develop pest-resistant and high-yield cotton varieties. This
will improve productivity, combat crop failures, and foster innovation through partnerships between
research institutions and the private sector.

 Infrastructure and Technological Upgrades

Enhance infrastructure by improving irrigation systems, transportation networks, and storage facilities.
Adopt modern farming techniques and machinery to increase productivity, reduce labor costs, and meet
international quality standards.

 Government Support and Policy Reforms

Provide subsidies and financial assistance to farmers, ensure the availability of quality seeds, and create
favorable policies for investment. Address regulatory issues and explore new export markets to enhance
the industry's global competitiveness.

 Remedy Through Foreign Direct Investment (FDI)

 Image Building of Pakistan to Attract Foreign Direct Investment (FDI)
 Focus on Value Addition
 Technology Upgrade & Capacity Building
 Human Resources Development
 Subsidy Removal Should Be Taken Back
 Interest Rate Should Be Low Down In Order To Survive This Industry
 Electricity & Gas Tariff
 Removal of Energy Crisis
 Exploration of New Export Markets

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  Reducing the Cost of Doing Business in Pakistan
 Need for Improving Textile Production
 Improvement in Productivity
 Awareness of International Quality Standards
 Introducing the Concept of On-the-Job Training
 Introducing Efficient Management Techniques

Conclusion
The cotton industry in Pakistan has a rich historical background and remains a vital economic sector. However,
it faces numerous challenges such as regulatory hurdles, pest problems, and environmental issues. The
industry's future, especially concerning WTO regulations, requires strategic planning and technological
advancements. Emphasizing research and development, improving infrastructure, and addressing labor issues
are critical for sustaining and enhancing the industry's global position. Government policies and international
trade agreements will play crucial roles in shaping the industry's trajectory.

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