'
Arvind Milts in the Eta of Wfo*
lrrrr'.1 Ntlls rs one of rhF banplc,a.eb or rhF y.app,np or
Mullrirbrp Asreempnr ll World Trad" O.san,zarion on Jaruary 1.
:00s. I e. Quanritati\c Rpar.,crbns In,uports of textiles and
clothine were taken away in all WTO nedber trutries as per ihe
implementation of Ageeneni on Texriles and ClorhinS lhe "nrr'e
eobal rpxlrle rnduslry wss anrious ro sep thc resuls or s.rapring
llul Ar\1nd l\hlls always had s.arcd .rself tor any npw pot'cres ,n
rhp marltFr fhis is one comDany that has the capabiliry of nakins
ihings work forMajor players are settins up operations in Indian
marker and atready ahsuns brsnds a.e b.oaden,ns 'h;tr base Ind,an
manufa.turcrE a.e bmDm; lhe vendors for these brands, be il
Wal-Mart buying towels frcm a small rown in Punjab, Le and other
respected brands buyine from rhe pionee.s of Indian i.xtile
industry, Atuind Mlls. With such good news for manulactuels. t
seeos t be a bri8ht sunny day ahead for leadinA textile
companies.
lktory ot Awindttere
I'lttt6
have been a lol of changes in the industry since the time the
Lalbhait tounder of Arvind Mills invested in the teitile business.
At rhat rime Indian lndustry was caiered to by small-unorAanized
sector usrng handlooDs. But Lalbhai's set up Atuind Mitls as
stat-of-the-ait !rcje.t usinq rhe besi available machinery. That
was the time when the world teitile industry was facing
Global Martet
The global textile market is stimated to be around g4O0 billion,
and is inoeasins every year. In the srowth of world textile marLet,
the share of rhe developinS countdes has been very siglificant. In
rhe last quarrer of ihe cenrury itsell the share has in$eased flom
15% to 5oolo. This fisure is very hiSh keelin8 in amunt the
availabl infrastruciure in developed counrries. Ilrcush devetolin8
counhies have attained this Fowth mte because of rhe competitive
cosr advantage, the sustenance of such a srowth shall depend upon
quality and responsiveEss of the suDpliei.
*Pbl
Justin Paul .o.authore.l this case vith Mr Ch.lly suresh Marhew.
M3. Sahdhya Mkrla R i. Mr Rit*h B.n.El dhd Mv Tenm talan fialydji
for cragFon dirdggion only, dd not t indi.ate eiur. efrective or
in.d{tive
105 . rr&.nd,ionlr a!'in63Indian MarletThe l,rdtan
don'es
ill,,-i'i.:. .. i"..,*. '"n. i"a,""
has ncreascd br around 4 Though rhp domestr so"" or rhp ".*'dron
:;;:;X;;;i;"';;;;i;i;i.onsa.o.nalo be exporls producr'on rn" mrn
d.'er or dFrPd .'^,1,,.116. Ln fu u'c ts **il" il,;; iFrtrl.
:ndustrv s v'n ssn rrran' parr or Indrrn econoot.as prcMdcs gO nuon
ol lnd'at rnousrrial produfl on I' a(ounred b\ tcxrrlc and tt
o,ri'on peopr" cL..Pntrv rndra rs ihe 3rd rarsest :::iffi""-.
';;;;:0 e(porrs ol t,' Ls not on rhe lnrrylatronal rrade oap
ra*saroenr io orhA rcrton value added "] -t'". rcnsumpuon and
Pipor, ot lo.al
of re\' lP has srrrFsspd a grow'\ ra P of '. 'oasumprron .-*-"a
ro 8 5 0 ot rnar or pxpo'rc ovP' rh" lasi d*aop or an
;,F Lo "."i'i"'rueh
'ron
Indian Emortsthe sha'e of.rhP Thoueh In&a ha. wun"ssed
erowth rn rhe rextIIP s'smenr' or ;ii-:i '; 'h" ;;;i i;;'it. J".t *
o r,mrtpd ro around 3% moEr roqwttrch rs quarrtv ,n Europc rh' marn
rcason is !hc ;;';';iJ-';;;;'';'cs '"";":t";;,,;; and tack or
tectrnolos' tn sarmenr manuJacruins In mosr texrile and onr\ a
ponron i".i.. r'u.ar"o. " "'tt b'rns used to manuracture
rheaulomared machrner' rhe r"gr.rv r."'e ""'ae rabrics"d'an'ed
i,T*;;';"'';;;"r;'v varu' added as ars. and earocn!5 and 'he nea'
absn'e quora onstrarnrs a'e some oi :1'":;;il;;;,i;;l"elaciritLes
'h' i;' r.aia p""a**s ros varue addpd \srns and rabrrc" en as
;";;;-;;:;' value chain ^.x". "-'*-"" t','e noved uo the
""'''erii""ei i'd'" ;;hr, ;"'""''' rhc vzrn marker' rn' xro*rh or
tlu' '"" ts ic l,dited '" rhos consrrrutps a''small frac ron of the
ove'a'l !extrle "".fr.nr d"":^-. appmrs ro be '!aenarrns especranv
consrder' ;;""i:i: added produ'rs bv :*;;;;;;" hsh erowrh ratps
achrevedthe vaLue hand rs smarr tnFspe'rallv size and
i'i',"''*,'r",ndLsrrv on
fi.':iliiili;;;'.;-.
i;.-'";oa*o
;;"d;. ii:
"!hcr
Multi frbte Agrecmentimporis ol Mtrlti Fibr Aseement {as signed
in the vear 19?4 restricting Lhe tti" dou texrite naru't Devdoped
cournes LooI ili;;; 'il;;l;;.' 'n rn'ensrve techniqueE or
p'oduction ;:;'l;*i'f ,";;;,* heav,rv l,' eirhe! drd ,
ii;:l;;i;'""r";i;.;;'.'". "'i rnu,.i r@rrng wtnch producrronno'
havc much MorFovcr rh' rhese merhods of to rDvesr
'apriar
-"^,'"' "' '-r,iais'arred :T::::J';:'i#ffi";.il,;;" *;;; u"sea
"n "i*'ei handroom wtlchrmposed ii:;;'; n';";ii;"-*as ausmcnted bv
!he quanhrabve restndrons oer' ol rexule
t" 'fi" a"'"f"o"a rc$tnes iL'i'*-id-Jr';i;,"ons
I'Lc US and EU LmlnnS the rdporr wi,h rhe prousronE or wro rhe
MFA aFeemenl
107
sis terminated and replaced by Asaeement on Textiles and
Clothins on Januarv 1 1995. Nl ch served as bssis fo! QR
elinination on Januafv 1, 2005Poll-ouota Market
ln the post.quota market, there should be no reshictions to the
cotuletition in the ivorld markei The indushv in the developed
nations shall be adverselv
affected, $hich hrs enjoyed lrotectioDism for ihe last 40 vea.s
The market ofthe tertjle ,s open and aU the competitive couDr.ies
can market their products The countres Lke India ald China can do
well becauBe of clear labour co6r adrantase Companies frcn
developed @untries are ale moving and settins up otreratrons rn
these countrres The free tlade shau push down the lrices which
shall surclv benefit the but the flip side shall be loss of
industries in retailers as developins and least developed counhie
which stiu use tabour as a najor comlo;eni and cannot reap the
benefits of both emnomies of *ale as well as of
wetl
Strudure ot lndlatr
fetile Ind$try
The Indian textile indushy has a dualistic manufacturins
structure one is the expandins dece.halized smaU-scale and the
other a verticallv la!8e_sc:le composire mill se$r1ent. Most
apBarel manufactulers (80%) have small operations while 99% of them
are lroprietarship/partnership_tvpe establislmenls IchnologyThe
techlolosres for processins cotton textiles and apparel in India
cover a brcad range of sphistication. 3/4 of equipment is hand
operated and lhe lest is sooe form of automated sophislicaied
machinery. This alons wiih protective policies of government has
led to under.perforMnce of lotential of Indian textile industrv
Compditive Advafltagel,ower mtton prices and laboul costs
provide the competitive edge to the Indian exporter. Indian fabric
is competitive, as cotton and labour are rclattvelv chea! ln spite
of rhe cost advantage, lack of quality in the manufactured products
has restricted ihe glowth. Also, the high powel and interest cosis
iDparr the low labour cost advantage to a Sreat eltent. ln recent
past, the larse investments for modernizatton, annouDcements of
fiscal incentives along with sofr inferest regime has prolided the
frllip to the Indian industry in inprovins its abilitv to compete
4ore effectilelv in the emersins quota-free environment
. tu*^ b^a R".t^*, ''OA lndustry outlootThe outlook lor Indian
and world iDdusift is posrtive The removal of Quota System has
intensified ihe competition. iD whch Indian conlanies like Ar{nd
Mills are likely to benefrt
Compary Intrcduction
Atuind Mills was set up in the year 1930 br the lhlee Laibhai
lmthers by an iDtial investdent of arcund Rs. 25 lacs The shatesy
for settine up businesB was two-pronged. ln 1930s recessionary
pressures forced .losing down of textile industlies arcund the
globe. Comlanies ail over rhe world weE suJfedns huse losses, and
this was an opportunity for Lalbhai brcthers They reasoned that the
demand for lremiu and superiine fabric shall be there and the
company shall be able to capiure the markel and sustain its
operations profrtabl)-' b! producing the fablic ef{iciently. The
other reason was rhe Swadesht Movement launched by Maharma Gandhi
in r930's. This led to shunning of all the imporred fabric and
hence Lalbhai s saw an oplolrunity The textile iDdustry faced
crisis in 1980s, when prolttability of various organized and
composite mills dropped due to cheap production by porerlood ownels
in the counily Despite the turbulence in the exte.nal environment,
Anind Mills reached iis highest profitability This was the tim.
thar A.vnrd Mills coined rhe brminolosy-R?noutston which meant
lookins at thinss more than the obvious which went on to be the
corpomte philosophy of the eDrpanr It was during this lethink of
stmteSy that ANind Mills idetrtified tlDt the Nofld was movins away
from syntheiics towards natural fabncs Thoush rhe industr).. moved
on towards popula! priced sesEenis, Renovision heLped Arvind \tiUs
idntify new cmruds in the natural fabrics darket. From iniiiat
revenues of tu. .10 lacs, Arvind Mills b2s been able to attain
lremendous sowth in Darket and has reached the revenue levels of
$500 mitlion (Rs 20 billion). The growth cbart of the @mpany has
been steady except for the interim 90s leriod where it had to
reorganize ilself to plll out from the Currenily Arvind Mills is
ranked .1th iD World Denim production and ii fcuses on crtain core
lroducts. lt has moved up the value chain by producrng acoedited
products in the bmnded sesmeDt. With brands like Arrows, Marks and
Spencer's, lavisirauss & Co . Aflind Mills has positioned
itself to be a najor
109
Internationalization I Anind Mills prolitsPhase
decliDed LD r98?. The Danagemenr wrs concerned ard decided to
streamlLDe the ploduction It decided to focus on Denim clobal
demaDd of DeDnn was hish and India was lacknrg behLnd in
non-haditional fabrics FroD 1987, rt invested in the expansior of
laciLities around Iodia Arvind \hlls decided ro move into Insh
value seFment on gro*ins Slobal demand The conlarr rvent on an
expaDsion spree to modenize and expand plants The Narn emphasrs
ivas Denim and hish quahty two-ply fablics It tripled the denim
lroduction calacity in 198?. In 1991 Aryind Mills rcached the mark
of lOO m,llion detres of denim per annum, and became the 4th
larsesr denrm producer rn the wolld In the preceding years it
increased the capacity by 23,000 ronnes p.a. in 1992 and by
8,50,tm0 metres p.a in 1993 Ir also invesred ro produce 120 lakh
mehes of hish quality shirtinss In 1995, AriDd Mills faced a
setback due to incleased oiton prices This g.eatly affected ihe
proitabilfty of Atuind Mills Thorsh p$fitability was slidins, the
company kerr on Dvestinq as it had full bLrel n inoeased and stable
Den,m demand There we.e various initiarives in th miermediate rears
rnd f,nally i! 1998 the company be.ame rhe srd larsesi producer of
Denrm To continue its endeavou! for quaiity it rmllemenred SAP ERP
lackase for efficiency and quahty in production. In the lollowins
years ihe company started to feel the heat of raolant expansionary
policy Between 1991 and 199?, Arvind Mills raised Rs 1054 billion
to finance its expansion, wLich included an Eurc issue of Rs. 3 92
billion The demand of Denin came down with the launch of new
fabrics, and iherc was an excess supply in the market. The compan,
responded by hivins off fts sa.ment business and putting up its
real estate in Delhi for sale This led to s!rcng market sentidents
against the coolany and led to fall in rhe share price of the
company (see Exhibil C2 1) Dudns the same pedd CRISIL
downsladed
EXHIBIT
C2.l Fall in pri@s ol Arvind Mill sto.k
ll0
. Int. ctioatl Bu.it.B
the ratins of the company for likelv defauit on ihe hea\a
borroivrns Finallv Arvind Mills delaulted on the loans nr 2001 and
decided to so for finacial reshucturing to clea. its debt Thus, the
codptencv of the coDpanv becaDre lh liabiliv for ihe company jt
ERhibrt C2 1 shows the fall in lrices of Arund Mills afrer
announced debt restructurins in FebruarJ 2001Phare
II
Th oost rest.L.tunns era sa{ lhe codpanv chrngFs rts 'rraregv
lowa'ds Vanous sreps w.r"'aken wlxch rmproved rh' proitabrhlv of
'ntemat,onallalron the business and the companv nliuallv turned
around in around 2 veals and came at the foreftont once agaiD lt
met the specifications of va'ious najor brands across the globe and
cot itself acoedited bv these brands Under the Dresent srraleA/ and
!o lhe levcrage opportunrrtes rn lhF po"'_quot' P'' has gcared up
for expofts bv focuEsrns on \anous aspetr'of th' in.business, which
have been elaboraied as follows:
-.prnv
Diversified Product Lin cThe comoanv hsd earlie! focussed on the
lroduction of Denid cloth to make its mark in th; elobal indusirv,
diversified its focus to olher areas as well (see Exhibit C2.2).
The focus shifted to producins for valious global brands At
present, Afrind Mills owns various brands such as:
. .
Ruf and l\rt Flyins Machine
EXHIBIT C2.2 Diversilied product porifolio of ANind Mills
.iv s.udr, .
111
The portfoho sho$6 the diversified p.oduct line Thoush the
majoritj of revenues comes frod rhe dennn busness, the influence is
however decreasins Out of thrs list, brands like Newport and Ruf
aDd Tuf do not serve the In.lian market in the same wat arvmore but
brtnds like Flving Machine and Excalibur have strong presence rD
the garment rndushv In addition ro rhese internally built b.ands,
Arvind Mills is also a licensed producer of the followins brands
fo. the Indian market:
EXHIBIT C2.3 Projected Crowth in the world economic market
cbbrlT.:.ihTrdisdlhllca.oDFdulny
aax*6cee3gcMitiThe lelort according to HDFC securities lroject
an exlonential erowth in the textile industry post abolishmeni of
the quoia svsiem
High ouauty/Low Cott NovemntThe comlany is movinS up the value
chain io improve the overau prcfitabilitv of the empany. lghen
ANind Mills was *t up. th main focus of Lalbhai brcLhers was to
produce only plemium sesment market and thus thev acqund the best
available tectnoloey for thar purpose. It was this focus oD qualitv
which helped thPm eam p.ofirs ov.! rhe yFars. The jouney for best
quality measures did not stop here tt was the first fabric coapany
in Asia to be accreditd with ISO 14001 certification lt alo went
ahead and became the iirst company to implement ERP, SAP as lons
back as 199?. To survive in the competitive enviroment to sulplv
fablic to aldost all of
ll2tlx, rtrnror players, ir rls, *ot ,r6elf acledited frcD
various conDanres such:s l,r'11n,,. Mrrks & Sr,,rr,r. LF\r's
Sr.aLss N.de, ard orhe,s.olobat Souraing A.vind Mlls his r policy
of global eurcin8 ro save nor only on cost bur ale to sou.ce the
best rnd the finest qualiry raw material for its operatrons While
proculing vrnous chemicals for dyerns and other processes, care is
taken to check if they meet the internationally accelred eco norms
There is a sDecial ream wt!d, looks ,r ro rhp $ur4ns na .rs ot
Arrnd and ensures lhar rh;y spr quality products at optimum costs
\
Busin$ Div&ionsThe company divided irs business inro rwo
major parts to sireahhne the operaiions of the entire orsanizaiion.
The first palr was tor rhe fabric bu$ness and the secod was for the
export of sarmenrs. Fttbric diubion By hiuns off the fabnc
division, ir hrs clearty demarcared the
two businesses as one beins rhe supplier ro rhe orher D"rta
Arund Mills staried the produciioD of Denim in rhe year 1982 and
cutently is lhe thi.d larsst prcducer in the wo.td, producing dore
rhan 110 oillion metres of Denim.
inirial capttal iDvestmeDi ofexpanded
has been set up \Ljrh the Ttis planr offls rhe !rcdu"iion ofoDlr
hirh valu. shrlrnc oaterial currentty rhe.apaoty of rhis plan, ,s
be.,,eg 100 roillion.
Shi inc. The shirtins facilfty ar Santej plantf.on33.5
sillion
yard ro 3? million yards.
In addition to
these,
lor khahs and knirwear
Arvind Mills also has sLate-of-rhe-art. dedicared
f,.ilit!
for rhe world market. lt has ser up a srate-of-the-art division
which is;ne.,ath. seared for hrndhns expods ol varrous brands
around th. world. to lcvera;. posi. ATC era.
Gdment etport divisioa. ANind Mills has e(lusire production
of
Sarments
Shitt' dioision. Th facility ar Bansalore meers the
speciflcarioD oitena of n4jor slobal play*s Ouyers) Tte facility
has roral produciion capacity of around .l.sDillion pieces per
annum. The planr has been ser up mainty 6 rap rhe US as well as
Eurcpean Darker, with resr of worl.l accounrinq for B% ;f rh
btal
in Bansatore has also sor 10 lines for manufacturins of Jeans.
The plair has been set up in associau; with Levi,s and has a
capacity of around 3,00,000 pieces per monrh There is also an
iDtesraredJean6 diuision. The facility
l,",ndJy division which has beer set
u! with a
capacity of around 20,000 lieces
Khdhis diusion. Khakis division consists of 3 lines at the
exrsting shirt Droduction facihty with an anlual production
capacrty of around 1.5 million
Risk llanagemntThe ongoins volatility in the folei8n currency
has kept the companv on a l@k out for an! possrble opportunity to
hedse iiself aad insure asainst these fluctu.trons The ileasu,r*
tean has the mandate to try and minimize the forex risl throush
a
continuous vicrl takinS the adequare covers The companv has also
hied to @mpensate the impact of movement in dollars by maintaining
a baiance between lhe folei8ll denominatd assels and
liabilities
Leading the weyThe company is riding on ihe capacity ertension
drive lealizing thai post qtrotr enlironment will offer Bxeat
opportunities for the ompanv to reap the benefrts ol econonies of
scale and also the brand 'ANind'. Beins rhe leader in orsanized
secto! ir ail the subsegments, it oflers ro be a one stop shop for
th slobrl sament manufacturers for $urcing their prcducts.
conclusionANind Mills staltd off with a company that was set up
in iimes of economic/ industrial downtun. The promoters werc able
to find opportuniiv in that also The codpany lhereafter bas lived
up to the same rlutatioD, it has passd anr' downtum in the economy,
whether be the entry of cheaper powerl@m producers or be the hit on
textile business in late 80s, Arvind has come out of each
depression and has perfoned better than before. T1I ctmpany's flrst
alobal ndearcu was to be one of fie biggest producers of Dentm in
ihe world, which it was able to accomplish in the year 1991/1997
when it became 4th laryest/3.d largesi producer of Denim Excessive
loan coomitments and ercess sulply hit the company and ii was
plunsed into deep financial trouble. But Anind Mills had to show
the world ihat thev can live
thsugh any turbdence o! attack,
aDd when they resbucture, thev came back with more enerSiy to
move forward. Decisions taken long ago to expand production helped
a lot during this time Being the lar8Est lrducer in the Indiln
subcontiDent, it benefits the most from al1 the business that comes
to India due to dismantling of MFA on Januair 1, 2005.
Values, Mission. Philosophy of Arvind Mills
VisionTo achieve global dominance in select businesses built
around our core competencies through continuous product and
technical innovations and customer orientation with a focus on cost
effectiveness.
l
Agreement)?2.
How does Arvind Mills get beDefrted from the removal of
quantitative resirictions on textiles and cloihing by WTO member
countries, as per the Agreement on Textiles and Clotbing (phasing
out of Multi Fibre
Discuss the business plan and strategy prepared and implemented
by Aflrind Mills to recover from debt io the year 2001.
