Small & Medium Enterprise

Case Study on A.M Jeans

Submitted by:

Bilal Ahmed L1f09bbam0167

Omer Yousaf L1f09bbam2037

Hasan Nadeem Mian L1f09bbam2198

Muhammad Ibrahim Aziz L1f09bbam0033

Zaeem Hasan Ashraf L1f09bbam0176

Arslan ul Haq L1f09bbam0182

Submitted to:

Prof. Ayesha Qayyum

Section: ‘’A’’

A Case Study on A.M Jeans

Textile and Garment are two of Pakistan's principal industries

contributing more than 67% to total export earnings, accounting for

around 46% of total manufacturing and employing over 38% of the

manufacturing labour force. Over USD 4 billion of textile and garment

machinery has been imported in Pakistan in the last few years that has

significantly improved the quality and productivity of Pakistan textile products in the last few

years and the Government of Pakistan is targeting over USD 10 billion of exports of textiles and

garments made-ups in the successive years. Import of textile machinery has registered an

impressive growth of 66.29% in the current fiscal year

International Trade of Cotton-Textile and Apparels

Developing countries in 2004 accounted for more than one-half of world exports of textiles and

clothing. In no other category of manufactured goods developing countries have such a large

“net-exporting position”. Thus liberalization of trade in textiles and clothing is of major

significant for many developing countries for the simple reason; it improves market access for

them in the area of their comparative advantage. However, increased competition from further

liberalization is a matter of concern for developing countries. The quota restrictions of

Agreement on Textiles and Clothing (ATC) were essentially for imports of Canada, the

European Union and the Unites States. These three markets account for more than one-half of

world textiles and clothing imports. The end of the ATC quota regime did eliminate the quota

completely for “protection in these markets”. It is understandable that the removal of quotas have

a significant impact on global trade flows. The end of a special trade regime that had existed for

more than 40 years for textiles and clothing is a remarkable step both in terms of trade

liberalization and the elimination of negotiated trade arrangements “in breach of WTO rules”,

(World Trade Report 2005).

5.1.1 Trends in Clothing and Textile International Trade

For the Textile and Clothing trade, 2006 was a significant year as it was the second year after the

phasing out of the Agreement on Textile and Clothing (ATC), which replaced the Multi-Fiber

Arrangement (MFA) in 1995. This shift was to affect exports of many countries producing

“winners and losers” from the additional liberalization, (World Trade Report 2006). The

termination of the ATC affected the patterns and flows of trade in 2005, and even in 2006. The

structural changes in world trade of textiles and clothing went on unabatedly, (World Trade

Report 2007). China’s exports continued to increase the market share in all major developed

import markets. The combined textiles imports of the three economies: Canada, the United States

and the EU from China rose by 41 per cent in 2005. There was an increase of 15 per cent in

2006. However, the market shares declined for major traditional suppliers like Turkey, Romania,

Morocco and Tunisia. Advanced developing economies in East Asia also lost market shares.

Interestingly, some smaller suppliers expanded their textiles and clothing exports even faster

than China and the share of least developed countries in imports of the United States and the

European Union went up in 2006. Imports of textiles and clothing have increased by 5.5 per cent,

to about $350 billion in 2006 for the four major developed markets. The increase was slightly

faster than the preceding year. However, intra- NAFTA textiles and clothing trade declined, and

intra-EU trade did not have any significant change in 2006, (World Trade Report, 2007).

The US imports from CAFTA, the Dominican Republic, and Sub-Saharan Africa, went down by

7 to 10 per cent. The decrease in US imports from Asian economies such as Hong Kong, China;

Chinese Taipei and the Republic of Korea was 14 percent. US imports from the EU declined by

2.5 per cent in 2006. Imports from China increased by 15 per cent and it were nearly 30 per cent

of total US imports of textiles and clothing. There was a rise in imports from Indonesia,

Vietnam, Bangladesh and Cambodia. Imports from India, rose 12 per cent in 2006.

In the US market, China gained as a leading supplier, but at the same time imports from smaller

Asian suppliers also rose rather faster than those from China. There was a sharp rise of EU

clothing imports from Hong Kong and China in 2006. Among the developed markets Japan’s

textiles and clothing imports are mainly concentrated on China because of geographic proximity

and the absence of import quotas in the past. More than three-quarters of Japan’s textiles and

clothing imports came from China in 2006. Most significantly, the share of imports of clothing

was more than 80 per cent. Amongst the four major developed markets, Canada was on the top

in textiles and clothing imports in 2006. Its imports from China went up by more than 20 per

cent. As a whole 2006 was a very favorable one for the textile trade of the developing countries.

Pakistan Trade of Textile and Clothing

Textile trade that thrives on Cotton as basic raw material is the back bone of the Pakistan’s

economy. Cotton manufactures contribute around 60 percent of total export earnings. Moreover,

it accounts for 46 percent of the total manufacturing and gives employment to 38 percent of the

manufacturing work force. Cotton production and quality plays the central role in the growth of

the industry. Pakistan Cotton-Textile manufacture export consists of Cotton Yarn, Cotton Cloth,

Knit wear, Bed wear, Towels, Tents, Canvas and Tarpaulin, Readymade Garments, Synthetic

Textiles and Made up Articles. Cotton and cotton related products are the most significant

industrial and agriculture products for Pakistan. Altaf (2007) believes, “what happens to the

economy in Pakistan is very much dependent on the cotton-yarn- textile- apparel complex.”

Punjab, “the land of five rivers” as it is referred to in the local language, is home to one of the

finest cotton crops in the world the region prides itself with one of the largest concentration of

the textile related production facilities.

Apparel & Fashion - The Fashion Designing & Apparel industry is becoming an important

dimension of Pakistan’s economy due to its export potential worldwide. In Pakistan, the

significance of fashion industry is being realized in view of its huge potential for future

expansion. The importance of building individual brands in Pakistan fashion industry cannot be

overemphasized. Pakistani designers are building own brand names in local, regional, or

international market – as we may deem fit. We have to look for opportunities for creating new

concepts. In Pakistan, other than catering the affluent and the elite all the fashion designers of

haute couture also have an exclusive line of prêt’ a’ porter or ready-to-wear outfits, which again,

before being introduced into the market are made public at fashion shows. Fashion does not

stand still, tastes shift and so do geographic focus.

AM Jeans is one of the SME established about three decades ago. A stitching unit started in a

small room near Gulshan Ravi Lahore by the person name Muhammad Shafiq. The company

faces many challenges from existing competitors and industry condition which is being affected

by global economic crisis, political instability and natural disasters (Flood). Despite all of the

hurdles the company eventually grows to a scale that today it is employed more than 110

employees. The company is currently producing denim jeans (core product), formal pants,

formal shirts and casual shirts.

Business process of operations

The process of value addition begins with the import or purchase of raw materials from local

market, the next step is to store and sort out raw material in racks for better utilization of space,

the next step is cutting of fabric according to pattern of the article to be made, the next step is of

stitching, the next step is clipping in which extra treads are removed, the next step is washing

which include the process of special wash to add special effects and characteristic in clothes

(stone wash), the next step is ironing, the next step is quality check, the next step is packing and

last step is to deliver the products to customers usually wholesalers. Consignments are delivered

on credit and recovery of credit is done weekly according to the situation of the market.

Competitors

Name unit produced 2012 unit produced 2011 unit produced 2010

AM Jeans 960000

SB Garments 1080000

Blue Star Garments 720000

Golden Needles 600000

Opportunities To Grow

In the growing industry of textile and textile product market carry a lot of potential to flourish

using the finest raw material of home country. The geographical location of resident country

Pakistan give another great opportunity to local industry to import variety of raw materials from

neighbouring country China and can export its products all over the world using its sea ports.

Keeping in mind this tremendous potential and strategic location of country AM Jeans had a

great opportunity to grow by meeting the demands of customers offering cheaper and best

quality products.AM Jeans had many opportunities like to increase its area of production, import

latest specialized stitching and laser cutting machines. Increasing stocks and importing direct raw

material from China to offer latest high quality and variety of designs.

Challenges

When global economic crisis hit the market it generate a demand of long term debt for goods, it

eventually effect the buying power of customer and no. of customers start to decrease , to arrange

finance in order to buy raw material in bulk to have economies of scale, political unrest and no

proper planning and investment in energy sector make industries of Pakistan vulnerable to

energy crisis. The shortage of electricity had made difficult to make orders on time in the same

way gas shortage result in unavailability of tread by looms causing increase in price of raw

material. As the company is growing labor force is increasing requiring the company to adopt

human resource management because arising employee confect and turn over, it is also being

observed that workers are involved ill legal information sharing .

Method Applied To Grow

Advertising of brand through tags on articles, packing and banners is done in order to increase

demand and make strong brand image, generators were installed to overcome energy shortage

and to meet deadline in delivering orders to customers, get to gathers were held to develop good

word of mouth and increase better supplier relations, retain earning ratio was increase to arrange

required amount of finance, special efforts were done in order to reduce wastage for increasing

efficiency in processing, racks were made and installed to increase space utilization of existing

area. To develop a culture within the organization n increase the bonding between employees the

practice of common meal is exercised on every Thursdays. Area for Prayer is allocated in the

factory.

Future Plans

AM Jeans is willing to purchase new adjacent land to Increase space of existing factory , to do

backward integration company is making feasibility to manufacture thread for own use and

selling in open market , efforts are made to contacts suppliers in China for direct and timely

import of raw material. Due to resent flood in United States Of America, United Nation had

decided to give Rebate to Pakistan on export Tariff. This is a great opportunity for Pakistani

Textile sector to avail maximum benefit from this relief.