export potential of indian textiles industry

8/12/2019 export potential of indian textiles industry

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COMPREHENSIVE PROJECT REPORT

INDIAN GARMENT INDUSTRY AND EXPORT POTENTIAL TO U.S.A

Submitted in partial fulfillment of the requirement of the awards of the Degree of

MASTER OF INTERNATIONAL BUSINESS (MIB) (2010-2012)

Under the Supervision of : Prepared by:

DR.SYED WAJID ALI SHABEOUL ALAM

JAMIA MILLIA ISLAMIA

NEW DELHI 11002

[1]


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[2]

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AC4NOWLEDGEMENT

't gives me immense pleasure to introdu(e my pro)e(t wor* entitled 5INDIAN GARMENT

INDUSTRY ANDEXPORT POTENTIAL TO UNITED STATES6' sin(erely than* my esteemed guide MR.SYED WAJID ALI for his valuable guidan(e and (o-operation rendered to me throughout the pro)e(t report+ 't would not have been possible for me to

(omplete this pro)e(t without their meti(ulous guidan(e and suggestions+

Shabeoul ,lam

'. 4thSemester

## '. 4%

EXECUTIVE SUMMARY[3]


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/he tetile and garment se(tors play an etremely signifi(ant role in 'ndia in terms espe(ially

of share in value added1 foreign e(hange earnings1 and employment+ 2ith the impending

dismantling of quotas in $00! under mandate from the ,greement in /etile and 3lothing of the

2/1 the fo(us has (learly shifted to the future of the 'ndian tetile and (lothing eports+ /his

study is an attempt to evaluate eport-(ompetitiveness of the 'ndian tetile and garment eports

with a view to assessing the (ompetitive sinews in preparation for the quota-free trade beyond

$00%+

/he study has eamined 'ndias (ompetitive performan(e in the United States

mar*et for garment industry whi(h is important in 'ndian eport bas*et1 and has found that 'ndian

eports to US are1 on the whole1 eport-(ompetitive+

[4]


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E7#&$ C#%$8$89%'%:: ; I'8"' T%7$8% "' G"&%'$

I':$& FACTS

AND FIGURES =

[10]


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Cports in(reased from US #4 billion


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PRODUCT WISE EXPORT SHARE

C8$8%: 200?-11 (M88' US@)

Ieadymade arments %0&!+%"

3otton /etiles &$"0+

an-made /etiles #"4!+$

2ool 9 2oolen /etiles %%+5

Sil* /etile 40%+!$

/otal ##5#+##

,dd handi(raft1 3oir 9 3oir anufa(turers and >ute

/otal #&0%5+$4

[12]


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SECTOR WISE ANALYSIS

R%"


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period of $00%-0+

W%' $%7$8%:

/he woolen tetile eports during $005G0%1 were US 0+4$ billion1 re(ording an

in(rease of $&+46 as (ompared to the (orresponding period of $004-05+

During the first quarter of $00-0! the eport of woolen tetiles have amounted

to US 0+##4 billion that refle(ts an in(rease of ##+"%6 over the eports during

the (orresponding period of $00%-$00+

THE MACRO PICTURE OF US MAR4ET FOR IMPORTS

#++ pparel Iports $ 2002 $ 2011

-tal ollar ale, %hange hare of Total are .ase on nnal 2011 ata

an

!

%ontr 2008 2009 2010 2011

%hang

e

)2010$

11*

hare

of

Total

Iport

s

&orl :71,568,371,2

83

:63,104,701,4

75

:71,398,025,7

47

:77,659,481,3

10

8+8 100+0

1 %hina :22,922,614,9

03

:23,503,009,6

56

:27,974,604,2

62

:29,392,237,9

43

5+1 37+8

2 ietna :5,895,068,27

3

:5,068,333,14

3

:5,876,915,98

6

:6,644,077,52

5

13+1 8+6

3 Inonesia :4,041,504,55

2

:3,860,997,80

0

:4,424,155,30

1

:5,051,758,00

3

14+2 6+5

4 .anglaesh

:3,883,154,951

:3,409,775,380

:3,930,357,641

:4,509,864,154

14+7 5+8

5 ;exi-o :4,424,198,37

0

:3,391,345,70

9

:3,541,436,67

8

:3,803,567,04

1

7+4 4+9

6 Inia :3,901,510,96

0

:2,846,117,05

2

:3,111,764,99

2

:3,316,036,93

9

6+6 4+3

7 /onras :2,439,677,93

3

:2,031,613,85

3

:2,413,791,22

5

:2,615,444,79

5

8+4 3+4

8 %aboia :2,042,451,48 :1,870,533,26 :2,222,156,65 :2,592,321,92 16+7 3+3

[14]


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1 7 5 5

9 "l

alear

asso-iation

US I#&$ T&%' =

'n terms of ?, fibres1 the US, imported &$+" billion square meter equivalent


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f the eight (otton apparels1 'ndias mar*et share


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/he in(reasing intera(tion of domesti( e(onomies with the world e(onomy is generally termed

as @globali8ation+A lobali8ation is refle(ted in the rising share of international trade in world output+

/he volume of world mer(handise trade is estimated to have in(reased at an average annual rate

of more than % per (ent1 during the period #"50G"41 (ompared with an output growth of less than 4

per(ent


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dis(riminatory nature of the restri(tions imposed by the ultifibre ,rrangement


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During the ?, period1 the tetile eporters from industrial (ountries and those from developing

(ountries merely (hanged shares between themselves during the $4 years period+ /he share of

industrial (ountries de(lined by almost as mu(h


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2ho are the primary agents driving and organi8ing globali8ation pro(ess of apparel

produ(tionO 2hat are the impli(ations for developing (ountries li*e 'ndiaO /o understand and

analy8e the impli(ations of this globali8ation of produ(tion for spe(ifi( (ountries1 li*e 'ndia1 it is

useful to utili8e the (on(ept of (ommodity (hains+

/his is essentially a networ*-(entered view of the world e(onomy+ /he (on(ept re(ogni8es

that in the global e(onomy1 e(onomi( a(tivity is not only international in s(ope1 it also is global in

organi8ation+ @'nternationali8ationA refers to the geographi( spread of e(onomi( a(tivity a(ross

national boundaries+

@lobali8ationA implies the fun(tional integration of internationally dispersed a(tivities+ /he

33 approa(h emphasi8es the global (oordination system that integrates the organi8ation of

international produ(tion networ*s+ 3ommodity (hains are (on(eived as networ*s of business units

involved from the stage of supplying raw materials to produ(tion1 eporting1 and finally mar*eting

and retailing+ 't in(ludes both forward as well as ba(*ward lin*ages from the produ(tion stage in

the (ommodity (hain+ /he business units may be subsidiaries of transnational (orporations


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/he Cast ,sian newly industriali8ing e(onomies


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USA AND EU DOMINANCY

/he 2orld /rade rgani8ation


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founder-members of 2/ have been brea(hing the very fundamentals of 2/ in an attempt to

promote the trade of their own produ(ts and a(ting as global poli(emen+

FTA :%/% 8%


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ie1 yarn or fabri( as the (ase may be used for a garment should have been manufa(tured in the

supplying (ountry or1 if from another (ountry should have undergone substantial transformation in

the supplying (ountry+ Iepa(*ing or labeling is not (onsidered to be a (hange in ;S (ode+ /he

(at(h here is that supplying (ountries do not have their own manufa(turing fa(ilities for the raw

material in at least suffi(ient quantity and this blunts the s(heme+ Camples are .angladesh1 Sri

Fan*a1 Philippines and Eietnam+ Under < ( =1 the duty (on(ession is #006 but again1 the qualifying

fa(tors were prote(tion of labor rights1 sustained growth in environment and in addition1 good

governan(e- all loosely worded and (apable of being misused to deny the (on(ession+

Under the (urrent SP s(heme1 a graduation formula has also been introdu(ed whereby a

benefi(iary (ountry would be denied the benefits under the s(heme1 if imports into CU from su(h

(ountry in any produ(t1 e(eeds #56 pf total volume of imports of that produ(t from all benefi(iary

(ountries+ /his effe(tively leaves 'ndia out of SP benefits1 sin(e the bar is thus lowered by

restri(ting it only to benefi(iary (ountries+

%& ;& %& T"&8;;

Foo*ing to opportunities in the vast 'ndian mar*et1 both CU and US, have offered 'ndia Qero

for Qero tariffs+ Sin(e labor (osts in both US, 9 CU are higher than in 'ndia and sin(e freight will

add further to the landed value in 'ndia for their garments1 the possibility of CULUS, garments

swamping 'ndia is remote+ /he only possibility is that garments manufa(tured by Cast

Curopean (ountries of CU or by /ur*ey1 (ould possibly (ompete with our domesti( industry+

,lthough operating (osts in Cast Curope or /ur*ey may be low1 freight to 'ndia and insuran(e

(osts will neutrali8e whatever advantage they may have+

INDIAS GARMENT EXPORT AND PRODUCTION

STRUCTURE=

MAIN FEATURES

/he remar*able eport performan(e of 'ndias garment se(tor beginning in the late #""0s and

its underlying produ(tion base are well do(umented+ 'n this study we fo(us on more re(ent yearsand summari8e the main features:

[24]


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#+ /he garment se(tors eports in the year $00%G0 were worth &1%5 million+ /hey were

worth )ust #15"! million in $000-$00# meaning they have more than doubled in the last five

years+ 'ndias share in world eports of (lothing in $00$ was $+% per (ent up from #+5 per

(ent in $000+ ;owever1 its share in su(h eports has not improved sin(e $00% and de(lined

marginally to $+& per(ent in $00+ /he value of its garment eports was &15& million in

$00# and &1% million in $00%1 a growth rate of only 0+% per(ent


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is the wide diversity of spe(iali8ation by (ountry+ Ko single (ountry dominates a(ross produ(t

(ategories+ /his supports the proposition that globali8ation promotes spe(iali8ation in the

development of mar*et ni(hes+ Spe(iali8ation is not by fabri( alone but by produ(t+

;owever1 3hina and ;ong Hong together are the number one suppliers in eight of the seventeen

(ategories+ /his indi(ates their higher level of produ(tion (apability to supply a variety of produ(ts

to penetrate global mar*ets+

5+ Produ(ers in developing (ountries fa(e volume restri(tions on their eports+

/hey (an enlarge the value of their sales by moving up the mar*et segments into higher

quality lines in their produ(t (ategories1 for eample1 moving from (otton to blends+ /his

quality upgrading brings about an in(rease in unit value+ /he (lassi( (ase has been ;ong

Hong whose reali8ed sales have risen while the quantity sold has de(lined+ /he base of

(ompetitiveness need not be only low (ost and high volume but one based on quality1

design1 and servi(e+

Produ(t quality (an be (on(eived as the absen(e of defe(ts and the degree to whi(h a garment

(onforms to spe(ifi(ations


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formalLbusiness shirts+ /his shows up in the large differen(e in unit pri(es between 'ndia and ;ong

Hong in the shirt mar*et+

D%:$8, F",$&: A;;%,$8' C#%$8$89%'%:: ; I'8"'

T%7$8% "' C$!8' S%,$&

/he study (on(ludes that 'ndian eports to the CU and the US are1 on the whole1 eport

(ompetitive+ Se(tor-wise analysis of the eport performan(e of 'ndian tetile and (lothing se(tors

to US 9 CU reveal that insofar as apparel eports are (on(erned1 quota has indeed been a

(onstraint for most of (otton apparels and made-ups that 'ndia eported to these two mar*ets+

;owever1 the same (annot be said about 'ndian yarnLfabri( eports+ uotas appear to have

prote(ted the eport of 'ndian yarnL fabri( to these two mar*ets within the limitations of a shrin*ing

mar*et for both yarn and fabri( in US and CU+ 'ndian eports of made-ups have been another area

where quotas- wherever they eist- have been binding1 and not prote(ting1 the 'ndian eports to

US 9 CU+ 'ndian tetile and (lothing se(tors have a tremendous potential1 only a portion of whi(h

has been eploited due to poli(y (onstraints+ ,nd where eploited1 'ndian entrepreneurs have

done the (ountry proud+ ;owever1 there lies a (onsiderable potential that has not been eploited

primarily due to government poli(y mar*ed by adho(ism1 fragmented vision1 and politi(al

opportunism+ 2hat are these poli(y (onstraintsO

PRODUCT SPECIFIC COST-SUPPLY CHAIN MANAGEMENT

/ypi(al (ost stru(ture of garments would have materials (ontributing about 556 of the (ost1

while fabri(ation1 overheads and finishing (onstitute $$61 #56 and "6 of the (ost of garment+2hile fabri(ation and overheads are a result mostly of garment industrys de(entrali8ed stru(ture


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therefore is in small lot1 whi(h organi8ed mills (annot (ompetitively produ(e+ .esides1 with the

demand for 'ndian garments overseas being fashion-driven1 produ(tion fleibility of a high order is

required to swit(h from one stylesL(olor to another at short noti(es+ Power looms again are better

suited as suppliers1 (ompared to organi8ed mills+

F",$& ,:$: Despite te(hnologi(al advan(es1 (lothing se(tor remains labour-intensive

globally1 and hen(e its manufa(turing is se(ularly shifting away from developed to developing

(ountries+ /etile produ(tion has seen (onsiderable te(hnology improvement1 but that has only

partially restored the (omparative advantage of developed (ountries in tetile manufa(ture+ 'n the

(ontet1 therefore1 of garment se(tor1 labour (ost assumes great signifi(an(e in produ(tion (osts+

'ndia (ompared very favorably a(ross the developing (ountries in terms of low labour (osts+ nly

(ountries su(h as .angladesh1 Pa*istan and Eietnams labour (osts are marginally lower than'ndias+ ;owever1 empiri(al eviden(e suggests that low wages are not a fa(tor of (ompetitiveness+

;igh wage levels refle(t high levels of s*ill1 produ(tivity and automation whi(h in turn1 are

important fa(tors of eport (ompetitiveness+ , re(ent study on 'ndian garment industry shows that

higher wage rates are one of the determinants of eport performan(e of 'ndian garment units+

Cport firms paid higher wages to their labour than the Ndomesti( mar*et oriented firms+ /he study

attributed this differen(e in wage rates to the unique and indispensable s*ills of designers1 pattern

ma*ers and (raftsmen1 as well as to better-trained (utters and tailors employed by eporting firms+

/he reason for poor produ(tivity in garmenting has been etremely fragmented stru(ture that has

arisen (hiefly due to the government SS' reservation poli(y+ /his has prevented moderni8ation1

quality investments1 s(ale adoption1 and (hange in produ(t mi from e(lusive relian(e on (otton

garments to mass (lothing items based on syntheti( and mmf fibres+ /his has also therefore

impeded the growth in eports non quota mar*ets sin(e non-quota mar*ets li*e Fatin ,meri(a and

,sia are not ri(h (ountries1 and they demand blended and syntheti( garments mu(h more than

those in US, and CU+ 'ndian fis(al and (ustoms poli(y too has dis(riminated against development

of syntheti( base in line with the government belief that Nsyntheti( is for the (lasses and (otton is

for the masses+ Sin(e this study has also fo(used on inadequate development of retail industry 'n

'ndia as one of prin(ipal (auses of low levels of (ompetitiveness a(ross the entire manufa(turing

value (hain1 it would be instru(tive to note the international (ost differen(es between the most

important fa(tor input in modern retailing- land+ /he land (ost inde per sq+ mtr+ as a ratio to DP

is very low in most of ,sian (ities (ompared to Delhi and umbai+

[28]


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/his itself is a result of distortions in the land mar*et1 and government poli(ies regarding land-use

emergen(e of large retail showrooms in 'ndian (ities1 of the *ind that have proliferated in

>a*arta1/o*yo1 Sydney1 .ang*o* et(+

C:$ ; &"/ "$%&8" (;8*&%)=

Until re(ently1 'ndian (otton pri(es have been lower than international (otton pri(es of (omparable

varieties due to ban on imports and (ontrol on eports of (otton+ 'n fa(t1 in the #"!0s1 for ea(h of

the varieties of (otton1 'ndian pri(es were lower than their international (ounterpart+ /his gave a

(ost advantage to 'ndian tetile and garment eporters+ 3otton for the masses and syntheti( for

the (lasses was the impli(it belief that underlay the government poli(y in 'ndia+ ,s a result1 while

(otton pri(es were not allowed to move up


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(onsumer+ Ca(h (ontributes not only to lengthening of lead times1 but also adding to (osts+ .y the

time (otton worth Is #00 rea(hes from farmer to the spinning unit1 its (ost inflated to Is #4!+ .y

the time it rea(hes the final (onsumer1 it (osts Is &%54+ /his is una((eptable if 'ndia is to be(ome

3ompetitive+ /he industries would need to develop this S3 perspe(tive and rationali8e (osts at

every stage in the entire supply (hain1 and not only within their firms1 or between themselves and

their vendors and suppliers+ ;ong Hong apparel industry did ta*e this initiative1 and has managed

to shrin* the supply (hain in terms of lead times1 as well as (osts+

/he supply (hain in 'ndia is etremely fragmented (hiefly due to the government poli(ies and la(*

of (oordination between industry and relevant trade bodies+ /able $ (learly shows the etent of

fragmentation of the 'ndian tetile and (lothing se(tors+ 't is noteworthy that the (ountries that are

globally (ompetitive are the ones who have a signifi(antly (onsolidated supply (hain+ 't is also

noteworthy that among some of the (ountries whi(h are not as fragmented Gsu(h as Horea1 3hina1

.angladesh1 /ur*ey1 Pa*istan and ei(o- are 'ndias (lose (ompetitors in global mar*et for

eports+ 'ndeed1 the stru(ture of the 'ndian tetile and (lothing se(tors has been the biggest

stumbling blo(* in any effort to reform the industry in 'ndia lately+ 't must be mentioned that it

squarely goes to 'ndian government tetile poli(ys (redit as to why su(h a fragmentation50 (ame

about in the first pla(e+

L%9% ; M%&'8"$8' 8' I'8"' T%7$8% "' ,$!8' :%,$&:

/he level of te(hnology in the spinning se(tor is relatively better (ompared to weaving se(tor+ Still1

about %56 of installed spindles are more than #0 years old1 and C rotors a((ount for less than

#6 of total installed spindles+ 'ndia was the worlds leading buyer of spinning equipment during

#"!"-"!1 a((ounting for $!6 of global shipments+ Spindles pur(hased during this period

a((ounted for &&6 of total installed (apa(ity1 while %!6 of C rotors were less than #0 years old+

/he level of te(hnology in the weaving se(tor is low (ompared to other (ountries of the world+ f

the #+% million power looms installed1 less than #6 are shuttle less looms+ 'n organi8ed mills

se(tor1 only 5+!6 are shuttle less looms1 (ompared to !06 in US1 /aiwan and Horea1 and %$6 in

Pa*istan+ /he rate of moderni8ation also has been very slow+ See table &+ /he new shuttle and

[30]


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shuttle less looms installed in 'ndia during #"!"-"! a((ounted for only #+%6 of total installed

(apa(ity in #""1 with most of moderni8ation o((urring in organi8ed mills+

3ompare this to (ountries su(h as ei(o where moderni8ation rate was 4#6+ /he levels of

investment in 'ndian apparel se(tor are very low+ See table 4+ /he average investment in a

ma(hine in an 'ndian fa(tory was $"1%0 (ompared to $+5 million in ;ong Hong and nearly #

million in 3hina+ /his refle(ts the smaller si8e of the 'ndian firm1 whi(h has an average of ##"

ma(hines (ompared to %"! in ;ong Hong and %05 in 3hina+ 'nvestment per ma(hine is very low in

'ndia at $50 (ompared to &5#0 and #500 in ;ong Hong and 3hina+ /his is due to 'ndian firms

having a mu(h higher proportion of manual ma(hines1 and even the power- based ma(hines are

not as sophisti(ated+

Sin(e it is the (utting operation in garmenting whi(h is (apital intensive5#1 it would be instru(tive

also to see how investment levels are at different stages of garmenting in different (ountries+ See

table 5+ ost of the 'ndian firms investment is in sewing ma(hines1 and that spe(ial and

pro(essing ma(hines form a very small part of the total number of ma(hines1 unli*e other ,sian

(ountries+ 3ountries su(h as ;ong Hong and 3hina have invested signifi(antly in su(h spe(ial

ma(hines that add signifi(ant value to produ(t and improve produ(tivity levels for their firms as

whole+ /hat is not the (ase in 'ndia+ ,nd this fits in very well also with the fa(t of SS' reservation of

garmenting in 'ndia+ Unli*e other ,sian (ountries where average si8e of garment firm and hen(ethe average level of investment is higher1 typi(al 'ndian garmenting unit is small1 and hen(e

'n(apable of investing big+ /he large-s(ale firms who enter into garmenting have to underta*e 506

eport obligation+ So the firms in garmenting are small1 and hen(e in(apable of investing mu(h+

/hat affe(ts produ(tivity as well as (ompetitiveness+ Fal V#"""W found that the intensity of adoption

of information te(hnology


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#+ C(ise Poli(y: /he e(ise duties appli(able to the tetile industry are the .asi( C(ise Duty


33/57

/he reasons for poor utili8ation of funds under /U? has been that1 in the very first pla(e- in todays

situation of e(ess (apa(ity built up in the 'ndian tetile- no one is willing to invest+ 'n apparels the

SS' reservation of garment units prevents them from ma*ing signifi(ant investments+ ,nd during

times when the garment eports have not been doing well1 large-s(ale units are not willing to

epand (apa(ity+ /here is a very high in(iden(e of si(*ness and de(lining (apa(ity utili8ation in the

tetile industry+ Eery few firms are therefore willing to (ommit to the se(tor any more funds than

they already have+ /he reasons also lie in the unwillingness of the finan(ial institutions to lend

money to what they (all- Nsunset industry+ .esides1 until sometime ba(*1 there was an attra(tive

investment opportunity in the booming '3C


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H"' Y"&' O*8"$8' (HYO)=

/he ;M relates to the supply of yarn for the handloom se(tor1 and is eempted from e(ise duty+

,s per ;M1 506 of all yarn spun from not less than "06 (ottonL vis(ose1 pa(*ed for the home

mar*et for (ivil (onsumption1 has to be pa(*ed in han* form+ /he ;M is aimed at guaranteeing

an assured supply of (heap and (oarse yarn to the handloom se(tor1 so that it (an1 in turn1 (hurn

out (heaper fabri(s+ 'n reality1 however1 around 406 of han* yarn are being (onsumed by

powerlooms at 8ero e(ise duty%0+ /he ;M was tantamount to granting a subsidy to the

handloom se(tor on the one hand1 and taing the yarn produ(ers on the other+ .ut the yarn

produ(ers business suffered be(ause they were for(ed to produ(e a fied proportion of their yarn

of below 40s (ount1 whi(h fet(hed them a lower margin+ ore importantly1 the obligation prevented

the yarn produ(ers from upgrading their produ(t portfolio+ /his affe(ted subsequent stages li*e

fabri( and garments too+ /he ;M thus1 militated against the (ompetitiveness of the tetile and

(lothing se(tors+

$" E'$8$%%'$ P8,


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additional quotas by end ar(h every year+ /his is too early for eporters to predi(t the eport

orders for the entire year1 and hen(e the eporters have to de(ide on holdLsurrender strategy on

the basis of fore(ast by as early as ar(h of every year+ /he upshot of it all is that underutili8ed

aggregate annual quotas may also restri(t trade1 and therefore1 those quotas (an be binding even

if not #006 utili8ed+ 'f quotas are binding1 then they (ommand a premium+ 'n order for a firm to be

able to eport therefore1 it must buy the quota from the mar*et at the prevailing premium+ /his

imposes a (ost to the firm analogous to eport ta+

/his eport ta is passed on to the final (onsumer in the importing (ountry+ ?or eporting

(ountries1 Cport /a Cquivalent


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(ompetitiveness owing to the relatively etra ineffi(ien(y


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ne important reason for this1 a((ording to some entrepreneurs1 is the fa(t of predominant

de(entrali8ed nature of garment se(tor in 'ndia+

4+During the interviews1 some other infrastru(ture bottlene(*s that were mentioned in(luded the

poor quality of inland roads1 spe(ially state highways1 large number of o(troi posts1 lo(al

regulations regarding road use during spe(ifi( hours only and absen(e of epressways whi(h

(ould redu(e the inland transportation time given the sub-(ontinental si8e of the (ountry+

5+ T&"':",$8' ,:$: in 'ndia deserve a spe(ial mention sin(e the poli(ies and pro(edures

involved at ea(h stage of eporting and importing are so (umbersome that they indu(e

tremendous delays+ ?or e+g+ in getting a duty free advan(e li(ense for eport produ(tion1 the

average time ta*en by &5 eporters was months+ ,nother two months were needed for

redeeming the legal underta*ing1 ma*ing it a total of " months+ ;owever1 at a (ost of Is #010001

the eporter (ould get hisLher li(ense in $+5 months1 and for another Is !10001 (ould get the legal

underta*ing redeemed in #5 days+ ,nalyti(ally1 this tantamount to an eport ta1 and hen(e any

redu(tion in these would dire(tly enhan(e pri(e-(ompetitiveness+

N'-P&8,% F",$&:

'n the (ontet of emerging global mar*etpla(e1 pri(es are now falling in priority of list of (riterion

(onsidered important by ma)or retailers in the eport mar*et+ ,n 'ndustry study by 3anadian

Department of 'ndustry$ rates several fa(tors (onsidered important by retail buyersL private labels

for (hoosing sour(e (ountries+ Delivery and reliability1 and quality s(ored higher with "+$ and "+0

grades


38/57

'ndia is a land of great potential sin(e it is perhaps the only (ountry in the world that is self-

suffi(ient and (omplete in the (otton value (hain+ /his strong advantage1 however1 has been

frittered away due to fragmented and myopi( vision of the government that resulted in poli(ies that

ran (ounter to mar*et signals+ /he (urrent industry stru(ture is in a signifi(ant sense- a tribute to

the 'ndian tetile and (lothing se(tors who have managed to perform despite the throttling poli(y

(onstraints+ 'n view of the global developments in retail se(tor1 driven by eman(ipated (onsumer1

and *eeping in mind that the prote(tion that quota afforded to 'ndian tetile mar*et would soon

disappear1 it is imperative for the 'ndian tetile and (lothing se(tors to reform1 and do that qui(*ly+

,s is evident by now1 most of the impediments to 'ndias eport (ompetitiveness lies at home+

ar*et a((ess (onditions arise only after 'ndia develops the (ompeten(e to survive in the mar*et+

,lso1 it is (lear that most of the problems are stru(tural in nature1 and emerge from a la(* of

holisti( view about the entire value (hain- from fiber to retail1 whi(h in itself is engendered by the

fragmented government poli(ies+ Keedless to write1 most of the reform in this industry pertains to

(hanges in government poli(ies+ ;owever1 before delineating the poli(y (hanges required to ma*e

the 'ndian tetile and (lothing se(tors globally (ompetitive1 it would be useful to mention a few of

the guiding prin(iples whi(h lay the foundation of re(ommendations+

#+ 2hile the role of the government in (reating and sustaining national advantage is

signifi(ant1 it is inevitably partial be(ause in the absen(e of underlying national(ir(umstan(es that support (ompetitive advantage in a parti(ular industry1 the best poli(y

intentions would fail+ 'ndia is endowed with these Nunderlying national (ir(umstan(es in

tetile and (lothing se(tors in full measure+

$+ overnments do not (ontrol national (ompetitive advantage1 they only influen(e it+ /he

(entral role of the government poli(y therefore1 is to deploy a nations resour(es


39/57

T%7$8% S#%,8;8,

H% %"' ,&%"$8'

#+ ,llow ?oreign Dire(t 'nvestment


40/57

EXPORT PROCEDURE AND DOCUMENTATION

't is essential that a person engaged in international trade be aware of various pro(edures

involved+ /he business of eports is heavily do(ument-oriented and one must get a(quainted with

entire pro(edure+ ?ailure to (omply with do(umentary requirement may lead to finan(ial loss+

PRE-SHIPMENT PROCEDURE

n re(eiving the requisition and pur(hase order from the mer(hant1

do(umentation department issues the invoi(e+ /wo invoi(es are prepared

i+e+ (ommer(ial invoi(e and (ustom invoi(e+ 3ommer(ial invoi(e is

[40]


41/57

prepared for the buyer and the (ustom invoi(e is prepared for (ustom

authorities of both the (ountries+

P,3H'K F'S/ is prepared whi(h details the goods being shipped+

SP (ertifi(ate is prepared if the (onsignment is eported to CU or (ountries mentioned

in SP list+

.uying house inspe(ts the goods and issues the inspe(tion (ertifi(ate+

?ollowing do(uments are given to (ustoms for their referen(e:

3US/ 'KE'3C

P,3H'K F'S/

'C3 3CI/'?'3,/C

PUI3;,SC IDCI or FC//CI ? 3ICD'/


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'KE'3C

P,3H'K F'S/

SP


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Fetter of 3redit

'f the payment terms are a (onfirmed FL3 then the payment will be made by the

foreign ban* on re(eiving the following do(uments:

'nvoi(e

Pa(*ing listss

.LF

,ny other required by the buyer or the (ountry of import+

/he payment terms (an be:

,t Sight

2ithin #5 days from .ill of Fading or ,irway .ill date+

2ithin &0 days from .ill of Fading or ,irway .ill date+

2ithin %0 days from .ill of Fading or ,irway .ill date+

2ithin "0 days from .ill of Fading or ,irway .ill date+

,fter shipment1 eporter sends the do(uments to the buyers ban* for payment+ ,s the

buyers ban* re(eive the do(uments it will (onfirm with the buyer for release of payment+ n

(onfirmation1 it will ma*e the payment in the foreign (urren(y+

/he transa(tion will be .an* to .an*+ /he domesti( bran(h will (redit the eporters a((ount1

as against the respe(tive pur(hase order or invoi(e1 in 'ndian rupees by (onverting the foreign

(urren(y as per the (urrent ban* rate+ 'f the payment is through wire transfer1 the payment will be

made as per the terms agreed by the eporter


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#= INVOICE: 't is prepared by an eporter 9 sent to the importer for ne(essary a((eptan(e+

2hen the buyer is ready to pur(hase the goods1 he will request for an invoi(e+ 'nvoi(e are

of & types:

, =C%&,8" 8'98,%: 't is a do(ument issued by the seller of goods to the buyer raising his

(laim for the value of goods des(ribed therein1 it indi(ates des(ription of goods1 quantity1

value agreed per unit total value to be paid+ Kormally1 the invoi(e is prepared first1 9 several

other do(uments are then prepared by deriving information from the invoi(e+

.= C':"& 8'98,%: 't is (ertifi(ation by a (onsul or overnment offi(ial (overing an

international shipment of goods+ 't ensures that eporters trade papers are in order 9 the goods

being shipped do not violate any law or trade restri(tions+

3= C:$: 8'98,% ='t is an invoi(e made on spe(ified format for the 3ustom offi(ials

to determine the value et(+ ,s pres(ribed by the authorities of the importing (ountry+

$= PAC4ING LIST= 't shows the details of goods (ontained in ea(h par(el Lshipment+

3onsiderably more detailed and informative than a standard domesti( pa(*ing list1 it

itemi8es the material in ea(h individual pa(*age and indi(ates the type of pa(*age1 su(h

as bo1 (rate1 drum or (arton+ .oth (ommer(ial stationers and freight forwarders (arry

pa(*ing list forms+

&= CERTIFICATE OF INSPECTION = 't is a type of do(ument des(ribing the (ondition ofgoods and (onfirming that they have been inspe(ted+ 't is required by some pur(hasers

and (ountries in rder to attest to the spe(ifi(ations of the goods shipped+ /his is usually

performed by a third party and often obtained from 'ndependent testing organi8ations+

4= CERTIFICATE OF ORIGIN = 'mporters in several (ountries require a (ertifi(ate of origin

without whi(h (learan(e to import is refused+ /he (ertifi(ate of origin states that the goods

eported are originally manufa(tured in the (ountry whose name is mentioned in the

[44]


45/57

(ertifi(ate+

3ertifi(ate of origin is required when the goods produ(ed in a parti(ular (ountry are sub)e(t

to prefer entail tariff rates in the foreign mar*et at the time importation+ /he goods

produ(ed in a parti(ular (ountry are banned for import in the foreign mar*et+

5= GSP = 't is enerali8ed System of Preferen(e+ 't (ertifies that the goods being Cported

have originatedL been manufa(tured in a parti(ular (ountry+ 't is mainly useful for ta*ing

advantage of preferential duty (on(ession1 if available+ 't is appli(able in (ountries forming

Curopean Union+

%= IEC CERTIFICATE = 't is an 'mport-Cport 3ode 3ertifi(ate issued by D?/1 inistry of

3ommer(e1 and overnment of 'ndia+ 't is a #0 digit (ode number+ Ko eports or 'mports

will be affe(ted without the 'C3 (ode+ 't is mandatory for every Cporter+

= WEARING APPAREL SHEET = 't is li*e a (he(* list whi(h gives the detail regarding the

(ontent 9 design of the arment pa(*ed+

!= BILL OF LADING = /he bill of lading is a do(ument issued by the shipping (ompany or its

agent ,(*nowledging the re(eipt of goods on board the vessel1 and underta*ing to Deliver

the goods in the li*e order and (ondition as re(eived1 to the (onsignee or ;is order1

provided the freight and other (harges as spe(ified in the bill have .een duly paid+ 't is also

a do(ument of title to the goods and as su(h1 's freely transferable by endorsement

and delivery+

"= AIRWAY BILL=,n airway bill1 also (alled an air (onsignment note1 is a re(eipt issued by an

airline for the (arriage of goods+ ,s ea(h shipping (ompany has its own bill of lading1 so

ea(h airline has its own airway bill+ ,irway .ill or ,ir 3onsignment Kote is not treated as a

do(ument of title and is not issued in negotiable form+

10. MATES RECIEPT= ateBs re(eipt is a re(eipt issued by the 3ommanding ffi(er of the

ship when the (argo is loaded on the ship+ /he mateBs re(eipt is a prima fa(ie eviden(e

that goods are loaded in the vessel+ /he mateBs re(eipt is first handed over to the Port /rust

[45]


46/57

,uthorities+ ,fter ma*ing payment of all port dues1 the eporter or his agent (olle(ts the mateBs

re(eipt from the Port /rust ,uthorities+

/he mateBs re(eipt is freely transferable+ 't must be handed over to the shipping (ompany in order

to get the bill of lading+ .ill of lading is prepared on the basis of the mateBs re(eipt+

11. SHIPPING BILL= Shipping bill is the main (ustoms do(ument1 required by the (ustoms

authorities for granting permission for the shipment of goods+ /he (argo is moved inside the do(*

area only after the shipping bill is duly stamped1 i+e+ (ertified by the (ustoms+ Shipping bill is

normally prepared in five (opies:

3ustoms (opy

Drawba(* (opy

Cport promotion (opy

Port trust (opy

CporterBs (opy+

12) LETTER OF CREDIT= /his method of payment has be(ome the most popular form in

re(ent times7 it is more se(ured as (ompany to other methods of payment


47/57

/his is only an illustrative list+

Kame and address of the ban* establishing the letter of (redit

letter of (redit number and date

/he letter of (redit is irrevo(able

Date of epiry and pla(e of epiry

Ealue of the (redit

Produ(t details to be shipped

Port of loading and dis(harge

ode of transport

?inal date of shipment

Details of goods to be eported li*e des(ription of the produ(t1 quantity1 unit rate1

/erms of shipment li*e 3'?1 ?. et(+

/ype of pa(*ing

Do(uments to be submitted to the ban* upon shipment

/oleran(e level for both quantity and value

'f FL3 is restri(ted for negotiation

Ieimbursement (lause

Steps in an 'mport /ransa(tion with Fetter of 3redit :

/he importer in(ludes a pur(hase (ontra(t for the buying of (ertain goods+

/he importer requests this ban* to open a F3 in favor of his supplier+

/he importers ban* opens the F3 as per the appli(ation+

/he opening ban* will forward the original F3 to the advising ban*+

/he advising ban*1 after satisfying itself about the authenti(ity of the (redit1

forwards the same to the eporter+

[47]


48/57

/he eporter s(rutini8es the F3 to ensure that it (onfirms to the terms of

(ontra(t+

'n (ase any terms are not as agreed1 the importer will be as*ed to

ma*e the required amendments to the F3+

'n (ase the F3 is as required1 the eporter pro(eeds to ma*e arrangements

for the goods+

/he eporter will effe(t the shipment of goods+

,fter the shipment is effe(ted1 the eporter will prepare eport

do(uments1 in(luding .ills of C(hange+

/he eporters ban*


49/57

/he 'K3/CIS


50/57

FCA (A$ $!% '"% #8'$ ; %#"&$&%)

F&%% C"&&8%& =/he delivery of goods on tru(*1 rail (ar or (ontainer at the spe(ified point


51/57

and ?. destination+?. rigin means the buyer is responsible for the freight and other (osts

and ris*s+ ?. Destination means the seller is responsible for the freight and other (osts and ris*s

until the goods are delivered to the buyers premises whi(h may in(lude the import (ustom

(learan(e and payment of import (ustoms duties and taes at the buyers (ountry1 depending

on the agreement between the buyer and seller+ 'n international trade1 avoid using the shipping

terms ?. rigin and ?. Destination1 whi(h are not part of the 'K3/CIS


52/57

(ustom duties and taes1 and other (osts and ris*s+ 'n the eport quotation1 indi(ate the port

of destination


53/57

D%89%&% D$< U'#"8= /he delivery of goods and the (argo insuran(e to the final point of

destination1 whi(h are often the pro)e(t site or buyers premises at sellers epense+ .uyer

assumes the import (ustoms (learan(e1 payment of (ustoms duties and taes+ /he seller may opt

not to insure the goods at hisLher own ris*s+

DDP (A$ $!% '"% #8'$ ; %:$8'"$8')

D%89%&% D$< P"8 =/he seller is responsible for most of the epenses whi(h in(lude the (ar go

insuran(e1 import (ustom (learan(e1 and payment of (ustom duties1 and taes at the buyers end1

and the delivery of goods to the final point of destination1 whi(h is often the pro)e(t site or buyers

premise+ /he seller may opt not to insure the goods at hisLher own ris*+ @CA-term1 @?A -term1 @3A-

term 9 @DA-term: 'n(oterms $0001 li*e its immediate prede(essor1 groups the term in four

(ategories denoted by the first letter in the three-letter abbreviation+

Under the @CA-/CI


54/57

RECOMMENDATIONS

,fter understanding the industrial and e(onomi( s(enarios we would li*e to give following

re(ommendations to 'ndian (ompanies operating in garment industry:

,+ ore emphasis should be given on the mi(ro and ma(ro level e(onomi( fa(tors+ /hese fa(tors

indire(tly or sometimes dire(tly affe(ts ea(h and every business in the e(onomy1 mar*eters should

be proa(tive enough to foresee the future impa(t of these fa(tors on their business+

.+ Foo* for (o-branding: 't involves merging two or more well *nown brands into a single produ(t+ 't

is an effe(tive way to leverage strong brands and helps in gaining synergy by having the best

(ombination of unique strength ea(h brand has+ 3o-branding (an be based on innovation1

ingredient1 allian(e1 supply (hain or any other+

3+ ?ind out new ways of (ommuni(ating to (ustomers1 li*e sending information about new

produ(ts1 offers1 sto(*s1 et( through sms to (ell phones+

[54]


55/57

D+ 'ndustrialists shouldnt (onsider the ependiture on I9D and te(hnology as a (ost1 it should be

(onsidered as an investment be(ause it pays ri(h dividend in future+

C+ 'ndustrialists must emphasi8e on improving the standard of labors be(ause garment

manufa(turing is a labor intensive industry+ /he produ(tivity of industry dire(tly depends upon the

produ(tivity of labor+

CONCLUSION AND POLICY IMPLICATIONS

'ndia has initiated e(onomi( poli(y reforms in order to improve effi(ien(y and a(hieve international

(ompetitiveness+ ,pparel is 'ndias leading eport produ(t and a(hieved rapid growth in the late

#"!0s and the first half of the #""0s+ ;owever1 'ndias share of world apparel eports has not risen

sin(e #""4+ /he immediate (ause is apparently the slowdown in the import growth of 'ndias ma)or

mar*ets1 namely1 the United States and the CU+ , more signifi(ant observation is that the apparel

industry has remained outside the industrial reforms of the #""0s+

,n important and diffi(ult tas* is the restru(turing of the 'ndian apparel industry to meet the

(ompetitive (hallenges of the postGUruguay Iound world+ 'n this (ontet we surveyed the re(ent

developments in the globali8ation of the world apparel industry to better understand its impli(ations

for the 'ndian apparel industry+ /he pro(ess of globali8ation involves the sli(ing up of the value

(hain and for(es (ountries to be(ome ni(he players in the global mar*et+ Spe(iali8ation in the

global apparel mar*et is not based on fabri( alone but on produ(t+ /he strategy is to ensure :

[55]


56/57

'KD',S ,PP,ICF CJPI/S that plays to enter the most attra(tive eport ni(hes in whi(h they

have relative advantage+ 'n the world apparel mar*et the main leverage is eer(ised by retailers1

brand-name mar*eters at the mar*eting and retailing end of the (hain+ /hey outsour(e to meet

their (ustomer demands and depend on pa(*age suppliers who (an pro(ure fabri(1 (ut1 ma*e1

trim1 and pa(* the final produ(t+ /hey s(out the world loo*ing for low-(ost suppliers and lo(ations+

Cven brand-name manufa(turers are turning more to outsour(ing and tend to fo(us on design and

mar*eting+ /he (onsolidation of mar*et power in the buyers1 produ(t diversity1 and the higher

demand un(ertainty in produ(t mar*ets put pressure on the apparel supplier (ountries to adopt

information systems to fill their orders effi(iently+ Spe(ial tariff provisions1 namely1 offshore

assembly pro(essing


57/57

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o KC2SP,PCIS

o ,,Q'KCS
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