CHAPTER – 1 INTRODUCTION HISTORY OF TEXTILE No one knows when exactly the spinning and weaving of textile began. It has been said that people knew how to weave even 27000 years ago. This was even before humans were able to domesticate animals. The oldest actual fragment of cloth found was in southern Turkey. People used fibers found in nature and hand processes to make fibers into cloth. Even though high technology was not available, skilled weavers created a wide variety of fabrics. Dyeing of fabrics was done to satisfy the universal human need for beauty. Within time, more complex social and political organization of people evolved. With the growth of cities and nations, improvements in technology came into place and there was a substantial development in the international trade, both of which involved textiles. Chinese textile was considered to be the most significant in international trade. Historians have claimed that silk from China has reached ancient Greece and Rome along a trade route called the Silk Road in the latter part of the second century B.C. and Egypt in 1000 B.C. The Romans also imported cotton from nearby Egypt and from India. Archeologists have found facilities for dyeing and finishing cotton fabrics in settlements throughout the Roman world. During the middle ages, the production and trading of the plant called ‘woad’, an important source of dye, was a highly developed industry. During the fifteenth century, Trade Fairs in southern France provided a place for the active exchange of wools from England and silks from the Middle East. The economic activities surrounding these events gave rise to the first international banking arrangements. Even the discovery of America was a result of the desire of Europeans to find a faster route not only to the spices but also to the textiles of the Orient. Textile trade quickly took root in America, as colonists sold native dyes such as indigo and cochineal to Europe and bought cottons from India. Although advances were being made in the technology of textile production,
1
the manufacture of cloth in Western Europe in 1700 was still essentially a hand process. Yarns were spun on a spinning wheel and fabrics were woven by hand-operated looms. A major reorganization of manufacturing of a variety of goods occurred during the latter half of the 1700s in Western Europe. These changes, known as the ‘Industrial Revolution’, altered not only technology, but also social, economic, and cultural life. The production of textiles was the first area to undergo industrialization during the seventeenth and eighteenth centuries as the result of an economic crisis. Good quality textile products, produced inexpensively in India and the Far East, were gradually replacing European goods in the international market. In Britain, it became imperative that some means be found to increase domestic production, to lower costs, and to improve the quality of textiles. The solution was found in the substitution of machine or nonhuman power for hand processes and human power. Many important inventions, most importantly spinning machines, automatic looms, and the cotton gin, improved the output and quality of fabrics. These inventions provided the technological base for the industrialization of the textile industry. Each invention improved one step of the process. For example, an improvement that increased the speed of spinning meant that looms were needed that consumed yarn more rapidly. More rapid yarn production required greater quantities of fiber. The growth of the textile industry was further hastened by the use of machines that were driven first by waterpower, then by steam, and finally by electricity. The textile industry was fully mechanized by the early part of the nineteenth century. The next major developments in the field were to take place in the chemist’s laboratory. Experimentation with the synthesis of dyestuffs in the laboratory rather than from natural plant materials led to the development and use of synthetic dyes in the latter half of the nineteenth century. Other experiments proved that certain natural materials could be dissolved in chemical solvents and re-formed into fibrous form. By 1910, the first plant for manufacturing rayon had been established in the United States.
2
The manufacture of rayon marked the beginning of the manufactured textile fibers industry. Since that time, enormous advances have been made in the technology for every field in the textile industry. Today, the textile industry utilizes a complex technology based on scientific processes and vast economic organizations. With the application of advanced technology to the textile field, textile use has expanded from the traditional areas of clothing and home furnishings into the fields of construction, medicine, aerospace, sporting goods, and industry. These applications have been made possible by the ability of textile scientists to utilize textile fibers, yarns, and fabrics for specific uses. At the same time that textile technology is making strides in new directions, the fabrics that consumers buy for clothing and household use also benefit from the development of new fibers, new methods of yarn and fabric construction, and new finishes for existing fibers and fabrics. Today, a huge international industrial complex encompasses the production of fiber, spinning of yarns, fabrication of cloth, dyeing, finishing, printing, and manufacture of goods for purchase. Consumers purchase many different products made of textiles. The story of the journey that these products make as they progress from fiber to yarn to fabric to finished product is not just the story of spinning yarns, weaving or knitting fabric, or constructing the end product. It is also the story of a complex network of interrelated industries.
HISTORY OF INDIAN TEXTILE INDUSTRY The history of textiles in India dates back to nearly five thousand years to the days of the Harappan civilization. Evidences that India has been trading silk in return for spices from the 2nd century have been found. This shows that textiles are an industry which has existed for centuries in our country. Recently there has been a sizeable increase in the demand for Indian textiles in the market. India is fast emerging as a competitor to China in textile exports. The Government of India has also realized this fact and lowered the customs duty and reduced the restrictions on the imported textile machinery. The intention of the government’s move is to enable the Indian producers to compete in the world market with high quality products. The results of the government’s move can be
3
visible as Indian companies like Arvind Mills, Mafatlal, Grasim; Reliance Industries have become prominent players in the world. The Indian textile industry is the second largest in the world-second only to China. The other competing countries are Korea and Taiwan. Indian Textile constitutes 35% of the total exports of our country. The history of apparel and textiles in India dates back to the use of mordant dyes and printing blocks around 3000 BC. The foundations of the India's textile trade with other countries started as early as the second century BC. A hoard of block printed and resistdyed fabrics, primarily of Gujarati origin, discovered in the tombs of Fostat, Egypt, are the proof of large scale Indian export of cotton textiles to the Egypt in medieval periods. During the 13th century, Indian silk was used as barter for spices from the western countries. Towards the end of the 17th century, the British East India Company had begun exports of Indian silks and several other cotton fabrics to other economies. These included the famous fine Muslin cloth of Bengal, Orissa and Bihar. Painted and printed cottons or chintz was widely practiced between India, Java, China and the Philippines, long before the arrival of the Europeans. India Textile Industry is one of the largest textile industries in the world. Today, Indian economy is largely dependent on textile manufacturing and exports. India earns around 27% of the foreign exchange from exports of textiles. Further, India Textile Industry contributes about 14% of the total industrial production of India. Furthermore, its contribution to the gross domestic product of India is around 3% and the numbers are steadily increasing. India Textile Industry involves around 35 million workers directly and it accounts for 21% of the total employment generated in the economy.
Strengths of Indian Textile Industry are as follows •
Huge textile production capacity
•
Efficient multi-fiber raw material manufacturing capacity
•
Large pool of skilled and cheap work force
4
•
Entrepreneurial skills
•
Huge export potential
•
Large domestic market
•
Very low import content
•
Flexible textile manufacturing systems
Weaknesses of Indian Textile Industry are as follows •
Increased global competition in the post 2005 trade regime under WTO
•
Imports of cheap textiles from other Asian neighbors
•
Use of outdated manufacturing technology
•
Poor supply chain management
•
Huge unorganized and decentralized sector
•
High production cost with respect to other Asian competitor
5
CHAPTER-2 REVIEW OF LITERATURE 1.)Title: STRATEGIES FOR REALISING VISION 2010 OF INDIAN TEXTILE AND APPAREL INDUSTRY Author: J. N. SINGH Textile Commissioner, Ministry of Textiles, GOI Source: http://www.textileassociationindia.org/JTA_ISSUES/Art%206.pdf Date: Vol 67, Jan-Feb 2007 Review:
6
Indian textile industry has been growing really well. Increase in the young population and also due to the increase in the use of plastic money the demand is increasing in the domestic market which is met by the increasing supply supported by the new women working force. Also our stand in the world market is stronger than ever, with the quantitative restrictions on china we are in a better position now. Many Indian companies have bought western brands which has made penetration in the EU and the USA fairly easy further strengthening our exports, but we are facing stiff competition from countries like Indonesia and Bangladesh so there’s a lot more to be done. The industry needs more investment in this sector and also needs to modernize to compete with the other countries as our equipments and machinery are still outdated and even our labour laws are restrictive which pose a serious threat on the further growth of this industry. So though India has its strengths it also has its weaknesses which are needed to be taken care of to increase our share in the world textile trade.
2.) Title: SCOPE OF BIOTECHNOLOGY IN TEXTILES Author: G. V. N. SHIRISH KUMAR Department of Fibres and Textile Processing Technology, MUICT, Matunga, Mumbai Source: http://www.textileassociationindia.org/JTA_ISSUES/MA-Art2-07.pdf Date: Vol 67, Mar-Apr 2007 Review: India has a wide range of textiles of varied designs and manufactured by different techniques when compared to other countries of the world. The specialty in the weave of
7
the textiles in each region is developed based on location, climate and cultural influences. The rich and beautiful products of the Indian weavers have been rightly called, “exquisite poetry in colourful fabrics”. But with the advent of globalisation and modern technology we always find ourselves competing with the countries that not only have better technology but are always looking for new and modern fabrics to meet consumers varied wants. India also has been spending a lot on the manufacturing of new and more appealing fabrics. We are spending more and more on the research of such fabrics. A very new way to go about this research is through Biotechnology. It offers the potential for new industrial processes that require less energy and are based on renewable raw materials. It helps in the production of fabrics free of loopers, bollworms and bud worms in cotton etc providing almost 50% greater strength and better quality. These fibre materials are also called biopolymers. Biotechnology is one of the revolutionary ways to advance the textile field.
3.) Title: GROWING IMPORTANCE OF COTTON BLENDS IN APPAREL MARKET Author: Dr. SHILPA P. CHARANKAR, Mrs. VEENA VERMA, Ms. MITTU GUPTA Department of Textiles and Clothing Dr. Bhanuben Mahendra Nanavati College of Home Science, Matunga, Mumbai 400 019. Source: Journal of textile association Date: Vol 67, Jan-Feb 2007 Review:
8
As the need for innovation is increasing by every passing day due to the global competition and also today’s consumer is seeking not just clothing but a clothing with a difference which not only has good appearance but is also durable and is climate specific. These things can be achieved by improving the spinning, weaving, and finishing efficiency. Rather than just producing cotton which is less durable than a fabric which is a blend of nylon/ wool/ cotton should be produced. Blending is a complicated and expensive process, but it makes it possible to build in combination of properties that are permanent. It makes the fabric better and gives it a competitive edge. Its inevitable in a global economy where everyone needs to be prepared for the competition ahead and where the competition is not just from the domestic but also from the international players. 4.) Title: WOMEN ENTREPRENEUER DEVELOPMENT IN GARMENT MAKING Author: Dr. N. VASUGI Reader Family Science & Community Development Department Avinashilingam Deemed University Source: Journal of textile association Date: Vol 67, Mar-Apr 2007 Review: Textile industry is the largest foreign exchange earner and also the second largest employment provider next to agriculture. Worldwide garment industry is the third largest employer of the women even in Indian garment industry 80% of the people employed in it are women. Further also it has a lot of job opportunities for everyone women included with the increased investment to push the growth forward and also with more and more small and medium entrepreneurs coming up in this industry. But that doesn’t mean we are
9
free of weaknesses. If we are able to meet up the internal challenges of production we will be unstoppable. 5.) Title: TRADE REFORMS AND EFFICIENCY OF FIRMS IN INDIA Author: UMA S. KAMBHAMPATI Source: Oxford Development Studies Date: Vol. 31, No. 2, 2003 Review: In this paper, we analyze efficiency levels in the cotton textile industry before and after the reforms. The cotton textile industry is one of the oldest and most highly regulated of India’s industries. Inefficiency, relative to the frontier, is therefore likely to be widespread in this industry. The last two decades have seen a number of reforms that may be expected to decrease this inefficiency. This paper, however, is mainly concerned with the impact on firms of the reforms undertaken in 1991. Liberalization increased overall welfare by increasing output in sectors with excess profits; allowing firms in sectors with unexploited scale economies to increase output; and by increasing technical efficiency, increasing competition and decrease market power, increasing the elasticity of demand facing domestic firms while at the same time shifting their demand curve to the left. Second, it is expected that the domestic sector will become more efficient as firms exit the industry in the face of increased competition. Surviving firms, in their turn, may experience an increase in technical efficiency because liberalization increases competition. Another dynamic benefit from liberalization is expected to be an increase in technological innovation Firms locating in certain regions may benefit from external economies of scale and scope, dynamism of a certain location as against the inertia displayed by firms in other locations. We also find that these changes in efficiency do have a regional dimension: while all firms fared less well after the reforms, those in Gujarat the fared less
10
well than that in Tamil Nadu. The paper indicates that geography—the location of the firm within a state and its proximity to a major urban centre influences the efficiency levels of firms within it. The paper indicates that average efficiency seems to have increased in the post-reform period. We find that the behavior of many of these variables changed considerably in the post-reform period and led to changes in efficiency levels. This framework enables us to consider whether efficiency has increased because of factors such as market shares, exports, imports and capital.
6.) Title: IS THE URBAN INDIAN CONSUMER READY FOR CLOTHING WITH ECO LABELS Author: Paromita Goswami Department of Marketing, Xavier Institute of Management, Bhubaneswar, India Source: International Journal of Consumer Studies ISSN 1470-6423 Date: 2008 Review: The technological development in global textile industries has been rapid, but the textile industry in India has largely been driven by small units that practice age-old methods of bleaching and dyeing, which adversely affect the balance of the local ecology. The textiles industry in India is traditionally one of the worst offenders of pollution, with its small units following outdated technology processes. One opportunity to reduce the environmental impact of clothing industry in India is to concentrate textile production within environmentally certified or eco labeled clothing. Environment-friendly labels or eco-labels manifest the efforts of an industry to become or be perceived as environment-friendly. Eco-labels are normally issued either by Government supported or private enterprises once it has been proved that the product of the applicant has met the criteria set by them for the label. Again, although no strong relationship was found between environmental knowledge and attitudes, environmental attitudes are found to be the most consistent predictor of pro environmental/ ecological
11
purchasing behavior. Shoppers responded more positively to product related environmental messages when purchasing clothing than cause-related messages; and environmental claims were more credible if attributed to the green brands than to neutral brands. Consumers may opt for higher-priced eco-labeled apparel as it may indicate higher quality of the product. The results suggest the existence of a segment of consumers who are positively motivated towards eco-labeled garments. This segment profile is described in terms of demographic and psychographic variables. Managerial implications and future directions are suggested. 7.) Title: Estimation of Cost of Quality in an Indian Textile Industry for Reducing Cost of Non-conformance Author: ARUP RANJAN MUKHOPADHYAY SQC &OR Unit, Indian Statistical Institute, Kolkata, India Source: Vol. 15, No. 2, 229–234 Date: March 2004
Review: In today’s world which is packed with competition a company has to exhibit certain competitive advantage to outperform its competitors. This can be in terms of cost cutting which is displayed by Indian textile industry. Quite naturally, this facilitates survival and further growth of the company. Costs of non-conformance (CONC) are all the costs incurred because failures occur. Had there been no failure, there would have been no requirement for appraisal and correcting activities. However, prevention inevitably involves some costs. These are preventive costs, or the costs of conformance (COC). This includes all the costs associated with any
12
activity designed to ensure that the right activities are carried out right first time. Indian textile industry can reduce its cost of non-conformance and strengthen its competitive position by focusing on customer orientation. And, of course, reduction of cost of non-conformance is much more preferable to increasing the volume of sales turnover, especially in a competitive market or a recession which is our present scenario. 8.) Title: Impact of Global Meltdown on India's Garment Exports Author: Mr.Montek Singh Ahluwalia Source: AEPC Date: NA Review: Apparel exports contribute around 8% to India's overall exports and 48% to textile exports. It exports to many countries but due to global recession, sales are falling and thus, companies are cutting down on employees. Many are reducing the working hours there by reducing the earnable income by these people. But even in such times there are countries like Bangladesh which are gradually taking over our share of business. They can do so because they have many advantages like favourable government policies , cheaper power and labour etc. , but if we take proper measures now we can turn the situation around for our benefit. 9.) Title: Textile Artist Works to Inspire New Generations by Designing Maine-Made HandPrinted Fabrics
13
Author: Carol Arnold Source:http://www.fibre2fashion.com/industryarticle/pdffiles/18/1727.pdf? PDFPTOKEN=c10276b37d42b3971e69790b98416a1fc025654a|1238622560#PDFP
Date: NA Review: The article talks about the beauty of the 100% natural fibers and the different hand made designs and prints on these fabrics. These fabrics are not manufactured or computer generated, that’s what makes it so special. As everything made out of it is original and authentic which is evident in the slight imperfections that the fabric has. This sort of a creation is not an easy one as everything is custom made. The article talks about how a personal favorite accessory inspired a woman to start making and designing these fabrics and using them for her personal line of related accessories. Its to bring awareness of the craft of traditional textile art to the new generation.
10.) Title: The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing Author: Hildegunn Kyvik Nordås Source: World Trade Organization Geneva, Switzerland
14
Date: NA Review: The clothing industry is labour intensive and it offers entry-level jobs for unskilled labour in developed as well as developing countries. As even the developed countries need this industry to be successful as it provides jobs to many and finding an alternative job may be a difficult task. Also this is a low wage industry and a dynamic and innovative sector, depending on which market segment one focuses upon. Its actually easier for the developing countries to adopt the modern technology as it involves low investment. After all impact of liberalization can be felt on this industry too. There’s suddenly a need to be abreast with the latest technology and the managerial developments happening in the other parts of the world. The countries that are most likely to lose market shares are those located far from the major markets and which have had either tariff and quota-free access to the United States and EU markets, or which have had non-binding quotas. These countries will undoubtedly face adjustment challenges. there is no doubt that both China and India will gain market shares in the European Union, the United States and Canada to a significant extent, but the expected surge in market share may be less than anticipated, as other developing countries are catching up in terms of unit labour costs in the textile and clothing sector.
11.) Title: Traditional Ethnic Designs Author: Fiona Muller Source:http://www.fibre2fashion.com/industry
article/pdffiles/18/1780.pdf?
PDFPTOKEN=4881e56316ac72c0d3b27d5c5390d254e344 d6e|1238622720#PDFP
Date: NA Review:
15
This article talks about the amazing heritage that a country like india has, which is filled with varied and unique designs like buta work, chikankari, bandhez, block printing and many more. Most of these attractive designs originated from the state of rajasthan. The residents of this state have been involved in these creations since a very long time. These textile techniques are used for producing wonderful original dresses, kurtas, skirts etc. which we see later in the various high street stores. This is among the various reasons which make the Indian textile industry so attractive and its garments so unique. 12.) Title: FUNCTIONAL TEXTILES AND APPARELS Author: M. D. TELI, G. V. N. SHRISH KUMAR Department of Fibres and Textile Processing Technology Institute of Chemical Technology Source: journal of textile association Date: may- jun 2007
Review: In fast developing economies like that of India and China, non implantable healthcare and hygiene products are gaining significant importance because of specificity of their end uses. Today’s customers are a very conscious about the money they spend. While buying apparels too this sense of theirs is quiet strong. They want the fabric and the clothes to not just look good or be reasonable but also to provide certain functions which will make the user of such apparels enjoy some benefits. These are the new age functional textiles. These have opened new doors for the textile and apparel industry. These applications are highly crucial as these materials carry high end performance properties. Protective textiles offer protection from hazardous chemicals, heat, extreme cold, radiation and have special
16
application potential in today's technologically advanced world. In addition to this, advent of nano-technology has opened innumerable avenues giving rise to high performance textiles and apparels.. Producing such textiles will reduce india’s dependence on imports of similar fabrics and products. 13.) Title: Global Recession Impacts on Fashion Industry: Strategies for Survival Author: NA Source: http://www.teonline.com/articles/2009/03/global-recession-impacts-on-fashionindustry-strategies-for-survival.html Date: March 20, 2009 Review: The article talks about the impact of recession on the fashion apparel industry and how its earnings have reduced due to the recession. The customers are not spending lavishly anymore; they have become very conscious of the money used by them. They no longer pay just for the garments etc. but for the kind of services that their suppliers are providing them even at the time like this. Due to controlled spending these manufacturers get less revenues and thus many are losing their jobs and also there’s a credit crunch in the market. So many companies are looking for ways to turn the situation around by either merging with other companies and firms or by asking private financers to help them with their financial issues. At a time like this the only thing that can save these companies and their brands is getting their customers committed to their brand and making them loyal to it. It’s all about gaining their trust by providing consistent and reasonable products to them and to build strong relationships with them. 14.) Title: Innovations in the Apparel Industry to Keep Up With the Competition
17
Author: Dagur Jonnson Source:
http://www.articlesbase.com/business-articles/innovations-in-the-apparel-
industry-to-keep-up-with-the-competition-192218.html Date: Aug 2nd, 2007 Review: The abolition of global textile quota system from America has made the big players of the industry to restructure their business again to survive in the strong competition of the American apparel market. This trend of reorganizing the business for stiff competition is visible in American apparel industry. The areas in which this industry is concentrating more are better merchandising, better inventory management, consolidating sources and more involvement in sourcing the country. The only target behind all these is reaching the market in a better way and that to with a wide range of products. These innovations are what makes one player different from the other so everyone is investing in R&D, just so that the benefits could be reaped of the new creations developed by them. 15.) Title: Apparel Industry Keeps Watch on Wall Street's Financial Crisis
Source:
http://www.articlesbase.com/international-business-articles/apparel-industry-
keeps-watch-on-wall-streets-financial-crisis-580190.html Date: Sep 26th, 2008 Review: With the financial crisis in the U.S., the fates of Lehman Bros. holding inc, Merrill Lynch and Co. etc., the customers are getting more and more tight in their expenditure. A lot of people assess their wealth based on the value of their holdings. If their holding vale drops they feel poor and if they feel poor they spend less. Apparel manufacturers have several
18
things to worry about. A slump in consumer demand obviously means fewer orders. Even credit is likely to get tighter. But obviously for those companies that are in a stronger financial position, credit is still available. Factors that give loans based on accounts receivable are being more cautious, scrutinizing retailers to make sure they are credit-worthy. They are keeping a very close eye on everyone. Also it’s a great time for anyone who has enough money to carry out buyouts as companies can be obtained at a bargain price at this time.
CHAPTER -3 GLOBAL SCENARIO
19
The textile and clothing trade is governed by the Multi-Fibre Agreement (MFA) which came into force on January 1, 1974 replacing short-term and long-term arrangements of the 1960’s which protected US textile producers from booming Japanese textiles exports. Later, it was extended to other developing countries like India, Korea, Hong Kong, etc. which had acquired a comparative advantage in textiles. Currently, India has bilateral arrangements under MFA with USA, Canada, Australia, countries of the European Commission, etc. Under MFA, foreign trade is subject to relatively high tariffs and export quotas restricting India’s penetration into these markets. India was interested in the early phasing out of these quotas in the Uruguay Round of Negotiations but this did not happen due to the reluctance of the developed countries like the US and EC to open up their textile markets to Third World imports because of high labour costs. With the removal of quotas, exports of textiles have now to cope with new challenges in the form of growing non-tariff / non-trade barriers such as growing regionalisation of trade between blocks of nations, child labour, anti-dumping duties, etc. Nevertheless, it must be realised that the picture is not all rosy. It is now being admitted universally and even officially that the year 2005 AD is likely to present more of a challenge than opportunity. If the industry does not pay attention to the very vital needs of modernisation, quality control, technology up gradation, etc. it is likely to be left behind. Already, its comparative advantage of cheap labour is being nullified by the use of outmoded machinery. With the dismantling of the MFA, it becomes imperative for the textile industry to take on competitors like China, Pakistan, etc., which enjoy lower labour costs.
In fact the
seriousness of the situation becomes even more apparent when it is realised that the nonquota exports have not really risen dramatically over the past few years. The continued dominance of yarn in exports of cotton, synthetics, and blends, is another cause for worry while exports of fabrics are not growing. The lack of value added products in textile exports do not augur well for India in a non-MFA world. Textile exports alone earn almost 25 percent of foreign exchange for India yet its share in global trade is dismal, having declined from 10.9 percent in 1955 to 3.23 percent in 1996. More significantly, the share of China in world trade in textiles, in 1994, was 13.24
20
percent, up from 4.36 percent in 1980. Hong Kong, too, improved its share from 7.06 percent to 12.65 percent over the same period. Growth rate, in US$ terms, of exports of textiles, including apparel, was over 17 percent from 1993-94 to 1995-96. It declined to 10.5 percent in 1996-97 and to 5 percent in 1997-98. Another disconcerting aspect that reflects the declining international competitiveness of Indian textile industry is the surge in imports in the last two years. Imports grew by 12 percent in dollar terms in 1997-98, against an average of 5.8 percent for all imports into India. Imports from China went up by 50 percent while those from Hong Kong jumped by 23 percent. CHINA: China's investment spending in the textile industry slumped 20 percent in the first two months of this year from the same period in 2008, the National Bureau of Statistics said. Textile industry spending accounted for 0.9 percent of the nation's overall investment of 1.03 trillion yuan, down 0.5 percentage point from a year earlier, the statistics bureau said. China's garment and textile exports tumbled 15 percent to $21.9 billion in the two months from a year earlier, customs data show. Exports of yarn, fabrics and textile products totaled $7.29 billion, down 21 percent, while apparel exports fell 11 percent to $14.6 billion, the Beijing-based Customs Bureau said on March 11. Textile firms, once an export engine of China, are fighting for their survival this year with rising costs and dismal overseas market hit by the subprime crisis. Those firms wooing foreign buyers at the 103rd China Import and Export Fair, the largest trade fair in the country also called the Canton Fair, felt the pinch. Few buyers visited their exhibition stall, and fewer still signed contracts. Chinese product competitiveness was not much as it was. The reduction in tax rebates and the devaluation of the dollar have made Chinese products 20 percent higher than what it was. The Chinese currency has ventured below the seven yuan mark since the government loosened the unit’s peg to the dollar in 2005. The yuan has gained about 18 percent since then. This has made Chinese textile products more expensive and its price advantage has almost vanished compared with products from Vietnam and India. The yuan appreciation, together with the rising material and labor costs, has driven some textile firms to the brink of bankruptcy.
21
BANGLADESH: Swedish Firms have Expanded Outsourcing in Bangladesh. Swedish firm engaged in outsourcing home textiles and home furnishing items is planning to expand its operations in Bangladesh. RMG Exports is expected to Surge despite global recession. The ready made garment sector, one of the pillars of the Bangladesh economy, is definitely in a positive mode despite global financial meltdown. The three-day Bangladesh Apparel and Textile Exposition (BATEXPO) wooed foreign buyers to buy apparel products. CAMBODIA: Cambodia's garment industry is the country's biggest industrial employer, and is now struggling against stiffer global competition and slowing demand. Many Chinese and Korean companies have established a presence in Cambodia for years. Now, more than 10 Chinese-owned factories have moved to cheaper markets, leaving hundreds of thousands of garment workers from the provinces facing destitution, reported Phnom Penh Times in early 2008.The garment industry earns 80 percent of Cambodia's foreign exchange earnings and employs an estimated 350,000 people in more than 300 factories. The industry began to grow after a the country passed a new labor laws encouraging labour unions and allowed the International Labour Organisation (ILO) to inspect factories and publish its findings. In turn, the United States agreed to cut tariffs on Cambodian garment exports, buying 70 percent of all of the country's textiles in the 1990s. Cambodia maintained its higher working conditions after the deal expired in 2005, and garment-making has made the national economy one of the fastest growing in the region. The World Bank reported that the industry grew only 8.0 percent in 2007 compared to the growth of up to 20 percent previously. The Cambodia Ministry of Commerce said that the apparel exports had declined since October 2007, mainly due to the US economic slowdown. Exports to the United States slipped 1.44 percent in the first quarter of 2008, compared with the same period in 2007. Predicted Trend .The Cambodia's Free Trade Union (FTU) said that the factory owners are looking abroad for greater productivity and lower costs. Kaing Monika, Manager at the Garment Manufacturers Association of
22
Cambodia, commented that many manufacturers could move to Vietnam, Bangladesh or India if they could get lower costs. Production costs, oil and power, are high in Cambodia, and the demand for higher wages also put the country's garment industry in danger, he said. Factory owners are also facing a proliferation of labor unions and illegal strikes. Experts predict that in 2009 Cambodia would even see more competition when US restrictions on Chinese textile exports are scheduled to end. China and Vietnam are still Cambodia's direct competitors. Cambodia's labor ministry said that to counter this competition, Cambodia must increase productivity, quality and extend their reputation as having high labor standards.
MAJOR MANUFACTURERS AND THEIR MARKET SHARE In 2006, the largest apparel manufacturers and exporters were countries from the AsiaPacific region which included countries like China, Hong Kong, Phillipines, Malaysia, Indonesia, Bangladesh, Srilanka, Pakistan, Thailand and India. The other major apparel manufacturing nations were USA, Italy, Germany and Mexico. Diagram No: 3.1 Country wise Market Share
Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)
23
GLOBAL TRADE VOLUME AND TRENDS As the apparel manufacturing industry has become more labour intensive and requires less capital investment, its concentration is shifting more towards the developing countries and even constituting large amount of their exports. They are concentrating more on developing countries as the labour cost is very less in such countries. This can be analyzed by the fact that the apparel production in industrialized countries decreased between 1980 and 1996, where as the production increased in developing countries during the same period. Similar trend was seen in exports, the apparel exports of developing countries increased six times between 1980 and 1997, and that of developed economies rose by 150%. The global apparel industry’s total revenue in 2006 was US$1,252.8 billion, which was approximately 68% of the overall industry value. Asia Pacific constitutes the largest amount of production and trade in the apparel industry worlwide. Table No: 3.1 Region wise Share of Total Trade Revenue (2006)
Region Asia Pacific Europe USA Rest of the world
% Share 35.40% 29.40% 22.30% 12.90%
Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html) China had captured 65% of the global market share towards the end of 2006 in total apparel exports. The other major apparel exporting nations include USA, Germany, Hong Kong, Italy, Malaysia, Pakistan, Thailand and India. Some of the apparel trade statistics are presented below.
24
Table No: 3.2 Exports of Apparels in 2006
Country China Hong Kong Italy Malaysia Germany Pakistan Thailand USA India
US $ Billion 8,260.921 1,723.210 1,353.586 1,255.069 669.130 618.830 597.758 595.171 522.463
Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html) GLOBAL FACTORS INFLUENCING TEXTILE INDUSTRY The history of the textile and clothing industry has been replete with the use of various bilateral quotas, protectionist policies, discriminatory tariffs, etc. by the developed world against the developing countries. The result was a highly distorted structure, which imposed hidden costs on the export sectors of the Third World. Despite the fact that GATT was established way back in 1947, the textile industry, till 1994, remained largely out of its liberalization agreements. In fact, trade in this sector, until the Uruguay Round, evolved in the opposite direction. Consequently, since 1974 global trade in the textiles and clothing sector had been governed by the Multi-fibre agreement, which was the sequel to an increasingly pervasive quota regime that began with the Short-term arrangement on cotton products in 1962 and followed by the Long-Term arrangement. After the successful conclusion of the Uruguay Round in 1994, the MFA was replaced by the Agreement on Textiles and Clothing (ATC), which had the same MFA framework in the context of an agreed, ten year phasing out of all quotas by the year 2005. The section that follows takes a brief look at the history of these protectionist regimes as also a more detailed look at the MFA and the ATC.
CHAPTER-4 25
INDIAN TEXTILE INDUSTRY INTRODUCTION The textile industry is the largest industry of modern India. It accounts for over 20 percent of industrial production and is closely linked with the agricultural and rural economy. It is the single largest employer in the industrial sector employing about 38 million people. If the employment in allied sectors like ginning, agriculture, pressing, cotton trade, jute, etc. are added then the total employment is estimated at 93 million. The net foreign exchange earnings in this sector are one of the highest and, together with carpet and handicrafts, account for over 37 percent of total export earnings at over US $ 10 billion. Textiles, alone, account for about 25 percent of India’s total forex earnings. India’s textile industry since its beginning continues to be predominantly cotton based with about 65 percent of fabric consumption in the country being accounted for by cotton. The industry is highly localized in Ahmedabad and Bombay in the western part of the country though other centers exist including Kanpur, Calcutta, Indore, Coimbatore, and Sholapur. The structure of the textile industry is extremely complex with the modern, sophisticated and highly mechanized mill sector on the one hand and the hand spinning and hand weaving (handloom) sector on the other. Between the two falls the small-scale power loom sector. The latter two are together known as the decentralized sector. Over the years, the government has granted a whole range of concessions to the non-mill sector as a result of which the share of the decentralized sector has increased considerably in the total production. Of the two sub-sectors of the decentralized sector, the power loom sector has shown the faster rate of growth. In the production of fabrics the decentralized sector accounts for roughly 94 percent while the mill sector has a share of only 6 percent. Being an agro-based industry the production of raw material varies from year to year depending on weather and rainfall conditions. Accordingly the price fluctuates too. The Ministry of Textiles under the Government of India has taken some significant steps to arrest these problems. It has framed "The National Textile Policy 2000" to address the
26
aforesaid issues. This policy aims at negating these problems and increasing the foreign exchange earnings to the tune of US$ 50 billion by the year 2010. It includes rational road-maps for the development and promotion of all the sectors involved directly or indirectly with the textile industry of India. Further, the policy also envisages to bring the unorganized decentralized textile sector (which accounts for 76% of textile production) at par with the organized mill sector. Furthermore, the policy also aims at introducing modern and efficient manufacturing machineries and techniques in the Indian textile sector
INDUSTRY SUPPLY CHAIN The apparel industry supply chain can be broadly categorized into six major components raw materials, textile plants, apparel plants, export chains, retail stores and customers.
Diagram No:4.1 Supply Chain of the Textile Industry
Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)
CURRENT INDUSTRY SCENARIO:
27
Close to 14% of the industrial output and 30% of the export market share is contributed directly by the Indian textile industry. Indian textile industry is also the largest industry when it comes to employment that generates jobs not just within but also in various support industries like agriculture. As per a recent survey the textile industry is going to contribute 12 million new jobs in India by 2010 itself. Indian textile industry is as old as the word textile itself. This industry holds a significant position in India by providing the most basic need of Indians. Starting from the procurement of raw materials to the final production stage of the actual textile, the Indian textile industry works on an independent basis. The final phase-out of the Multi-fiber Arrangement (MFA) and the system of quotas that has governed the global trade in textiles and apparel for the last forty-two years has significantly altered the institutional rules of trade in the textile and clothing industry. With the elimination of all remaining quotas on apparel from January 1 2005, the textile and clothing sector is now fully integrated into the regulatory framework of the General Agreement on Tariffs and Trade (GATT) of the World Trade Organization (WTO). Buyers are now free to source textile and apparel in any amount from any country; suppliers are similarly free to export as much product as they are able, subject only to a system of national tariffs. As global competition intensifies under the new quota-free trading regime, countries are bracing for major changes in the structure of sourcing and apparel supply worldwide. With the removal of the quotas, it was expected that the developing countris, who have a major play in the textile industry will benefit themselves as they have stable supply network, experience in networking, capacities for scaling up and the ability to offer a full bundle of services. It was also expected that smaller countries, which enjoyed the restriction on trade will fall out from the picture. The textile sector has increased their investment in projects to upgrade their equipment amid fierce market competition and to meet the growing demand for more textile products. Total investment in the textile industry between 2004 and 2008 was around Rs.65,478 crore in India, which is expected to reach Rs.1,50,600 crore by 2012. This
28
enhanced investment would generate 17.37 million jobs-- 12.02 million direct and 5.35 million indirect—by 2012. Investments in the textiles sector can be assessed on the basis of three factors: •
Plan schemes such as the Techno Up-gradation Funds Scheme (TUFS),
Technology Mission on Cotton, Apparel Parks, etc. Under the TUFS scheme, a total of Rs 916 billion has been disbursed for technology up gradation. There are around 26 Apparel Parks in eight states in India, with a total estimated investment of Rs 134 billion •
Industrial Entrepreneurship Memorandums implemented from 1992 to Aug 06,
amounting to Rs 263 billion •
Foreign Direct Investments inflows worth US$ 910 million have been received by
the textile industry between Aug 91 and May 06, which account for 1.29% of total FDI inflows in the country. Though significant investments are being made in the textiles segment, the bulk of them are in the spinning and weaving segments. A cumulative total of US$ 6.67 billion in investment was done in 2008. Of this, more than two-thirds is in the spinning and weaving segments, while only 25% is in processing and garment units The elimination of global textile quotas is expected to drive garment production to China, benefiting consumers in North America and Europe at the expense of developing nations where apparel manufacturing has become a bridge to an industrial economy. Africa received record high foreign direct investment (FDI) inflows in 2005 of US$31 billion, but this was mostly concentrated in a few countries and industries. The textile sector has increased their investment in projects to upgrade their equipment amid fierce market competition and to meet the growing demand for more textile products. The global fibre industry will continue to shift to the Asia/Pacific region, particularly China, South Korea and Taiwan. Textile trade in the world is estimated to be around US$ 300 billion currently. Industry experts predict that by 2014 the facilities in the west will close down and they will source their textiles from more efficient areas of the world resulting in the trade volume of around US$ 800 billion. The Indian textile industry,
29
which has accelerated to an annual growth of 9-10 per cent, is expected to grow at a rate of 16 per cent in value terms and reach a level of USD 115 billion by 2012. With 8.6% growth rate, Turkey also recorded a very strong average annual growth rate of its textiles and clothing exports but from a much lower basis. It could increase its exports from 8.6 to 17.6 billion US-Dollars. Pakistan exports amounted to 9.9 billion US-Dollars in 2005 which translates into an average annual growth rate of 5.4%.
As of now, the general impression any individual would get about the Indian textile industry leaders in the past few months is that it is in a major decline state. The following could be the reasons that attribute to this decline. •
Global recession
•
Less export orders due to reductions in inventories by global retail giants like WalMart
•
Rising price of raw materials like cottons
•
Infrastructure bottlenecks such as power, particularly in Tamil Nadu
In the times of adversity, like what we are facing right now, it is an immediate task for all stake holders to pause for a moment and take stock of the difficulties and chart plans for sustainability and growth of the Indian textile industry. With the opening of world markets and the abolition of textile quotas since 2005, there came a negative situation as well. But, hindsight is always 20-20. Indian textile industry should have focused on all major sectors right from fibre to fashion and planned for an organized growth across the supply chain so as to compete with China and even countries such as Pakistan, Vietnam and Thailand, which are also growing from the textile perspective. Instead, the industry had put majority of its stock in the spinning sector. This is clearly evident in the utilization of Technology Upgradation Fund Scheme effectively by the spinning sector. Although it is a positive outcome, the industry did not focus on 30
many other value adding segments such as weaving and finishing. Indian powerloom sector, which enables value-addition is a highly unorganized industry and needed major upgradation. As of now, the powerloom segment is also picking up where in many of the unorganized powerlooms are becoming organized. Technical textiles sector is still in its infancy and a tangible growth will be highly visible by 2035 when the growth in this sector will be exponential. The weak links in the Indian conventional industry such as weaving and finishing have to be strengthened. There must be consolidated efforts by Indian Textile Machinery Manufacturers Association, end-users and the Government to undertake a major step and come-up with alternatives to European Machinery, which the Indian weaving sector can afford. This should be put into practice within the next five years, if dedicated efforts are undertaken with the financial support for R & D by the Government through its various schemes. Technical textiles sector must transform from a non crawling phase to at least a crawling industry in the next three years. General awareness on nonwoven and technical sectors has been created with the recent marathon training workshops and conferences such as, "Advances in Textiles, Nonwoven and Technical Textiles", organized for the past five years in Coimbatore by Texas Tech University, USA and those such as the Texcellance and IIT's Technical Textiles conferences. These have put India on the international map in technical textiles. These conferences are of less use if they do not translate into investments and new projects.
TEXTILE INDUSTRY BENEFITS OTHER INDUSTRIES TOO The pursuit of a better fibre and a better fabric is yielding products used in medicine, aeronautics, astronautics, seawater desalination, and construction of buildings and roads. The new kinds of textiles possess characteristics that make them useful in numerous formerly unexpected applications. Although textiles are still the major component of the clothes we wear and of many furnishings in our homes and offices, they are also used widely in medicine, aeronautics, astronautics, pollution abatement, and numerous other fields. Innovation in textile technology continues and more unusual products will almost surely emerge.
31
MEDICAL Certain fibres and textile materials are especially suitable for use in building synthetic body parts and medical scientists are steadily expanding the types of body parts whose function can be mimicked. The artificial kidney is made from 7,000 hollow fibres, each of which is about the size of a human hair. Patients whose kidneys no longer function normally must have their blood freed by dialysis of metabolic wastes and excess water about every three days. This is accomplished by pumping the blood through a textile, hollow-fibre module while clean-sing solution rinses the blood free of urea. Patients with diabetes have a tendency to suffer from cholesterol blockage of arteries leading to their feet. If not corrected, poor circulation can lead to gangrene and loss of limbs. Artificial arteries that look like pencil diameters are surgically inserted to bypass the blockages, thus restoring circulation and saving limb functions. These implants require crucial textile technology to prevent clotting and rejection. It is estimated that more than 150,000 people in the United States have now had these artificial arteries for over five years.
SPACE NASA space suits for launch and for space walks require zero-defect performance. The launch suits are made from PBI non-flammable high-performance fibres. The space-walk suits have different requirements. They require air-purifying, cooling, and pressurizing systems. Each suit is tailor-made for a particular astronaut and costs $1-1.5 million. Since the astronaut is under an oxygen pressure of eight pounds per square inch in this suit, special flexibility is needed to allow him or her to bend an elbow or grasp an article. Rocket exhausts and nose-cone covers for space shuttles are made of carbon and other high-performance fibres. These protect the vehicles from heat from air friction during launch and re-entry. The flames generated on the launch pad do not ignite the rocket because of the flame-resisting properties of graphite carbon-fibre-textile exhaust shields. Similarly on re-entry, the white-hot temperatures from atmospheric friction do not consume the shuttle because high-performance fibre and ceramic structures provide protection.
32
AERONAUTICS Airplane parts, other than body construction, are also made of textiles. All U.S. commercial jets have brakes made from carbon composites. These are the only materials that can withstand the extreme high temperatures generated if takeoff is aborted. Stopping a plane weighing many tons in a short distance generates temperatures high enough to melt metals, making carbon brakes indispensable for heavy jets. Kevlar non-woven felt liners are now used as fire barriers to cover the urethane foam seats on all aircraft to prevent the production of highly toxic cyanide gases when such foams burn during airplane accidents. PURIFICATION OF WATER AND AIR Whole-body gas suits are required to protect soldiers from the chemicals used in gas warfare today. These chemicals can kill by absorption into the bloodstream through skin. The suits allow for transport of perspiration moisture to prevent soldiers from being overcome internally as would occur from a non-permeable film covering. It is well known to chemists that a cube of activated charcoal powder measuring one inch on each side has an adsorptive capacity equal to a football field. It was therefore believed that properly constructed porous carbon fibres could exhibit superior gas-adsorption capability. Drinkable sea water is now available through properly prepared hollow fibre reverse osmosis modules. Sea water is forced through these modules under a pressure of 400 pounds per square inch. Pure drinking water passes through the hollow fibre wall while concentrated salt water exudes out of the end. Concentration of liquids that normally deteriorate from heating is possible with reverse osmosis fibres and membrane systems. Many liquids, including orange juice and tomato juice, can be concentrated by pressure without heat to preserve the thermally unstable flavour ingredients. Most orange-juice concentrate on the market today is prepared this way. Similarly concentration of gases can be achieved by proper use of membrane and fibre composition. Gas-separation systems are currently in use at most U.S. petroleum refineries. CONSTRUCTION MATERIALS
33
Super domes and stadiums are being constructed with roofs of silicone-coated fibreglass. This is particularly important in northern areas where heavy snowfall has caused the collapse of heavy concrete roofs. At the Hubert Humphrey dome in Minnesota, 800,000 square yards of such material in two layers allow warm air to be circulated to melt the snow. At an air terminal in Saudi Arabia, a multi-funnel design allows circulation by convection of the air up through hollow top ports. Many shopping malls are turning to these flexible composites to allow for more freedom in architectural design, improved aesthetics, better air circulation, and better light transmission. Rapid technological advances in the textile industry have opened now opportunities for many technical disciplines, but have resulted in a shortage of textile chemists, textile engineers, and textile-management executives. Some U.S. colleges with textileengineering programs report that they could place nearly three times as many students in well paying jobs as they are currently graduating. Together with a bright outlook for further rapid advances and new products with unusual but useful properties, this shows that textiles remain among the most dynamic contemporary sectors in technology.
34
CHAPTER-5 INDIA’S COMPETITIVENESS CONTRIBUTION TO ECONOMY: With 3.9 million handlooms, India is the highest handloom producing country in the World. 30% of the total export income is generated by textile alone, it is second largest Employer industry after agriculture. The textile industry constitutes approximately 14% of country's total industrial production.
THE WORLD MARKET SHARE In spite of the Chinese dominance, India has a fair opportunity to grab a substantial stake in the projected garment market share. According to PHD Chamber of Commerce and Industry (PHDCCI), post-MFA, India's market share in the US is expected to go up to 15 per cent from the present 4 per cent. In the EU, the market share increase is expected to be 50 per cent from the current 6 per cent to 9 per cent
Table showing the India’s Competitiveness with Other Country There is no denying India is competitive enough and will become even more competitive once its infrastructure issues are sorted out. China has probably already reached its peak and further improvements may not be as dramatic, henceforth
35
Table No: 5.1
Countries and their positive and negative aspects with regard to textiles
Key countries / regions
Key positives
Key negatives
China
Efficient, low cost, vertically integrated
Growth at the cost of profits
India, Pakistan
Vertically integrated, low cost
Lacks economies of scale and infrastructure support
Mexico (NAFTA), Turkey
Proximity to market, duty and quota free
Lack China and Indias degree of competitiveness
ASEAN (Vietnam, Cambodia, Indonesia)
Cheap labor
No other cost or locational advantage
AGOA (African) countries, Bangladesh
Quota and tariff free, cheap labor
Lacks integration and China and Indias degree of competitiveness
Hong Kong, Korea, Taiwan
Trading hubs proximity to China
No cost advantage, protected currently by quotas
USA and EU
Non-quota barriers likely to prove irritant to imports
US$ 400 bn trade loss likely ov
Source - Industry, I-SEC Research
Indian Textiles targets- 11th Five year Plan (2007-2012) •
Market size of US$ 115 Billion
•
Export target US$ 55 Billion
•
Domestic market US$ 60 Billion
•
India’s market share in world textiles trade to grow from 3% to 8 %
•
12 Million additional jobs 36
•
Investment Rs.150,600 Crs
Table No:5.2 Textiles Export Target (In Billions) Year ( April March)
Target
Achievement
2006-07
19.73
19.62
2005-06
15.565
17.80
2004-05
15.16
13.04
2003-04
16.31
13.16
2002-03
15.05
12.41
2001-02
13.72
10.76
Source: Textile India Progress
Top 10 Exporters (Textile) Country
1990
1997
Billion US$
% share
Billion US$
% share
Hong Kong
7.99
7.68
14.6
9.42
China
7.10
6.82
13.83
8.92
South Korea
6.04
5.81
13.35
8.61
Germany
14.00
13.46
13.05
8.42
Italy
9.80
9.43
12.9
8.32
Taiwan
6.13
5.90
12.73
8.21
USA
5.03
4.83
9.19
5.93
France
7.21
4.65
5.86
5.64
6.54
6.29
7.01
4.52
5.88
5.65
6.75
4.35
BelgiumLuxembourg Japan
37
Top 10 Exporters (Apparel) Country
1990
1997
Billion US$
% share
Billion US$
% share
China
9.41
9.14
31.8
21.06
Hong Kong
15.37
14.92
23.11
15.30
Italy
12.07
11.72
14.85
9.83
USA
2.57
2.49
8.68
5.75
Germany
7.82
7.59
7.29
4.83
Turkey
3.44
3.34
6.7
4.44
France
4.65
4.51
5.34
3.54
UK
3.08
2.99
5.28
3.50
South Korea
8.11
7.87
4.19
2.77
Thailand
2.86
2.78
3.77
2.50
Total (top
69.38
67.36
111.01
73.52
103.00
100.00
151.00
100.00
10) World
Multifibre Arrangement (1974-94) under which countries whose markets are disrupted by increased imports of textiles and clothing from another country were able to negotiate quota restrictions. The MFA was introduced in 1974 as a short-term measure intended to allow developed countries to adjust to imports from the developing world. The textiles and clothing industry was, until recently, the only major manufacturing industry that was not subject to the rules of the General Agreement on Tariffs and Trade (GATT). Instead,
38
it was subject to extensive use of quotas by the major importing countries. The quota system started with the Long Term Agreement Regarding International Trade in Cotton Textiles (LTA) under the auspices of the GATT in 1962. In 1974 the LTA was extended to cover other materials than cotton, and became known as the Multi-Fibre Agreement (MFA). At the end of the Uruguay Round of negotiations it was agreed that t countries wishing to retain quotas would commit themselves to phasing them out gradually over a 10 year period, with the last quotas being lifted 1st of January 2005, as stated in the Agreement on Textiles and Clothing (ATC).Developing countries have a natural advantage in textile production because it is labor intensive and they have low labor costs. According to a World Bank/International Monetary Fund (IMF) study, the system has cost the developing world 27 million jobs and $40 billion a year in lost exports. At the General Agreement on Tariffs and Trade (GATT) Uruguay Round, it was decided to bring the textile trade under the jurisdiction of the World Trade Organization. The textiles and clothing (T&C) industry is considered to be an opportunity for the industrialization of developing countries in low value added goods. The industry is labor intensive and thus requires a large number of unskilled workers, including a high share of female workers. The end of the MFA in 2005 will change international trade significantly and lead to a restructuring of the sector worldwide. This restructuring process will result in major employment shifts within and between countries. However, the last three decades have seen various changes in the clothing and textile sector, thus forcing many countries to adjust to a constantly altering environment. Now, a number of countries fear that a new wave of cheap textile and clothing products will flood their markets, threatening their domestic industries that are not adequately prepared to face the new challenge. There are also those countries that hope for new export opportunities as a result of a free quota trade environment and a third set of countries that will lose their preferential access to the US or EU markets, thus facing higher competition for their exports to them. However, large tariffs remain in place on many textile products. However, the last three decades have seen various changes in the clothing and textile sector, thus forcing many countries to adjust to a constantly altering environment. Now, a number of countries fear that a new wave of cheap textile and clothing products will flood their markets, threatening their domestic industries that are not adequately prepared to face the new challenge. There are
39
also those countries that hope for new export opportunities as a result of a free quota trade environment and a third set of countries that will lose their preferential access to the US or EU markets, thus facing higher competition for their exports to them. CONCLUSION: India has been repeatedly cited as a major potential beneficiary of the post-quota regime. The implementation of the ATC, meant as a transition period to full integration of the T&C sector, occurred in a back-loaded fashion. Before the ATC took effect, a significant portion of textile and clothing exports from developing countries to the industrial countries was subject to quotas under a special regime outside normal rules of the General Agreement on Tariffs and Trade (GATT). These former Multi-Fiber Agreement (MFA) quotas, when carried over into the ATC on January 1, 1995, represented the starting point for an automatic liberalization process. Liberalization was to be in four stages, with half of the integration to take place in the first three stages (1995-2005) and the second half to take place in the final phase in 2005.Famously inward-looking till the 1980s, the Indian textile and clothing industry has become increasingly integrated into global markets since the late-1980s and 1990s, emerging as one of the top ten global exporters of textiles and clothing after 1998. India’s apparel exports grew at an average compound rate of 22% per year throughout the 1980s (Chatterjee and Mohan 1993), and by about 13% in the 1990s (United Nations Statistical Division, 2005). By 2003, India exported more than $13.5 billion worth of textile and apparel, up fifteen-fold from the $0.9 billion it exported in 1985, when apparel exports were just taking off (United Nations Statistical Division, 2005). This export growth, though slow in comparison to exporters like China, is impressive because it occurred despite the persistence of many of the factors that observers have cited as shackling Indian productivity in textiles and apparel: technological obsolescence, fragmented capacities, low scales of operation, lack of an exit policy, and rigid labor laws. The domestic reforms of the mid-1980s were critical in triggering growth in the apparel and textile sector. Their initial focus on investment and technical upgrading in the textile and apparel sector created a tier of strong domestic firms in the spinning and apparel sector that increased investment, modernized their technical base, diversified their product mix and over time emerged as leading exporters. Trade
40
liberalization of the 1990s deepened the processes that had the process of deregulation had already begun in 1985 and thus India’s textile and apparel industry went through many transitions and in the present context is impressive.
CHAPTER-6 INDIAN SUPPLY DEMAND SCENARIO Textile engineering enjoys good growth in the country. The business in 2004-05 amounted to Rs 1,650 crore, which was a Rs-250 crore increase from the year-ago level. Despite the Bull Run, textile industry is running short of machinery. Today, textile companies have to wait one or two year for delivery of machines, whereas, orders are completed within 10-12 months. This growing demand is a tough challenge to cope with for Lakshmi Machine Works (LMW), Coimbatore. It takes 18 months to fulfill new orders, but R. Rajendran, spokesperson for LMW, expects the delivery time to be cut down to 10-12 months in 2006-07 with its new capacities. Two reasons forwarded for the delay in delivery of machines: textile companies are expanding capacities rapidly and pace
of
supply
of
machinery
not
in
tune
with
the
current
demand.
41
Second reason is the Technology Up gradation Fund Scheme (TUFS) of the Textile Ministry is likely to end by March 2007. As a result, textile companies wishing to make the most of the scheme are rushing to place orders for the machines, says C V Radhakrishnan,
Advisor,
Textile
Machinery
Manufacturers
Association.
Considering the development of textile industry, India would need 12 million spindles in the next five years, whereas only 10 million spindles would be provided by domestic textile engineering industry. In 2008, the Indian textile industry suffered from overcapacity. There was talk that a consolidation in the local industry would inevitably have to take place if India is to remain competitive in textiles, but there was also talk that the government may offer a U.S.-styled bailout of the Indian textile industry in order to keep employment levels high. These conflicting signals continue to make an assessment of the Indian textile sector difficult to make.
Chapter-7 FASHION APPAREL INDUSTRY OVERVIEW The global fashion apparel industry is one of the most important sectors of the economy in terms of investment, revenue, trade and employment generation all over the world. Apparel industry has short product life cycles, tremendous product variety, volatile and unpredictable demand, long and inflexible supply processes. The industry has been in a transition over the last 20 years. Some of the major contributors are significant consolidation in retail, increasing use of electronic commerce in retail and wholesale trade. The clothing and apparel industry produces finished clothing products made from both natural and manmade fibers like cotton, silk, wool, linen, polyester, rayon, lycra and denim. The important segments covered in apparel industry includes children clothing, mens clothing, clothing for women, bridal wear, mens wedding wear and intimate
42
apparel. The apparel is sold through three major channels, which are brick & mortar, catalog and through internet.
Table No:7.1
Apparel Sales by Channel
Category Brick and Mortar Catalog Online/ Internet Total
Sales in $ Billion 169.256 7.177 5,873 182.306
Market Share (%) 92.9 3.9 3.2 100.00
Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)
INDUSTRY CHALLANGES The Apparel Industry is growing at a very high rate but still there are some barriers, which are hindering the growth of this industry. Some of them are: • Though the demand for garments is increasing day by day but the production rate has still not been able to match with the ever rising demand. More production facilities are needed to meet the demand • Most of the raw material needed for apparel manufacturing is available in the developing or under developed countries and these countries do not have enough resources and manpower to explore them. These countries also do not have finance to set up factories for clothing and garment production • Globalization has helped the trade in many ways but due to globalization the competition has increased and so it is not very easy for the firms to cope up with so much competition, as they have to meet the deadlines and also maintain quality
43
• The importers of developed economies are facing very stiff competition as countries like China are producing good quality products in low prices due to availability of very cheap labour • Some trade laws still are very much in favor of developed countries and they need to be reviewed, to facilitate imports from the developing countries • As apparel industry is fashion driven, and fashion keeps changing, the firms have to cope with the changing apparel industry trends and still complete orders in time. Thus they usually have to work under pressure
National Textile Policy 2000: ON NOVEMBER 2, the Government announced the New Textile Policy (NTP), outlining measures to make India a global player in textiles and readymade garments by raising exports from $11 billion to $50 billion by 2010. Of this, the share of readymade garments will be half. The Government has decided to de reserve the garment industry from the SSI category to make the former internationally more competitive. Till now, the garment sector was under SSI reservation, with an investment ceiling of Rs 3 crore, and the maximum foreign direct investment limit of 24 per cent. There are two more modifications. First, the FDI limit of 24 per cent has been removed, and foreign companies will be able to make 100 per cent investments through the Foreign Investment Promotion Board (FIPB) route. Second, the 50 per cent export obligation on firms with foreign equity has been done away with. The Government intends to implement, in a time-bound manner, the Technology Upgradation Fund Scheme covering all manufacturing sectors of the industry. According to the Textiles Minister, Mr Kashiram Rana, response to this scheme is improving, and proposals worth Rs 11,000 crore were received.
44
According to the RBI, exports of readymade garments in the 11 years from 1987-88 to 1998-99 rose from $1,430 million to $4,444 million -- more than threefold. The annual average growth rate readymade exports during this period were 10.9 percent, against the overall export growth rate of 9.7 percent. Exports of readymade to the developed countries are improving. Against exports of $427 million to the US, in 1987-88, they touched $1,503 million -- again, more than threefold-in 1998-99. There have been similar increases in despatches to the UK, Germany, France, Canada, Italy, Japan and the Netherlands. There was a decline in exports to the Commonwealth of Independent States (CIS) because of the unstable conditions. India was also able to capture markets in developing countries, especially the UAE. The rising trend of readymade garment exports, even to the most developed countries, proves beyond doubt the competitive ability of the small sector. TECHNOLOGY UPGRADATION FUND SCHEME (TUFS): Government of India, Ministry of Textiles has launched a Technology Upgradation Fund Scheme (TUFS) for the Textile and Jute Industries, which is in operation since 01.04.1999 for 5 years i.e. up to 31.03.2004. There is no cap on funding under this scheme. It is an open-ended scheme depending on the capacity of the industry to absorb funds in bankable and techno-economically feasible proposals. The main features of the TUFS are given below: i) The scheme provides a reimbursement of 5% point on the Interest charged by the lending agency on a project of Technology Up gradation in conformity with the scheme. ii) The identified sectors in the textile industry viz. Cotton ginning and pressing, spinning/silk reeling and twisting/wool scouring and combing/ synthetic filament yarn texturising, crimping and twisting, manufacturing of viscose filament yarn (VFY) / Viscose Staple Fiber (VSF), weaving/knitting including non woven and technical textiles, garments/made-ups, Jute industry are eligible to avail of these concessional loan for their technology up gradation requirements. Investments in common infrastructure or facilities owned by the association, trust or co-operative society of the units participating in the
45
TUF Scheme and other investments specified are also eligible for funding under the scheme. iii) Technology levels are benchmarked in terms of specified machinery for each sector of the textile industry. Machinery with technology levels lower than that specified will not be permitted for funding under the TUF Scheme. iv) General eligibility condition and sector specific eligibility conditions have also been specified in the scheme. v) Nodal agencies for the scheme are as follows: For the Textile Industry (excluding SSI sector) – IDBI For the SSI Textile Sector (Cotton Ginning & Pressing, Weaving, Knitting, Processing & Garmenting Manufacturing) - SIDBI For Jute Industry - IFCI vi) The interest @5% would be reimbursed to the respective nodal agency through the budget (plan) provisions of the Ministry of Textiles. vii) The functioning of the scheme is being periodically monitored by TAMC Chaired by Textile Commissioner and Inter-Ministerial Steering Committee, Chaired by Secretary (Textiles). viii) A special cell has been set up in the financing institutions for expeditiously processing loan application received under the scheme. ix) All the 18 SFCs, 17 SIDCs and 11 Twin function IDCs, EXIM Bank and NCDC have been co-opted by SIDBI and IDBI. Further SIDBI has co opted 81 commercial banks, 12 coop. banks and NSIC and IDBI has co-opted 36 commercial banks, 1 co-operative bank and 4 AIFIs (IFCI, ICICI, IIBI and LIC) have also been co-opted by IDBI. IFCI has coopted 3 SFCs, 1 SIDC, 6 commercial banks, 3 AIFIs and Exim Bank for financing jute industry under the scheme.
46
x) An option has also been provided to the Small Scale Textile and Jute Industries to avail of either 12% Credit Linked Capital Subsidy (CLCS) or the existing 5% interest reimbursement under the TUFS. CLCS-TUFS will be in operation from 1st Jan., 2002 to 31st March, 2004. There is no distinction between public sector, co-operative sector or private sector mills under the scheme, if project proposal is bankable and techno economically feasible. Indian textile industry should have focused on all major sectors right from fibre to fashion and planned for an organized growth across the supply chain so as to compete with China and even countries such as Pakistan, Vietnam and Thailand. Instead, the industry had put majority of its stock in the spinning sector. This is clearly evident in the utilization of Technology Upgradation Fund Scheme effectively by the spinning sector. Although it is a positive outcome, in my opinion, the industry turned a blind eye on value-adding sectors such as weaving and finishing.
TEXTILE WORKERS’ REHABILITATION FUND SCHEME (TWRFS): Textile Workers’ Rehabilitation Fund Scheme came into force with effect from 15th Sept. 1986.The objective of TWRFS is to give interim relief to the workers rendered jobless due to permanent closure of the mills. Another reason also was to curtail the widespread disguised employment in the textile industry. Relief under the scheme is available only for 3 years on a tapering basis, 75% of the wage equivalent in the first year, 50% in the second year and 25% in the third year. The government has established various research associations for the textile industry like ♦ Ahmedabad Textile Industry Research Association, Ahmedabad ♦ Bombay Textile Research Association, Mumbai ♦ South India Textile Research Association, Coimbatore ♦ Northern India Textile Research Association, Ghaziabad ♦ Silk and Art Silk Mills Research Association, Mumbai
47
It has a few export promotion councils also like o Handloom Export Promotion Council, Madras o Apparel Export Promotion Council, New Delhi o Cotton Textile Export Promotion council, Mumbai o The Synthetic and Rayon Textiles Export Promotion Council, Mumbai o Indian Silk Export Promotion Council, Mumbai o Wool and Woollens Export Promotion council, New Delhi o Carpet Export Promotion Council, New Delhi o Export Promotion Council for Handicrafts o Powerloom Development & Export Promotion Council
CHAPTER -8 COMPANY PROFILE India being one of the fastest growing economies of the world, which has both positively and negatively, affected the Indian apparel industry. On one hand it has become a major retailing hub and a host for various multinational companies on the other hand this has a negative effect on the domestic players. The emergence of mall, brand slavery, fashion awareness, rise in the income level has further reinforced the competition among the multinationals and the domestic players and has lead to opening of number of retail outlets in India. The introduction of VAT and the growth of organized retail industry are also likely to push up growth in the textiles and apparel sector domestically too. While the garments business will pose its own set of challenges in terms of providing flexibility in operations and dealing with labor productivity issues, an increasing contribution to revenues from the
48
garments business, which is less capital-intensive and margins-accretive, would augur well for earnings growth. GOKALDAS EXPORTS Incorporated in 1979, based in Bangalore, it’s one of India's largest manufacturers and designer of garments for men, women and children and caters to the needs of several international fashion brands and retailers. Gokaldas Exports has been a major player in the readymade garment industry across the globe. In the present Indian fashion retailing, Gokaldas has grabbed a distinguished place for itself in the form of "The Wearhouse" catering to the specific fashion needs of the people. The Wearhouse has high profile outlets in Bangalore, Chennai, Hyderabad and Coimbatore. An ISO 9001:2000 Certified Company has a capacity to produce and export 2.5 million garments a month. The Group's products include coats, suits, jackets, parkas, windcheaters, ski wear; warmups, surf wear, swim wear; trousers, shorts; casual wear shirts, ladies blouses and dresses for customers in international market. It mainly operates in India but exports its products to countries like the United States of America, Canada, Mexico, United Kingdom, Germany, Austria, Spain, Italy, France, Netherlands, Middle East, South Africa, Japan, Denmark, Taiwan and Hong Kong. A few of the manufacturing units are 100% export units with capabilities of mass production. They have the license to import duty-free fabrics and accessories from all over the world for re-export.
It has over 48,000
employees who work in around 48 fully equipped, modern, manufacturing factories. ARVIND BRANDS Arvind Mills Ltd. was incorporated in 1931 with share capital Rs.2525000 ($55000) in Ahmedabad by the Lalbhai group. The Company's operations are divided into the Textile Division, telecom division and garments division. We will be majorly concentrating on the garments division. Products manufactured are dhoties, sarees, mulls, dorias, crepes, shirtings, coatings, printed lawns & voiles cambrics, twills gabardine etc. Arvind Brands
49
is part of the Lalbhai Group, which holds licenses for leading international brands such as Arrow, Lee, Wrangler, Gant and Tommy Hilfiger for retail and wholesale sales in the local market. Its mainstream brands are Excalibur and Flying Machine. In addition, it owns an array of casual sportswear and denim brands marketed in India, including Flying Machine, Newport and Ruf & Tuf jeans and Excalibur shirts along with licensed relationship with various international brands like Nautica, Jansport, Kipling, Hero by Wrangler, Lee Riders and Tommy Hilfiger, and joint ventures with VF Corporation and Diesel. But the company is facing severe competition from major brands like Louis Philippe, Park Avenue and small brands like Trigger and Blackberrys. It produces about 110 million meters of denim every year and the garment section is doing extremely well because of the customer loyalty it enjoys. The demand for jeans, in particular, is expected to rise, as manufacturing companies in the US have shut operations.
KOUTONS The winner of “ best retailer leadership award 2008” organized by retail congress, Mumbai, Koutons Retail India Limited engages in the design, manufacture, and retail of men’s wear and integrated apparel in India. It currently sells its apparel using the “Koutons” and “Charlie Outlaw” brands. Mr. Kohli along with his brother in law Mr. Sawheny partnered to set up Charlie's Creation. In 1997 the Company diversified its business by introducing non-denim trousers in the existing product range of denim apparel. The company has inaugurated its 89th family Store in Hyderabad, which it claims to be its largest store in the country. Koutons India has an annual finishing and manufacturing capacity of 22.92 million pieces and 12.36 million pieces of apparel, respectively. The capacity utilization for the same was 41.21% and 21.99% respectively at the end of FY2007.Koutons has 18 manufacturing/finishing units and 14 warehouses spread across various locations in and around Gurgaon. The
50
company's strategy is to have small, but more stores. This helps to save costs and at the same increase reach of the company. The company has a phenomenal growth record. ZODIAC Zodiac Clothing Company Ltd manufactures, exports and imports garments, textiles accessories etc. Zodiac has been in the apparel business for a period of 50 years by now and is known for its quality shirts. Zodiac, is today, the largest selling shirts & tie brand at Shopper's
Stop
according
to
Brand
Equity
(The
Economic
Times)
The Company started business in 1954 and export of readymade garments to Europe started in early '60s, which included mainly ties and shirts. For many decades, Zodiac has been synonymous with ties. The business of ties is a high fashion business and Zodiac has taken this to new highs in India and across the globe. In fact, one can say that in India Zodiac is generically associated with ties. Following Zodiac's huge success with ties, the company entered the arena of men's accessories with Cuff links, Belts, Wallets and Handkerchiefs. In 1973, Zodiac had a stand-alone exclusive shirt shop in Hotel Taj in Mumbai. The company then entered the domestic shirt segment in late '80s.It employs around 3500 people in 7 manufacturing units in 16 offices located in UK, US, Germany, UAE etc. Each manufacturing unit is spread over 35000 sq.ft and has modern equipment to spread 60 yards of cloth at a time. All the manufacturing units are same in design and layout. Quality is maintained throughout the 40 stages of assembly line. All the units have their own power generating units in order to be efficient. It has its own 80 exclusive outlets and around 2000 multibranded outlets. Its continuously showing profit and has a consistently growing export business.
HOUSE OF PEARL House of Pearl Fashions Limited is a multinational ready to wear apparel manufacturing company. The company also provides supply chain solutions for the fashion industry globally along with warehousing & distribution networks in the UK & US. It operates in 11 strategic locations in six continents. It has two brands Kool hearts, DCC in the United
51
States of America. The brand Kool hearts focuses on the young fashion, where as the focus of DCC is more towards the Missy segment It basically deals with 3 streams which are manufacturing to Retailers, souring solutions for retailers, Marketing, Distribution & Branding for Retailers. It takes care of the whole process from design & development, manufacturing or sourcing till offering a range of pre retailing services, warehousing to delivering at the door step on a call off basis. It manufactures a broad range of products comprising of knits, woven, sweaters and bottoms in basic as well as complex designs. It has a good manufacturing capacity; the present in-house manufacturing capacity of the company is twenty million pieces. Per annum spread over more than 725,000 sq feet of built up area with efficiently designed layouts to ensure smooth flow of materials. The company is planning to double the capacity by expanding the operations in Chennai, Bangladesh & Indonesia. It intends to have a capacity of 30million pieces by the end of 2009. The company adopts integrated marketing techniques and has merchandising teams in Canada, Europe, HK, UK, and US, closely interacting with existing and potential customers at their doorstep. The Company shares were listed on the stock exchanges first time in Feb, 07. It recently went for a joint venture with LERROS, a premium apparel brand from Germany. HARIA EXPORTERS Haria Exports Ltd. is a leading garment exporter in the country for the last twenty four years. It is a Star Trading Company and has won the golden status certificate in the year 1999. This company occupies a unique place in the industry of the by its contribution to Industrial output, employment generation and Foreign exchange earnings. Even though the textile industry has the distinctive advantage in respect of raw material and skilled labor, the industry is suffering from technology obsolescence which in turn affects the quality, productivity and cost effectiveness. The high capital cost is impeding the process of Hi- Tech up gradation. Therefore, the Government of India, Ministry of Textile has
52
launched Technology Up gradation Fund Scheme for Textiles & Jute Industries of Rs.25000.00 crores at a concessional rate of interest of appx.5%. In order to compete with the outside world, the company is paying attention to the application of technology, closely following up the fashion trends and improved product quality. In order to be more cost efficient the company has acquired latest machinery which ascertained exact material consumption depending upon the style and pattern. The Government policies, interest rates, export incentives etc may also affect the overall performance of the company, but even then the company is optimistic about its revenue and growth. EVINIX The company started in 1996 with the manufacture of headgears, baseball caps and high altitude jackets, using cotton textile and leather, mainly for exports. The company was incorporated on 1st May 1996 as Evinix Fashion Accessories Private Limited under the Companies Act, 1956. Mr. Sanjay Taneja, brother of Mr. Raujeev Taneja (the original promoter of the company) joined the Company as a Promoter replacing Mrs.Anuradha Taneja, who disassociated herself from the company. The name of the company was changed to Evinix Accessories Private Limited from Evinix Xsesryz and a fresh Certificate of Incorporation dated 20th March 2003 was taken. In March 2005, M/s Ambros Exports Private Limited took equity stake in the company. The apparel category constitutes men and women’s shirts, trousers, skirts and tops, kidswear and nightwear. Organic cotton wear for expecting mothers and infants is an additional strength. They use Organic cotton and its products through its brand name “Othentix”- Authentic Sustainable Textiles, lends a unique personality to each garment manufactured and supplied by Evinix. The company came out with a principle of Rapid Retail suggesting that every merchandise has a limited shelf life at CUT stores; CUT is an acronym for Comfortable, Urban and Trendy. Evinix is setting up CUT stores (averaging 4000-5000 sq feet) in fast urbanizing young Indian towns. It recently launched the CUT youth style store in Rajkot.
53
The Rapid Retail business concept embraces the e.t.o.a.d concept i.e. the exact time of awaited departure when the product will move out to the next best price bracket. PEARL GLOBAL Pearl Global Limited was incorporated on 23rd October, 1979 under the name Pearl Agencies Private Limited. The Company became a Deemed Public Company with effect from 1st July, 1991 The name of the Company was change to PEARL GLOBAL LIMITED (PGL) on 2nd September, 1993 in terms of Section 21 of the Companies Act, 1956 as per fresh Certificate of Incorporation issued by the Registrar of Companies, Delhi & Haryana. PGL manufactures, sells, and exports ready to wear apparel in India. The company primarily produces garments in woven and knitted fabrics. Its products include casual wear dresses, ladies’ blouses, and bottoms. The company is based in Gurgaon, India. PGL is a subsidiary of House of Pearl Fashions Limited.
BANG OVERSEAS LTD Bang Overseas limited’s principal activity is to manufacture and market textiles and apparels. The Group's textile includes readymade garments, under garments and hosiery. It markets with a brand name of Thomas Scott. The Group operates only in India. It was incorporated in the year 1992 and is presently providing fashion fabrics and meeting ready to wear requirements of the customers in apparel, textile and Retail segment. The company started the business from trading in textile and since 1998, they are conceptualizing and designing fashion fabrics and outsourcing the manufacturing process of the same from countries like Turkey, Portugal, Mauritius and other European Countries. In the same year, they launched our seasonal fabric collections in textile under the name "Bodywaves", marketed through their own distribution channel to different brands and retailers. They have ventured into ready-to-wear mens' segment in 2000 by outsourcing manufacturing process and in turn selling to various international brands. They launched ready-to-wear mens' garments under our brand name "Thomas Scott" in 2002. They started their own first apparels manufacturing unit in Bangalore in the year
54
2005 in the name of Reunion Clothing Company with an installed capacity of 350,000 pieces per annum and in the year 2006 then they started the second manufacturing unit in the name of Formal Clothing Company with an installed capacity of 360,000 pieces per annum. At present they have installed capacity of 720,000 and 540,000 pieces per annum at their Reunion Clothing Company and Formal Clothing Company. Their products are presently retailed through 157 point of sales comprises of our own Retail outlets, Large format stores (LFS) like Shoppers' Stop, Pyramid, Globus, the LOOT, SAGA and Multi Brand Outlets (MBO) spread all over India. They cater to the demand of various other apparel manufacturer and brands also. They have centralized warehousing and logistics centre at Kalher Village near Bhiwandi to facilitate our supply chain management as well.
CHAPTER-9 BUSINESS ANALYSIS SWOT Analysis of textile industry Strengths ♦ Removal of quota restrictions to give a major boost to the exports. ♦ Export target in textiles in 2010 at USD is 50 billion. ♦ Low per capita consumption of textiles in India as the world consumption is 6.8, India only consume 2.8 of it. That’s why there is large scope of manufacturing and exports. ♦ Availability of the cheap labour in India would help the development of the textiles at the lower cost.
55
♦ Cost competition is not much in India as majority of Indian population is not dependent on the big brands like Armani, United Colours of Beneton etc, so India itself does not hold much competition with these brands. ♦ The large cotton production in India would lead to the development of the textile mills in the better way, as India does not have to import the raw material from outside. ♦ There are well established production bases for made ups export as well as for domestic purpose. Weakness ♦ The most serious problem of the industry is the lack of adequate processing facilities; there is over-dependence on hand processors and traditional items. ♦ The Indian textile industry is fragmented. Most of the SMEs are tiny and cottage type units without sufficient capital back-up. ♦ The government policies in India for the textile industries are traditional as they are not upgraded like the up gradation of the policies for the IT industries. ♦ The quality of wider-width fabrics for meeting the export demand is lacking in many respects, which is acting as a disadvantage to the growth of the industry. ♦ The technology used in the most of the textile mills is old enough that they can’t be modified, but there have to be new machineries imported to give the edge in technological advancements in this sector.
Opportunities
56
♦ As per available information, the market for processed cotton fabric will increase in the European and other markets and, therefore, the powerloom industry may benefit and expand substantially. Further the growth in the export segment will be mainly from cotton made-ups and garments along with processed fabrics. ♦ Grey fabric export is continuing to grow and will show increasing trends. ♦ Value added products will have greater demand and, therefore, processing will play an important
role.
♦ India with traditional designs and craftsmanship can command a greater market share for niche
products in made-ups and garments.
♦ Indian companies need to focus on the product development and this could easily be possible as there is the greater scope in the Indian Market. ♦ As the new generation is keen towards the western culture the training for specially textiles could be provided to them and they could be encouraged to develop the efficient sector of India. ♦ Increased use of computer aided designing to develop the designing capabilities of the textile. Using new technologies and softwares ease the use of virtual design on the computer and then choosing from various alternatives.
Threats
57
♦ Increased competition in the domestic market yield to the development of the more SMEs which invest more to survive in the market. ♦ The working area of most of the industries in the textile industries is not hygienic enough to give the workers more comfortable area to work in. so this condition has to be improved. ♦ Need to revamp consumer consciousness ♦ Chinese goods are cheap as well as the machinery provided by them is also cheap. So the threat for the export and designing is the Chinese Aggression over the International market. ♦ Continuously quality improvement is needed to make sure that people would rely on Indian goods not on the foreign goods. ♦ Traditional items like terry towels are manufactured in EOUs all over the country with superior quality. This has been eroding the traditional markets for powerloom and handloom products forcing them to go for product diversification.
BCG MATRIX BCG Matrix is also called the Boston Matrix because it was created by Bruce Hendeson for the company Boston Consulting Group in 1970. The BCG matrix method is based on 58
the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit.
Star The high growth and high market share brands that exist in Indian market and are the market leaders. This category consists of the companies like Zodiac, Du Pont etc. These companies are regularly investing in R&D and gaining market share as time passes. These stars try to become the cash cows of the future and want to remain in the market. Cash Cows The companies which have low business growth and high market share are the cash cows that generate milk continuously with the small investment to be as the mature company in the market. Question marks (also known as Problem Childs) The companies that have high growth rate and lower market share are the question mark as they could be new ventures started or they are companies that do not have liquidity enough to increase their share in the market. But these companies have potential to be the star in the market due to good growth rate and thus they could invest more into their business to expand as the star and then becoming the cash cows. Dogs The dogs are more charitable pets that exist in the market and have the low market share and low growth rate so these companies are better to get out of the market or much cash is required to set them up. These companies have the cash traps which ties up the money in a business with the lower potential. GOKALDAS In the present Indian fashion retailing, Gokaldas has grabbed a distinguished place for itself in the form of "The Wearhouse" catering to the specific fashion needs of the people.
59
It mainly operates in India but exports its products to countries like the United States of America, Canada, Mexico, United Kingdom, Germany, Austria, Spain, Italy, France, Netherlands, Middle East, South Africa, Japan, Denmark, Taiwan and Hong Kong. This means the company has a high growth rate since its inception.Therefore we put it in star.
ARVIND BRANDS Arvind Brands is part of the Lalbhai Group, which holds licenses for leading international brands such as Arrow, Lee, Wrangler, Gant and Tommy Hilfiger for retail and wholesale sales in the local market. Its mainstream brands are Excalibur and Flying Machine. In addition, it owns an array of casual sportswear and denim brands marketed in India, including Flying Machine, Newport and Ruf & Tuf jeans and Excalibur shirts along with licenced relationship with various international brands like Nautica, Jansport, Kipling, Hero by Wrangler, Lee Riders and Tommy Hilfiger, and joint ventures with VF Corporation and Diesel.Its enjoys good market share as its customers are loyal to it. But its rate of growth is not significant.So we put it in cows. KOUTONS The winner of “ best retailer leadership award 2008” organized by retail congress, Mumbai, Koutons Retail India Limited engages in the design, manufacture, and retail of men’s wear and integrated apparel in India. The company's strategy is to have small, but more stores. This helps to save costs and at the same increase reach of the company. The company has a phenomenal growth record. Its market share is excellent. So we put it in stars. ZODIAC Zodiac Clothing Company Ltd manufactures, exports and imports garments, textiles accessories etc. Zodiac has been in the apparel business for a period of 50 years by now and is known for its quality shirts. Zodiac, is today, the largest selling shirts & tie brand .The company then entered the domestic shirt segment in late '80s.It employs around 3500 people in 7 manufacturing units in 16 offices located in UK, US, Germany, UAE etc. Its 60
continuously showing profit and has a consistently growing export business.Market share is not that significant as it is famous only in tie and shirt.So we place it in question mark. HOUSE OF PEARL It operates in 11 strategic locations in six continents. It has two brands Kool hearts, DCC in the United States of America. The company adopts an integrated marketing techniques and has merchandising teams in Canada, Europe, HK, UK, and US, closely interacting with existing and potential customers at their doorstep.Both its growth and market share is high. Therefore it is placed in stars. HARIA EXPORTERS It is a Star Trading Company and has won the golden status certificate in the year 1999. This company occupies a unique place in the industry of the by its contribution to Industrial output, employment generation and Foreign exchange earnings. Even though the textile industry has the distinctive advantage in respect of raw material and skilled labor, the industry is suffering from technology obsolescence which in turn affects the quality, productivity and cost
effectiveness. In order to be more cost efficient the
company has acquired latest machinery which ascertained exact material consumption depending upon the style and pattern. Considering these it is placed in dog. EVINIX The apparel category constitutes men and women’s shirts, trousers, skirts and tops, kids wear and nightwear. Organic cotton wear for expecting mothers and infants is an additional strength. Evinix is setting up CUT stores (averaging 4000-5000 sq feet) in fast urbanizing young Indian towns. It recently launched the CUT youth style store in Rajkot. The Rapid Retail business concept embraces the e.t.o.a.d concept i.e. the exact time of awaited departure when the product will move out to the next best price bracket. But market share is not that significant. So we put it in question mark. BANG OVERSEAS LTD
61
The company started the business from trading in textile and since 1998, they are conceptualising and designing fashion fabrics and outsourcing the manufacturing process of the same from countries like Turkey, Portugal, Mauritius and other European Countries. In the same year, they launched our seasonal fabric collections in textile under the name "Bodywaves", marketed through their own distribution channel to different brands and retailers. They started their own first apparels manufacturing unit in Bangalore in the year 2005 in the name of Reunion Clothing Company with an installed capacity of 350,000 pieces per annum and in the year 2006 then they started the second manufacturing unit in the name of Formal Clothing Company with an installed capacity of 360,000 pieces per annum. At present they have installed capacity of 720,000 and 540,000 pieces per annum at their Reunion Clothing Company and Formal Clothing Company. Their products are presently retailed through 157 point of sales comprises of our own Retail outlets, Large format stores (LFS) like Shoppers' Stop, Pyramid, Globus, the LOOT, SAGA and Multi Brand Outlets (MBO) spread all over India. They cater to the demand of various other apparel manufacturer and brands also. Taking into account their market share and growth,we put it in stars.
Porters Five Force Model
I. Risk of new Entry by potential competitor
62
1. Brand Loyalty: The existing players have been in the industry for a long period of time and have established a good reputation with their customers in domestic as well as foreign market. This has resulted in the high brand loyalty by customers. But this will not act as a potential barrier for other companies because most of the Indian textile companies operate in B-To-B segment and all the players keep competing among themselves for new consignments from the clients
2. Absolute cost Advantage: Abundant availability of raw material is one of the key advantages of the Indian textile industry; this also gives a major opportunity to Indian textile industry and creates a barrier for foreign players to compete with Indian companies in cost advantage. India is more cost competitive vis-à-vis countries like Brazil, China and South Korea in manufacture of textiles Cost advantage arises mainly from the large pool of low cost but skilled manpower available in India In case of textured yarn and fabric, India is less competitive, which is a result of the higher tax burden (excise duty) on manmade textiles in the country India’s position is strong vis-à-vis other countries in most raw materials Largest producer of jute Second largest producer of silk Third largest producer of cotton, accounting for nearly 16% of global production Third largest producer of cellulosic fiber/yarn Fifth largest producer of synthetic fibers/yarn Eleventh largest producer of wool Cotton - Predominant fabric used in the industry
63
With 4.13 million metric tons of production, country accounts for almost 16% of global production of cotton India also leads the world in cultivated area under cotton (roughly 8.82 million hectares in 2004-05) Jute - Occupies an important place in the Indian economy Has a strong contribution to direct employment as well livelihood in the tertiary sector and allied activities India leads globally in jute with its annual production of 7.5 million bales in 2004-05 Silk - Highly remunerative cash crop, with minimum investment and sustained attractive returns India accounts for 18% of world raw silk production (15.74 thousand tones production in 2003-04) India has the unique distinction of being endowed with all 4 varieties of silk Mulberry, Eri, Tasar, Muga Wool - With its annual production of 50.7 thousand tons of raw wool fiber, India accounts of roughly 2% of global production
3. Economies of Scale: The textile industry across the value chain is largely decentralized Units mostly independent
and small scale in nature, rather than composite units
undertaking all activities together Large scope for entry of organised integrated textile manufacturers
64
Source: www.fibre2fashion.com The Indian textile industry comprises mostly small-scale, non-integrated spinning, weaving, finishing and apparel making units Spinning: Of the 2922 spinning units in 2004, 2699 units were independent in nature, with 1135 units in small-scale sector and 1564 units of larger scale; independent units account for 75% of total capacity and 92% of production Weaving: Of the 5.83 million weaving units in India, only 0.1 million units are in the organized sector; number of mills have declined in number since 2003, while power looms have grown Processing: Industry is dominated by hand processing and independent processing units Manufacturing of garments and made-ups: Industry is dominated by small-scale units, mostly sub-contractors, a result of SSI reservation of the industry till a few years ago; almost 90% of garment export units are in the small scale sector Significant part of this industry fall in unorganised sector and hence there is treat from new entrants to start operating in this industry
4. Customer switching cost: As earlier mentioned that the existing players are operating in this industry for a long period and also have established long term relationship with their customers. Over a period of time these companies have customised their products as per the needs of the customers therefore customers also prefer to still to the existing suppliers rather than moving to others as there is a high
65
switching cost involved here and if the customers switch to new suppliers than again he need to train the suppliers as per their requirements
5. Government Regulations: Historically the textile industry in India has been reserved for the small scale sector, which has been exempted from taxes, thus discouraging investments in increasing scale The government, through its various Budget announcements has sought to rationalize taxes Budget 2002-03: Textiles brought under the ambit of Cenvat (credit for duties paid on inputs or capital goods) and introduced on all yarns Budget 2003-04: Cenvat extended across the entire textile chain to include fabrics, made-ups and apparel; excise duty exemptions on many sectors and processes, specially SSI removed; excise duty rates reduced Budget 2004-05: Cenvat made optional - every manufacturer allowed to choose between a complete exemption from payment of excise duty or adopt the Cenvat route; excise duties lowered to 4% on cotton textiles and 8% on non cotton textiles (except man made fibers, polyester filament yarn, nylon filament yarn) for those claiming Cenvat credit Always government regulations aimed at improving competitiveness of industry to face a post quota regime Several government initiatives targeted to attract investments: Technology up gradation fund scheme: Scheme launched in 1999 to provide firms access low interest loans for technology up gradation and setting up new units with state-of-art technology Scheme has disbursed INR 91.61 bn till 31st December 2005 Policy related to foreign investment:
66
Up to 100% foreign direct investment allowed in textile and apparel manufacturing industry, with approval of the Foreign Investment Promotion Board (FIPB) USD 1.02 bn of FDI in the sector approved between 1991 and 2004 Companies free to set up fully-owned sourcing (liaison) offices, as well as marketing operations Upgrading Infrastructure: “Scheme for Integrated Textile Parks” (SITP), based on public-private partnership model to build world class infrastructure facilities Product specific “Cluster Approach” targeting development of 100 additional clusters in textiles Technology Mission on Cotton (TMC), focusing on cotton R&D, dissemination of technology to farmers, improvement of market infrastructure and modernization of ginning and pressing sector
II. The extent of rivalry among established firms 1. Industry competitive structure: Since this industry is highly fragmented there is always high probability during the boom phase that many new players could enter this industry which would lead to a price war and ultimately end up with the bankruptcy of some players or consolidation of industry. So, this is a treat to the existing players. But also the existing players work a lot on cost efficiencies therefore the treat of new entrant is negated by the cost efficiencies of existing players
2. Industry Demand: In the current scenario textile exports have declined drastically and even in domestic demand there is a little slowdown. Due to which textile companies are working on reducing cost by ways of reducing the work force, decrease in operation cost etc. Also this will evoke more rivalry among
67
the existing players as they all will like to maintain their market share in spite of the slump in industry
3. Exit Barrier: This is not just a labour intensive industry but even the cost involved in plant setup is very high along with that with the invent of many new technologies many companies have adapted to modern techniques to remain competitive in industry as well as to produce better products for their customers in lesser time and with lesser cost. Therefore because of high involvement and emotional attachment with the business as it has been a traditional business for generations for many companies they still prefer to stick and continue with the business. But in the current scenario many textile mills have closed down because of deep cut in demand and high operational cost due to severe global crisis
III. The bargaining power of buyers •
Indian textile companies are facing a tough competition from Chinese, Brazilian and South Korean companies as they are able to produce at a lower cost compared to Indian companies
•
This industry is fragmented and there are large number of players in the industry, therefore buyer get the option of choosing from many suppliers
•
Indian textile industry is no more just a mass producer of textile rather it has moved into niece segment and has developed capability to produce finest quality of fabric which provides them distinctive competencies against other countries as well as small players who could cater to mass consumers only.
Therefore overall buying power of buyer will defer from company to company. Companies like Arvind mill, Raymond, aditya birla group have achieved certain degree of distinctive competencies therefore with them buying power of buyer is negated to large extent against their competencies. But many small companies who are mass producer of textile face a strong buying power of buyer.
68
IV. The bargaining power of supplier Here again bargaining power of supplier dictated by the segment that they are targeting to, for a niece players and companies who have achieved operational excellence can dictate terms to buyers but for small players who just produce for mass consumption do not have much say in the business deal and the prices are mostly dictated by the buyer.
V. The threat of substitute product Textile itself is a very broader term and is a solution to a very basic need of any human being therefore there is as such no substitute to this but within the textile industry there are many substitutes to different category of textiles. In India there are various types of textile produced from cotton, silk, synthetic etc. There is always a risk of substitution of one type with the other type also there is constant research carried out to develop new types of textiles but combining different textiles in different proportion. But in broader perspective there is no substitute to textile.
69
CHAPTER – 10
FINANCIAL ANALYSIS As a part of the financial analysis the team has tried to study the existing financial situation of the selected companies through the study of the annual report of the companies and the movement of the key financial ratios. The financial ratios selected for the analysis are as follows
o
Debt Equity ratio
o
Current Ratio
o
Inventory Turnover Ratio
o
Fixed Asset Turnover Ratio
o
Interest Coverage ratio
DEBT EQUITY RATIO A measure
of
a
company's
financial
leverage
is
calculated
by
dividing its
total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as companies'. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were
70
to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. INTEREST COVERAGE RATIO A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:
The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. FIXED ASSET TURNOVER RATIO Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales. Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets.
This ratio is often used as a measure in manufacturing industries, where major purchases are made for PP&E to help increase output. When companies make these large purchases, prudent investors watch this ratio in following years to see how effective the investment in the fixed assets was.
71
INVENTORY TURNOVER RATIO Inventories represent stocks of ready made goods or raw materials that are needed to be kept in order to be able to meet the orders of clients. Their management represents a significant challenge to managers since keeping the right level of inventories is a key to an efficient management of resources. Thus, most manufacturers have to deal with warehouses in which to put their productions and materials.
The inventory-turnover ratio gives a general view on the inventories of a company. In order to calculate it you should divide the annual sales of the company by its inventory. Inventory Turnover = Sales / Inventory The result represents the turnover or inventory or how many times inventory was used and then again replaced. This number is representative for a one year time period. If the value of the inventory-turnover ratio is low, then it indicates that the management team doesn't do its job properly in managing inventories. For example, company ABC has $10 million in sales for the previous year. Its inventory for the same year is $50 million. So, its inventory turnover ratio is 0.2, which is significantly low and means that the company will need five years to deplete the existing inventory. The turnover ratios of companies are compared in order to determine their efficiency of inventory management. Between companies with different inventory turnover ratios usually investors select the one with higher turnover, because it indicates higher inventory efficiency. The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It shows the liquidity available with the company to pay off its immediate financial obligations.
72
It is expressed as follows:
The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry. If a company's current assets are in this range, then it is generally considered to have good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets. Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations. Low values, however, do not indicate a critical problem. If an organization has good long-term prospects, it may be able to borrow against those prospects to meet current obligations. Some types of businesses usually operate with a current ratio less than one. For example, if inventory turns over much more rapidly than the accounts payable become due, then the current ratio will be less than one. This can allow a firm to operate with a low current ratio. If all other things were equal, a creditor, who is expecting to be paid in the next 12 months, would consider a high current ratio to be better than a low current ratio, because a high current ratio means that the company is more likely to meet its liabilities which fall due in the next 12 months.
INDUSTRY AVERAGE 73
The textile readymade and apparel industry has been increasing its operating revenues year on year at a brisk rate. The number of companies that are in this industry has increased three folds from around 33 companies in 2008 to around 90 companies recently. This increase in the number of companies can be attributed to the rise in the sales revenue. Table No 10.1 Industry Average various Financial Indicators (Rs in Crs) Year
Latest
2008
2007
2006
2005
2004
Companies No.
90
33
44
47
53
48
Sales Turnover
7,419.89
5,606.93
5,050.62
4,235.84
2,837.85
2,235.28
Operating Profit
1,026.91
834.69
780.71
611.91
272.65
184.65
416.8
361.08
361.1
299.76
100.88
54.17
Reported Net Profit
Source: Capitaline Database
The industry average of the key financial ratios is as follows Table No 10.2 Industry Average of ratios Year Debt-Equity Ratio
Latest
2006
2005
2004
1
0.99
1.19
1.02
Current Ratio
1.58
1.43
1.64
1.83
Fixed Assets Turnover Ratio
2.95
2.54
3.16
2.15
Inventory Turnover Ratio
4.44
3.77
4.54
3.35
Interest Coverage Ratio
3.97
5.56
2.97
2.77
Source: Capitaline Database We find that the capital Structure of the Industry has reached a position wherein the companies are raising capital through debt and equity in the same ratio of 1:1 The current ratio is also moving slowly up recently despite the fall in 2006 towards the optimum ratio of 2:1. At present it is at 1.58:1 The two turnover ratio’s namely Fixed Assets Turnover Ratio and the Inventory Turnover Ratio are becoming high. This is a positive sign if the turnover ratio is high. The interest coverage ratio has dropped noteably but this can be attributed to the expansion plan of companies.
74
Chart No: 10.1
Ratio Industry Average
6 5 4
LATEST 2006
3
2005 2004
2 1 0 Debt-Equity Ratio
Current Ratio
Fixed Assets Turnover Ratio
Inventory Turnover Ratio
Interest Coverage Ratio
Source: Capitaline Database
ARVIND BRANDS Arvind Brands which is the largest producer of Denim clothing is one of the most famous names in the apparel industry the company is known for its huge exoansion plans in future 75
Table No: 10.3 Arvind Clothing Financial Performance (Rs in Crs) ARVIND CLOTHING
2004
2003
2002
2001
2000
Sales Turnover
64.71
61.24
52.41
49.13
47.45
Operating Profit
-1.91
2.68
0.75
5.38
6.3
Adjusted Net Profit
-4.51
-0.18
-1.45
1.69
3.39
Source: Capitaline Database Arvind Clothing Faced a loss in the year 2004 this led to the company deciding to sell one of its Business Units in 2006. Arvind Clothing expansion plans and the launch of Denim products for the Indian market can be quoted as reasons for this loss. Table No 10.4 Arvind Clothing Cash Flow Statement (Rs in Crs) ARVIND CLOTHING
Mar-04
Mar-03
Mar-02
Mar-01
Cash and Equivalents at Beginning of the year
1
0.94
0.75
1.76
Net Cash from Operating Activities
2.69
2.56
2.41
-1.54
Net Cash Used in Investing Activities
-2.24
-1.21
-0.32
-0.79
Net Cash Used in Financing Activities
-0.07
-1.29
-1.92
1.32
Net Inc/(Dec) in Cash and Cash Equivalent
0.38
0.06
0.17
-1.01
Cash and Cash Equivalents at End of the year
1.38
1
0.92
0.75
Cash Flow Summary
Source: Capitaline Database The cash flow clearly indicates that the loss in the year 2004 is mainly due to the heavy cash outflow for investing activities. Company’s accounts revealed that approximately 2.38 crores worth of fixed assets were purchased as a part of the expansion plan.
Table No 10.5 Arvind Clothing Key Financial Ratios
76
ARVIND CLOTHING LTD
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Debt-Equity Ratio
2.62
1.89
1.59
1.35
0.91
Current Ratio
1.54
1.31
1.22
1.47
1.35
Fixed Assets Turnover Ratio
3.78
3.92
3.54
3.45
3.54
Inventory Turnover Ratio
2.95
2.7
2.54
2.74
3.43
Interest Cover Ratio
-1.1
1.01
-0.03
1.71
3.39
Source: Capitaline Database The company has a very high debt ratio. This is dangerous as the company is also spending a lot on the procurement of fixed assets. The current ratio is however 1.58 and shows that the company has good liquidity. The fixed assets turnover has reduced in 2004 this is understandable as the company has purchased a lot of new assets. The Inventory turnover however is growing at a stable pace. The interest coverage ratio is in the negative as the company is facing losses. The company has to depend on reserves for interest payment. Chart No 10.2 Arvind Clothin Key Financial Ratios ARVIND CLOTHING LTD 5 4 2004
3
2003
2
2002
1
2001
0 -1
2000 Debt-Equity Ratio
Current Ratio
Fixed Assets
Inventory
Interest Cover Ratio
-2
Source: Capitaline Database BANG OVERSEAS LTD Bang Overseas is a company which depends on high specialisation. It also recently issued an IPO for raising the required capital. It only manufactures and exports men’s formal and casual wear to a restricted number of clientele. As it depends on the business with a few clients the company has been hit hard by recession lately. Delayed payments on credit deliveries have eroded the operating profits of the company. However the other non-operating income has provided some relief to their share holders.
77
Table No 10.6 Key Financial Indicators of Bang Overseas LTD
Latest Results (Rs Cr) Period-Ended
Dec-08
Dec-07
Variance [%]
Sales
28.98
29.88
-3.01
Other Income
2
0.74
170.27
PBIDT
2.13
4.02
-47.01
PBDT
0.83
2.65
-68.68
PBIT
1.59
3.72
-57.26
PBT
0.29
2.35
-87.66
Source: Capitaline Database
It is pretty evident from the above financial indicators that the company is facing the brunt of recession. The sales have come down by about 3% and this has pulled the profit before tax (PBT) by around 87%. This is very huge considering the company’s interest to expand by way of issuing shares through its IPO. A look at the cash flow statement in Table No: will provide an insight about the liquidity position of the company. Cash Inflow is prominent only from financing activities and that is because of the IPO. These are not good signs for the share holders because the company is failing to raise cash from the operating activities and is dependent on financing activities for its needs.
Table No 10.7 Cash Flow of Bang Overseas LTD
(Rs in Crs) Bang Overseas LTD Particulars
Mar-
Mar-
Mar-
Mar-
Mar-
78
08
07
06
05
04
Cash and Cash Equivalents at Beginning of the year
1.13
1.04
0.3
0.41
0.33
Net Cash from Operating Activities
-1.5
1.54
-1.58
-2.54
0.39
Net Cash Used in Investing Activities
-14.73
-5.72
-7.24
-0.23
-0.12
Net Cash Used in Financing Activities
70.99
4.27
9.56
2.66
-0.19
Net Inc/(Dec) in Cash and Cash Equivalent
54.76
0.09
0.74
-0.11
0.08
Cash and Cash Equivalents at End of the year
55.89
1.13
1.04
0.3
0.41
Cash Flow Summary
Souce: Capitaline Database
Share market Woes
The inability to provide positive signs to the shareholder has reflected in the share prices of Bang Overseas LTD. The share value pummelled down along with the sensex due to recession. However recently the company due to its high quality products is recuperating well and the stock prices are going up.
Bang Overseas Scrip Performance Details
Source: http://money.rediff.com/companies/bang-overseas-ltd/16070099
Key Financial Ratios 79
The key financial ratios of Bang Overseas are given below. The Debt Equity ratio has gone down notably because of the IPO issue in Jan 2008. The company current ratio is well above the 2:1 ratio and is at a comfortable 2.83:1 ratio. The liquidity position is very favourable. The Fixed ratio is also becoming better and the fixed assets which were purchases by the company are useful in earning operating income.
Table No 10.8 Key Financial Ratios of Bang Overseas
BANG OVERSEAS LTD
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Debt-Equity Ratio
0.49
2.03
2.32
1.81
2.22
Current Ratio
2.83
2.2
3.14
3.35
3.19
Fixed Assets Turnover Ratio
8.26
6.87
8.65
24.84
25.92
Inventory Turnover Ratio
5.75
6.03
4.61
3.23
2.66
Interest Cover Ratio
4.54
5.11
3.03
2.73
1.73
Source: Capitaline Database
The inventory turnover ratio has gone down this is also understandable as the company is design specific company which purchases goods only on demand or on order. The interest coverage ratio has come down because of the decrease in sales during 2008.
GOKALDAS EXPORTS The vision of Gokaldas exports is to set a precedent in the global garment manufacturing industry through continuous innovation, exceptional products, focused services and enhanced customer satisfaction. In the First Quarter of 2008-09 (Q1), Gokaldas Exports Ltd. has achieved a total revenue of Rs.272 crores which is 12% higher than the Q1 of last year (2007-08). The stand alone 80
EBIDTA achieved in this Quarter is Rs.30 crores as against last year’s of Rs.25.96 crores. An increase in EBIDTA of 16% is achieved in spite of the fact that Rs.8.30 crores of Foreign Exchange notional losses. The PAT stands at Rs.11.05 crores as against Rs.10.52 crores of last year thereby showing the increase of 5%. This increase in PAT could have been much higher but for the impact of Forex volatility which have been accounted to the extent of Rs.18 crores (loss). Both the EBIDTA and the PAT would have been much higher if the performance would have not been impacted by the rupee volatility. The apparel industry as a whole went through a challenge in the first quarter of 2008 due to the thrust of recession in our major markets, rising crude prices and unfavourable economic environment across the world. The rising cotton prices and chemical dyes prices pose a big threat to India’s competitiveness, in addition to the impact of inflation on wages. Gokaldas despite being the largest exporter of garments in the country has been impacted. Table No 10.9 Key Financial Indicators GokalDas Exports Latest Results (Rs Cr) Period-Ended
Dec-08
Dec-07
Var [%]
Sales
273.56
281.13
-2.69
Other Income
17.18
10.53
63.15
PBIT
-2.24
27.52
-108.14
PBT
-15.28
19.31
-179.13
Source: Capitaline Database
Share Market Situation The share market position is very grim because of the huge forex losses it suffered due the strengthening of the rupee against the dollar the scrip value has pummelled notably in the last six months to one year because of recession Table No: 10.10 Cash Flow Statement of Gokaldas Exports (Rs Cr) Gokaldas Exports LTD
2008
2007
2006
2005
2004
Cash and Cash Equivalents at Beginning of the year
3.66
1.63
19.6
28.49
4.15
Net Cash from Operating Activities
8.66
27.6
-11.83
-6.02
33.35
81
Net Cash Used in Investing Activities
-34.08
-81.32
-145.09
-65.76
-22.02
Net Cash Used in Financing Activities
21.99
55.75
138.95
62.89
8.5
Net Inc/(Dec) in Cash and Cash Equivalent
-3.43
2.03
-17.97
-8.89
19.83
Cash and Cash Equivalents at End of the year
0.23
3.66
1.63
19.6
23.98
Source: Capitaline Database The company is generating cash from operating sources despite forex woes; the company has however taken a lot of debt to finance its purchase of fixed assets. Unlike other exporters Gokaldas depends on mass production and so is in direct competition with the Chinese counterparts. The company is forced to invest in fixed assets to maintain its clientele as their mission is to make deliveries on time.
Key Ratios The key financial ratios of Gokaldas denotes that the company’s capital structure is depended more on equity rather than debt. For a company which depends on foreign exchange and which is prone to exchange rate fluctuations having less debt is very helpful.
Table No 10.11 Key Ratios of Gokaldas Exports Key Ratios
2008
2007
2006
2005
2004
Debt-Equity Ratio
0.75
0.69
0.8
1.76
2.18
Fixed Assets Turnover Ratio
3.11
4.06
5.18
7.58
0.82
Inventory Turnover Ratio
2.71
3.31
3.87
4.94
0.45
Interest Cover Ratio
2.94
4.55
5.75
4.7
6.39
Current Ratio
1.51
1.6
1.73
1.36
1.31
Source: Capitaline Database
82
The Fixed asset turnover has also reduced due to the purchase of fixed assets. The inventory turnover is decreasing the company is making bulk orders rather than small orders to avoid rupee fluctuations. The interest coverage ratio is low as the company at present is at losses. The current ratio is reducing as the company cannot recuperate its debts from its clients. Chart No 10.3 Key ratios of Gokaldas Exports Key Ratios of Gokaldas Exports 8 7 6 5
2008
4
2007
3
2006 2005
2
2004
1 0
Debt-Equity Fixed Assets Ratio
Inventory
Interest Cover Current Ratio Ratio
Source: Capitaline Database
EVINIX ACCESSORIES LTD
Evinix Accessories is a company which was started with an aim of exporting sports bags to the US market later it diversified and started its own retail outlets apart form exporting apparel to the foreign markets. Its key financial indicators state that the company despite a reduction in sales is
83
able to generate profits from the operating activities. Unlike other companies it is not dependent on other income for posting profits.
Table No 10.12 Key Financial Indicators of Evinix Accessories Latest Results (Rs Cr) Period-Ended
Dec-08
Dec-07
Var [%]
Sales
25.32
28.18
-10.15
Other Income
0.35
0.46
-23.91
PBIDT
1.9
5.72
-66.78
PBDT
1.31
5.02
-73.9
PBIT
1.56
5.51
-71.69
PBT
0.97
4.81
-79.83
Source: Capitaline Database
Share Market Situation
The scrip value is recovering thanks to the retail business of Evinix Accessories
Evinix Scrip’s Performance Performance Details
84
Source: http://money.rediff.com/money/jsp/company.jsp?companyCode=16490229
Unlike other players of the fashion apparel industry who are dependent heavily on foreign clients, Evinix has its own retil outlets and this flexibility of gaining from domestic production has helped the company to not face the plight of huge losses due to recession which other companies are facing.
Chart No 10.14 Evinix Scrip’s Performance at BSE for the last one year
Source:http://money.rediff.com/money/jsp/company.jsp?companyCode=16490229
Key Ratios The key financial ratios of Evinix are given below. Thanks to the equity capital raised in 2007 by the way of an IPO the Debt equity ratio is coming down such a capital structure will ensure that the risk is shared by all the share holders. This is utmost necessary in the times of downturn. The current ratio and interest coverage ratio are favourable to the shareholders and the return on assets has also considerably increased over the previous years. The company however is going back to bulk orders and so inventory turnover is reducing
85
Table No 10.13 Key Ratios of Evinix Accesories EVINIX
2008
2007
2006
2005
2004
Debt-Equity Ratio
0.33
0.17
0.46
9.07
9.83
Current Ratio
2.31
2.62
1.28
0.89
1.2
Interest Cover Ratio
7.71
7.73
14.59
6.98
-2.46
Fixed Assets
5.69
5.45
7.21
9.14
1.86
Inventory
4.03
6.26
9.66
8.98
1.84
Source: Capitaline Database
HARIA EXPORTS Haria Exports comparatively is a small player in the apparel industry. The impact of recession is quite evident in the key financial indicators of the company. The sales have come down by around 75% and have almost come to one fourth of the previous year. The company has recorded a profit of just 7 lacs in the last year and this profit also was due to the earnings from the non operating activities.
86
Table No 10.14 Key Financial Indicators of Haria Exports Latest Results (Rs Cr) Period-Ended
Dec-08
Dec-07
Var [%]
Sales
0.42
1.69
-75.15
Other Income
0.27
0.19
42.11
PBIDT
0.22
-0.38
-157.89
PBDT
0.21
-0.71
-129.58
PBIT
0.09
-0.58
-115.52
PBT
0.08
-0.91
-108.79
Source: Capitaline Database
Share Market Situation In February 2008 the company issued a notice to its shareholders about the rights issue of shares. This increased the share prices in that month but later the share prices came down drastically. Haria Exports Ltd has informed the market that the ratio for the issue of Equity Shares on Rights Basis is “3 : 2 shares” Chart No 10.4 Scrip Performance of Haria Exports
87
Source: Capitaline Database
Key Ratios The key ratios of Haria suggest that the capital structure is on dependent on Thick equity. The current ratio is however only 1.83 but the ideal ratio is 2:1. The Asset turnover is also very less and this is not a good sign. The Inventory turnover ratio is very less which indicates that the company buys supplies at once a not when required. The interest coverage is at 7 and has improved thanks to the company’s increased income from non operating income Table No 10.15 key Financial ratios of Haria Exports LTD Haria Exports
2008
2007
2006
2005
2004
Debt-Equity Ratio
0.71
0.57
0.29
0.29
0.31
Current Ratio
1.83
1.25
1.17
1.23
1.35
Fixed Assets
0.13
0.02
0.03
0.69
4.1
Inventory
0.4
0.04
0.06
1.22
7.58
Interest Cover Ratio
7
0
-18.85
-4.3
-0.96
KOUTONS Koutons Retail India Ltd is the leading retailer of readymade and stylish fashion wear brand in the country today. A company which is not only dependent on foreign clients but is also dependent on domestic consumption and hence the company has recorded good profits and also an increase over the last year. Arguably this is one of the best performers in the industry despite recession and other apparel manufacturers suffering.
88
Table No 10.16 Koutons Financial Indicators Latest Results (Rs Cr) Period-Ended
Dec-08
Dec-07
Var [%]
Sales
228.96
173.1
32.27
Other Income
13.35
1.7
685.29
PBIDT
43.79
31.19
40.4
PBDT
23.78
21.51
10.55
PBIT
40.14
26.95
48.94
PBT
20.13
17.27
16.56
Source: Capitaline Database
Share Market Position Koutons has its retail logistics in place appropriately to suit the market needs and track the key areas which are future business opportunities. Therefore the share market has also reacted positively to the Koutons scrip the percent increae is more than that of the Sensex. This are positive signs for a company in an industry plagued with falls in scrip prices. Chart No 10.5 Scrip Performance of Koutons at BSE
Source: Capitaline Database
89
Key Ratios The company relies more on debt rather than equity capital. The company being in the retail business has very good liquidity as the customers in the retail shops provide CASH ON DELIVERY (COD), this is quite evident as the current ratio is almost ideal at 1.96:1. The company has a return on assets ratio at around 12.7:1 and hence the company is making very good use of the assets that it has procured. Table No 10.17 Koutons Key Financial Ratios Koutons
2008
2007
2006
2005
2004
Debt-Equity Ratio
1.23
1.42
2.52
2.75
2.67
Current Ratio
1.96
1.54
1.37
1.38
1.31
Fixed Assets Turnover
12.7
12.7
16.93
21.72
10.88
Inventory Turnover
1.73
1.71
2.71
5.69
2.96
Interest Cover Ratio
3.51
4.53
6.91
2.97
1.87
Source: Capitaline Database
ZODIAC CLOTHING COMPANY
Zodiac Clothing is another company which has notched an increase in the sales due to the domestic orientation. But unlike Koutons due to the high expenses that the company has zodiac has made profits only to the tune of 4.39 crores before taxation despite making a sales of approximately 72 crores. The rest 68 crores are operational and non operational expenses of the company. It is very interesting that the company has notched up 20 percentage increase in sales. The company has to apply cost cutting measures and it will become a leader in the fashion apparel industry. Table No 10.18 Key Financial Indicators of Zodiac Clothing Company Latest Results (Rs Cr)
90
Period-Ended
Dec-08
Dec-07
Var [%]
Sales
71.86
59.42
20.94
Other Income
5
5.62
-11.03
PBIDT
5.86
9.99
-41.34
PBDT
5.53
9.57
-42.22
PBIT
4.72
9.11
-48.19
PBT
4.39
8.69
-49.48
Source: Capitaline Database
Share Market Position The zodiac scrip is valued at around 192 Rs and the scrip has been moving quite incessantly in the BSE. The stock is frequently traded one and the volatile movements can be attributed to this reason. Feb 08 was a time when investors expected a lot from the company when the quarter FY1 results showed that the sales increased despite slowdown. Zodiac has 16 offices across the world in USA, UK and Germany apart from India. It is not only a mere exporter but it sells its brand of products in various countries with self outlets.
Chart No 10.6 Scrip Performance of Zodiac Clothing at BSE
Source: Capitaline Database
Key Ratios
91
Zodiac has one of the best interest coverage ratio in the industry at around 13:1. the capital structure however is on thick equity and debt forms a small portion of the capital this enables the company to payback interest. The fixed assets turnover ratio and the Inventory turnover ratio have reduced this is something the company management has to look out for and maintain according to the interest. Table No 10.19 Key Financial ratios of Zodiac Clothing Zodiac
2008
2007
2006
2005
2004
Debt-Equity Ratio
0.24
0.27
0.21
0.22
0.29
Current Ratio
1.6
1.57
1.45
1.33
1.39
Fixed Assets
4.13
4.22
4.42
5.48
7.37
Inventory
5.52
5.81
5.6
6.16
6.11
Interest Cover Ratio
13.95
10.59
6.61
7
7.13
Source: Capitaline Database
CHAPTER 11
FUTURE SCENARIO Despite not being the market leader there are a few advantages that India has over its competitors. These strategies will help India gain Supremacy over other countries in specific exports. DESIGN
Design has emerged as a source of competitive advantage in Indian apparel exports in recent years—especially given the relatively ‘young’ export history of Indian apparel and the general image of low quality often associated with some Indian apparel exports. As one firm who is a major supplier for several European and US specialty stores such as Nike explained, “When items have complicated designs with complex patterns, many fabrics, a variety of colours -you have to break them down. Many different operations and techniques are required; you have to figure them out” (Gokuldas Exports Interview 2005). When buyers have such items, many of them tend to come to India, this firm said, rather than going to Bangladesh or China. “A Chinese firm would probably refuse the order. In their system, the more complicated the design, the more complicated the line gets, and lower the efficiency. This complicates the 92
bottom line. It is not worth their while” – especially if the volumes are small (Gokuldas Exports, Interview, 2005). The Chinese produce similar products and try to exploit the economies of scale that it achieves through mass production.
According to experts this is mainly because of the legacy of the sector’s industrial organization—the historically small average scales of operation in Indian apparel created the conditions for the preservation of generalist skills—of the master tailor—at the heart of the Indian apparel industry. These general purpose skills allow complexity to be handled costeffectively and flexibly given that the rigidities of too narrow a division of labour are absent The firm mentioned above explained that Indian firms are used to handling small-runs, and “In India We have skilled manpower available cheaply, we have tailors who have the ability and the willingness to do complex designs. They have been doing it for years. In China the line workers are industrial workers – not tailors, their production line needs relatively simple designs that can be easily broken down and mass produced” (Interview, Gokuldas, 2005). The flatter division of labour associated with small operations, short runs and variable designs, has both, created a demand for general-purpose skills at the core of the work organization, as well helped maintain craft-like skills and a generalized design sensibility within a key segment of the apparel workforce. (Meenu Tewari, Working Paper 2005) This is the reason hy high customisation is possible in designs. In the future most of the apparel industry will be ruled by customised products so India has a chance to gain supremacy.
SCALING A growing number of Indian textile and apparel firms are leveraging their traditional capacity to handle small runs and variable designs to move toward the flexible production of higher value, customized products, does not mean that Indian textile and apparel firms are not scaling up, or producing for volume-buyers like Wal Mart, or facing the growing pressure on margins by ramping up production volumes. Despite the assumed reluctance of Indian textile and apparel firms to scaling up in the face of India’s rigid labour laws and lack of an exit policy, they have invested over $700 million in new equipment, new mills and products and expected to spend $2.5 billion more by the end of 2005 (Business Week Online, 2004).
93
The average scale of production in the Indian textile and garment industry has been rapidly inching upward in the decade leading up to the removal of quotas. Three features are striking in this regard: (Meenu Tewari, Working Paper 2005)
First, it was aided by the progressive liberalization of restrictions on capacity increases by the government starting in the mid-1980s and continuing through the 1990s and early 2000s.
Second, there has been significant forward integration by yarn-makers and spinning mills into garments. For example, Arvind Mills, the largest producer of blends and denim in the country and the 3rd largest denim producer globally till recently supplied fabric to virtually every major clothing brand in the world – Levis, Gap, Dockers and so on. Three years ago it, integrated forward into jeans and T-shirts, investing more than $30 million in 10 new factories to increase its apparel sales (Interview, Ahmedabad 2005, Business India 2005). The firm has set up several joint ventures in the area of blended fabrics, and has introduced its own brands in the domestic and
export market including ‘Ruf-and-Tuf’ jeans for the mass domestic market. Raymonds, a Mumbai-based firm, and one of the oldest and largest producers of suiting and shirting fabric in the country, invested in two large, highly sophisticated, state of the art formal suit and bottom’s factories in Bangalore in 2003-4. Even before the plants were fully commissioned, Japanese retailers had placed orders for their entire capacity for two years (an unusual development given the low levels of penetration of India’s suppliers in the Japanese apparel marker).
Third, there is a growing trend of backward integration by small and medium knitwear and garment exporters into yarn making, and significant investments in the adoption of new technologies by firms at every segment of the value chain. For example, Tirupur, which has been celebrated for the past two decades as a vibrant small-firm based knitwear export cluster can no longer be considered a predominantly small scale cluster, as the Chairman of the Tirupur Exporters Association once noted. “Firms have been aggressively modernizing in the last five years, investing in the latest stitching, pattern making, cutting, embroidery, and dyeing machines. If I buy one CAD machine today it costs me Rs.12.5 million; this itself is me well beyond the investment limit for small scale units. At least 30 garment exporters have set up their own yarn-making mills. The equipment is state of the art, and costly. None of the
94
mills are small in scale. So, Tirupur is no longer a town of small scale producers – except perhaps some job-working garment converters.” (Interview, Mr. Subramaniam, Tirupur Exporters Association, April 25, 2005).
Finally, firms are investing in what some have called “manufacturing services” (Berger et. al. 1997). Many firms are adopting IT-driven production process control systems, as well as productivity enhancing audits—particularly energy audits. Noting that energy costs generally add up to 11-12% of total production costs, compared with 6-7% in direct labour costs, many firms reported in field interviews that the rationalization of energy consumption was often the first,
and most important step to cutting costs (Interviews by Meenu Tiwari, Bangalore 2005, Tiruppur 2002, 2005). Some firms reported savings of up to 30-40% in energy costs as a result of these measures (Interview Precot Mills, 2002). Many firms have turned to captive gas-fired plants (especially the larger firms such as Gokuldas, Karle, Orient Crafts, Raymonds, Interviews by Meenu Tiwari, 2005) while clustered firms such as in Tiruppur, especially in industrial parks, have set up captive and dedicated sources of power.
Rationalization of energy use and attempts to lower energy costs are closely related to automation. Automation, and the deployment of extensive electronic production tracking systems as well as statistical process control systems to monitor work flows, is associated with efforts by apparel and textile firms to raise productivity and lower wastage, cut downtime, reduce rejection rates, as well as to ensure consistency. Automation seems to be as important to firms that produce high volumes-low-margin customers as to those who are investing in design-intensive operations (Meenu Tiwari, 2005)
‘CUSTOMIZED MASS PRODUCTION’ Customised mass Production has crept slowly into the Indian textile Industry. Arvind Mills for example is the largest producer of Denim materials. There are two famous examples of customised mass production according to Meenu Tiwari they are Himmatsingka Seide Limited and Welspun India Limited.
95
HSL has a narrow focus – it focuses predominantly on home furnishings (curtains and upholstery) of silk for the high end export market. It is almost entirely vertically integrated - apart from filament yarn and silk waste which are imported from China, every aspect of the production process – from the processing of the yarn, to designing and weaving and finishing of the fabric is carried out in-house in a two-million-meters-perannum capacity plant with 115 computerized looms (the largest silk manufacturing facility in India). It is almost entirely vertically integrated - apart from filament yarn and silk waste which are imported from China, every aspect of the production process – from the processing of the yarn, to designing and weaving and finishing of the fabric is carried out in-house in a two-million-meters-per- annum capacity plant with 115 computerized looms (the largest silk manufacturing facility in India). the design and rapid delivery of small batches of highly customized home-furnishing fabric that fetch high realization rates. With typical runs of 120m to 150m per customer, HSL’s unit values of its custom-designed products are about $US 20 per meter on average – about 60% higher than the industry mean (Interview, HSL, 2005 and HSL company documents). These $20/m products are retailed at $100-$120 by its clients in the EU and US. Ninety percent of these designs are done in-house in what the firm calls its highly technically sophisticated “design kitchen” where the company uses sophisticated process control systems and computerized facilities to mix and match and develop its finely detailed and finished products. The company, with 650 employees, and huge market capitalization of $160 million (nearly 5 times its annual sales of $34 million) HSL has a portfolio of 20,000 products, and introduces 2000 new products per year, on average. (Interview by Meenu Tiwari, HSL, Bangalore, 2005) HSL strenuously distinguishes itself from the Wart Mart model Their Philosophy “we don’t sell to Wal Mart; we sell to Ralph Lauren Home” Another vertically integrated company is Welspun India Limited (WIL) Asia’s largest, and the world’s fifth largest, Terry towel producer. WIL’s aim is to be the largest mass manufacturer of made-ups. It wants to “replace US home-textiles giants Pillowtex and West Point Stevens as the largest home-furnishing manufacturers” and is committed to making the investments that it will take to do so (Asian Textiles Journal, 2005). It is already one of Wal Mart’s largest Indian suppliers. A supplier to 12 of the top 20 retailers of the
96
world, its primary buyers are Wal Mart, K-Mart, Target, J.C. Penny, Tommy Hilfiger, Shopko, Calvin Klein The niche markets are where large volume producers like China and Bangladesh are not threats. The theme of leveraging small production runs, incorporating design, and technology, especially IT-based production services, while scaling up are some of the patterns that cut across the emerging firm strategies in the textile and apparel industry today. To sum up several common patterns run across the recent trajectories of top performers in Indian textiles and apparel exports: (a) a background in textiles, (b) recent forward integration into value added apparel or value added fabrics (technical textiles), (c) strong use of technology, especially software based systems monitoring protocols, and other production and process tracking systems to streamline production, (d) an emergent focus on design (and in some cases product development), (e) and institutional investments in western markets—especially in the strategic purchase of small design and distribution networks in the major markets in the US and EU.
FIG NO:11.1 GROWTH JOURNEY WELLSPUN INDIA LTD
97
CHALLENGES FACED
Textile supply chains compete on low cost, high quality, accurate delivery and flexibility in variety and volume. Several challenges stand in the way of Indian firms before they can own a larger share of the global market (Pankaj Chandra, 2005)
Cycle Time: Cycle time is the key to competitiveness of a firm as it affects both price and delivery schedule. Cycle time reduction is strongly correlated with high first pass yield, high throughput times, and low variability in process times, low WIP and consequently cost. Indian firms have to dramatically reduce cycle times across the entire supply chain which is currently quite high (Chandra, 2004). Customs must provide a turnaround time of ½ day for an order before Indian firms can they expect to become part of larger global supply chains. Indian firms need a strong deployment of industrial engineering with particular emphasis on cellular manufacturing, JIT and
98
statistical process control to reduce lead times on shop floors. Penetration of IT for improving productivity is particularly low in this sector.
Innovation & Technology: A review of the products imported from China to USA during January–April 2005 reveals that the top three products in terms of percentage increase in imports were Tire Cords & Tire Fabrics (843.4% increase over the previous year), Non-woven fabrics (284.1% increase) and Textile/Fabric Finishing Mill Products (197.2% increase) (FICCI, 2005). None of these items, however, figure in the list of imports from India that have gained in these early days of post-MFA. Entry into newer application domains of industrial textiles, nanotextiles, home furnishings etc. becomes imperative if we are to grow beyond 5–6% of global market share as these are areas that are projected to grow significantly.
Synthetic textiles
comprise about 50 per cent of the global textile market. Indian synthetic industry, however, is not well entrenched. The Technology Up gradation Fund of the government is being used to stimulate investment in new processes. However, there is little evidence that this deployment in technology has accompanied changes in the managerial regimes – a necessary condition for increasing productivity and order winning ability (Chandra, P, 2004)
Domestic Market: The Indian domestic market for all textile and apparel products is estimated at $26 bn and growing. While the market is very competitive at the low end of the value chain, the mid or higher ranges are over priced (i.e., ‘dollar pricing’). Firms are not taking advantage of the large domestic market in generating economies of scale to deliver cost advantage in export markets. The Free Trade Agreement with Singapore and Thailand will allow overseas producers to meet the aspirations of domestic buyers with quality and prices that are competitive in the domestic market (FICCI, 2005). Ignoring the domestic market, in the long run, will peril the export markets for domestic producers. In addition, high retail property prices and high channel margins in India will restrict growth of this market. Firms need to make their supply chain leaner in order to overcome these disadvantages. Institutional Support: Textile policy has come long ways in reducing impediments for the industry – sometimes driven by global competition and, at other times, by international trade regulations.
However, few areas of policy weakness stand out – labour reforms (which is
hindering movement towards higher scale of operations by Indian firms), power availability and its quality, customs clearance and shipment operations from ports, credit for large scale 99
investments that are needed for up gradation of technology, and development of manpower for the industry. These are problems facing several sectors of industry in India and not by this sector alone.
In conclusion, competitive strategies are developed by sector level firms and its their individual and collective initiatives that secure higher market share in global trade. While one has to be ever vigilant of non-tariff barriers in the post MFA world, the new market will be won on the basis of capabilities across the supply chain. Policy will need to facilitate this building of capabilities at the firm level and the flexible strategies that firms will need to devise periodically.
FUTURE PROSPECTS The global apparel manufacturing industry is expected to grow more than ever in times to come. According to an estimate, the global apparel industry will reach a value of US$ 1,781.7 billion by the end of 2010. The apparel manufacturers are now adopting new techniques to increase their trade. New business models and competitive strategies are used to enhance profits and growth. The consumer is more aware and more demanding with the development of media like television and Internet. They have more choices in quality, price and design. This is the reason why apparel chains all over the world are focussing more on improving the quality of the product and offering in varied range of fashion designs. Apparel manufacturers are developing methods to keep up with the pace of change like offering on wholesale prices to survive in the global competition. Though the above trends show a very positive picture but according to some experts, the dilution of MFA (Multi Fiber Agreement)1 will make a lot of apparel workers to loose their jobs, in many regions of USA, Asia, Central and Latin America and these jobs will shift to China. The World Bank report says, this will be one of the largest short-term transfers in history. Despite these
100
developments the apparel industry is estimated to grow at very high pace and will provide employment to a large number of people all across the world. The Textiles Ministry headed by Union Textile Minister Shankersinh Vaghela has set an ambitious cumulative annual growth rate (CAGR) of over 20 percent to be achieved by the year 2010. This will be achieved through aggressive exports of textile from $50 billion to $130 billion.
CONCLUSION India is now a fast emerging market inching to reach half a billion middle income population by 2030. All these factors are good for the Indian textile industry in the long run. Even though the global economic crisis seams to be worsening day-by-day, as long as economies are emerging and growing as those in South and South East Asia, textile industry is here to grow provided it takes competition and innovation seriously.
101
