Sports Industry In Pakistan

January 3, 2009

Sports Industry in Pakistan A Brief Review

Sports Industry in Pakistan A Brief Review

Definition & History According to the COMPASS project carried out by European Union sports federations in 2003, the definition of sports is: “Sports' are all forms of physical activity which, through casual or organized participation, aim at expressing or improving physical fitness and mental well-being, forming social relationships or obtaining results in competition at all levels”. The first record of manufacturing of sports goods in Sialkot can be traced back to 1883 when Sardar Bahadur Singh and Sardar Ganda Sigh Oberoi built a factory to produce sports goods for the British Army soldiers stationed in the northern sub-continent. The products manufactured were wooden, such as cricket bats, hockey sticks, polo sticks, etc. In 1918, a British Army soldier for repairs at Oberoi’s factory, where a Muslim artisan known as Syed Sahib was assigned the task, brought a football. Syed Sahib not only re-stitched the football to the full satisfaction of army personal but also “reverse engineered” it in his own small manufacturing unit. British soldiers were astonished to play with the local version and they praised Syed Sahib for his skills.

Subsequently Syed Sahib started catering to the needs of local troops. In 1922, Syed Sahib was awarded the first Export Award from the British Empire for his outstanding venture to supply footballs to the British Army camped in Singapore.

The sports goods sector bravely passed through the turmoil at the time of independence in 1947 when most factory owners, who were Hindus, migrated to India. The craftsmen, who were mostly Muslims, took over and greatly expanded the businesses.

Present status of the sports goods sector Today the sports goods sector of Sialkot is at its zenith. It has acquired an important place in the international trade of sports goods. Currently it is supplying products to almost every country of the world, directly or indirectly. The products are mostly made for international markets and have received worldwide recognition because of the care that goes into the selection of raw material, design, manufacturing and shipping. The product range includes soccer balls, volley balls, rugby balls, beach balls, exercise balls, cricket balls, hockey balls, baseball balls, tennis balls, shuttle cocks, nets, gloves, hockey sticks, cricket bats, baseball bats, protective guards, pads, sportswear, etc. Adidas, Nike, Micassa, Puma, Mitre, Select, Umbro, Lotto, Diadora, Decathlon, Wilsons, etc, are some of the world renowned brands sourcing a large portion of their supplies of sports goods from Sialkot; further enhancing the credibility of the city as an internationally acknowledged quality manufacturing and exporting centre. 1


The entrepreneurial spirit of the city has been further strengthened and cemented by the second and third generations of entrepreneurs. More than 200,000 people are directly employed in the sector exporting goods worth US$450 million annually from around 2,400 companies of various sizes. These companies fall into five categories: Large manufacturers-cum-exporters (more than 250 employees) Medium manufacturers-cum-exporters (100–250 employees) Small manufacturers-cum-exporters (10–100 employees) Commercial exporters (1–9 employees) Most companies fall under the commercial exporters’ category. These are trading companies, having minimal staff (often only one — the owner himself). They depend totally on vendors for the production of goods. Operating with a short-term orientation, the failure rate is very high. Large manufacturer-cumexporters are suppliers of internationally known brands, whereas medium-sized manufacturers-cumexporters cater to mid and lower segments of the market. Commercial exporters usually rely on successful designs of large/medium firms and try to sell low-priced versions to small importers who primarily deal in low-end markets. In some instances it has been observed that small manufacturers-cum-exporters and commercial exporters are supplying high quality customized products to the 1st and 2nd division football clubs.

Type of Products Inflatable soccer balls Sialkot caters to around 70% of total world demand for hand-stitched inflatable soccer balls (footballs), which translates into around 40 million balls annually worth US$210 million. During the peak season, which repeats after 4 years on the occasion of FIFA World Cup, the production of inflatable balls exceeds 60 million per annum. These balls are produced by a workforce of around 60,000. More than 1,000 entrepreneurs are engaged in different parts of the value chain, the majority of which fall into the MSME (micro, small, medium sized enterprises) category. Composite-based sports goods Unfortunately the city is lagging far behind in manufacturing composite (graphite) based sports goods. At the moment only half a dozen companies are engaged in the manufacture and export of composite-based field hockey sticks. Sialkot used to be a major supplier of wooden (mulberry) hockey sticks (including field, ice, and roller hockey) in the world, but as the technology shifted towards composites, the local industry failed to embrace it, resulting in the loss of a very lucrative market. Sports gloves The sector also has a very strong international presence in the market for gloves in general, and sports gloves in particular. Before China’s massive entry into international trade a few years ago, Pakistan was the world’s largest exporter of gloves. Pakistan is now second to China but the difference between the two is growing every year. Overall, the gloves sector, especially non-sports gloves, is under stress and is shrinking. The sector is famous for producing both high- and low-end natural and artificial leather sports and non-sports gloves. The former category includes gloves for motor bikers, goalkeepers, baseball, boxing, shooting, etc. These gloves are usually exported as part of a ‘combo’ package with other products, such as sportswear, inflatable balls, etc.

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Sportswear The sportswear business developed as an offshoot of the sports goods sector. At the outset international buyers used to buy inflatable balls from Sialkot and sportswear from South Korea, Taiwan, the USA, Germany, the UK, Spain, Portugal, Turkey and elsewhere. As the apparel industry diminished or in some cases totally disappeared from some countries, buyers who were already satisfied with the quality of sports goods from Sialkot asked the local exporters to produce sportswear as well. This helped international buyers to reduce their sourcing overheads. A skilled stitching force, imported fabrics and accessories, high profit margins, entrepreneurial skills of businessmen and responsive government policies all resulted in the sports sector’s successful entry into the international sportswear market within a very short span of time. Today a skilled workforce of more than 10,000-strong is directly engaged in this production and the numbers are growing rapidly. Articles exported include track suits, football, boxing, cycling; motto sports uniforms, shorts, T-shirts, wind breakers, judo/karate kits, casual wear, stockings, etc.

Production Process Below are pictorial illustrations of the production processes of soccer balls and cricket bats. Plastic/Lamination

Stitching

Last Stitching

Drying

Printing

Inspection

Cutting

Packing

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Cricket

Inflatable balls

Wood for handle

Handle joining

Rasping

Finishing

Grip over handle

Seasoning of handle wood

Rounding of handle

Blade slitting

Cutting in shape

Sanding/buffing

Painting

Thread winding over

Lamination Packing

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Economic Review – Local and Global National Sector Data Around 97% of sports goods production is exported. The export performance and calculated total output of the sector from 2000 to 2005 is given in Figure 2.10 below. The total amounts include various types of sportswear, as well as sports equipment/gear. The growth in output has been mainly from the sportswear segment, which, according to sector sources, has grown at an average of 16% per annum in recent years. Total output and exports of Pakistan’s sports goods sector, 2000 2000-2005

2000 343 333

Total output Exports

2001 348 338

Value in US $ ( Million) 2002 2003 412 422 400 410

2004 428 415

2005 448 435

1000 900 800 700 600 500

Exports

400

Total output

300 200 100 0 2000

2001

2002

2003

2004

2005

A reason for fluctuation in output is the cyclic nature of the inflatable balls export market. The crest begins one year before the FIFA World Cup, which is every four years. Similarly there is a peak in business, six to nine months before the UEFA Euro Cup. There is a two two-year year lag between these two tournaments. The period (around nd 1 year) immediately after these tournaments is extremely slack, especially after the FIFA World Cup.

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Pakistan’s sports goods exports Pakistan’s sports goods exports amounted to US$319 million in 2005, up from US$276 million in 2001 but showing growth stagnation since 2002. As a percentage of Pakistan’s total exports, the sector is still relatively small but has vast potential. Inflatable balls dominate the export sector, making more than 50% of the sector’s exports. These are mostly exported to Germany, the United States (US) and the Netherlands. Inflatable balls account for a 22% share of total world exports of inflatable balls. Pakistan ranks 2nd in world exports of inflatable balls. These are followed by articles and equipment (24%) for sports and outdoor games. For this product category Pakistan’s exports account for 2% of world exports and the country ranks 11th. The main destinations are the US, Germany and the United Kingdom (UK). Special sports gloves are the third important export product product,, accounting for 10% of the sector’s exports. Pakistan’s sports goods exports and imports, 2001 2001–2005*

Value in US $ ( Million) 2001 2002 2003 276.5 326.9 325.6 1.7 2.2 4.5

Exports Imports

2004 317.5 6.4

2005 318.8 9.6

* Source: ITC’s www.trademap.org.

340 330 320 310 300 290

Imports

280

Exports

270 260 250 240 2001

2002

2003

2004

2005

Above table refers to sports goods equipment/gear only and does not cover sportswear, like t-shirts, t sweatshirts, shorts, sports shoes, etc. The export of sportswear products alone from Sialkot is around US$120 million annually.

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Pakistan’s exports – Major destinations by sports goods category. Category

Value ($ 000)

Main destinations

30,358

Quantity (MT) 809

Special sports gloves, of leather or composition leather Ski-suits, Knitted or crocheted Men's or boys' swimwear of synthetic fibres, knitted or crocheted Men's or boys' swimwear (excl. knitted or crocheted) Women's or girls' swimwear (excl. knitted or crocheted) Ski suits (excl. knitted or crocheted) Ski suits (excl. knitted or crocheted) Ski-boots, snow-board boots, uppers of leather Golf balls Tennis rackets Badminton rackets Tennis balls

307

17

214

5

US, Germany, Netherland US, Germany, Netherland

173

7

US, Italy, UK

124

2

US, Australia, Belgium

18

1

94

4

Finland, Austria, Belgium France, UAE, Canada

394 123 179 29

35 11 3

Inflatable balls

185,641

22,016

Hockey, cricket and baseballs Articles and equipment for general physical exercise and other sports Article and equipment for sports and outdoor games

23,621

3,745

111

20

75,793

11,479

US, Germany, UK

UK, Spain, Algeria Ireland, UK, Germany Germany, Australia, Austria Germany, US, Netherlands Netherlands, Germany, US Afghanistan, UAE, Australia US, Germany, UK

Canada, Spain, Sweden, Italy, Saudi Arabia, the United Arab Emirates (UAE) and Belgium. Germany, the US and the Netherlands are major destinations for exports of inflatable and cricket and hockey balls. For exports of ski suits and men’s/boy’s swimwear, the US, UK, Germany, the Netherlands and Finland are main markets.

Other products exported by Pakistan include golf balls (35 tons), ski suits, knitted or crocheted (17 tons) and plastic (12 tons). The United Kingdom, the United States and various Middle Eastern countries are key destinations.

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Pakistan’s sports goods imports Sports goods imports have also increased significantly since 2000, from US$1.6 million to US$9.6 million in 2004-05. Dominant imported sports goods are articles and equipment for sports and outdoor games. This category includes workout equipment for fitness gyms, cricket and polo equipment (excluding balls). World overview The major producers of sports goods globally are China, Indonesia, Thailand and Hong Kong. These Asian suppliers have taken over significant proportions of the world’s production as a result of lower labour costs. China is now a massive producer and, in terms of export, dominates all other producers. It is the top exporter of all the sports goods items exported by Pakistan. Italy is also a major exporter of ski suits and swimwear, as is Thailand of tennis and golf balls. Looking at the sports goods sector as a whole (as per the classification above), global imports added up to over US$17 billion in 2005, up sharply from US$12 billion in 2001. The US is the world’s major buyer followed by the UK, Germany and Hong Kong. France, Japan, Korea, Italy and Norway are also important markets at the global scale. Major sports goods items traded around the world include gym fitness equipment (US$4.4 billion imports); articles and equipment for sports and outdoor games (US$3.6 billion imports); golf equipment and balls (US$3 billion imports); snow skis, equipment and wear (US$1.9 billion imports) and inflatable balls (US$0.9 billion imports). Special sports gloves of leather or composition leather Global exports were estimated to be around US$406 million in 2005. In both value and quantity, the world’s major supplier is China, representing a quarter of world exports and experiencing 8% average growth over the last five years. Other major suppliers are also Asian – Indonesia Thailand, the Philippines and Pakistan are the top five along with China. Together, the top five suppliers make up 68% of world exports. Indonesia, Thailand and the Philippines have a very strong focus on the US market (over twothirds of their exports) while China is more focused on Japan and Europe. Pakistan essentially supplies to Europe. On the import side, the US swallows up just over half of world imports. As another country that takes baseball seriously along with its purchasing power, Japan is the second largest buyer of sports gloves, representing 10% of world imports. Hong Kong is also an important buyer. The largest markets for sports gloves are not necessarily the most dynamic. Smaller, emerging markets are showing a different picture, especially in the new members of the European Union. Poland has shown an average 31% growth per year over the last five years and Slovakia has shown 25% growth per year over the same period. Inflatable balls This is an important category globally; total world exports in 2005 were estimated to be worth US$841 billion (FOB) showing a significant annual average growth (17%) in value over 2001-2005. Major suppliers in this market are China, Pakistan and Thailand, with the world exports share of 32%, 22% and 7%, respectively. China leads the way and is gaining market share rapidly with growth rates averaging 30% over the last five years. Competition is strong, as seen by all three suppliers collect the same average price per unit FOB. The US is an important destination for Chinese inflatable balls, taking 44% of China’s exports, while Pakistan’s exports are more diversified across the globe.

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While the US is still the largest individual importer of inflatable balls, its dominance is less strong than for most other sport goods items. The US buys one-fifth of world imports, but Europe and Asia also have a 20% share of world imports. Within Europe, Germany and the UK are the main buyers, while in Asia Japan is the main buyer. Mexico is also an important importer. Pakistan’s inflatable ball exports are well positioned in the fast growing German market, having a 40% market share as well as being top supplier. The German inflatable ball market has shown solid growth in imports over 2001-2005, averaging a 22% increase per year in value and 16% per year in quantity. This upward trend is likely to be related to the run-up to the 2006 World Cup. Other smaller markets showing rapid import expansion include Turkey (37% p.a.) Czech Republic (25% p.a.), Brazil (33% p.a.) and Peru (28% p.a.). A more detailed analysis of trade in inflatable balls is presented in the case study below. Cricket, hockey, polo and baseballs China is the world’s leader for this sports goods category, holding 50% share of world exports while Pakistan and India have a mere 8% and 6%, respectively. China’s major markets are the US and Japan, while Pakistan supplies more to Europe, and India to both the US and Europe, with the UK its major buyer. Pakistan is not well positioned in this sense since the US represents 40% of the US$300 million import market while the Netherlands and Germany, Pakistan’s main export destinations for this product, represent a mere 4% of world imports together. The UK, Korea Rep. and Japan each represent 5% of world imports. In terms of growth, the US is not the leader and in fact its 40% market share is reducing. Markets showing very rapid growth include Ireland, Poland and Honduras. This product is of major significance in the world trade in sports goods, representing a US$3.8 billion import market. Therefore, it is important to get a clear understanding of how the major buying countries interpret the definition of this product category. Their interpretations have to go way beyond mere wicket stumps and pads to be a billion dollar business. China, Taiwan and the US are the major players in this market. Global exports of this category were estimated at $3.4 billion in 2005. China’s exports are geared towards the US, France and the UK. Taiwan is supplying to the US, Japan and the UK, and the US is supplying to Canada, Japan and the UK. The world’s main importers are the US, France and the UK. Total value exported in 2005 was US$3.8 billion (CIF) and reported an annual growth rate of 10%.

SWOT analysis Strengths Dynamic and reliable linkages in international markets due to long history of exports. Entrepreneurial culture directed towards exports. Flexibility in production runs with short lead times due to multi-skilled labor force. Focus on “basket of products”. Strong vendor network. Weaknesses Small-sized companies with weak management skills and structures coupled with fierce price competition. Absence of internationally accredited testing laboratories. Limited product innovation, main focus as CMT producers. Electric power outages during summers.

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Opportunities Low rate of mark-up on working capital loans (7%). Very low income tax rate (1% of total annual exports). Better trade access in EU and USA (under GSP scheme). Attitude of end consumers changing towards health and fitness (local and international). Closure of textile garments sector in EU/USA. Threats Imposition of social, environmental, technical and compliance barriers to trade. Introduction of thermo-molded (mechanized) ball by Adidas. Inroads made by China in gloves market. Licensing requirements by international producers of raw materials (especially in sportswear).

Recommendations The situation regarding information flows is not satisfactory. A proactive role is indicated on the part of Ministry of Commerce and the TDAP. The TDAP should provide leadership and collaborate efforts with other relevant agencies, e.g. Chambers of Commerce, trade associations, SMEDA and provincial government’s WTO cells and trade associations. Funds are not an insurmountable problem because the Ministry of Commerce and TDAP have resources in the form of Export Development Fund (EDF). The real challenge is to organize a system that is user friendly and available in virtual real time. Technical assistance from the ITC to set up/improve such an information system would be very welcome. TDAP should intensify its activities for capacity building, specifically for the better use of opportunities and coping with challenges emanating from the WTO system. Among other things, the following measures are recommended: • • •

A comprehensive plan for dissemination of sector-specific information should be prepared by TDAP, in consultation with stakeholders. A helpline, professionally manned, should be established in TDAP. Sector specific experts should be available to callers. Special meetings/workshops/seminars for educating entrepreneurs about WTO issues should be organized by the TDAP, preferably in partnership with concerned trade associations, at least four times a year at different places.

The following recommendations are based on the findings and interpretations made during preparation of the sector study: • •

• •

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It is recommended that a comprehensive national level strategy document is prepared. The said document should have a holistic approach and include all stakeholders of the sector. Whatever interventions are made, the most important criteria for selection should be the magnitude of potential value addition. Projects leading to low value addition should not be encouraged. Competitiveness of the sector should be ensured and reliance on subsidies and monetary support be discouraged. This will result in sustainable development of the sector. The ever-increasing number of small and tiny firms should be controlled through regulatory interventions. Only those firms that have a certain minimum amount of capital investment should be allowed to export. The focus should also be diverted to product diversification within the sports goods products family for instance sports socks, water sports, snow sports, hunting, fishing, etc. The government should provide assistance in skill development, technology assimilation, awareness seminars, etc.

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Eventually it’s the entrepreneur himself who should take the lead in setting up new production facilities, exploring markets and developing new products. •

•

•

•

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The roles of the Chamber of Commerce (Sialkot) and the Pakistan Sports Goods Manufacturers’ and Exporters’ Association need to be redefined. A radical shift from current political roles towards more pragmatic business supportive roles is needed. They should be strengthened so that they can provide business development services to their respective members and can protect business interests through effective networking at the national level. Awareness about international agreements and their implications must be disseminated on real time basis. A mechanism within the sector should be established to monitor various challenges and threats faced by the sports goods sector and interventions should be planned accordingly. Special emphasis is needed in the areas of social, environmental, health and safety compliance issues. All hard infrastructure interventions by the public sector (for instance training centres, common facilities centres, product display facilities, etc) should actively involve private sector stakeholders. Ideally these infrastructures should be financially supported by the Government and run by the private sector. Efforts are needed to strengthen trust between public and private sector organizations. Public sector organisations providing export services need to be strengthened. Ideally their role should be delegated to the private sector (chamber and association), provided the latter has capacities to handle such task. Human resources with better skills, both at managerial and technical levels, should be developed to cater the needs of the sector.

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