EXECUTIVE SUMMARY EXECUTIVE SUMMARY The textile industry is mainly a labor intensive industry as it provides livelihood to the huge population, mainly consist of unskilled workers, thus plays a pivotal role in the development of any economy. As this particular industry also comes under the basic necessities of human beings, it impacts a lot to the society as a whole. There has been increase in demand of textile products in last few decades globally, mainly due to rapidly changing social and economic structure of the countries worldwide.
In past few years, especially after the removal the trade related tariffs and non tariff barriers in 2005, Asian countries such as India, china, hongkong and Japan have emerged as major players in this particular industry, mainly due to their ch eap, trained and easily accessible manpower and low cost of the raw materials. In this particular study of textile industry, we have focused mainly on Indian scenario.
Textile industry in India is a major contributor in the overall development of the economy, it contributes 4% to the GDP and 14% to the industrial production.
India stands apart from the rest of the world due to its favorable social, political and economical condition for this particular industry. Moreover India is one of the biggest producer of the cotton in the world and it have a huge pool of young, skilled and cheaper workforce which have enabled India to become one of the largest exporter of textiles products in the world. Since the economic reform of the Indian economy, textile industry has grown with a much faster rate.
As this is export oriented sector, it also helps India to maintain positive balance of payment. Government of India have taken many initiatives to promote this particular industry such as- Technology Upgradation Fund Scheme (TUFS), National Textile Policy 2000 etc, moreover the removal of world trade barriers have also given Indian exporter a much needed booster. The demand of textile products have also risen domestically as the purchasing power of people have increased over the past few years and even introduction of organised retailing in the Indian market have increased the demand.
The world economy is also recovering fastly from the recession, there is strong indication that the demand of textiles will increase worldwide and this gives India an opportunity to utilize its potential at full extent. In the analysis of this particular industry we have considered the present and probable future global scenario and their impact on the Indian textile industry. We have taken top and bottom 3 companies of Indian textile industry to analyse the trend. We also have considered in our study the impact of current budget to predict impact of this on the future if the textile industry.
This have enabled us to have a thorough knowledge of this industry. CHAPTER-1 INTRODUCTION 1. 1 OVERVIEW The textile industry is very unique in itself because it is an independent industry. It fulfills its own necessities, right from the basic requirement of raw materials to the final finished products. The development of this industry mainly started in the Britain, as the spinning and weaving machines were invented in that country. There were various stages – from a historical perspective – where the textile industry evolved from being a domestic small-scale industry, to the status of supremacy it currently holds.
The ‘cottage stage’ was the first stage in its history where textiles were produced on a domestic basis. The textile industry today is divided into three segments- * Cotton textiles * Synthetic textiles * Other like wool, jute, silk etc. ObjectivesThe objectives of this study are as follows- * To analyze the trend in textile industry both at macro and micro levelOur focus would be to analyze the recent trends in this particular industry both at macro and micro level, especially in Indian context. To have in depth knowledge of textile industryWe will try to know about the textile industry so as to have in depth knowledge about this sector. * To analyze the opportunities and threats of this particular sectorThe purpose of this research is also to know about the opportunities and threats this sector faces with a special emphasis on India. * To identify the future prospect of the industryTo focus on the impact of various external & internal factors on this particular industry with a futuristic view. 1. 2.
VALUE CHAIN | Textile is a group of related industries which uses a variety of natural (cotton, wool, etc. ) and/or synthetic fibres to produce fabric. It is a significant contributor to many national economies, encompassing both small and large-scale operations worldwide. The classical method of categorizing the industry involves grouping the manufacturing plants according to the fibre being processed, that is, cotton, wool, or synthetics. The modern approach to textile industry categorization, however, involves grouping the manufacturing plants according to their particular operation. Wool Scouring * Wool Finishing * Dry Processing * Woven Fabric Finishing * Knit Fabric Finishing * Carpet Manufacture * Stock and Yarn Dyeing and Finishing IMPACT OF REVOLUTIONThe industrial revolution in the 18th century acted as an incentive for the growth of textile industry, and mass production of clothing was turned into mainstream industry. Later, in the 20th century textile industry gained a rather bad reputation since the labour force was made of immigrants working in illegal “sweat shops”, workers being paid less than minimum wages.
IMPACT OF GLOBALISATIONWhile globalization has contributed to outsourcing the manufacturing process, in those areas where textile trade was common, the focus was later changed to the white collars, and so the industry of fashion design, and fashion modelling have began to flourish. Also known in the United Kingdom and Australia as the Rag Trade, the Textile Industry is concerned with designing and manufacturing clothing items, together with distributing using textiles. 1. 3.
Research MethodologyCollection of dataIn this research the collection of data is mainly from the secondary sources which include various industry related websites, journals, articles and Confederation of Indian Textile and Industry (CITI). Analysis of dataQualitative method * SWOT Analysis * PEST Analysis * Porters five forcesQuantitative method * Ratio Analysis * Trend Analysis1. 4. Databases * Capitaline * Indiastat * Textile Association of India * Confederation of Indian Textile Industry (CITI)| | CHAPTER-2 REVIEW OF LITERATURE CHAPTER-2 REVIEW OF LITERATURE
Several researches have been done on the various aspects of the textile industry. Some of these research areas are: According to Nordas ,the report which we have considered has been taken from WTO site. The title of the report is “The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing. ” This report is written by Hildegunn Kyvik Nordas. This report tells us how the textile industry has been affected after the agreements had taken place. The developed countries have “temporarily” protected their textiles and clothing sectors for 40 years.
Among the most distorting measures to have prevailed are import quotas allocated to some, mainly developing countries on a country-by-country and product-by-product basis, while other countries face no quotas. This has led to a pattern of specialization where countries with the strongest comparative advantage for textiles and clothing, such as China and India, face binding quotas, while others receive investment in the sector motivated by unfilled quotas and may well find that these investments are unsustainable in a trade regime based on the principles of the GATT.
Most analyses of the impact of the phasing out of the Agreement on Textiles and Clothing (ATC) conclude that China and India will come to dominate world trade in textiles and clothing, with post-ATC market shares for China alone estimated at 50 per cent or more. It is argued, however, that these estimates only tell part of the story, as they are totally driven by changes in relative prices and cost competitiveness.
The main contribution of the paper is thus to take into account recent developments in the organization of the textiles and clothing sector, where vertical specialization is an important feature. Vertical specialization implies that the inputs embodied in the final product cross borders several times and such trade is very sensitive to the tariff level. Hence the outcome of the phasing out of quotas will depend much more on the prevailing tariff rates and the preference margins of countries receiving such references than is captured by the conventional estimates. Second, time to market is important and increasingly so, particularly in the fashion clothing sector. Therefore, countries close to the major markets are likely to be less affected by competition from India and China than has been anticipated in previous studies. Mexico, the Caribbean, Eastern Europe and North Africa are therefore likely to remain important exporters to the US and EU respectively and possibly maintains their market shares.
This is even more likely given the preferential access they have to the markets through regional trade agreements. Thus, it is shown in the paper that having a common border with the importer and facing low or zero tariffs have a substantial impact on bilateral trade. The countries that are most likely to lose market shares are those located far from the major markets and which have had either tariff or quota-free access to the United States and EU markets, or which have had non-binding quotas. These countries will undoubtedly face adjustment challenges.
Also local producers in EU, the United States and Canada are likely to lose market shares. These producers have enjoyed more than 40 years of “temporary” protection, but nevertheless face a long-term structural decline. Thus, adjustments costs due to changing comparative advantage in the textile and clothing sector are not new, and it is not confined to the ATC countries, as the experience of some of the major Asian exporter such as Hong Kong, China; Chinese Taipei and the Republic of Korea shows.
To conclude, 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 proximity to major markets assumes increasing economic significance and tariffs are increasingly restraining trade due to the fact that products cross borders several times. Furthermore, other developing countries are catching up with China in terms of unit labour costs in the textile and clothing sector and China has of yet not shown competitive strength in the design and fashion segments of the markets.
According to Steering Group() textile industry can increase their production capacity, how much they can be funded and how much investment should be made. The textiles and clothing sector is the largest employer after agriculture and its importance in India’s economy is recognised for its contribution to industrial production and export earnings. The following were conclusions drawn out from the report: * There is a consensus that there should be unbroken CENVAT chain, without exemptions, with 8% duty and also dis-continuation of deemed MODVAT credit. The fiscal policy should aim at providing a level playing field for orderly growth and sustainence of various sectors of the industry such as man-mades and cotton. Bridging the difference in duty structure between these two sectors could be considered, in a gradual manner, over a period of time, so that both the sectors could grow in a healthy competitive environment. * The Ministry of Textiles prepare a base paper for debt swapping/ debt management/ debt restructuring for the textile industry, so that the potential and viable units could be revived. The administrative issues related to import of second hand machinery need to be sorted out by the Ministry of Textiles with the Ministry of Commerce. The principle should be that the Government should not micro-manage such commercial decisions of the companies with respect to the use of technology. * TUFS be extended up to the end of 10th Five Year Plan i. e. , year 2007, in view of the positive impact of the scheme on modernization of the industry. The Ministry of Textiles should consider setting up of an Industry Government Group to study the Chinese model of providing policy support for growth and investment of textile industry. * The Indian textile and clothing industry, the oldest industry of the country, which meets one of the basic needs of the population i. e. , clothing, will have to be supported and strengthened and for this purpose, the Government and the industry should work together. * All existing textile units in the organised sector who have been assisted by FIs/banks would be eligible.
However, in each case restructured debt servicing capacity would be assessed. * At the time of restructuring all penal interest and liquidated damages would be waived. * Rate of interest for term lending would be pegged at a threshold level of 14%. Effective rate of interest would be in the range of 8% to 9% and the difference would come as contribution from the proposed reconstruction fund. However, SBI was of the view that rate of interest for term lending should be pegged at a threshold level of 12. 5% and contribution from the reconstruction fund could be limited to 3. 5% to 4%. Technical and financial templates need to be worked out very carefully by an independent expert body/organization/institution. * The repayment period would be a maximum of 7 – 10 years including two-year moratorium after debt restructuring. * Additional security in the form of personal guarantee of promoters or pledging of shareholding may be considered, if required by the FIs/Banks. * Modalities to ensure promoters commitment to the scheme must be worked out. Promoters should be willing to write down equity when necessary and give personal guarantee for restructured loans. Some units which were doing well and were servicing their debt regularly and earning profits were not very keen to participate in debt restructuring scheme and instead have proposed that they should be given an option to avail longer repayment period, say 10 years, for loans taken under TUFS after the cut-off date i. e. announcement of the scheme. Their argument was that longer repayment period would give additional surplus cash to the units, which in turn could be ploughed back for extension/modernisation. These units wanted to kick start the investments in textile through credit support.
According to Willbanks (2008) Textile is part and parcel of human life. It does not meet only our basic needs, but also gives a large contribution in our economy. Textile Industry employs over 1. 4 million, more than any other industry. In clothing segments, technological advances I is easily recognised in compare to other segments of textile industry ie. spinning textile, weaving textile, woolen textile etc. There are varieties of products that is preparing by the help of textile. These are very unique and that are not usually thought of as textile products. * Toothbrushes Hair Brushes * Dental Floss * Artificial Flowers/Plants * Book Bindings * Candle Wicks * Communication Lines * Circuit Boards Textile helps other industries directly or indirectly. There are some important roles that textiles play in other industries. In food industry, textile are use to cover plants and wrap trees for protection from weather and insects. Non –woven textile is use to made coffee filters and tea bags. In building Industry, textiles are used to insulate the building from heat and cold. Textiles are used in wire covering, roofing materials, for door and window screens.
In health industry, invention of disposable clothing helps in preventing from bacteria. Gloves and bandages, surgical masks are other examples of textile use in healthcare industry. Helmets and pads are made of textile that protects the player during game . Many sports equipment is made of textile fibres like sailboats, hockey sticks, fishing rods, tennis rackets, golf clubs etc. According to unnamed (2008), the Indian textile industry is mainly export oriented and labor intensive. This industry was already wobbling due to rupee appreciation and rising cotton prices and is hit harder than other sectors by the recession.
The Confederation Of Indian Textile Industry (CITI) reports that 7 lakh people have already left the jobs and count is expected to rise (according to Nov. 2008 estimation), majority of lay-offs are targeted towards daily labors who make almost 25-35% of a company’s workforce and 35 million out of total workers in the Indian textile industry. As this industry is also dependent on the seasonal and festive demands but due to current economic slowdown the demand has been sluggish as the purchasing power of people have reduced.
According to some experts India has fared better than its neighbors (except Bangladesh) due to cheap and easily accessible labor-force. They also suggested that by turning fixed cost into variable cost and by innovative product and better quality, Indian textile industry can be back on high growth track. According to Rajeshwari (2009), the Indian Handloom industry is the second largest in India in providing employment to rural mass and its contribution to GDP. Due to the brutal competition in the textile market and from other sectors, Handloom has lost its significance and market share.
In many countries it has almost become unreal now. However India and some other Asian countries have been able to sustain this industry. With efforts of government in enhancing the technology and supply chain of this industry, India can be a global supplier of handloom articles. This sector has a very characteristic supply chain which serves the low and the high ends of the value chain, as it produces and supplies both mass consumption products for use in countryside as well as niche products for urban and exports markets. Supply chain management will involve collaborative work between buyers and suppliers.
To become a global leader of handloom products, India needs to give special emphasis on supply chain management of this sector. According to unnamed (2009), there has been a drastic change in the Indian textile industry, it has grown from small cottage industry to huge textile industry that use sophisticated machines. It is the second largest employment generator in the country and employee around 88. 02 million peoples in the country. Before the recession took place Indian textile industry was one of the best performing sectors of the country.
Due to the downtrend in the industrial graph, there have been many job cuts in this sector; it is expected to reach 6 million. About 60% of the total garment manufactured is exported and which generates up to US$52 billion. Due to the recession in the US and EU there has been great impact on the Indian textile industry, which resulted in the drastic decline in the textile exports to other countries. As food comes first then comes clothing, due to the recession in US and other countries people in those country started purchasing less clothes which lead to reduction in the exports and which ultimately lead to layoffs.
During October 2008 when the recession started, the output of the textile industry dropped by 10%. Simultaneously the investment in the sector also decreased which ultimately affected the profit of the textile sector. Some of the biggest textile industries are located in Ludhiana in Punjab, Gujarat and Tamil Nadu which had great impact of recession because of which they had to do cost cutting and lay off employees. During this period textile industry was running at its 75% of capacity and manufacturers have reduced their three shifts into one.
Textile industry in India is hit hard by heavy interest rates, less domestic consumption, and cancelled export orders. It is feared by the textile industry people that the slowdown would not improve in the near future. A further meltdown will be a huge blow on the economy of the country, and it is believed by the experts that the worst is not yet over for the textile and apparel sectors. According to Singh (2003), the textile industry has a great potential of development in India. This report is giving us the information about SWOT analysis of Maharashtra state.
The global textile industry is likely to grow thrice within coming years and India has greater opportunity in this sector but the textile industry of China is likely to grow at much faster rate than India. This industry can grow due to availability of abundant raw materials, skilled labor at low cost and growing domestic market. The strengths of Maharashtra for textile industry are that the state has the advantage of being in close of natural fabric, man-made fiber fabric and imported fiber through ports.
It has best available skilled labor force in industry, presence across the value chain, and has one of the highest State Domestic Products in host to a burgeoning middle class. The weakness of the textile industry in the state is due to the historical effects of government policies, lower productivity and competitiveness, fragmented industry and technological obsolescence. The opportunities for this industry in the state are research and development, product development and the challenges posed by world class textiles mills.
The threats for this industry in the state are competition in the domestic market, ecological and social awareness, and regional alliances. Therefore, we can say that the textile industry has a great opportunity in our country and industry has to work towards developing a competitive advantage to project textile industry in the global market. According to Dhanabhakyam and Shanthi, the textile sector is the second largest (21%) employment generator after agriculture. It accounts for 14% of the total industries production and 4% in the GDP of India and contribution to nearly 30% of total exports.
And about 27% of the foreign exchange earnings. In contrast to other major textile-producing countries we find that in India we have mainly small-scale industries because of the legacy of tax, labor and other regulatory policies that have favored small-scale and labor-intensive enterprise. Its structure comprises mainly of non-integrated spinning, weaving, finishing, and apparel-making enterprises. The key advantages of Indian textile companies are as follows:- * India is the 3rd largest producer of cotton and an edge in low cost cotton sourcing compared to other countries. Average wage rate of 40-50 percent lower than that in the developed countries. * The industry is investing in technology and increasing its capacities which should prove a major asset in the years to come. Its contribution to the Indian economy is manifested in terms of its contribution to the industrial production, employment generation and foreign exchange earnings. In world textile scenario, it is the largest producer of jute, second largest producer of silk, third largest producer of cotton and cellulosic fiberyarn and fifth largest producer of synthetic fiberyarn.
According to verma (2002),the textile and garment sector plays an extremely significant role in terms of value added shares, foreign exchange earnings and providing employment to over 35 million peoples. The objective of this study is to evaluate export-competitiveness for textile and garment exports in India with a view to access competitiveness in preparation for the quota free trade beyond 2004. This sector contributes around 4% to GDP and 14% of industrial output owing to the unique place in Indian Economy.
It is also one of the largest net foreign earner, and earning almost 35% of foreign exchange. This sector again is completely self sufficient and complete in its chain. A product is said to be competitive if its growth rate increases, market share grows over that period. The study is based upon India’s competitive performance in the US and EU market considering MFA products competitiveness is about productivity, which in turn depends upon cost of product, delivery schedules, reliability of producers, and also image of that country, company and brand equity.
India was not of an issue till Short Term Arrangement (STA) of 1961, under which trading of textile and cotton took place in managed way. The objective of this study is to evaluate export competitiveness of Indian textile and clothing sectors. Since Indian textile sector is cotton based study focuses on cotton textile and apparel and on its retail distribution. Evaluating the demand side of this sector, highlights trade policy environment, Regional Trading Arrangements [ RTA’s ], tariff peaks and environmental and labour standards.
On the other hand for supply side focuses on opinions of its bottle-necks, data/numbers. This infers more about supply-side factors which is based on opinions of exporters. During the MFA period: a) the share of developing countries in textile exports declined by almost 19. 2% and that of developing country increased by 18. 8%. Clothing exports showed decline of top 13 exporters and new entrants have came. b) In textile non-preferred group fought for the pie that was declining, resulting to a high-level of intra-industry and intra-firm in clothing than in textiles.
India’s competitive performance grew in 2000 in US increasing by 10% in cotton dresses (336), woven shirts (341) and skirts (342). market share grew for 336 and 341, however US import need grew for 341 and 342 and not much for 336. China being an exporter became a threat thus and targeted 341 segments and also upgraded in this segment. Concurrently India targeted low value segment in most cotton apparels in US. Lesson for India from their other competitor was thus that India should not only upgrade its values, but should also compete on non-price factors.
Within Textiles, India did well in 362 and 363. Also in fabrics Indian exports was not coming to be competitive. The study concludes that while there is little doubt regarding the immense potential that the Indian industry-specially garment sector- has, several policy reforms are needed urgently in order to unlock this latent capability. Besides, from the emerging nature of global trading environment, it appears that market access would become an increasingly important aspect of translating competitiveness into export performance. CHAPTER-3 GLOBAL SCENARIO CHAPTER-3 Global Scenario
The textile industry was one of the first industries to develop in the world history. This was mainly originated in Britain, as the spinning and weaving machines were invented in that country. This particular industry is labor intensive, and this have a higher impact on society as a whole. According to Economy Watch it is one of the highest employment generators and thus plays a pivotal role in the development of any economy. 3. 1. Position With the advent of textile industry in the UK, the textile production was spread over to the rest of the world in an organized way.
In the 18th century, the industrial revolution acted as a booster for the growth of textile industry, later on in the 19th century, mechanization was introduced in this sector and thus played a major role in the stupendous growth of this sector. After this Asian countries like Japan, India, Hongkong and china have achieved dominant position in the textile sector due to their cheap and easily accessible labor supply. Global textile & clothing industry is currently pegged at around US$ 440 bn. US and European markets dominate the global textile trade accounting for 64% of clothing and 39% of textile market.
With the dismantling of quotas, global textile trade is expected to grow (as per Mc Kinsey estimates 2006) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is likely to become the ‘supplier of choice’, other low cost producers like India would also benefit as the overseas importers would try to mitigate their risk of sourcing from only one country. The level of export in textiles from developing countries is increasing, thus the developed countries are facing heat due to continuous competition from the developing economies, but they are responding with advanced technology and increased market awareness. . 2. Major players This sector has a majority of small players rather than the larger companies, especially in Asian region. There are companies who operate on a large scale and –take advantages of both, economy of scale and scope and even explore new market in the globalized world. Here are some companies, taken on the basis of brand value globally. Brand| Brand value (2006)| Nike| $ 10. 29 billion| H & M| $ 8. 71 billion| Zara| $ 6. 46 billion| Esprit| $ 5. 41 billion| Next| $ 2. 88 billion| (Source- The Apparel Analyst Global Financial News Bulletin May 2007) Nike
This company was founded on Jan 25, 1964 as Blue Ribbon Sport by Bill Bowerman and Philip Knight and officialy became Nike . Inc in 1978. The company mainly deals with the sports wear and their primary focus is on youth customer segment. They contacted with more than 700 shops around the world and has offices locateed in 45 countries outside the US. Their most of the factories are located in Asia and as per the 2009 annual report, their revenue was $ 18. 627 billion. H Hennes & Mauritz AB (popularly known as H), is a Swidish listing company, known for its fast fashion clothing.
H has around 2000 stores in 37 different countries and employ over 74,000 people. They are headquartered in Stokholm, Sweden and their revenue was 118,697 million (accrding to 2009 annual report). They also have collaborated with several players such as Fashion design, Madonna in 2007 etc. Zara Zara is the flagship chain store of Inditex group owned by Spanish tycoon Amancio Ortega, headquartered in A Coruna, Spain and as per their 2008 annual report their revenue was & 6. 824 billion. They have mainly men’s clothing and women’s clothing.
Zara is a vertically integrated retailer and unlike others controlls most of the steps in the supply chain, even it design, produces and distributes itself. Esprit Esprit is an international youthful lifestyle brand offering smart, affordable luxury and bringing newness and style to life. The Group operates more than 800 directly managed retail stores worldwide and distributes its products via more than 14,000 wholesale locations internationally, occupying total selling space of over 1. 1 million square meter in more than 40 countries.
Esprit licenses its logo to third-party licensees that offer products bearing the same Esprit quality and essence to consumers. Esprit also operates the Red Earth cosmetic brand which includes cosmetics, skin care and body care products. The Esprit brand is sold in five continents and more than 40 countries, 640 freestanding stores and over 12,000 wholesale customers. More than 20,000 products are designed each year for 12 product lines for women, men and kids – and in addition a wide variety of license products for every part of life.
Next Next is a UK based retailer offering stylish, good quality products in clothing, footwear, accessories and home products. Next distributes through three main channels: Next Retail, a chain of more than 500 stores in the UK and Eire; the Next Directory, a direct mail catalogue and transactional website with more than 2 million active customers; and Next International, with more than 170 stores overseas. 3. 3. Major reforms in industry There have been several reforms in the world textile industry since the advent of this industry.
The majority of reforms have been seen in the relation with the trade, which have impacted the textile industry worldwide, especially developing economies like India and China. Protection of the textile and clothing sector has a long history in United States and Europe. In the1950s, Japan, Hong Kong, China, India and Pakistan agreed to voluntary export restraints for cotton textile products to the United States. In 1962, a Long Term Agreement(LTA) regarding international trade in cotton textiles was signed .
The LTA was renegotiated several times until it was replaced by the Multi Fibre Agreement (MFA), which came into force in 1974. The MFA, as the name suggests, extended restrictions on trade to wool and man-made fibres in addition to cotton. According to Krishna and Tan (1997), by the end 1982, 80 percent of imports of textiles and apparel into US were covered by bilateral quota agreements with 20 countries and by consultative mechanism with another 11 countries. There were several criticism of MFA in that time such as non transparency and discrimination against developing nations.
MFA was renegotiated four times (last time in 1991) and finally expires in 1994. The expiration of the MFA did not, however, mean the end of quotas on textile and clothing exports from developing countries. Instead the MFA was followed by the Agreement on Textiles and Clothing (ATC), which came into force with the establishment of the WTO in 1995. On 1 January, 2005, these quota restraints expired, finally bringing to an end four decades of restrictions on trade in textiles and garments among World Trade Organization (WTO) members.
Trade in these products is now governed by normal WTO rules. 3. 4. Technological Changes The clothing industry is labor-intensive and it offers entry-level jobs for unskilled labor in developed as well as developing countries. Job creation in the sector has been particularly strong for women in poor countries, who previously had no income opportunities other than the householder the informal sector. Moreover, it is a sector where relatively modern technology can be adopted even in poor countries at relatively low investment costs.
These technological features of the industry have made it suitable as the first rung on the industrialization ladder in poor countries, some of which have experienced a very high output growth rate in the sector (e. g. Bangladesh, Sri Lanka, Viet Nam and Mauritius). The major changes have been seen since the invention of the sewing and weaving machines in the Britain, since then there have been several technological changes in the textile industry and this have brought a revolution in this industry worldwide.
Due to the implementation of newer technology there have been tremendous increases in the production efficiency of the textile companies. Technological changes in the textile industry during the last forty years can be broadly divided into three phases. High-speed spinning frames and looms, with reduced vibration levels, were developed in the 1950s and early 1960s. The most radical alterations in the core technology of spinning and weaving came in the late 1960s and during the 1970s, with the introduction of rotor spinning and shuttle less looms.
This was the period when new technology was sought to increase productivity and thereby to combat the cost-based competitiveness of lower wage producers from Asian countries. From the late 1970s onwards, the changes in the textile industry of the developed countries have been characterized by the introduction of microelectronics based technology and the automation of industrial processes. The new technologies have allowed the various production stages to become one continuous process of interrelated activities, resulting in higher quality and flexibility and thus a faster response to changing market conditions.
The full exploitation of these technological improvements is dependent on further complementary changes in organization and management. During the 1990s, rapid response to market conditions is likely to become an even more important force behind technological innovation and is likely to focus on increases in speed and flexibility rather than on cost-cutting. Investment costs associated with technology improvements in the textile sector have raised considerably. About US $1 billion per year has been invested in the European Union, and twice as much in the USA, throughout the late 1980s and early 1990s.
These levels could double in the coming years. The impact of automation on employment has also been significant. During the last 15 years, employment in the textile and clothing industry in the entire EU area has declined by 40 per cent, and the forecast for the 1990s is a loss of 700,000 to I million jobs in the textile sector alone. The occupational structure has also changed, with the proportion of operators and unskilled laborers decreasing while the share of technical and management staff increases. The new technologies require specialized skills in textile engineering, maintenance, design, computer science, and marketing.
The most significant innovations took place in the pre-assembly stage, where computer-aided design (CAD), computer numerical control (CNC) cutting systems, and computer-aided manufacturing (CAM) led to material and labor savings. In the assembly stage, which accounts for 80 per cent of the manufacturing value added (MVA) and of the workforce in the industry, technological change has so far been relatively modest. The main improvements have been microelectronic control units which are attached to the standard industrial sewing machine to handle the more complex tasks.
These can either be used to speed up production on task dedicated machines or to increase the flexibility of multi-purpose machines. The major technological innovations of the 1990s are likely to build on these developments. CHAPTER-4 INDIAN SCENARIO CHAPTER 4 INDIAN SCENARIO | 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.
Indian textile industry includes various segments like: 1. Woolen Textile 2. Cotton Textiles 3. Silk Textiles 4. Readymade Garments 5. Jute And Coir 6. Hand-Crafted Textile Like Carpets 7. Man Made TextilesIndian textile Industry is growing day by day. These are the some key advantages that are helping this segment to grow. India’s advantages 1. India offers cheaper production and marketing costs. 2. Abundant and low cost availability of raw-materials: A variety of raw-materials- Cotton, Synthetic, wool, jute and silk are available in the country.
This inherent strength in availability of raw-materials prevents any supply-side shock. 3. Skilled labour at low cost: India has abundant availability of manpower with skill sets across all activities of the textiles value chain. 4. Growing domestic demand: Disposable incomes have been rising steadily in India and it is expected that the consuming class constitute 80% of the population by 2010. The mindset of consumer is changing that led to an increasing spend on consumption, including textiles. 5. Government Support: The government is taking many initiatives for revitalization of Indian Textile Industry.
The government encourages institutes such as National Institute of Fashion Technology (NIFT), Apparel Training and Design Centre (ATDC) and engineering colleges to offer courses in textile engineering. Government has been extended The Technology Up gradation Fund Scheme (TUFS) until 2011-12. It is taking several measures to encourage public-private partnership in textile. Government is doing revival of sick mills by the National Textile Corporation (NTC). 6. Increasing Foreign Investment: The country allows 100 per cent FDI in the textiles sector so the foreign investment is growing comparatively.
According to the Minister for Textiles, Mr Dayanidhi Maran, around US$ 5. 14 billion of foreign investment is expected to be made in India in the textile sector over the next five years. Apparel Export Promotion Council (AEPC), which comes under Union Ministry of Textiles, has undertaken the task of attracting foreign direct investment by showcasing the huge untapped domestic market in India. The AEPC highlighted the conducive environment for manufacturing in the sector and raised the slogan of “come, invest, produce and sell in India”, coined by Textiles Minister, Dayanidhi Maran.
OVERVIEW OF THE INDIAN TEXTILE INDUSTRY WIDE RANGE OF FIBRES| * Natural fibres such as cotton, jute, silk and wool to man-made * fibres such as polyester, viscose, acrylic and multiple blends| PLAYS A KEY ROLE IN THE ECONOMY| * Provides direct employment to an estimated 35 million people. * It has contributed 4 % to GDP in 2008–09 * It accounts for 14% of the total Industrial production. * It is the 2nd largest employment generator after agriculture. * It contributes to nearly 30% of the total exports. | SIGNIFICANT CONTRIBUTOR TO TRADE| * Accounted for 4 % of global trade in textiles in 2008–09 * It contributes 16. 3 % to export earnings. | Source: Ministry of Textiles, Annual Report 2008-20094. 1. POSITION Indian textile industry has in a very short span made a distinct position globally, alluring the globe towards the ‘World of Indian textiles’. This has happened mainly because of: 1. High availability of raw materials 2. Highly skilled economical labor, an added advantage 3. Largest producer of cotton yarn contributing 25% towards worlds cotton 4. Availability of all kinds of fibers like silk, cotton, wool and even high quality synthetic fibers 5.
Flexibility of the readymade garment industry in terms of sizes, fabric variety, quantity, quality and costClose 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. An approximate number of textile manufacturing companies operating in India are given below (Source: www. fiber2fashion. om) * Badges, emblems ribbons and allied products – 175 * Bed covers, curtains, cushions and other draperies – 2471 * Carpets and rugs – 270 * Embroidery and embroidered garments, made ups and furnishing – 848 * Fabrics and textiles – 3013 * Yarns and threads – 1201 * Jute products – 337 * Kids apparel and garments -1052 * Ladies apparel and garments – 2932 * Men’s’ apparel and garments – 2936 * Miscellaneous garments, textile and leather accessories – 1658 * Yarns and threads – 1201 * Wool, woolen garments, blankets and accessories – 68 * Textile chemicals, dyeing and finishing chemicals – 239 4. 2. CONTRIBUTION TO INDIA AND ITS ECONOMYIndian textile industry contributes about 14 per cent to industrial production, 4 per cent to the country’s gross domestic product (GDP) and 16. 63 per cent to export earnings. Nearly 40 per cent of the textiles produced in the country are exported and the textiles sector is the biggest employment generator after agriculture. The sector is expected to generate 12 million new jobs by 2010.
The sector targets US$ 6 billion foreign direct investment (FDI) by 2015 to be invested in green field units in textiles machinery, fabric and garment manufacturing, as well as technical textiles. India has made inroads into the markets of its key competitors which include Asian countries such as Sri Lanka, Bangladesh, Vietnam and Cambodia. The Indian textile and apparel industry is taking a new course by entering the Chinese market. Most of the top global apparel retailers, such as JC Penny, Nautica, Docker and Target, have their sourcing network in India.
Indian textiles and apparel exports, which is worth US$ 22 billion, is expected to register a four-fold increase to touch US$ 90 to 100 billion in the next 25 years. 4. 3. TECHNOLOGY CHANGESTextile sector growth has been led by the spinning and the manmade fibre industry. Then number of cotton/ manmade fibre textile mills rose from 1035 in 87-88 to 1741 by December 1997. The number of spinning mills rose to 1461 in December 1997 from 752 in 87-88. Liberalisation led to the installation of open-end rotors and setting up of Export Oriented Units (EOU).
Currently, India has the second highest spindleage in the world after China. Aggregate production of cloth during 1996-97 was 34,265 million sq. metres, an increase of nine percent over 1995-96. India’s contribution in world production of cotton textiles was about 12 per cent a decade back, while currently it contributes to about 15 per cent of world cotton textilesIndia has the second-largest yarn-spinning capacity in the world (after China), accounting for roughly 20 percent of the world’s spindle capacity.
India’s spinning segment is fairly modernized; approximately 35 to 40 percent of India’s spindles are less than 10 years old. During 1989-98, India was the leading buyer of spinning machinery, accounting for 28 per cent of world shipments. India’s production of spun yarn is accounted for almost entirely by the “organized mill sector,” which includes 285 large mills. Man-made fibers, wool and silk segment grew by modest 4. 5 per cent per annum during the 5-year period 2000-01 to 2005-06. During the first year of quota-free global trade, production increased leaps and bounds.
Textiles production increased 10 per cent over 2004. The growth was fuelled by a 22 per cent rise in production of other textiles (including apparels). Cotton textile also posted an increase of nine percent. The initiation and development of globalization and Indian textile industry took place simultaneously in the 1990s. The Indian textile industry, until the economic liberalization of Indian economy was predominantly an unorganized industry. The economic liberalization of Indian economy in the early 1990s led to stupendous growth of this Indian industry.
The Indian textile industry is one of the largest textile industries in the world and India earns around 27% of the foreign exchange from exports of textiles and its related products. Further, globalization of India textile Industry has seen a paradigm increase in the ‘total industrial production’ factor of this Industry, which presently stands at 14%. Furthermore, the contribution of the Indian textile Industry towards the gross domestic product (GDP) of India is around 3% and the numbers are steadily increasing.
The process of globalization and Indian textile industry development was the effect of rapid acceptance of ‘open market’ policy by the developing countries, much in the lines of the developed countries of the world. | The initiation and its subsequent development of globalization and Indian textile industry respectively, were effected by the Ministry of Textiles under the Government of India. The aggressive policy that was undertaken for the rapid development of globalization and Indian textile industry were really praiseworthy. The most significant step amongst them was introduction of “The National Textile Policy 2000”.
This policy envisaged to address the following issues – * Increased global competition in the post 2005 trade regime under WTO * Huge import volume of cheap textiles from other Asian neighbors * High production cost with respect to other Asian competitors * Use of outdated manufacturing technology * Poor supply chain management and huge transit cost * Huge unorganized and decentralized sector Further, this policy also aims at increasing the foreign exchange earnings to the tune of US $ 50 billion by the end of the year 2010.
It includes rational projections for the overall development and promotion of all the sectors involved directly or indirectly with the Indian textile industry. Furthermore, this policy also envisages the inclusion of the huge unorganized and decentralized Indian textile sector under the organized textile industry. This is because the unorganized textile manufacturing sector in India accounts for 76% of the total textile production.
The globalization of the Indian textile sector was the cumulative effect of the following factors – * Huge textile production capacity * Efficient multi-fiber raw material manufacturing capacity * Large pool of skilled and cheap work force * Entrepreneurial skills * Huge export potential * Large domestic market * Very low import content * Flexible textile manufacturing systems The overall growth of the Indian textile industry can be attributed to the globalization. Today, the Indian textile industry employs around 35 million personnel directly and it accounts for 21% of the total employment generated in the economy.
Globalization of the Indian textile industry has also facilitated introduction of modern and efficient manufacturing machineries and techniques in the Indian textile sector. Thus, much of India’s economic growth is largely dependent on textile manufacturing and exports. 4. 4. INITIATIVES BY GOVERNMENT IN TEXTILE INDUSTRYThe Government of India (GOI), Ministry of Textiles (MOT), introduced Technology Upgrdation Fund Scheme (TUFS) for Textile and Jute Industries on April 1, 1999, for a period of 5 years, subsequently extended by 3 years to cover sanctions up to March 31, 2007.
The Budget for FY 2007-08 had announced further extension of the Scheme by five years i. e to last till fiscal year 2011-12. Post-extension, the Scheme is under revision and sanctions w. e. fApril 1, 2007 have been kept in abeyance under TUFS. The Scheme is intended to facilitate induction of state-of-the-art or near state of-the-art technology. Existing units with or without expansion and new Units are eligible under TUFS. Apart from TUFS, Several other steps have already been undertaken to improve India’s textile industry.
These include:1: New schemes of Apparel Parks for Exports, and Textile Centres Infrastructure Development Scheme, de- reservation of the garments sector. 2: Increase in investment ceilings. 3: Introduction of a Technology Mission on Cotton to improve the productivity and quality of cotton. 4: FDI is freely allowed in the sector (100%). 5: Basic customs duty on designated textile machinery and spare parts has been reduced. 6: Additional Excise Duty on Textiles & Textile Articles (AT) and Additional Excise Duty (Goods of Special Importance) Act has been abolished. : Excise duty on polyester filament yarn has been reduced. 4. 5. EXISTING MARKET SCENARIO| | | | | The future of the garment industry in India does not look bleak; on the alone provides employment to thousands of people, a high percentage among who are young women. Therefore, the significance of the Indian garment industry cannot be ruled out when it comes to employment generation and foreign exchange generation. The growth in the garment industry will boost the growth of Indian economy. At present, India is being considered as the next pioneer country in the readymade garments export business.
It is noticed that foreign buyers are keen on dealing with Indian garment exporters. In the face of such demand, Indian garment manufacturers and exporters constantly have to maintain high quality in finished products and continuously provide variations in style and design to attract the attention of prospective buyers. 4. 6. EFFECT OF RECESSION ON INDIAN TEXTILE INDUSTRYWhile the Indian economy has been relatively insulated from the international financial crisis, one particular sector that has been badly hit by the ongoing worldwide recession is the textiles and garments manufacturing industry.
Two years ago, the Indian textiles industry was supposed to have been on the threshold of rapid growth. Today it is in urgent need for resuscitation. Even the figure of 1. 2 million job losses put out by the association, the Confederation of Indian Textiles Industry (CITI), could prove to be an underestimate. Roughly half the total production of textiles and garments in India is exported, 60 percent of it to markets in the United States, Japan and the European Union. The recession in the West had adversely impacted these economies the most as a result of which exports from India are projected to fall sharply in the coming months.
Rising prices of raw cotton have become a contentious issue for the industry. The government is reluctant to reduce the prices paid to cotton farmers as suicides have been widespread in cotton-growing areas. India is the world’s second-largest producer, exporter and consumer of cotton. With cotton prices rising over the last year, cotton textiles and garments are being priced out of international markets. A number of textile mills have begun ‘voluntary retirement schemes’ for workers.
Union commerce and industry minister Kamal Nath estimated that in the financial year that ended in March 2008, approximately 800,000 garment and textile employees had lost their jobs, almost half of the two million lost in export-oriented industries. The Indian currency, the rupee, started weakening against the US dollar from the middle of 2008. But exports did not pick up because from around this time, markets in the U. S. , Western Europe and Japan began shrinking. As debt-fuelled consumer spending declined in the rich nations, the markets for Indian textiles and garments started shrinking.
Exports of textiles and garments from India to the U. S. in the January-August period came down from 3. 9 billion US dollars to 3. 8 billion dollars – this was before the Wall Street meltdown in September. The overall drop in value terms was 1. 6 percent, with the drop in exports of garments a much higher 4. 8 percent. (http://www. globalissues. org/news/2009/02/01/494)The situation has become worse since then. The total output of the textiles sector came down by nearly 10 per cent in the month of October 2009.
A study conducted in November by the Federation of Indian Chambers of Commerce and Industry (FICCI) pointed out that investments in the textiles industry were falling and so was its profitability. The states of Gujarat in western Indian and Tamil Nadu in the south, two of India’s largest textile producers, have been hit badly by the slump in exports. Indian exporters of textiles and garments are facing stiff competition not only from manufacturers in Bangladesh but also from low-cost goods being produced in China, Vietnam and Sri Lanka. 4. 7. Factors Affecting the MarketEvery industry has its own ups and downs.
Textile industry is no exception. There are many factors which influence the market and the growth rate of textile sectors. Major factors are infrastructure, volume of production, labour laws, availability of man power, power tariffs, fluctuation of currency rates and government policies. Whatever said and done, the fact remains that India’s textile industry is prominent in the country’s economy as well as globally. The government and industry advocates should continue to push the industry to grow in new directions, to remain technologically advanced and to make roduction even more economically viable. By doing so, the industry will be able to adapt to global changes and to take on whatever challenges it faces and competitors that may come its way. CHAPTER-5 INDUSTRY ANALYSISCHAPTER 5INDUSTRY ANALYSIS5. 1. SWOT ANALYSIS STRENGTHS * India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibres like polyester, silk, viscose etc. * India is rich in highly trained manpower. The country has a huge advantage due to lower wage rates.
Because of low labor rates the manufacturing cost in textile automatically comes down to very reasonable rates. * India is highly competitive in spinning sector and has presence in almost all processes of the value chain. * Indian garment industry is very diverse in size, manufacturing facility, type of apparel produced, quantity and quality of output, cost, requirement for fabric etc. It comprises suppliers of ready-made garments for both, domestic or export markets. * Indian Textile Industry is an Independent & Self-Reliant industry. Abundant Raw Material availability that helps industry to control costs and reduces the lead-time across the operation. * Availability of Low Cost and Skilled Manpower provides competitive advantage to industry. * Availability of large varieties of cotton fiber and has a fast growing synthetic fiber industry. * India has great advantage in Spinning Sector and has a presence in all process of operation and value chain. * India is one of the largest exporters of Yarn in international market and contributes around 25% share of the global trade in Cotton Yarn. Industry has large and diversified segments that provide wide variety of products. * Growing Economy and Potential Domestic and International Market. * Industry has Manufacturing Flexibility that helps to increase the productivity. WEAKNESSES * Indian textile industry is highly fragmented in industry structure, and is led by small scale companies. The reservation of production for very small companies that was imposed with the intention to help out small scale companies across the country, led substantial fragmentation that distorted the competitiveness of industry.
Smaller companies do not have the fiscal resources to enhance technology or invest in the high-end engineering of processes. Hence they lose in productivity. * Indian labour laws are relatively unfavorable to the trades and there is an urgent need for labour reforms in India. * India seriously lacks in trade pact memberships, which leads to restricted access to the other major markets. * Industry is highly dependent on Cotton. * Lower Productivity in various segments. * Lack of Technological Development that affect the productivity and other activities in whole value chain. Inability to generate Economies of Scale. * Higher Indirect Taxes, Power and Interest RatesOPPORTUNITIES * Growth rate of Domestic Textile Industry is 6-8% per annum. * Large, Potential Domestic and International Market. * Product development and Diversification to cater global needs. * Elimination of Quota Restriction leads to greater Market Development. * Market is gradually shifting towards Branded Readymade Garment. * Increased Disposable Income and Purchasing Power of Indian Customer opens New Market Development. Emerging Retail Industry and Malls provide huge opportunities for the Apparel, Handicraft and other segments of the industry. * Greater Investment and FDI opportunities are available. THREATS * Competition from other developing countries, especially China. * Continuous Quality Improvement is need of the hour as there are different demand patterns all over the world. * Elimination of Quota system will lead to fluctuations in Export Demand. * Threat for Traditional Market for Powerloom and Handloom Products and forcing them for product diversification. Geographical Disadvantages. * International labor and Environmental Laws. * To balance the demand and supply. * To make balance between price and quality5. 2. PORTER FIVE FORCE ANALYSISOne of the worst hit sectors during the skyrocketing interest rate scenario in the late 90s and early 2000s, the debt-laden Indian textile industry has spun many turn-around stories since then. Aided by lower interest rates, restructuring packages from financial institutions and the recent dismantle of quotas, the sector is today well poised to capture growth opportunities.
Infact, it is estimated that one out of every six households in the country directly or indirectly depend on this sector. Analysis of textile sector through Porter’s five-factor model can be seen in the below diagram:(SOURCE: http://www. iloveindia. com/economy-of-india/textile-industry. html)BARGAINING POWER OF CUSTOMERSGlobal textile & clothing industry is currently pegged at around US$ 440 bn. US and European markets dominate the global textile trade accounting for 64% of clothing and 39% of textile market. With the ismantling of quotas, global textile trade is expected to grow (as per Mc Kinsey estimates) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is likely to become the ‘supplier of choice’, other low cost producers like India would also benefit as the overseas importers would try to mitigate their risk of sourcing from only one country. The two-fold increase in global textile trade is also likely to drive India’s exports growth. India’s textile export (at US$ 15 bn in 2005) is expected to grow to US$ 40 bn, capturing a market share of close to 8% by 2010.
India, in particular, is likely to benefit from the rising demand in the home textiles and apparels segment, wherein it has competitive edge against its neighbour. Nonetheless, a rapid slowdown in the denim cycle poses risks to fabric players. BARGAINING POWER OF SUPPLIERSIndia is the third largest producer of cotton in the world after China and US and has the largest area under cultivation. Cotton, a key raw material in the textile and garment industry, accounts for about 30% of the fabric cost and 13% of the garment cost.
India has an abundant supply of locally grown long staple cotton, which lends it a cost advantage in the home textile and apparels segments. Other countries, like China and Pakistan, have relatively lower supply of locally grown long staple cotton. Moreover, low cotton prices due to a bumper cotton crop would enable India to lower its production cost and sustain pricing pressure. Further, efforts on improving the yield per hectare would ensure higher productivity and production, thereby providing the much-needed security of raw-material supply to textile producers.
India also enjoys a significant lead in terms of labour cost per hour (US$ 0. 6 in 2004), over developed countries like US (US$ 15. 1) and newly industrialised economies like Hong Kong (US$ 5. 1), Taiwan (US$ 7. 1), South Korea (US$ 5. 7) and China (US$ 0. 9). Also, India is rich in traditional workers adept at value-adding tasks, which could give Indian companies significant margin advantage. THREAT OF NEW ENTRANTSIn the quota free regime, capacity expansion is the name of the game in the textile sector.
Resultantly, smaller players who cannot venture into the global markets are flooding the domestic markets with excess supply, thus weakening the pricing scenario. Be it denim (Arvind Mills), home textiles (Welspun and Alok Industries) or branded apparels (Raymond), new capex and consolidation with international players is also not likely to safeguard margins for the larger players, unless they can tap a significant pie of the overseas markets. THREAT OF SUBSTITUTESLow cost producing countries like Pakistan and Bangladesh (labour cost 50% cheaper) are also posing a threat to India’s exports demand.
Infact, bigger players have already started feeling the pinch as overseas buyers have started shifting to ‘alternative sources’, thus impacting their incremental volume off-takes. COMPETITIVE RIVALRYIndia’s logistic disadvantage due to its geographical location can give it a major thumbs-down in global trade. The country is distant from major markets as compared to its global competitors like Mexico, Turkey and China, which are located in relatively close vicinity to major global markets of US, Europe and Japan.
As a result, high cost of shipments and longer lead-time coupled with lack of infrastructure facility may prove to be major hindrances. The fragmented structure of the industry has also stood in the way of achieving true integration between the various links in the supply chain. The sector has one of the longest and most complex supply chains in the world, which the larger players are trying to correct by integrating their operations and improving efficiency levels.
Textiles being a fairly regulated sector till the recent past (quota regime), another indispensable leg of the above analysis are government regulations. Technology Upgradation Fund Scheme (TUFS) was launched in FY99 for a period of five years (later extended upto FY07) to promote the upgradation of the textile and jute industry. The scheme aimed at providing loans to the sector at internationally comparable rates of interest (5% lower than the domestic interest rates), which enabled the players to upgr
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