As the emerging markets become globalised, the retail landscape undergoes a gradual transformation. Global giants enter these markets with a bang, set new trends, innovate, consolidate and eventually dominate. The success stories of brands such as Adidas, Nike, Fila and Reebok in the sportswear segment, bear testimony to this fact. Fortunately however, the impact on the domestic industry is rather positive as these players learn from the giants, enhance their models and continue selling. It is the size and dynamism of these markets that accommodate both these categories of retailers and therefore, competition increases at a rate that is slower than the rate of innovation
The ambitious target of USD 50 billion by 2015 for the apparel export sector set by the government bears testimony to the massive potential of the sector. In spite of export growth slowing in recent months due to turbulence in the European and US markets, the Indian government has revealed that the sector is in line to achieve the USD 18 billion target for the present fiscal. The incentives provided to the sector over the last decade also make it clear that the sector has emerged as one of the most important segments for export.
Apparel export quite naturally assumes massive importance in india as the country is one of the largest producers of raw materials required for apparel manufacturing. From cotton to artificial materials, India’s cheap labour and low production costs makes it one of the most favoured manufacturing destinations in the world for clothing materials.
The textile sector in India is one of the most important manufacturing industries which not just employs a large number of people but also supports several others sectors. Consequently, the investment potential in the sector is equally high. However, it is important to keep in mind that a large number of players in the sector belong to the micro and small enterprise category and a larger section of industry is still unorganized. While some credit the unorganized sector as the binding force and the saving grace at the time of crisis of the industry, there are obvious roadblocks created by this sector when it comes to organized investment.
According to the Department of Industrial Policy and Promotion, FDI worth USD 959 million entered the sector in the 2000-2011 period. In fact, over the last two decades several government initiatives have been taken to enhance the flow of investment in the textile industry. Setting up of an FDI cell in the Economic Division was one such initiative and the prospects of signing an FTA with EU was another major boost. However since the latter has been pushed back to the next quarter and FDI flow has been sporadic due to the slow recovery of the European and American markets, the textile industry similar to other manufacturing industries in India faces a significant shortfall in terms of investment.
Investment, be it domestic or foreign, needs the right direction, the right intention and the right implementation. Though major textile manufacturers are of international standards and can make good use of the investment, it is often the lack of supporting infrastructure that causes leakage of capital. While it works to India’s advantage that is the largest producer of cotton in the world, it also hurts that it has one of the poorest supply end infrastructure and wastage of raw material is a very common problem. Similarly, red-tapism, corruption and misuse of funds are also not unknown in the sector and the tendencies often make foreign investors shy away from investing in India.
Domestic investment in the textile industry has mainly come from the investments large corporations have made towards the setting up of their plants. Schemes such as the TUFS have worked well in the favour of these organizations. However for the SME sector, investment in plant and machinery is often a challenge as lenders are wary of investing in this sector. This makes the middle spectrum of textile industry a rather volatile part which has immense potential and yet remains below par.
For the smaller players, it is far smarter to trade than to manufacture those who have taken the hassle to produce also ensure that a large part of their business comes from the unorganized sector. This tendency, often makes the textile industry appear like a loss making and struggling sector while the reality may often be far from it.
A closer look at the organized and unorganized sector allows us to classify sub-sectors in the textile industries.
|ORGANISED INDUSTRIES||UNORGANISED INDUSTRIES|
|Composite mills||Hosiery and knitting units|
|Combing units||Power-loom units|
|Worsted and non-worsted spinning units||Hand-made carpets and druggets units|
|Knitwear and woven garment units||Independent dyeing and process houses|
|Machine-made carpet manufacturing units|
The organized sector has the maximum potential to draw domestic as well as foreign investment in India. The mills and other manufacturing and processing industry boast of state-of-the-art technology and highly skilled labour force. This is mainly because of the international exposure and almost consistent success that these players have enjoyed over the years.
In spite of the positives of the organized textile sector, there remain basic challenges for new players keen to enter the industry. Current players who dominate the Indian market can further be divided into foreign and domestic categories.
|INDIAN COMPANIES||INTERNATIONAL PLAYERS|
|SRF||Johnson & Johnson|
|Entremonde Polycoaters||Du Pont|
|Kusumgarh Corporates||Procter & Gamble|
|Garware Wall Ropes||SKAPs|
|Century Enka||Kimberly Clark|
|Pacific Non Woven|
There is a debate in the industry whether textile manufacturing is an industry worth investing in or entering in the present market. While the traditional businesses in the category may have its fair share of challenges due to the dwindling of exports, it is worth noting that certain sections of the technical textile industry have performed phenomenally. Interestingly, this industry has a niche B2B appeal and finds a rapidly growing demand in the global market.
Logically, supporting the technical textile at this hour of crisis for the overall textile industry is likely to be an intelligent move as the sector holds the potential to pull through the entire industry. The sector also requires significant investment in R&D and technology which can provide long-term benefits to the industry on the whole.
Apart from this, the American market looks set to recover sooner than expected and hopefully the European market will follow. The recently announced debt restructuring package for the loss making textile mills and the Handloom Revival, Reform and Restructuring package by the Government of India are also likely to bring back the lost glory of the Indian textile industry.
Reports indicate that the signing of the FTA with the EU is a highly anticipated move by the government and the delay is hurting the industry significantly. However, it is expected that investment and business interaction trends are likely to shift towards the Asian and domestic markets in the years ahead due to their rapidly growing size and evolving nature.
According to recent statements to the media by Indian textile minister Anand Sharma, there have been no losses reported by the textile industry since the debt restructuring and a robust 7.9% growth in total spun yarn and 4.7% growth in total fabric production took place in the April-September 2012 period over the corresponding period last year.
On another positive note, the two major cotton producing states, Gujarat and Maharashtra have been significantly upbeat about their new textile policies. The new policy allows the states to set up and export from processing units within their state instead of depending on other states like Karnataka for the processing. The two states are also hopeful of attracting more manufacturers to set up plants as the two new policies provide various capital incentives for the players in some of the regions.
The Gujarat government has also made its intentions of targeting the higher end of the Asian market. Reports indicate that the government is confident that the new policy will make the state an attractive investment option for companies in China, Japan and Hong Kong.
The process of bringing in FDI into the textile sector may ease up as the states bring about their investment friendly textile policies. However, supporting the handloom and the micro and small units in the textile industry should take higher priority for the government as it is the largest and most influential sector that remains oblivious and deprived of the various schemes, incentives and advantages being provided to the industry. Aiding this sector and bringing in more players from the unorganized side to the organized category will also help improve revenue for the government and open the market up further for investment.
Published in the Apparel Magazine (CMAI)
With China showing more interest in engineering and IT and Bangladesh being looked at as non-compliant country, global players are eyeing India’s potential for outsourcing with great interest. India, with its fairly high-level of compliant garment export factories, has emerged as an attractive sourcing destination. Apparel exports in the first 5 months of this fiscal have witnessed a 14% increase in Dollar terms, as per reports from A. Shaktivel, Chairman of AEPC (Apparel Export Promotion Council). A growing number of chief purchasing officers in European and US apparel companies are scrutinizing the sourcing strategies of Bangladesh and its power as a sourcing destination for foreign retailers such as Wal-Mart has reduced to a substantial extent. While China has started to lose its attractiveness in this realm, India is turning out to be an attractive alternative. India has the second largest textile infrastructure after China, and is one of the few countries in the world which has production at each level of textile manufacturing.
The present domestic apparel market size of India has registered a strong growth of 12% from 2007 to 2012 despite global uncertainties. It is the only major apparel market where woman’s wear is not the largest category in value terms.
Indian apparel sector offers various competitive advantages as compared to other countries. It possesses both raw material and manpower, which acts as an inherent advantage. Add to this the fact that the market is mature today.
Raw Material Availability
The fundamental strength of the Indian textile industry is its production base of wide range of fibre including natural ones like cotton, jute, silk and wool to synthetic/manmade fibres like polyester, nylon and acrylic. The textile and apparel industry In India includes almost all types of fibres- natural fibres, synthetic fibres and multiple blends of these fibres.
Inexpensive Trained Manpower
In today’s dynamic business environment, the demand for trained manpower with requisite competencies for manufacturing quality products efficiently with sophisticated machines is high across the apparel sector. Realizing this, Indian government has launched various schemes for the textile and apparel sectors with the objective of building capacities of institutions, providing skill development and training.
Presence of Complete Textile Value Chain
India is one of the few manufacturing countries in the world where all levels of textile value chain (from fibre to garment manufacturing) are present. India textile and apparel sector is divided into organized and unorganized sector. Unorganized sector consists of small scale and medium scale mills while organized sector has large sector units with high production capacity. This structure provides apparel sector a great flexibility to cater small and customized orders on one hand and also it has capability to execute large quantity orders as well.
Strong IP Laws
India has strong IP laws in place to protect the interest of manufacturers. Many International companies have already established their research and development centers in India due to strong IP base in India. The international companies investing in India have full flexibility to venture into their own or join with any Indian partner of their choice.
A strong obstacle to sourcing from India is that local sourcing requirements could deter foreign retailers from taking advantage of new rules allowing them to take full ownership of their operations in India. Many retailers are keen to invest in India but are concerned about the local-sourcing clause. To overcome this obstacle , the Government of India needs to provide more clarity on fine print to potential investors, regarding local-sourcing clause.
With internet penetration increasing in India, the rules of the sourcing game are changing internally as well. Today more and more Indian SMEs are registering themselves, building websites, integrating payment gateways and setting up ecommerce services on their sites. This not only acts as an advertising tool but also brings them the much needed visibility in the online space. Typically, a lot of US and European businesses check for products online.
Similarly, with improving infrastructure and companies exploring the business potential of the small towns, apparel manufacturers in India are far better linked today than ever before. As mentioned above, since the entire value chain of the manufacturing sector is present in India, today there is higher potential for ancillaries, subsidiaries, vendors and service providers.
It is essential for authorities to understand that India have all the prerequisites to become the world’s largest sourcing destination for the apparel industry, however, unless there is complete political stability and a balancing of the regulatory atmosphere with aggressive marketing, a lot of countries will remain oblivious to the country. Similarly, by encouraging apparel manufacturers to attend international trade shows and strengthening the B2B events culture, India can showcase itself better.
The apparel manufacturing industry has seen its quota of ups and downs in recent years, the stability that is beginning to show is that of a ship that has learnt to weather large storms. We are now seeing regulations regarding foreign direct investments easing and a consistent level of interest from European countries. The strategy for the Indian sector on the whole should focus on the entire globe and not just pockets of interest.
China will bounce back and India will need to compete with it. However, in the future, India is most likely to have an upper hand as there will be more government focus to support its international ventures and tie-ups. China and other Asian countries in the meanwhile are realizing the massive potential of their service sector and looking to capitalize on the recovering markets across Europe and America. Theoretically, the Indian apparel sector is at the foothills of a large mountain whose peak it has the potential to reach alone.
Published in the Apparel Magazine (CMAI)