This project was funded by the International Growth Center (the IGC). Innovation and competitiveness are considered to be the backbone of private sector led economic growth and its sustainability. However, in Pakistan, very little is known about the nature and the extent of innovation as well as its determinants and obstacles. In the absence of such evidence, policies can be misdirected and ineffective. In this study, we propose to conduct a survey of textile manufacturers of Pakistan to determine the nature and extent of innovation in this key export sector.

Textiles is the major manufacturing sector of Pakistan contributing one-fourth of industrial value added, employing 40 percent of industrial labor force, and on average 60 percent share of national exports. Since, it is competing in a global market; a continuous flow of innovation is required to at least maintain its share in the World trade. In Pakistan, two particular characteristics of textiles, scope and production chain posit both opportunities and challenges for this sector to be more innovative and competitive. Firstly scope; even though textiles share is 60 percent in national exports, its share is less than 2 percent (1.94 in 2011) in the World trade. There is a greater scope of increasing its world share through innovation, and particularly given an increasing trend in wages in China the leading textile exporter country coupled with recent GPS plus status granted by Europe, openings are more likely for competitive textile firms. Secondly, textiles have the longest production chain, with inherent potential for value addition at each stage of processing, from cotton to ginning, spinning, fabric, processing, made-ups and garments.

In this survey, we will study innovation activities of firms in the textiles sector of Pakistan during 2011- 2013 through a questionnaire based on Oslo Manual and its recommendations for developing countries. The survey will be conducted across a sample of 500 textile firms in Punjab and Sindh. The survey will measure both the technological (product and process) and the non-technological (organizational and marketing) aspects of innovation where an innovation is the introduction of a new or significantly improved product, process, organizational method, or marketing method by an enterprise. Through this survey, we will be able to measure ‘innovation’ in at least four different ways: (1) Innovation rate (based on the response of enterprise if they had innovated during 2011-13, which will further be divided into four types of innovation; i.e. product, process, organizational and marketing), (2) Innovation input (given by the ratio of R&D expenditure to sales), (3) Innovation output (given by the ratio of new products sales to total sales), and (4) Innovation efficiency (given by the ratio of new product sales to R&D expenditure).

Through this study, we will be able to answer the following research questions:

• How innovative is the textiles sector of Pakistan (measured in four different ways as described above)?
• What are the correlates (both in terms of promoting and hampering) of innovation? (such as firm type and size, market structure, product market i.e. local or international, government regulations and facilitations, sources and type of cooperation, management patterns, skill profile, ICT, access to finance and source of finances, information on technology and markets, and demand for innovations etc).

Published in the The Lahore Journal of Economics: http://lahoreschoolofeconomics.edu.pk/EconomicsJournal/Journals/Volume%2021/Issue%20SP/06%20Wadho%20and%20Chaudhry.pdf