MEDIA

INNOVATION IN THE TEXTILE SECTOR OF LAHORE DIFFERENCES BETWEEN EXPORTERS AND NON-EXPORTERS 2021

The Innovation and Technology Centre (ITC) of the Lahore School of Economics conducted a survey in 2018/2019 to observe the growing trends in innovation and technology upgradation in the exporting and non- exporting firms from the textile and readymade garment sectors in Lahore. The purpose of this survey was to observe the extent, quality and impact of innovation activities on the performance and profitability of the innovating exporting and non-exporting firms. The survey also looked at the barriers faced by the innovating exporting and non-exporting firms in this sector. The data consisted of 125 firms involved in manufacturing readymade garments and other textiles, including 87 exporting and 38 non-exporting firms, collected during the period of September 2018 to January 2019. In the surveyed exporting firms, 40% of those firms were selling 100% of their output abroad, with majority of them exporting to Europe followed by worldwide.

The survey revealed that most of the exporting firms were large sized and non-exporting firms were small sized firms, with majority of them innovated i.e. purchased new machinery/equipment. However, when asked whether those firms were planning to innovate in the next 12 months, a majority of exporting firms were planning to innovate and a majority of non-exporting firms were not planning to innovate again in the next 12 months.

Looking at the vintage of technologies, a majority of exporting firms innovated more recently during the last 1-5 years while the majority of non-exporting firms innovated between 5-10 years ago. Also, the data revealed that a greater percentage of exporting firms had purchased their last 4 innovations from abroad as compared to non-exporting firms.

A majority of exporting firms said that the major source of funding for their innovations related activities was utilizing their own internal resources (Equity) and loans from banks/financial institutions, while a majority of non-exporting firms utilized their internal resources (equity funds) to fund their innovation activities. The data also revealed that a large number of both exporting and non-exporting firms innovated in the areas of product and marketing.

When asked about the impact of various types of innovations on firm profits, a majority of both exporting and non-exporting firms reported that innovation in products resulted in higher profits followed by innovation in technology/equipment.

The incentives to innovate are particularly important for firms. In the survey, when asked about the most significant factor driving innovation in their industry, a majority of exporting and non-exporting firms reported pressure to increase quality was one of the most significant drivers of innovation.

Looking at the results of innovation, most of surveyed exporting firms revealed that their revenues increased, cost of production decreased, quality of products improved as the result of innovation. Whereas, a majority of both exporting and non-exporting firms reported that they didn’t have to retrain their employees and did not face resistance from the employees as the result of innovation. Moreover, both exporting and non-exporting firms did not have to reduce their prices as the result of innovation.

The two greatest barriers faced by both exporting and non-exporting while trying to perform innovation were lack of financing and lack of innovation opportunities. Thus, it can be concluded that more incentives for innovations could 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.

This article has been written by Dr. Azam Chaudhry, Dean and Professor, Department of Economics and Saman Khan, Research Fellow, Innovation and Technology Centre (ITC).

Link to the Article in The Express Tribune

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