Pakistan in the Apparel Public Disclosure Authorized Global Value Chain Public Disclosure Authorized January 2019 Prepared by Stacey Frederick and Jack Daly Public Disclosure Authorized Duke Global Value Chains Center, Duke University Public Disclosure Authorized This research was prepared by the Duke University Global Value Chains Center on behalf and under the guidance of the World Bank. The report is based on both primary and secondary information sources. In addition to interviews with firms operating in the sector and supporting institutions, the report draws on secondary research and information sources. The project report is available at www.gvcc.duke.edu. Acknowledgements The Duke University Global Value Chains Center would like to thank all the interviewees, who gave generously of their time and expertise. It would specifically like to recognize the contributions of the Sustainable Development Policy Institute (SDPI) and Mahrukh Kayani for their extensive support during our field research in Pakistan. The Duke University Global Value Chains Center undertakes client-sponsored research that addresses economic and social development issues for governments, foundations and international organizations. We do this principally by utilizing the global value chain (GVC) framework, created by Founding Director Gary Gereffi, and supplemented by other analytical tools. As a university-based research center, we address clients’ real-world questions with transparency and rigor. www.gvcc.duke.edu Duke Global Value Chains Center, Duke University © January 2019 2 Pakistan in the Apparel Global Value Chain 1. Introduction ............................................................................................................................................................... 6 2. The Global Apparel Industry ................................................................................................................................. 8 2.1. The Apparel Global Value Chain .............................................................................................................. 10 2.2. Global Trade in the Apparel GVC ........................................................................................................... 15 2.2.1. Global Supply ....................................................................................................................................... 15 2.2.2. Global Demand .................................................................................................................................... 17 2.3. Lead Firms and Governance ...................................................................................................................... 18 2.4. Human Capital ............................................................................................................................................... 20 2.5. Standards ........................................................................................................................................................ 22 3. Pakistan and the Apparel Global Value Chain ................................................................................................. 23 3.1. The Development of the Apparel Industry in Pakistan ....................................................................... 27 3.2. Pakistan’s Current Participation in the Apparel GVC ......................................................................... 27 3.2.1. Firm Profile ........................................................................................................................................... 28 3.2.2. Backward Linkages .............................................................................................................................. 30 3.2.3. Product Profile ..................................................................................................................................... 32 3.2.4. End Markets.......................................................................................................................................... 34 3.3. Governance and Industry Organization .................................................................................................. 35 3.3.1. Lead Firms ............................................................................................................................................ 36 3.3.2. Institutional Context .......................................................................................................................... 37 3.4. Upgrading in Pakistan’s Apparel GVC ..................................................................................................... 41 3.5. Human Capital ............................................................................................................................................... 43 3.5.1. Wages .................................................................................................................................................... 43 3.5.2. Female Participation ........................................................................................................................... 44 3.5.3. Skilled workers .................................................................................................................................... 45 3.5.4. Education and Training ...................................................................................................................... 45 3.6. Advantages and Constraints ...................................................................................................................... 46 3.6.1. Advantages ............................................................................................................................................ 46 3.6.2. Constraints ........................................................................................................................................... 48 4. Lessons for Pakistan’s Upgrading in Apparel GVC from Global Experiences ......................................... 52 4.1. Case Studies ................................................................................................................................................... 54 4.1.1. Vietnam ................................................................................................................................................. 55 4.1.2. Sri Lanka ................................................................................................................................................ 58 4.2. Key Lessons for Pakistan ............................................................................................................................ 63 5. Proposed Upgrading Trajectories for Pakistan Apparel GVC..................................................................... 63 6. Appendix .................................................................................................................................................................. 66 7. References ............................................................................................................................................................... 70 3 List of Tables Table 1: World Apparel Exports by Product Categories, 2006-16 ..................................................................... 14 Table 2: Top 10 Apparel Exporters by Year and Value, 2008-16 ........................................................................ 16 Table 3: Job Profiles in the Apparel GVC .................................................................................................................. 21 Table 4: Pakistan’s Textile and Apparel Exports, 2009-16 .................................................................................... 24 Table 5: Pakistan’s Apparel Exports by Product Category, 2006-16 .................................................................. 25 Table 6: FDI Inflows to Pakistani Textile and Apparel Industry, 2007-16 .......................................................... 26 Table 7: Profile of Pakistani Businesses Exporting Apparel, 2016-17 Fiscal Year ............................................ 29 Table 8: Apparel Companies in Pakistan with >$100m in Exports, 2016-17 .................................................... 30 Table 9: Top 10 Inputs Imported by T&A Exporters, 2014/15-16/17 ................................................................ 31 Table 10: Pakistan’s Fabric, Yarn and Fiber Imports, 2006-16 .............................................................................. 32 Table 11: Pakistani Tier I Apparel Suppliers of Major Global Buyers ................................................................. 36 Table 12: Textile & Apparel Specific Supporting Stakeholders in Pakistan ........................................................ 38 Table 13: SWOT of Pakistan’s Apparel Industry ..................................................................................................... 46 Table 14: Top 10 Global Trousers Exporters, 2016 ............................................................................................... 47 Table 15: Hours to Process Import Container Through Customs ..................................................................... 49 Table 16: Foreign vs. National Ownership in Apparel Factories, 2017-18 ........................................................ 50 Table 17: European Lead Firms Sourcing from Pakistan’s EPZs and SEZs .......................................................