Shahzad Elahi, Nadira Sabahuddin and Mohammad Ali Tariq conceived Styles and Trends as part of their Entrepreneurship course project in LUMS in 1988. They wanted a fully integrated knitwear unit capable of producing high quality garments for the export market. However, due to shortage of finances they started a small stitching unit with the idea of learning the vagaries of the markets and eventually using institutional debt to work towards an integrated unit. As they had operated as a small stitching unit serving very limited markets over the last four years, sanctioning of their loan from a financial institution would be a green signal for expanding into a fully integrated unit. Tariq recognized that choosing attractive markets in the beginning would be the key to success as the knitwear field was becoming increasingly competitive. Apart from simple mens T- shirts they offered ladies blouses, baby garments and jump suits. They had depended heavily upon personal and family contacts to seek customers. Shahzad spent considerable time developing basic systems that would give him quick information for fixing problems before they assumed large proportions. Two types of units are operated in the industry. One is integrated units and second is host of smaller units.Quantitative Data: In 1992, Pakistan produced 13.2 million bales of cotton all of which was picked by hand. In 1993, an integrated knitwear unit of about 10,000 dozens per month capacity required a capital investment of about Rs 60 million. In Pakistan, the relative seize of the spinning sector to weaving sector could be gauged by the ratio of spindles (used in spilling ) to looms (used in weaving) which had jumped to 496 in 1993 from 144 in 1980. The advent of the knitwear sector was one possible source for spinners of quality yarns to get higher prices for their products since knitwear could add as much as 400% value ($1 worth of tam and other raw material produced $4.00 worth of garment. By 1993, textile formed about 65 % of Pakistans total total exports of Rs. 6.8 billion with knitwear clothing at $ 462 million. By 1993 there were about 45 integrated units operating nationwide with the vast majority located around Lahore. Almost 80 % of the total apparel purchases for the US were made by a few large buyers, which generated large orders and sourced from all over the world. Relatively high profit margins (net profit around 15 20%) prevalent in the spinning industry which was the bastion of Pakistans textile groups. Compare to Amars capacity of 25000 dozens per month some other large units competing essentially for the same markets had capacities in the range of 15-20000 dozens per month. Qualitative Facts: The quality of the garments had to exactly match the buyers specifications in attributes. The rapid development of the knitwear industry had not been matched by a similar development in the ancillary industries. The US knitwear market for Pakistani knitwear was dominated by several large brand names like Levis, Gap, and buying houses. All dyes used in the dyeing process for knitted cloth were imported mostly from the Far East and Europe. Promotion was done mainly through direct mail to prospective clients and trough trade fairs and agents in Europe, manly Britain. All dyes used in the dyeing process for knitted cloth were imported mostly from the Far East and Europe. The US knitwear market for Pakistani knitwear was dominated by several large brand names like Levis, Gap, and buying houses. They had stringent quality standards. Styles and Trends main competitors were Ammar Textiles, Angora Textiles, Leisure Garments, and Omega Knitwear. The knitwear sector performed knitting, finishing, dyeing, and stitching operations in producing finished products. There are two types of units operating in the industry. First is the integrated units encompassing the entire production process from knitting to stitching and the other are small units comprising of one or two of these processes. There is high profitability in knitwear, the margins are also high. In order to distinguish and maintain quality, careful attention to process controls was essential. The quality of the garments had to exactly match the buyers specifications in attributes. SWOT analysis:Strengths:LabourCheap and ample supply of labour strengthens the industrial and agriculture sector of the country. Around 39% of the labour force works in the textile sector. Domestic marketThe recent shift of the population from the agrarian society to the urban areas, increased income levels and growth of the population raised the domestic demand. This means more factories more manufacturing units, more supply and more labour.Raw material basePakistan is the fourth largest producer of cotton. Abundant use of cotton resources has made the Textile industry of Pakistan move towards the area of industrialization.Rich heritageDue to cultural diversity and rich heritage, designers come up with new different and attractive designs which are appreciated worldwide. Our culture comprises of Sindhi, Punjabi, Balochi and Pashto values. Also we are also influenced by the Indian culture through the media exposure, which of course gives the Pakistani designers an inspiration and taste of Karnataka, Rajhastani styles, etc. This varied culture and fusion among these two neighbours gives inspiration to the designers to give their best in terms of styles, creativity and fashion.Weaknesses:Research & Development (R&D)Developed countries are using the technology of biotechnology and genetic engineering to increase the quality and quantity of their cotton production. They are able to grow coloured cotton, organic cotton and several different varieties cotton to added value to the textile chain. In Pakistan, there is very some research done on small scale by private companies to invent modified cotton fibres. Practically no efforts are being made by the APTMA in the R&D of the textile industry to enhance the quality of its products, upgrade the technology used, and encourage effective methods of production in order to compete internationally. Instead the industry suffers lack of latest means of production and falling cotton crop output every year. Due to low quality of cotton crop, profitability decreases and the farmer switch to the other crop such as sugar cane, maize and thus the cotton production decreases.More dependence on cottonAs the textile sector is heavily dependent on cotton production, low cultivation of cotton will deteriorate the textile industry. On the other hand, Pakistan lacks expertise in the development, production and marketing of synthetic products and fabrics required for items like swimwear, skiwear and industrial apparel. So far Pakistan has been unable to diversify in the export of textiles and is heavily dependent on single fibre that is cotton and its blends. This dependence on single crop economy is restricting the diversification of exports from Pakistan.Labour EfficiencyDespite of the abundant supply of the labour, productivity of the labour is very low. According to a study by Federal Adviser on textiles, the regional competitors of Pakistan take 75 minutes to complete and produce one piece of cloth whereas we take 133 minutes for the same work. We also waste 30% in finishing and 12% in washing. European buyers recommended that we should cut our costs up to 45% in sewing by getting more efficient. Labour productivity can be improved by giving the labour appropriate training with the advancement of technology so as to make them more efficient and with lower wastage of resources. In China an average 70 hours of training are given to labour to enhance their expertise.Poor infrastructureThe important resources and infrastructure, such as adequate of supply of water, continuous supply of electricity and gas, efficient logistics and transportation, tax structure, raw material supply are all basic requirements for the development of an industrial base. However, on the other hand, the industry is faced with rising charges of the energy sector, whichincreases the cost of production, making it difficult to compete with the other regional rivals.Poor quality MeasuresWith the exception of big and leading units who comply with global quality standards in textiles, most of the medium and small sized units cannot ensure the reliable and consistent quality standards. Some of these textile units import second hand machinery from China, India, Korea, and Taiwan with no checks and balances on the quality of the machinery parts and tools. Preference is only given to the cheap and workable machinery with no concern of the quality of the machine, therefore, resulting in poor quality of the end product.Unstable political ConditionPolitical unrest, strikes and terrorism have critically affected the economy of Pakistan. Frequent changing of the government has adversely maligned the policies of the textile sector. According to the World Trade Review Pakistan has failed to take necessary steps needed to meet post Multi-Fiber Agreement (MFA) challenges for its textile industry owing to lack of political will by the successive governments.System Mechanism and supply chainNowadays, customers are very systematic in their work and expect the same professionalism from their vendors. Unfortunately, we lack this capability and are not competent to struggle in the international business, thus losing many opportunities.Opportunities:Pakistan Textile CityPakistan Textile City in Port Qasim, Karachi with an area of 1250 acres, will be completed in 2011 as a private public sector joint venture. The main purpose of the textile city is to provide the textile industry with the world class infrastructure to meet the global competitiveness and challenges and as to provide value added textile industrial zone. Its main features include one way window operation, constant supplies of gas and water, and uninterrupted power supply.MarketingTargeting the unexplored export markets with the help of aggressive sales and marketing will pave the way for the textile growth. Its all about hunting your opportunities with the handful of colourful lollipops. If we make investment in our sales force and train them in the fine art of marketing textile products, we can capture a much bigger market share from other smaller competitors.Collaboration with foreign companiesBy making partners with the foreign companies, we will be able to learn a lot from them in terms system orientation, supply chain and it would be feasible to import latest technology. We can also reduce our costs, comply with the international standards, and add value to our products, easiness in marketing our products in different foreign regions, improved labour and thus catching up with our regional competitors.Re-engineering of production systemInformation technology has a crucial role in manufacturing sector. Acquiring state of the art machinery is though very much expensive, but a very fruitful and necessary measure to stay competitive in the long run. It is the level of trust; the exporter builds with its customers by giving them flawless products, made on state of the art machinery. Once this trust is developed, there is no other way than any unforeseen exception that you may lose a customer to another competitor. Therefore, its highly recommended to produce with great efficiency, minimizing the wastage of the raw material, energy resources and thus reducing the cost of production.Producing high value productsIts better to export yarn than raw cotton. Similarly its better to export finished fabric than to export grey fabric (raw fabric). Furthermore its very much feasible to export readymade garments than to only fabrics. What makes the latter better is the value added and subsequent increase in per unit price.Image building of Pakistan to attract FDISecurity measures should be taken to facilitate the buyers and investors to visit Pakistan for investments. Secure business environment must be needed to attract golden sparrows to facilitate business dealings and building positive image of Pakistan that they can rely upon.Reducing the cost of business.China and India are much cheaper in labour, raw material and utilities as compared with Pakistan. Rising inflation also increase the cost of production. We have to control these unnecessary costs if we have to survive in the middle of the two giants of the textile sector in the world.ThreatsPhasing out of quota systemAs the quota system is ruled out by WTO, there is a threat by the Chinese and Indian manufacturers to gain most of the market share. We have high costs, low labour productivity and inefficient production processes.Fashion life cycleFashion changes day by day these days. Media has so much penetrated in our daily lives that we easily adapt ourselves as it wants us to. This has resulted in shortening the fashion lifecycle thus increasing the fashion risk.New competitorsPakistan is facing new competitors in textile sector such as Bangladesh, Vietnam and Turkey. Though we cannot avoid competition but we can always stay ahead of them by reforming our strategies and educating our entrepreneurs so as to move one step forward in every aspect.PROBLEMS There was a problem of inventory accumulation in the firm. The current ratio has increased over the years but the quick ratio of the firm is declining, signaling towards the problem of inventory accumulation. This problem can be a result of increase in the cost of production or can be due to the inventory losses if inventory gets obsolete. The financial performance of the company was also a problem that the company was facing. There was an increase in days in receivable and a decrease in days in payable. The liquidity position of the firm was at risk. The sanction of the loan can be a problem for the firm as the company has a declining liquidity position which would further weaken their cash flows reflecting an inability to pay back on its obligations. The quality of the garments was the main issue; the quality had to meet the specifications of right garment weight, shrinkage, color fastness and measurement. The attention to quality was required in every step of the manufacturing process as a slight error in the garment can ruin the entire quality of the finished product. Expensive machinery was required to detect the quality. The bargaining power of the suppliers was high due to changes in the prices of cotton yarn, cotton crop and other raw materials. The lead time was increasing as the tags and labels were imported as the printing in Pakistan was not good. Due to a shortage of finance, Style and Trends was restricted to small units.

EXHIBIT 1It can be learnt that Styles and Trends have shown a tremendous performance over the course of 1989-1992, based on the two important factors ROE and ROA shows that return on investment have increased significantly. The area of concern seems to be the trade cycle and current assets. The increase trade cycle indicates the problem company may have faced in paying off its creditors. To pay off creditors it has to take loan. From current ratio and quick ratio we can see large amount of Cash is tied up in Inventory.EXHIBIT 2This exhibit shows the growth of knitted garment over the years and its share in the total exports of cotton and related products. The chart below shows that while growth has not been stable, the share has consistently remained the same. Exhibit 2 shows the potential in Export Market of Knitted Garment. There is a growing trend with a decreasing rate. But it is higher than other cotton export products. Knitted Garment has the highest Average annual change for 5 years. There is also a growth over 5 year period in Knitted goods as a share of cotton exports. EXHIBIT 3 It shows the comparison between companies of per labor hour cost in $. Pakistan has the lowest US $ per hour cost. Advantage being that the companies can make use of this labor to enjoy higher profits. Moreover, disadvantage is the negative perception of unskilled labor.

EXHIBIT 4This exhibit show that Pakistan lie in the medium tier of cotton costs per kg. It makes our county an attractive opportunity for imports. EXHIBIT 5 This show that there is 30% cost of yarn out of 100%. Any fluctuations in the yarn prices can therefore have huge effects on the cost structure and as a result the profitability of the company. The fixed costs also comprise of 25% of the total cost. This means in order to simply cover the fixed costs the unit must operate at a certain minimum level otherwise it could incur losses. EXHIBIT 6The important factor noticed is that the price paid to Pakistan is even lower than the market average. The reason is the lack of skilled labor and advanced technology. We do not produce the finest yams because the farmers are not properly educated and they end up adding chemicals which are not required. Moreover, the spinning mills do not have the technology to figure out the flaws during the process. The flaws or the damages are only figured out once the garment is made which results in low quality garments.EXHIBIT 8Hong Kong has the highest rating of 36 in terms of Production and Management whereas Pakistan has the lowest rating of 16. Pakistan is the only country which has a 1 in Reliability this clearly shows that buyers do not trust our manufacturers with quality, deliverability and service of the product. Moreover, only 2 categories in which Pakistan has been able to score average are Management and machinery otherwise it has scored less than average in all the other categories. EXHIBIT 9From this exhibit we learn that Pakistan had 21% of the US volume and merely 2% of the value. We have the highest share as importers but our worth is only 2%. The reason is that we fail to target the high priced goods because they are difficult to produce and require certain efficiencies which our manufacturers lacked. The manufacturers wanted to make easy money with least effort. Therefore they never took challenging orders as it would have meant putting in extra efforts and would have also increased the level of risk.

EXHIBIT 10 It shows the procedure followed by Levis for selection. It takes a minimum of 14 weeks and a maximum of 30 weeks. After this long procedure the company would only be eligible to get a trial order. Moreover, once a manufacturer passes

EXHIBIT 13 Capacity utilization increases to 65% in the year 1994 and remains consistent till 1997. The breakdown is such that US % of sales will also increase in 1994 to 50% and will remain same till 1997 where as the price/dozen will face an increase every year and would touch the highest point at 65 in 1997. For Middle Eastern markets the % sales also decreases by 7% in 94 to 13%. This is rather alarming because the prices of ME per/dozen continuously remains higher by a huge margin till 96. In 1997 it becomes equal to US.For European market the sales would decrease to 35% from 40% in 94 and will remain so till 97 whereas the prices in this case would also be increasing but not as much as US. The highest it will touch is 60 in 1997. At no place will the European per/dozen price be higher than US. If the company increases its production to ME in the year where the price is exceptionally higher than both the regions it can earn a lot of profit. For example in the year 94 and 95, the company can cut down its production to Eur. and export more to ME. Same strategy can be followed in the year 95. Exhibit 14 and 15 These exhibits show the profit and loss statement of Style and Trends if it chooses the 1st option or the 2nd option. The rebates in the case of US are higher as compared to Europe and Middle East. The assumption for quota prices in the 1st case is lower. The companys profits take a hike when the quota prices go down and increase dramatically when the quota gets abolished. Whereas in the case of 2nd scenario the rebates given to company in this case are lower. Secondly the quota prices charged are also lower because the exports are now sent to Europe and Middle East. Also the Sales number has reduced by 6000 dozens. If the 2ndscenario is chosen then the Net Income as % of Sales as projected for Style and Trends comes out to be higher in 1994, 95, 96, and 97 by 11.59%, 6.05%, 4.24%, 0.96% respectively. However in 1998, US takes a lead by 0.85% in net income as % of SalesAMMAR TEXTILESANGORA TEXTILESLEISURE TEXTILESOMEGA KNITWEAR

IndustryknitwearknitwearKnitwearknitwear

Competitive positionMarket leaderEven better than AmmarRelatively inexperiencedOldest, first lie player operating in Karachi

Orders100,00015,000--

Target market/buyersWell-known buyers like Levi StraussLow end buyers, quality consciousLow end buyersEuropean Market

Characteristics Reputation for consistent quality and on-time delivery Developed functional area systems Best available talent Recognized as leading training ground Degree of formalization implemented Made sales through special appointed company owned shops called Sarahs Single handedly managed by Avais Mazhar Had little management depth Little training Average price per dozen $55 Relied on almost 100% inspection

Relatively new, no long track record Little involvement in production matters by the management Used technical staff raided from companies like Ammar Problem of turnover Recently freed itself from debt No wish to expand capacity Cater to increased customer demand by subcontracting

Family run business Only one catering to European market Only one to use European dyeing equipment No attention to defect prevention Labor strikes Closure of stitching department due to mass firing Pioneered the concept of hiring females Regarded as best in local markets

Core Problem:Either to go for scenario 1 or Scenario 2 or scenario 3 by taking market dynamics into considerationSCENARIO 1:100% of sales would be US market in Category 338 (Mens T-Shirts, rugby shirts). In this case, all of the sales are made to the US market which would include the Cat 338 product line composed of light t-shirt wear etc. The major cause of concern for Style & Trends is the quota investment that needs to be made especially considering the face that quota prices are fluctuated considerable over a specified time period and may provide chances of lower profit margins as seen in the exhibit analysis. This investment would amount to about 50 million rupees whereas the quotes rice is 600 per dozen. The most important pro foe this scenario is that 70 percent of the capacity would be utilized as order taking would be easier given the offices would be available in Lahore.

SCENARIO 2:50% of the sales would be made to the United States and 50% to Europe and Middle East.This is of particular importance to the company as it analysis various channels that may be used to distribute across various markets:

While in this scenario, capacity utilization is reduced to 65 percent, the reduced quota system helps cover up for that. The working capital requirements of Rs. 10 million are also very important consideration as the diverse product and market portfolio would now be established.

SCENARIO 3:Entire production will be sold to markets other than the USA.The sales structure for this scenario would be such that sixty percent of sales would be done to Europe and the remaining forty percent to Middle East. This optimum level of structure would still have relatively higher working capital requirements as compared to other scenarios. The biggest benefit in this scenario would in increase in the variety of products demanded (T-shirt, blouses, skirts etc.) and it would help hedge against any risks or decline in certain product categories. The requirement of quota for this scenario still remains at Rs. 1 million but the capacity utilization is reduced to 50 percent which is the greatest disadvantage of this system.

Second CORE:This case is that of entrepreneurship and what challenges are faced by entrepreneurs when launching a new business. Styles and trends is a particular example of various strategic dilemmas that entrepreneurs have to face when deciding on where to take the business and what capabilities to develop.The Decision Criteria for selecting a particular scenario is the one which provides highest net profit margin to the company.Recommendations:RECOMMENDED/ PROPOSED SOLUTIONWe as a group, propose that scenario 2 is recommended as the way forward. This scenario revolves around concentrating 50 percent of sales efforts to the US and the remaining to the Middle East and Europe. The major reason for choosing to do so is that this scenario has lower working capital requirements as compared to the other scenarios which amount only to Rs. 10 million. Moreover, the capacity utilization would also be close to 65% which is likely to increase going forward. Another benefit of this scenario is the reduced quota investments which are result of shorter delivery times and stringent production planning for small European buyers. The price would be Rs. 600 per dozed for the U.S. market and about Rs. 180 for European market category 4. Despite the price differentials in both the markets, the reason for allocating some percentage of sales efforts to markets other than U.S. is to ensure the risk is diversified as different products would be sold to different markets as well.