While dealing with textile sector issues, a public sector agency has asserted that regional and global pressures on the industry necessitate acquisitions and mergers whereby large-sized firms would be in a position to cope with competition. Is big necessarily better?

More to the point, what is an effective, competitive strategy? Do Pakistani firms – large and small – understand the challenges of being a competitive supplier to global retailers? The current state of the industry is rooted in a political economy that has affected its performance with deleterious consequences. The objective here is not to reiterate the political-economy of the industry’s development but to underscore that since the early 1980s, the textile industry and its value-added downstream component – garments and made-ups – have under-performed due to a variety of reasons--- the most important being the extensive bailing out by the state of failing entrepreneurs. Research on this historical problem is extensive and well-documented.

A more pressing issue today concerns the industry’s turnaround. It is well known that textile sector has been poorly managed and lacked productive entrepreneurial spirit. With the end of the Multi-Fibre Agreement and the phasing out of quotas, the playing field is substantially altered. Global retailers now demand high quality performance from an extensive network of suppliers whose failure to respond adequately cannot be ameliorated by government transfers such as subsidies, more credit, currency devaluations or even cheap infrastructure.

Moreover, efficient performance is no longer based on getting the price right for a given product, but increasingly on non-price factors such as short lead times, timely delivery, technical standards, quality, and branding. In this era of competition, managing efficient value chains forms the foundation of a strategy for staying competitive in global production networks, which the textile-garment industry embodies.

What is a value chain? It is not only the linkage between a large firm, its small suppliers and outbound logistics, but also its linkage with global retailers or international buyers. In this context, an efficient value chain – suppliers, buyers, distribution channels - is managed as a system and not as a collection of separate parts. This necessitates that firms gain competitive advantage in global markets through purposeful efforts, such as re-organising production and building lasting relationships with suppliers and buyers.

Why are non-price factors an important criteria for remaining competitive in the textile-garment industry? A study has revealed that for manufactured goods imported into the USA, each day of travel is worth an average of 0.8 per cent of the value of the good, and that each day in transit reduces the probability that a country will be a source by 1.5 per cent. For instance, lead time is the length of time it takes for a product to reach market from the moment an order is placed to the moment it reaches a store in the USA or Europe.

The average lead time for textile-garment suppliers from Mexico to US is two days delivery and from China to US, 30 days. In Pakistan, most firms – large or small- have difficulty coping with these delivery benchmarks. The average time it takes to ship textile products from Pakistan to the US is 60 days. Only a handful of large firms have been able to streamline their value chains to gain shorter delivery times to the USA.

In the post-MFA era, global buyers like Ikea, Walmart, JC Penney and others, are placing greater emphasis on reliable delivery and lead times. Increasingly, global retailers seek their local suppliers across India, China, the Caribbean Basin and Pakistan to take on additional responsibilities such as shipping orders directly to buyers’ stores. Direct to Store shipment (DTS) can increase a firm’s working capital by nearly 40 per cent due to high logistics costs. Local suppliers/firms that are able to fulfil such demands are also able to compete more effectively in the global market and perhaps even get better prices.

So does size matter? Empirical studies suggest that small to medium sized firms are better equipped to handle the pressures of competition as they cope better with uncertainties and contingencies. This is a fact borne out by research on SME manufactures in India’s northern region of Ludhiana, where its knitwear industry was hit by two crises – loss of primary export market in former USSR and opening up of Indian economy to enlarge foreign trade. The industry not only weathered both crises well by recovering output and income levels, but managed to outperform past export performance. There are several lessons to be learnt from the Ludhiana case: the firms placed equal importance on price as well as non-price factors such as delivery times, design capabilities, distribution channels.

In fact, technology upgrading followed changes in organisation of production. Furthermore, the SMEs identified market channels where orders were small-scale and customised. This became a key determinant for shifting gradually to a more demanding global market. Moreover, the firms spread risk by inserting themselves in both lucrative domestic and export markets. Producing high quality brands for domestic consumers was an important insurance mechanism, especially for first time small-scale exporters. The key lesson that emerges from the Ludhiana experience is that firms – large or small – succeed by developing linkages.

Downstream firms that collaborated with upstream suppliers, such as spinners to produce new kinds of inputs also produced high quality end products for both domestic and export markets. The resulting relationships proved to be the greatest asset for both large and small firms to weather the pressures of new competition. Finally, the key to survival was not embedded in size alone, but in organisational changes such as hiring better designers, improving delivery times, and upgrading key processes. Above all, survival was embedded in understanding and responding to discipline-inducing pressures of the market, whether domestic or export, and not subsidies and bail outs by the state.

In Pakistan, mergers and acquisitions may result in short-term gains for the textile industry’s survival. In the long-run, gains to competitiveness can arise only from a dynamic and demanding process that values building linkages and mentoring relations between large and small firms, and their buyers.