The textile sector of Pakistan has struggled to promote innovation among its ranks. One of the reasons cited for this phenomenon is that the majority of small and medium-scale players simply do not have the investment required to upgrade technology in their business units.
A recent survey conducted by the Innovation and Technology Centre of the Lahore School of Economics concluded that the export-oriented organizations ranked higher with respect to innovation compared to the firms, which do not have access to the export markets or the scale of their business model is so small that it cannot base it on exports.
The survey said, “Export-oriented textile mills direly need innovation primarily to attract international buyers in the face of tough competition.”
The survey primarily observed the exporting and non-exporting businesses within the textile and readymade garment industry with regard to their growth trends in modernizing of technology and innovation in Lahore. The target of the survey was to gauge the extent, quality, and impact of regular upgradation and innovation on the performance and profitability of businesses.
125 firms participated in the survey. 87 of the businesses were in the business of exporting their merchandise while 38 were not involved in the export business. About 40 percent of the export-oriented firms shipped all of their produce to foreign countries with Europe being their primary target market.
The survey revealed that the majority of exporting firms were large in size and had the financial muscle to innovate and upgrade their production lines with the purchase of new machinery or equipment. Meanwhile, the small-sized businesses were largely non-exporting firms. In response to a survey question asking if they were planning to innovate over the next 12 months, most of the non-exporting firms expressed an inability to upgrade in the given time frame. On the contrary, a majority of export-based firms said that they were planning to upgrade the technology.
An indicator that further showed the gulf between both kinds of firm was that a large number of exporting businesses gone through upgradation of their technology within the last one to five years. Meanwhile, a large chunk of the relatively smaller enterprises – who largely supply the local market – had upgraded their equipment in five to 10 years ago. Moreover, the data revealed that a significant number of exporting firms had procured their last four upgradation equipment and technologies from abroad. Two of the biggest contributors to fund these upgrades were their own internal resources and loans from banks and financial institutions, the export-oriented firms said.
On the other end of the spectrum, firms with local clientele said they only had their company’s equities to fund the technological upgrades. The main focus of these upgrades at both the exporting and local market-oriented firms pertained to the areas of production and marketing, the survey said. There was a consensus among the organizations that the innovation in products yielded higher profits followed by upgradation in technology and equipment.
An overwhelming proportion of the cited the pressure to improve the quality of the produce was one of the most significant drivers of innovation that contributed to the technological upgrade in the industry. The technological upgrade resulted in an increase in the revenue for most of the export-oriented firms along with a drop in the production costs.
Both categories of the firms agreed that the human resource or the hike in product prices do not affect their market share given the fact that innovation generally improves the quality of their product, which justifies the increase in pricing. Both the small and the large firms said that the lack of funding to upgrade and the scarcity of innovation opportunities were the two greatest hurdles that hinder the prospect of innovation.
The survey concluded, “Incentives to innovate are particularly important for firms. Thus, it can be concluded that more incentives for innovation can be given by providing more sources of funding for the innovating firms in the form of aid from the government and with the assistance of financial institutions.”