“Enhancing the competitiveness of the Cutlery Sector of Pakistan” is a joint study of the Pakistan Business Council (PBC) and the Engineering Development Board (EDB) with support from the Pakistan Cutlery and Stainless Utensils Manufacturers and Exporters Association (PCSUMEA). The study is part of the PBC’s Make-in-Pakistan initiative and is based on existing secondary data / research on the sector supplemented with field interviews of firms in the cutlery manufacturing cluster located in Wazirabad – Pakistan.
Global Cutlery Exporters
China is the world’s leading exporter of cutlery with global exports of USD 16.0 Bn, followed by Germany (USD 1.3 Bn) translating into market shares at 60.9 percent and 4.79 percent respectively.
Pakistan’s Cutlery Sector
Pakistan’s cutlery sector is a fragmented cottage industry that mostly manufactures hunting knives and tableware such as spoons and forks, with a few manufacturers making cooking ware utensils such as pots and pans in Wazirabad and Gujranwala. Products classified as cutlery products include: 1) tableware items such as spoons, forks, knives, etc. 2) handcrafted hunting knives 3) cooking utensils.
Tableware is mostly sold in the local market, while hunting knives are exported. Hunting knives are made from Damascus steel. Damascus steel is a type of steel easily recognizable by its wavy patterned design. Utensils are exported as well as sold in the local market. Pakistan’s largest export customers are the USA; countries in the Middle East; the UK; the EU and Afghanistan.
- Our findings indicate that the Pakistani cutlery sector is no match for the Chinese industry as far as output, quality and prices are concerned. Pakistan is able to survive in the Damascus steel knives sector because China is not willing to venture into Damascus steel making due to the small-scale production batches for the steel, making it unfeasible for machines and processes tuned for mass production. For China, the cost of venturing into Damascus steel blade manufacturing outweighs the benefits.
- Stainless steel is the main component used in making cutlery. To ensure quality, manufacturers have to use imported steel from China. Not only is Chinese steel of better quality, but cheaper, even though prices have been increasing due to depreciation in the value of the currency. Manufacturers reported that raw materials comprise 33 percent of their production cost.
- The machinery used in making cutlery in Pakistan is several decades old. Processes are mostly semi-automated. Lack of conveyor belt system for production was noticed. All production processes are hand-operated which severely limits the productivity and speed of the production processes. Some of the machinery which was donated by foreign donors has remained mostly unused at the Cutlery Institute of Pakistan (a government provided common facility center) for the last several years.
- Currently the cutlery sector is asking for further protection in the form of higher tariffs, as high as 50 percent, on cutlery imports. Protectionism is contrary to the objective of enhancing competitiveness and would hurt the industry in the long run. That being said, some protectionism is pragmatically necessary for the local industry to survive.
- A mix of formal and informal units are engaged at different stages for the completion of a single product. Sometimes different processes are subcontracted to smaller units. While this keeps costs low, it affects consistency in quality as the smaller units often do not follow quality control procedures. Pakistani processes have a wastage of 30 to 50 percent as compared to other countries where wastage is between 10 & 15 percent.
- Subsidized financing is available in the form of various SBP schemes; however, the Cutlery Sector does not utilize these available schemes due to either (1) lack of knowledge or (2) inability to fulfill documentary compliance requirements. Instead, the Cutlery Sector borrows from informal channels who charge very high markups.
- Most hunting knife manufacturers are small players and they are selling via e-commerce platforms.
- Branding and marketing appear to be almost non-existent. Pakistani manufacturers generally do not brand their products.
- Most exports are directed to the USA, Germany, the UK, Saudi Arabia and Afghanistan. This is due to a variety of factors such as the inability of businesses to seek out new markets, inability to contact commercial counselors present in non-traditional markets, banks reluctance to approve Letters of Credit from non-traditional markets and other payment difficulties.
- Pakistani products made from stainless-steel face competition from ceramic knives and ceramic cooking utensils. Ceramic knives are known to hold their edge much longer than stainless steel ones while ceramic utensils are known to be more durable than utensils made out of stainless steel and aluminum. At the moment, Pakistan does not have the capability to manufacture ceramic knives and utensils and hence faces tough competition from substitute products in both local and foreign markets.
- Within the cluster, there are 3 government facilities available to the sector. The Small Industries Estate inaugurated in 2014 but not yet operational; the Cutlery Institute of Pakistan inaugurated in 2001 and currently defunct; and TEVTA which appears to be functional with ongoing classes, having computers in working condition with and functioning machinery. Apart from training workers, TEVTA also fulfills job orders for the cutlery sector. Recently the Association reported that they were looking to restart the Cutlery Institute in collaboration with TUSDEC (Technology Upgradation and Skills Development Company).
- In order to promote Make-in-Pakistan and to become a player in international markets, the sector will need to step up in several areas such as product quality, upscaling, branding etc.
- It would be more cost-effective if the imported raw materials were stored in bonded warehouses instead of a raw materials bank. Bonded warehouses defer customs duties & other taxes till the goods are moved out of the warehouse for processing. Deferring duties until the raw materials are needed would be beneficial in lowering the cost of raw materials which is the biggest hurdle according to the Association.
- The cutlery sector would like an increase in the SME Asaan Finance scheme limit from PKR 10 Mn to PKR 30 Mn. The association also proposes the inclusion of cutlery sector in SBP Refinance Scheme for Working Capital Financing of Small Enterprises and Low-End Medium Enterprises so as to avail this facility at 6 percent markup.
- A single window may be established as a connector between manufacturers and various government departments such as the Labor Department, Social Security Department, EOBI, Environment Protection Department, Income tax department, sales tax department etc.
- It is important to reduce wastage and reworks to near competitor levels. Pakistan’s raw material wastage is 30 to 50 percent whereas wastage in other countries is between 10 & 15 percent. It is recommended that Pakistani engineers may be engaged to review the current design of dies and review the production processes so as to reduce wastage to competitive levels. Other options include the use of consultants to make the sector aware of how to reduce wastage. The funding for such consultants may come from the EDF.
- The reluctance to stamp ‘Made in Pakistan’ or their own brand name minimizes the potential to get a premium price or to sell in new markets. Pakistan could learn valuable lessons from the Turkish ‘TURQUALITY’ Program through which the Turkish government has been funding the development of 10 global Turkish brands. A “PAKQUALITY” initiative may be promoted under a Public Private Partnership model to ensure that Pakistani brands also become regional / global icons.
- Most exports are directed towards the USA, Germany and the UK. This underlines a concentration risk. TDAP may explore new markets by arranging and organizing multiple exhibitions in markets with potential.
- The currently available government facilities for the sector appear to be under-utilized. Both TEVTA and CIP were formed to achieve the same objective i.e., to establish a common facility center for the sector. While the cutlery sector is collaborating with TUSDEC to restart CIP, the presence of two common facility centers to achieve the same objective `needs to be revisited. It is suggested that the federal and provincial government departments agree on establishing a single common facility center and build its capacity instead of running two parallel facilities. This will save resources.
- Currently the cutlery sector has been provided three government facilities. CIP, Small Industries Estate and TEVTA. The sector association is recommending the setting up of two more facilities. A training institute for skills such as management, branding and marketing as well as a dedicated institute for teaching cutlery making. For this purpose, a sub-institute under TEVTA may be set up for specialization in cutlery manufacturing. Creating a sub-institute rather than a fourth institute will also save resources. Specialists from foreign countries may be brought in to provide training and certification courses may be introduced.
- Exports of cutlery items to the USA are tariff-free. Pakistan should take advantage of this by including cutlery manufacturers in trade delegations to the USA. Commercial counselors in the USA may be approached to promote cutlery exports highlighting the fact that these items from Pakistan face zero-tariffs.
- Metallurgical engineers from universities such as the Ghulam Ishaq Khan Institute, NED University, Punjab University etc. can be linked with the cutlery sector to provide expertise on the latest processes being used in manufacturing worldwide. Internship programs may be set up to link engineering students with manufacturers.
- Ceramic knives are sharper and lighter than steel. Ceramic knives also fetch a higher price than steel knives. Pakistan may explore the possibility of investing in the machinery and processes to start manufacturing ceramic cutlery. This is supported by the fact that Zircon, the raw material for ceramic, is available in Pakistan.
The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 96) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk