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KARACHI: Mian Mohammad Mansha, Pakistan's wealthiest textile industrialist, considers himself well-prepared for the challenges ahead after the abolition of the global textile quota system this month.
His Nishat group, a key Pakistani textile exporter, has implemented drastic consolidation among the companies of its once disparate empire.
"Just five years ago, I had 18 textile companies. Now, I have three and I plan to merge them into just two. That's how I will survive," says Mansha.
Pakistan has an estimated 1,000 textile companies but only 150 of them are large enough to be listed on the Karachi stock exchange the country's main stock market.
The end of the global quota system on January 1, under which the US and the European Union (EU) restricted textile imports according to their country of origin, promises to have a huge impact on Pakistan.
Up to 60 per cent of Pakistan's annual export income comes from the textile sector, which employees more than half of the country's industrial workforce.
The EU led the country a 15 per cent rise in its quota for textile exports after Islamabad joined the US-led war on terror following the September 11 attacks.
Analysts estimate that over the past two years, Pakistan's textile companies have invested up to $6.0bn in overhauling and expanding existing businesses.
But industrialists warn this will not be enough to prepare Pakistan for the new regime, which will place it in open competition with neighbouring textile producers such as India, China and the countries of south-east Asia.
"Many textile companies are not large enough to survive if they face intense competition," says Tariq Saigol, another leading textile industrialist.
A study commissioned by the Karachi Chamber of Commerce and Industry on the new trade regime found quality would be key for the survival of Pakistani companies.
Mansha and Saigol believe that to make any quantum leap improvement in quality, companies need scale. Critics of Pakistan's textile products charge that many companies' designs have not changed for more than a decade.
In Pakistan's favour is the overall business environment. Interest rates have fallen over the past two to three years enabling the best textile companies to get loans at rates cent previously. But a more fundamental problem facing the textile industry is the need for extensive reform of the Water and Power Development Authority, which provides electricity to 90 per cent of Pakistanis and Karachi Electricity Supply Corporation, which supplies the remainder.
Businessmen argue the two power companies' tariffs are high compared with Pakistan's main competitor countries in the textile industry, ramping up production costs.
Cultural factors are also inhibiting consolidation and therefore competitiveness. Tycoons often prefer to set up separate companies for each of their offspring, especially males.
"People say, if I have four sons, I should have four factories -- one for each son," says Mansha. "This is old thinking. But many people find it hard to adjust to the new world."
And yet, shrinking profit margins with the arrival of the new textile regime may force many Pakistan businesses to update their thinking if they want to survive.
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