CHAPTER – 1

INTRODUCTION

HISTORY OF TEXTILE

No one knows when exactly the spinning and weaving of textile began. It has been said

that people knew how to weave even 27000 years ago. This was even before humans

were able to domesticate animals. The oldest actual fragment of cloth found was in

southern Turkey.

People used fibers found in nature and hand processes to make fibers into cloth. Even

though high technology was not available, skilled weavers created a wide variety of

fabrics. Dyeing of fabrics was done to satisfy the universal human need for beauty.

Within time, more complex social and political organization of people evolved. With the

growth of cities and nations, improvements in technology came into place and there was

a substantial development in the international trade, both of which involved textiles.

Chinese textile was considered to be the most significant in international trade. Historians

have claimed that silk from China has reached ancient Greece and Rome along a trade

route called the Silk Road in the latter part of the second century B.C. and Egypt in 1000

B.C. The Romans also imported cotton from nearby Egypt and from India. Archeologists

have found facilities for dyeing and finishing cotton fabrics in settlements throughout the

Roman world. During the middle ages, the production and trading of the plant called

‘woad’, an important source of dye, was a highly developed industry. During the fifteenth

century, Trade Fairs in southern France provided a place for the active exchange of wools

from England and silks from the Middle East. The economic activities surrounding these

events gave rise to the first international banking arrangements. Even the discovery of

America was a result of the desire of Europeans to find a faster route not only to the

spices but also to the textiles of the Orient. Textile trade quickly took root in America, as

colonists sold native dyes such as indigo and cochineal to Europe and bought cottons

from India. Although advances were being made in the technology of textile production,

1

the manufacture of cloth in Western Europe in 1700 was still essentially a hand process.

Yarns were spun on a spinning wheel and fabrics were woven by hand-operated looms.

A major reorganization of manufacturing of a variety of goods occurred during the latter

half of the 1700s in Western Europe. These changes, known as the ‘Industrial

Revolution’, altered not only technology, but also social, economic, and cultural life. The

production of textiles was the first area to undergo industrialization during the

seventeenth and eighteenth centuries as the result of an economic crisis. Good quality

textile products, produced inexpensively in India and the Far East, were gradually

replacing European goods in the international market. In Britain, it became imperative

that some means be found to increase domestic production, to lower costs, and to

improve the quality of textiles. The solution was found in the substitution of machine or

nonhuman power for hand processes and human power.

Many important inventions, most importantly spinning machines, automatic looms, and

the cotton gin, improved the output and quality of fabrics. These inventions provided the

technological base for the industrialization of the textile industry. Each invention

improved one step of the process. For example, an improvement that increased the speed

of spinning meant that looms were needed that consumed yarn more rapidly. More rapid

yarn production required greater quantities of fiber. The growth of the textile industry

was further hastened by the use of machines that were driven first by waterpower, then by

steam, and finally by electricity. The textile industry was fully mechanized by the early

part of the nineteenth century. The next major developments in the field were to take

place in the chemist’s laboratory. Experimentation with the synthesis of dyestuffs in the

laboratory rather than from natural plant materials led to the development and use of

synthetic dyes in the latter half of the nineteenth century. Other experiments proved that

certain natural materials could be dissolved in chemical solvents and re-formed into

fibrous form. By 1910, the first plant for manufacturing rayon had been established in the

United States.

2

The manufacture of rayon marked the beginning of the manufactured textile fibers

industry. Since that time, enormous advances have been made in the technology for every

field in the textile industry. Today, the textile industry utilizes a complex technology

based on scientific processes and vast economic organizations.

With the application of advanced technology to the textile field, textile use has expanded

from the traditional areas of clothing and home furnishings into the fields of construction,

medicine, aerospace, sporting goods, and industry. These applications have been made

possible by the ability of textile scientists to utilize textile fibers, yarns, and fabrics for

specific uses. At the same time that textile technology is making strides in new directions,

the fabrics that consumers buy for clothing and household use also benefit from the

development of new fibers, new methods of yarn and fabric construction, and new

finishes for existing fibers and fabrics.

Today, a huge international industrial complex encompasses the production of fiber,

spinning of yarns, fabrication of cloth, dyeing, finishing, printing, and manufacture of

goods for purchase. Consumers purchase many different products made of textiles. The

story of the journey that these products make as they progress from fiber to yarn to fabric

to finished product is not just the story of spinning yarns, weaving or knitting fabric, or

constructing the end product. It is also the story of a complex network of interrelated

industries.

HISTORY OF INDIAN TEXTILE INDUSTRY

The history of textiles in India dates back to nearly five thousand years to the days of the

Harappan civilization. Evidences that India has been trading silk in return for spices from

the 2nd century have been found. This shows that textiles are an industry which has

existed for centuries in our country. Recently there has been a sizeable increase in the

demand for Indian textiles in the market. India is fast emerging as a competitor to China

in textile exports. The Government of India has also realized this fact and lowered the

customs duty and reduced the restrictions on the imported textile machinery. The

intention of the government’s move is to enable the Indian producers to compete in the

world market with high quality products. The results of the government’s move can be

3

visible as Indian companies like Arvind Mills, Mafatlal, Grasim; Reliance Industries have

become prominent players in the world. The Indian textile industry is the second largest

in the world-second only to China. The other competing countries are Korea and Taiwan.

Indian Textile constitutes 35% of the total exports of our country.

The history of apparel and textiles in India dates back to the use of mordant dyes and

printing blocks around 3000 BC. The foundations of the India's textile trade with other

countries started as early as the second century BC. A hoard of block printed and resist-

dyed fabrics, primarily of Gujarati origin, discovered in the tombs of Fostat, Egypt, are

the proof of large scale Indian export of cotton textiles to the Egypt in medieval periods.

During the 13th century, Indian silk was used as barter for spices from the western

countries. Towards the end of the 17th century, the British East India Company had

begun exports of Indian silks and several other cotton fabrics to other economies. These

included the famous fine Muslin cloth of Bengal, Orissa and Bihar. Painted and printed

cottons or chintz was widely practiced between India, Java, China and the Philippines,

long before the arrival of the Europeans.

India Textile Industry is one of the largest textile industries in the world. Today, Indian

economy is largely dependent on textile manufacturing and exports. India earns around

27% of the foreign exchange from exports of textiles. Further, India Textile Industry

contributes about 14% of the total industrial production of India. Furthermore, its

contribution to the gross domestic product of India is around 3% and the numbers are

steadily increasing. India Textile Industry involves around 35 million workers directly

and it accounts for 21% of the total employment generated in the economy.

Strengths of Indian Textile Industry are as follows -

Huge textile production capacity

Efficient multi-fiber raw material manufacturing capacity

Large pool of skilled and cheap work force

Entrepreneurial skills

Huge export potential

4

Large domestic market

Very low import content

Flexible textile manufacturing systems

Weaknesses of Indian Textile Industry are as follows -

Increased global competition in the post 2005 trade regime under WTO

Imports of cheap textiles from other Asian neighbors

Use of outdated manufacturing technology

Poor supply chain management

Huge unorganized and decentralized sector

High production cost with respect to other Asian competitor

5

CHAPTER-2

REVIEW OF LITERATURE

1.)Title: STRATEGIES FOR REALISING VISION 2010 OF INDIAN

TEXTILE AND APPAREL INDUSTRY

Author: J. N. SINGH

Textile Commissioner, Ministry of Textiles, GOI

Source: http://www.textileassociationindia.org/JTA_ISSUES/Art%206.pdf

Date: Vol 67, Jan-Feb 2007

Review:

Indian textile industry has been growing really well. Increase in the young population and

also due to the increase in the use of plastic money the demand is increasing in the

domestic market which is met by the increasing supply supported by the new women

working force. Also our stand in the world market is stronger than ever, with the

quantitative restrictions on china we are in a better position now. Many Indian companies

have bought western brands which has made penetration in the EU and the USA fairly

easy further strengthening our exports, but we are facing stiff competition from countries

like Indonesia and Bangladesh so there’s a lot more to be done. The industry needs more

investment in this sector and also needs to modernize to compete with the other countries

as our equipments and machinery are still outdated and even our labour laws are

restrictive which pose a serious threat on the further growth of this industry. So though

India has its strengths it also has its weaknesses which are needed to be taken care of to

increase our share in the world textile trade.

6

2.)

Title: SCOPE OF BIOTECHNOLOGY IN TEXTILES

Author: G. V. N. SHIRISH KUMAR

Department of Fibres and Textile Processing Technology, MUICT,

Matunga, Mumbai

Source: http://www.textileassociationindia.org/JTA_ISSUES/MA-Art2-07.pdf

Date: Vol 67, Mar-Apr 2007

Review:

India has a wide range of textiles of varied designs and manufactured by different

techniques when compared to other countries of the world. The specialty in the weave of

the textiles in each region is developed based on location, climate and cultural influences.

The rich and beautiful products of the Indian weavers have been rightly called, “exquisite

poetry in colourful fabrics”.

But with the advent of globalisation and modern technology we always find ourselves

competing with the countries that not only have better technology but are always looking

for new and modern fabrics to meet consumers varied wants. India also has been

spending a lot on the manufacturing of new and more appealing fabrics. We are spending

more and more on the research of such fabrics. A very new way to go about this research

is through Biotechnology. It offers the potential for new industrial processes that require

less energy and are based on renewable raw materials. It helps in the production of

fabrics free of loopers, bollworms and bud worms in cotton etc providing almost 50%

greater strength and better quality. These fibre materials are also called biopolymers.

Biotechnology is one of the revolutionary ways to advance the textile field.

7

3.)

Title: GROWING IMPORTANCE OF COTTON BLENDS IN

APPAREL MARKET

Author: Dr. SHILPA P. CHARANKAR, Mrs. VEENA VERMA, Ms. MITTU GUPTA

Department of Textiles and Clothing

Dr. Bhanuben Mahendra Nanavati College of Home Science, Matunga, Mumbai 400 019.

Source: Journal of textile association

Date: Vol 67, Jan-Feb 2007

Review:

As the need for innovation is increasing by every passing day due to the global

competition and also today’s consumer is seeking not just clothing but a clothing with a

difference which not only has good appearance but is also durable and is climate

specific. These things can be achieved by improving the spinning, weaving, and finishing

efficiency. Rather than just producing cotton which is less durable than a fabric which is

a blend of nylon/ wool/ cotton should be produced.

Blending is a complicated and expensive process, but it makes it possible to build in

combination of properties that are permanent. It makes the fabric better and gives it a

competitive edge. Its inevitable in a global economy where everyone needs to be

prepared for the competition ahead and where the competition is not just from the

domestic but also from the international players.

4.)

Title: WOMEN ENTREPRENEUER DEVELOPMENT

IN GARMENT MAKING

Author: Dr. N. VASUGI

Reader Family Science & Community Development Department

8

Avinashilingam Deemed University

Source: Journal of textile association

Date: Vol 67, Mar-Apr 2007

Review:

Textile industry is the largest foreign exchange earner and also the second largest

employment provider next to agriculture. Worldwide garment industry is the third largest

employer of the women even in Indian garment industry 80% of the people employed in

it are women. Further also it has a lot of job opportunities for everyone women included

with the increased investment to push the growth forward and also with more and more

small and medium entrepreneurs coming up in this industry. But that doesn’t mean we

are free of weaknesses. If we are able to meet up the internal challenges of production we

will be unstoppable.

5.)

Title: TRADE REFORMS AND EFFICIENCY OF FIRMS IN INDIA

Author: UMA S. KAMBHAMPATI

Source: Oxford Development Studies

Date: Vol. 31, No. 2, 2003

Review:

In this paper, we analyze efficiency levels in the cotton textile industry before and after

the reforms. The cotton textile industry is one of the oldest and most highly regulated of

India’s industries. Inefficiency, relative to the frontier, is therefore likely to be

widespread in this industry. The last two decades have seen a number of reforms that may

be expected to decrease this inefficiency. This paper, however, is mainly concerned with

the impact on firms of the reforms undertaken in 1991.

Liberalization increased overall welfare by increasing output in sectors with excess

profits; allowing firms in sectors with unexploited scale economies to increase output;

9

and by increasing technical efficiency, increasing competition and decrease market

power, increasing the elasticity of demand facing domestic firms while at the same time

shifting their demand curve to the left. Second, it is expected that the domestic sector will

become more efficient as firms exit the industry in the face of increased competition.

Surviving firms, in their turn, may experience an increase in technical efficiency because

liberalization increases competition.

Another dynamic benefit from liberalization is expected to be an increase in

technological innovation

Firms locating in certain regions may benefit from external economies of scale and scope,

dynamism of a certain location as against the inertia displayed by firms in other locations.

We also find that these changes in efficiency do have a regional dimension: while all firms fared

less well after the reforms, those in Gujarat the fared less well than that in Tamil Nadu. The

paper indicates that geography—the location of the firm within a state and its proximity to a

major urban centre influences the efficiency levels of firms within it. The paper indicates that

average efficiency seems to have increased in the post-reform period. We find that the behavior

of many of these variables changed considerably in the post-reform period and led to changes in

efficiency levels. This framework enables us to consider whether efficiency has increased

because of factors such as market shares, exports, imports and capital.

6.)

Title: IS THE URBAN INDIAN CONSUMER READY FOR CLOTHING WITH ECO

LABELS

Author: Paromita Goswami

Department of Marketing, Xavier Institute of Management, Bhubaneswar, India

Source: International Journal of Consumer Studies ISSN 1470-6423

Date: 2008

Review:

The technological development in global textile industries has been rapid, but the textile

industry in India has largely been driven by small units that practice age-old methods of

bleaching and dyeing, which adversely affect the balance of the local ecology.

10

The textiles industry in India is traditionally one of the worst offenders of pollution, with

its small units following outdated technology processes. One opportunity to reduce the

environmental impact of clothing industry in India is to concentrate textile production

within environmentally certified or eco labeled clothing.

Environment-friendly labels or eco-labels manifest the efforts of an industry to become or

be perceived as environment-friendly. Eco-labels are normally issued either by

Government supported or private enterprises once it has been proved that the product of

the applicant has met the criteria set by them for the label. Again, although no strong

relationship was found between environmental knowledge and attitudes, environmental

attitudes are found to be the most consistent predictor of pro environmental/ ecological

purchasing behavior. Shoppers responded more positively to product related

environmental messages when purchasing clothing than cause-related messages; and

environmental claims were more credible if attributed to the green brands than to neutral

brands. Consumers may opt for higher-priced eco-labeled apparel as it may indicate

higher quality of the product. The results suggest the existence of a segment of

consumers who are positively motivated towards eco-labeled garments. This segment

profile is described in terms of demographic and psychographic variables. Managerial

implications and future directions are suggested.

7.)

Title: Estimation of Cost of Quality in an Indian Textile Industry for Reducing Cost of

Non-conformance

Author: ARUP RANJAN MUKHOPADHYAY

SQC &OR Unit, Indian Statistical Institute, Kolkata, India

Source: Vol. 15, No. 2, 229–234

Date: March 2004

11

Review:

In today’s world which is packed with competition a company has to exhibit certain

competitive advantage to outperform its competitors. This can be in terms of cost cutting

which is displayed by Indian textile industry. Quite naturally, this facilitates survival and

further growth of the company.

Costs of non-conformance (CONC) are all the costs incurred because failures occur. Had

there been no failure, there would have been no requirement for appraisal and correcting

activities. However, prevention inevitably involves some costs. These are preventive

costs, or the costs of conformance (COC). This includes all the costs associated with any

activity designed to ensure that the right activities are carried out right first time. Indian

textile industry can reduce its cost of non-conformance and strengthen its competitive

position by focusing on customer orientation.

And, of course, reduction of cost of non-conformance is much more preferable to

increasing the volume of sales turnover, especially in a competitive market or a recession

which is our present scenario.

8.)

Title: Impact of Global Meltdown on India's Garment Exports

Author: Mr.Montek Singh Ahluwalia

Source: AEPC

Date: NA

Review:

Apparel exports contribute around 8% to India's overall exports and 48% to textile

exports. It exports to many countries but due to global recession, sales are falling and

thus, companies are cutting down on employees. Many are reducing the working hours

there by reducing the earnable income by these people.

12

But even in such times there are countries like Bangladesh which are gradually taking

over our share of business. They can do so because they have many advantages like

favourable government policies , cheaper power and labour etc. , but if we take proper

measures now we can turn the situation around for our benefit.

9.)

Title: Textile Artist Works to Inspire New Generations by Designing Maine-Made Hand-

Printed Fabrics

Author: Carol Arnold

Source:http://www.fibre2fashion.com/industryarticle/pdffiles/18/1727.pdf?

PDFPTOKEN=c10276b37d42b3971e69790b98416a1fc025654a|1238622560#PDFP

Date: NA

Review:

The article talks about the beauty of the 100% natural fibers and the different hand made

designs and prints on these fabrics. These fabrics are not manufactured or computer

generated, that’s what makes it so special. As everything made out of it is original and

authentic which is evident in the slight imperfections that the fabric has. This sort of a

creation is not an easy one as everything is custom made.

The article talks about how a personal favorite accessory inspired a woman to start

making and designing these fabrics and using them for her personal line of related

accessories. Its to bring awareness of the craft of traditional textile art to the new

generation.

13

10.)

Title: The Global Textile and Clothing Industry post the Agreement on Textiles and

Clothing

Author: Hildegunn Kyvik Nordås

Source: World Trade Organization

Geneva, Switzerland

Date: NA

Review:

The clothing industry is labour intensive and it offers entry-level jobs for unskilled labour

in developed as well as developing countries. As even the developed countries need this

industry to be successful as it provides jobs to many and finding an alternative job may

be a difficult task. Also this is a low wage industry and a dynamic and innovative sector,

depending on which market segment one focuses upon.

Its actually easier for the developing countries to adopt the modern technology as it

involves low investment. After all impact of liberalization can be felt on this industry too.

There’s suddenly a need to be abreast with the latest technology and the managerial

developments happening in the other parts of the world.

The countries that are most likely to lose market shares are those located far from the

major markets and which have had either tariff and quota-free access to the United States

and EU markets, or which have had non-binding quotas. These countries will

undoubtedly face adjustment challenges. there is no doubt that both China and India will

gain market shares in the European Union, the United States and Canada to a significant

extent, but the expected surge in market share may be less than anticipated, as other

developing countries are catching up in terms of unit labour costs in the textile and

clothing sector.

14

11.)

Title: Traditional Ethnic Designs

Author: Fiona Muller

Source:http://www.fibre2fashion.com/industry article/pdffiles/18/1780.pdf?

PDFPTOKEN=4881e56316ac72c0d3b27d5c5390d254e344 d6e|1238622720#PDFP

Date: NA

Review:

This article talks about the amazing heritage that a country like india has, which is filled

with varied and unique designs like buta work, chikankari, bandhez, block printing and

many more. Most of these attractive designs originated from the state of rajasthan. The

residents of this state have been involved in these creations since a very long time.

These textile techniques are used for producing wonderful original dresses, kurtas, skirts

etc. which we see later in the various high street stores. This is among the various reasons

which make the Indian textile industry so attractive and its garments so unique.

12.)

Title: FUNCTIONAL TEXTILES AND APPARELS

Author: M. D. TELI, G. V. N. SHRISH KUMAR

Department of Fibres and Textile Processing Technology

Institute of Chemical Technology

Source: journal of textile association

Date: may- jun 2007

Review:

15

In fast developing economies like that of India and China, non implantable healthcare and

hygiene products are gaining significant importance because of specificity of their end

uses. Today’s customers are a very conscious about the money they spend. While buying

apparels too this sense of theirs is quiet strong. They want the fabric and the clothes to

not just look good or be reasonable but also to provide certain functions which will make

the user of such apparels enjoy some benefits. These are the new age functional textiles.

These have opened new doors for the textile and apparel industry. These applications are

highly crucial as these materials carry high end performance properties. Protective

textiles offer protection from hazardous chemicals, heat, extreme cold, radiation and have

special application potential in today's technologically advanced world. In addition to

this, advent of nano-technology has opened innumerable avenues giving rise to high

performance textiles and apparels.. Producing such textiles will reduce india’s

dependence on imports of similar fabrics and products.

13.)

Title: Global Recession Impacts on Fashion Industry: Strategies for Survival

Author: NA

Source: http://www.teonline.com/articles/2009/03/global-recession-impacts-on-fashion-

industry-strategies-for-survival.html

Date: March 20, 2009

Review:

The article talks about the impact of recession on the fashion apparel industry and how its

earnings have reduced due to the recession. The customers are not spending lavishly

anymore; they have become very conscious of the money used by them. They no longer

pay just for the garments etc. but for the kind of services that their suppliers are providing

them even at the time like this. Due to controlled spending these manufacturers get less

revenues and thus many are losing their jobs and also there’s a credit crunch in the

market. So many companies are looking for ways to turn the situation around by either

16

merging with other companies and firms or by asking private financers to help them with

their financial issues.

At a time like this the only thing that can save these companies and their brands is getting

their customers committed to their brand and making them loyal to it. It’s all about

gaining their trust by providing consistent and reasonable products to them and to build

strong relationships with them.

14.)

Title: Innovations in the Apparel Industry to Keep Up With the Competition

Author: Dagur Jonnson

Source: http://www.articlesbase.com/business-articles/innovations-in-the-apparel-

industry-to-keep-up-with-the-competition-192218.html

Date: Aug 2nd, 2007

Review:

The abolition of global textile quota system from America has made the big players of

the industry to restructure their business again to survive in the strong competition of the

American apparel market. This trend of reorganizing the business for stiff competition is

visible in American apparel industry. The areas in which this industry is concentrating

more are better merchandising, better inventory management, consolidating sources and

more involvement in sourcing the country. The only target behind all these is reaching

the market in a better way and that to with a wide range of products. These innovations

are what makes one player different from the other so everyone is investing in R&D, just

so that the benefits could be reaped of the new creations developed by them.

15.)

Title: Apparel Industry Keeps Watch on Wall Street's Financial Crisis

17

Source: http://www.articlesbase.com/international-business-articles/apparel-industry-

keeps-watch-on-wall-streets-financial-crisis-580190.html

Date: Sep 26th, 2008

Review:

With the financial crisis in the U.S., the fates of Lehman Bros. holding inc, Merrill

Lynch and Co. etc., the customers are getting more and more tight in their expenditure. A

lot of people assess their wealth based on the value of their holdings. If their holding vale

drops they feel poor and if they feel poor they spend less. Apparel manufacturers have

several things to worry about. A slump in consumer demand obviously means fewer

orders. Even credit is likely to get tighter. But obviously for those companies that are in

a stronger financial position, credit is still available.

Factors that give loans based on accounts receivable are being more cautious, scrutinizing

retailers to make sure they are credit-worthy. They are keeping a very close eye on

everyone.

Also it’s a great time for anyone who has enough money to carry out buyouts as

companies can be obtained at a bargain price at this time.

18

CHAPTER -3

GLOBAL SCENARIO

The textile and clothing trade is governed by the Multi-Fibre Agreement (MFA) which

came into force on January 1, 1974 replacing short-term and long-term arrangements of

the 1960’s which protected US textile producers from booming Japanese textiles exports.

Later, it was extended to other developing countries like India, Korea, Hong Kong, etc.

which had acquired a comparative advantage in textiles. Currently, India has bilateral

arrangements under MFA with USA, Canada, Australia, countries of the European

Commission, etc. Under MFA, foreign trade is subject to relatively high tariffs and

export quotas restricting India’s penetration into these markets. India was interested in

the early phasing out of these quotas in the Uruguay Round of Negotiations but this did

not happen due to the reluctance of the developed countries like the US and EC to open

up their textile markets to Third World imports because of high labour costs. With the

removal of quotas, exports of textiles have now to cope with new challenges in the form

of growing non-tariff / non-trade barriers such as growing regionalisation of trade

between blocks of nations, child labour, anti-dumping duties, etc.

Nevertheless, it must be realised that the picture is not all rosy. It is now being admitted

universally and even officially that the year 2005 AD is likely to present more of a

challenge than opportunity. If the industry does not pay attention to the very vital needs

of modernisation, quality control, technology up gradation, etc. it is likely to be left

behind. Already, its comparative advantage of cheap labour is being nullified by the use

of outmoded machinery.

With the dismantling of the MFA, it becomes imperative for the textile industry to take

on competitors like China, Pakistan, etc., which enjoy lower labour costs. In fact the

seriousness of the situation becomes even more apparent when it is realised that the non-

quota exports have not really risen dramatically over the past few years. The continued

dominance of yarn in exports of cotton, synthetics, and blends, is another cause for worry

19

while exports of fabrics are not growing. The lack of value added products in textile

exports do not augur well for India in a non-MFA world.

Textile exports alone earn almost 25 percent of foreign exchange for India yet its share in

global trade is dismal, having declined from 10.9 percent in 1955 to 3.23 percent in 1996.

More significantly, the share of China in world trade in textiles, in 1994, was 13.24

percent, up from 4.36 percent in 1980. Hong Kong, too, improved its share from 7.06

percent to 12.65 percent over the same period. Growth rate, in US$ terms, of exports of

textiles, including apparel, was over 17 percent from 1993-94 to 1995-96. It declined to

10.5 percent in 1996-97 and to 5 percent in 1997-98. Another disconcerting aspect that

reflects the declining international competitiveness of Indian textile industry is the surge

in imports in the last two years. Imports grew by 12 percent in dollar terms in 1997-98,

against an average of 5.8 percent for all imports into India. Imports from China went up

by 50 percent while those from Hong Kong jumped by 23 percent.

CHINA:

China's investment spending in the textile industry slumped 20 percent in the first two

months of this year from the same period in 2008, the National Bureau of Statistics said.

Textile industry spending accounted for 0.9 percent of the nation's overall investment of

1.03 trillion yuan, down 0.5 percentage point from a year earlier, the statistics bureau

said. China's garment and textile exports tumbled 15 percent to $21.9 billion in the two

months from a year earlier, customs data show. Exports of yarn, fabrics and textile

products totaled $7.29 billion, down 21 percent, while apparel exports fell 11 percent to

$14.6 billion, the Beijing-based Customs Bureau said on March 11.

Textile firms, once an export engine of China, are fighting for their survival this year

with rising costs and dismal overseas market hit by the subprime crisis. Those firms

wooing foreign buyers at the 103rd China Import and Export Fair, the largest trade fair in

the country also called the Canton Fair, felt the pinch. Few buyers visited their exhibition

stall, and fewer still signed contracts. Chinese product competitiveness was not much as

it was. The reduction in tax rebates and the devaluation of the dollar have made Chinese

products 20 percent higher than what it was. The Chinese currency has ventured below

20

the seven yuan mark since the government loosened the unit’s peg to the dollar in 2005.

The yuan has gained about 18 percent since then. This has made Chinese textile products

more expensive and its price advantage has almost vanished compared with products

from Vietnam and India. The yuan appreciation, together with the rising material and

labor costs, has driven some textile firms to the brink of bankruptcy.

BANGLADESH:

Swedish Firms have Expanded Outsourcing in Bangladesh. Swedish firm engaged in

outsourcing home textiles and home furnishing items is planning to expand its operations

in Bangladesh. RMG Exports is expected to Surge despite global recession. The ready

made garment sector, one of the pillars of the Bangladesh economy, is definitely in a

positive mode despite global financial meltdown. The three-day Bangladesh Apparel and

Textile Exposition (BATEXPO) wooed foreign buyers to buy apparel products.

CAMBODIA:

Cambodia's garment industry is the country's biggest industrial employer, and is now

struggling against stiffer global competition and slowing demand. Many Chinese and

Korean companies have established a presence in Cambodia for years.  Now, more than

10 Chinese-owned factories have moved to cheaper markets, leaving hundreds of

thousands of garment workers from the provinces facing destitution, reported Phnom

Penh Times in early 2008.The garment industry earns 80 percent of Cambodia's foreign

exchange earnings and employs an estimated 350,000 people in more than 300 factories.

The industry began to grow after a the country passed a new labor laws encouraging

labour unions and allowed the International Labour Organisation (ILO) to inspect

factories and publish its findings. In turn, the United States agreed to cut tariffs on

Cambodian garment exports, buying 70 percent of all of the country's textiles in the

1990s. 

Cambodia maintained its higher working conditions after the deal expired in 2005, and

garment-making has made the national economy one of the fastest growing in the region.

The World Bank reported that the industry grew only 8.0 percent in 2007 compared to the

growth of up to 20 percent previously. The Cambodia Ministry of Commerce said that

21

the apparel exports had declined since October 2007, mainly due to the US economic

slowdown. Exports to the United States slipped 1.44 percent in the first quarter of 2008,

compared with the same period in 2007. Predicted Trend .The Cambodia's Free Trade

Union (FTU) said that the factory owners are looking abroad for greater productivity and

lower costs. Kaing Monika, Manager at the Garment Manufacturers Association of

Cambodia, commented that many manufacturers could move to Vietnam, Bangladesh or

India if they could get lower costs. Production costs, oil and power, are high in

Cambodia, and the demand for higher wages also put the country's garment industry in

danger, he said. Factory owners are also facing a proliferation of labor unions and illegal

strikes. Experts predict that in 2009 Cambodia would even see more competition when

US restrictions on Chinese textile exports are scheduled to end.  China and Vietnam are

still Cambodia's direct competitors. Cambodia's labor ministry said that to counter this

competition, Cambodia must increase productivity, quality and extend their reputation as

having high labor standards.

MAJOR MANUFACTURERS AND THEIR MARKET SHARE

In 2006, the largest apparel manufacturers and exporters were countries from the Asia-

Pacific region which included countries like China, Hong Kong, Phillipines, Malaysia,

Indonesia, Bangladesh, Srilanka, Pakistan, Thailand and India. The other major apparel

manufacturing nations were USA, Italy, Germany and Mexico.

Diagram No: 3.1 Country wise Market Share

Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)

22

GLOBAL TRADE VOLUME AND TRENDS

As the apparel manufacturing industry has become more labour intensive and requires

less capital investment, its concentration is shifting more towards the developing

countries and even constituting large amount of their exports. They are concentrating

more on developing countries as the labour cost is very less in such countries. This can be

analyzed by the fact that the apparel production in industrialized countries decreased

between 1980 and 1996, where as the production increased in developing countries

during the same period. Similar trend was seen in exports, the apparel exports of

developing countries increased six times between 1980 and 1997, and that of developed

economies rose by 150%.

The global apparel industry’s total revenue in 2006 was US$1,252.8 billion, which was

approximately 68% of the overall industry value. Asia Pacific constitutes the largest

amount of production and trade in the apparel industry worlwide.

Table No: 3.1 Region wise Share of Total Trade Revenue (2006)

Region % Share

Asia Pacific 35.40%

Europe 29.40%

USA 22.30%

Rest of the world 12.90%

Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)

China had captured 65% of the global market share towards the end of 2006 in total

apparel exports. The other major apparel exporting nations include USA, Germany, Hong

Kong, Italy, Malaysia, Pakistan, Thailand and India. Some of the apparel trade statistics

are presented below.

23

Table No: 3.2 Exports of Apparels in 2006

Country US $ Billion

China 8,260.921

Hong Kong 1,723.210

Italy 1,353.586

Malaysia 1,255.069

Germany 669.130

Pakistan 618.830

Thailand 597.758

USA 595.171

India 522.463

Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)

GLOBAL FACTORS INFLUENCING TEXTILE INDUSTRY

The history of the textile and clothing industry has been replete with the use of various

bilateral quotas, protectionist policies, discriminatory tariffs, etc. by the developed world

against the developing countries. The result was a highly distorted structure, which

imposed hidden costs on the export sectors of the Third World. Despite the fact that

GATT was established way back in 1947, the textile industry, till 1994, remained largely

out of its liberalization agreements. In fact, trade in this sector, until the Uruguay Round,

evolved in the opposite direction. Consequently, since 1974 global trade in the textiles

and clothing sector had been governed by the Multi-fibre agreement, which was the

sequel to an increasingly pervasive quota regime that began with the Short-term

arrangement on cotton products in 1962 and followed by the Long-Term arrangement.

After the successful conclusion of the Uruguay Round in 1994, the MFA was replaced by

24

the Agreement on Textiles and Clothing (ATC), which had the same MFA framework in

the context of an agreed, ten year phasing out of all quotas by the year 2005. The section

that follows takes a brief look at the history of these protectionist regimes as also a more

detailed look at the MFA and the ATC.

CHAPTER-4

INDIAN TEXTILE INDUSTRY

INTRODUCTION

The textile industry is the largest industry of modern India. It accounts for over 20

percent of industrial production and is closely linked with the agricultural and rural

economy. It is the single largest employer in the industrial sector employing about 38

million people. If the employment in allied sectors like ginning, agriculture, pressing,

cotton trade, jute, etc. are added then the total employment is estimated at 93 million.

The net foreign exchange earnings in this sector are one of the highest and, together with

carpet and handicrafts, account for over 37 percent of total export earnings at over US $

10 billion. Textiles, alone, account for about 25 percent of India’s total forex earnings.

India’s textile industry since its beginning continues to be predominantly cotton based

with about 65 percent of fabric consumption in the country being accounted for by

cotton. The industry is highly localized in Ahmedabad and Bombay in the western part

of the country though other centers exist including Kanpur, Calcutta, Indore, Coimbatore,

and Sholapur.

The structure of the textile industry is extremely complex with the modern, sophisticated

and highly mechanized mill sector on the one hand and the hand spinning and hand

weaving (handloom) sector on the other. Between the two falls the small-scale power

loom sector. The latter two are together known as the decentralized sector. Over the

years, the government has granted a whole range of concessions to the non-mill sector as

a result of which the share of the decentralized sector has increased considerably in the

total production. Of the two sub-sectors of the decentralized sector, the power loom

25

sector has shown the faster rate of growth. In the production of fabrics the decentralized

sector accounts for roughly 94 percent while the mill sector has a share of only 6 percent.

Being an agro-based industry the production of raw material varies from year to year

depending on weather and rainfall conditions. Accordingly the price fluctuates too.

The Ministry of Textiles under the Government of India has taken some significant steps

to arrest these problems. It has framed "The National Textile Policy 2000" to address the

aforesaid issues. This policy aims at negating these problems and increasing the foreign

exchange earnings to the tune of US$ 50 billion by the year 2010. It includes rational

road-maps for the development and promotion of all the sectors involved directly or

indirectly with the textile industry of India. Further, the policy also envisages to bring the

unorganized decentralized textile sector (which accounts for 76% of textile production) at

par with the organized mill sector. Furthermore, the policy also aims at introducing

modern and efficient manufacturing machineries and techniques in the Indian textile

sector

INDUSTRY SUPPLY CHAIN

The apparel industry supply chain can be broadly categorized into six major components

- raw materials, textile plants, apparel plants, export chains, retail stores and customers.

Diagram No:4.1 Supply Chain of the Textile Industry

26

Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)

CURRENT INDUSTRY SCENARIO:

Close to 14% of the industrial output and 30% of the export market share is contributed

directly by the Indian textile industry. Indian textile industry is also the largest industry

when it comes to employment that generates jobs not just within but also in various

support industries like agriculture. As per a recent survey the textile industry is going to

contribute 12 million new jobs in India by 2010 itself.

Indian textile industry is as old as the word textile itself. This industry holds a significant

position in India by providing the most basic need of Indians. Starting from the

procurement of raw materials to the final production stage of the actual textile, the Indian

textile industry works on an independent basis.

The final phase-out of the Multi-fiber Arrangement (MFA) and the system of quotas that

has governed the global trade in textiles and apparel for the last forty-two years has

significantly altered the institutional rules of trade in the textile and clothing industry.

With the elimination of all remaining quotas on apparel from January 1 2005, the textile

and clothing sector is now fully integrated into the regulatory framework of the General

Agreement on Tariffs and Trade (GATT) of the World Trade Organization (WTO).

Buyers are now free to source textile and apparel in any amount from any country;

suppliers are similarly free to export as much product as they are able, subject only to a

system of national tariffs. As global competition intensifies under the new quota-free

trading regime, countries are bracing for major changes in the structure of sourcing and

apparel supply worldwide. With the removal of the quotas, it was expected that the

developing countris, who have a major play in the textile industry will benefit themselves

as they have stable supply network, experience in networking, capacities for scaling up

and the ability to offer a full bundle of services. It was also expected that smaller

countries, which enjoyed the restriction on trade will fall out from the picture.

27

The textile sector has increased their investment in projects to upgrade their equipment

amid fierce market competition and to meet the growing demand for more textile

products. Total investment in the textile industry between 2004 and 2008 was around

Rs.65,478 crore in India, which is expected to reach Rs.1,50,600 crore by 2012. This

enhanced investment would generate 17.37 million jobs-- 12.02 million direct and 5.35

million indirect—by 2012.

Investments in the textiles sector can be assessed on the basis of three factors:

Plan schemes such as the Techno Up-gradation Funds Scheme (TUFS),

Technology Mission on Cotton, Apparel Parks, etc. Under the TUFS scheme, a

total of Rs 916 billion has been disbursed for technology up gradation. There are

around 26 Apparel Parks in eight states in India, with a total estimated investment

of Rs 134 billion

Industrial Entrepreneurship Memorandums implemented from 1992 to Aug 06,

amounting to Rs 263 billion

Foreign Direct Investments inflows worth US$ 910 million have been received

by the textile industry between Aug 91 and May 06, which account for 1.29% of

total FDI inflows in the country.

Though significant investments are being made in the textiles segment, the bulk of them

are in the spinning and weaving segments. A cumulative total of US$ 6.67 billion in

investment was done in 2008. Of this, more than two-thirds is in the spinning and

weaving segments, while only 25% is in processing and garment units

The elimination of global textile quotas is expected to drive garment production to China,

benefiting consumers in North America and Europe at the expense of developing nations

where apparel manufacturing has become a bridge to an industrial economy. Africa

received record high foreign direct investment (FDI) inflows in 2005 of US$31 billion,

but this was mostly concentrated in a few countries and industries. The textile sector has

increased their investment in projects to upgrade their equipment amid fierce market

competition and to meet the growing demand for more textile products.

28

The global fibre industry will continue to shift to the Asia/Pacific region, particularly

China, South Korea and Taiwan. Textile trade in the world is estimated to be around US$

300 billion currently. Industry experts predict that by 2014 the facilities in the west will

close down and they will source their textiles from more efficient areas of the world

resulting in the trade volume of around US$ 800 billion.  The Indian textile industry,

which has accelerated to an annual growth of 9-10 per cent, is expected to grow at a rate

of 16 per cent in value terms and reach a level of USD 115 billion by 2012. With 8.6%

growth rate, Turkey also recorded a very strong average annual growth rate of its textiles

and clothing exports but from a much lower basis. It could increase its exports from 8.6

to 17.6 billion US-Dollars. Pakistan exports amounted to 9.9 billion US-Dollars in 2005

which translates into an average annual growth rate of 5.4%.

As of now, the general impression any individual would get about the Indian textile

industry leaders in the past few months is that it is in a major decline state. The following

could be the reasons that attribute to this decline.

Global recession

Less export orders due to reductions in inventories by global retail giants like

Wal-Mart

Rising price of raw materials like cottons

Infrastructure bottlenecks such as power, particularly in Tamil Nadu

In the times of adversity, like what we are facing right now, it is an immediate task for all

stake holders to pause for a moment and take stock of the difficulties and chart plans for

sustainability and growth of the Indian textile industry.

With the opening of world markets and the abolition of textile quotas since 2005, there

came a negative situation as well. But, hindsight is always 20-20. Indian textile industry

should have focused on all major sectors right from fibre to fashion and planned for an

organized growth across the supply chain so as to compete with China and even countries

29

such as Pakistan, Vietnam and Thailand, which are also growing from the textile

perspective. Instead, the industry had put majority of its stock in the spinning sector. This

is clearly evident in the utilization of Technology Upgradation Fund Scheme effectively

by the spinning sector. Although it is a positive outcome, the industry did not focus on

many other value adding segments such as weaving and finishing. Indian powerloom

sector, which enables value-addition is a highly unorganized industry and needed major

upgradation. As of now, the powerloom segment is also picking up where in many of the

unorganized powerlooms are becoming organized. Technical textiles sector is still in its

infancy and a tangible growth will be highly visible by 2035 when the growth in this

sector will be exponential.

The weak links in the Indian conventional industry such as weaving and finishing have to

be strengthened. There must be consolidated efforts by Indian Textile Machinery

Manufacturers Association, end-users and the Government to undertake a major step and

come-up with alternatives to European Machinery, which the Indian weaving sector can

afford. This should be put into practice within the next five years, if dedicated efforts are

undertaken with the financial support for R & D by the Government through its various

schemes. Technical textiles sector must transform from a non crawling phase to at least a

crawling industry in the next three years. General awareness on nonwoven and technical

sectors has been created with the recent marathon training workshops and conferences

such as, "Advances in Textiles, Nonwoven and Technical Textiles", organized for the

past five years in Coimbatore by Texas Tech University, USA and those such as the

Texcellance and IIT's Technical Textiles conferences. These have put India on the

international map in technical textiles. These conferences are of less use if they do not

translate into investments and new projects.

TEXTILE INDUSTRY BENEFITS OTHER INDUSTRIES TOO

The pursuit of a better fibre and a better fabric is yielding products used in medicine,

aeronautics, astronautics, seawater desalination, and construction of buildings and roads.

The new kinds of textiles possess characteristics that make them useful in numerous

formerly unexpected applications. Although textiles are still the major component of the

clothes we wear and of many furnishings in our homes and offices, they are also used

30

widely in medicine, aeronautics, astronautics, pollution abatement, and numerous other

fields. Innovation in textile technology continues and more unusual products will almost

surely emerge.

MEDICAL

Certain fibres and textile materials are especially suitable for use in building synthetic

body parts and medical scientists are steadily expanding the types of body parts whose

function can be mimicked. The artificial kidney is made from 7,000 hollow fibres, each

of which is about the size of a human hair. Patients whose kidneys no longer function

normally must have their blood freed by dialysis of metabolic wastes and excess water

about every three days. This is accomplished by pumping the blood through a textile,

hollow-fibre module while clean-sing solution rinses the blood free of urea. Patients with

diabetes have a tendency to suffer from cholesterol blockage of arteries leading to their

feet. If not corrected, poor circulation can lead to gangrene and loss of limbs. Artificial

arteries that look like pencil diameters are surgically inserted to bypass the blockages,

thus restoring circulation and saving limb functions. These implants require crucial textile

technology to prevent clotting and rejection. It is estimated that more than 150,000

people in the United States have now had these artificial arteries for over five years.

SPACE

NASA space suits for launch and for space walks require zero-defect performance. The

launch suits are made from PBI non-flammable high-performance fibres. The space-walk

suits have different requirements. They require air-purifying, cooling, and pressurizing

systems. Each suit is tailor-made for a particular astronaut and costs $1-1.5 million. Since

the astronaut is under an oxygen pressure of eight pounds per square inch in this suit,

special flexibility is needed to allow him or her to bend an elbow or grasp an article.

Rocket exhausts and nose-cone covers for space shuttles are made of carbon and other

high-performance fibres. These protect the vehicles from heat from air friction during

launch and re-entry. The flames generated on the launch pad do not ignite the rocket

because of the flame-resisting properties of graphite carbon-fibre-textile exhaust shields.

31

Similarly on re-entry, the white-hot temperatures from atmospheric friction do not

consume the shuttle because high-performance fibre and ceramic structures provide

protection.

AERONAUTICS

Airplane parts, other than body construction, are also made of textiles. All U.S.

commercial jets have brakes made from carbon composites. These are the only materials

that can withstand the extreme high temperatures generated if takeoff is aborted.

Stopping a plane weighing many tons in a short distance generates temperatures high

enough to melt metals, making carbon brakes indispensable for heavy jets. Kevlar non-

woven felt liners are now used as fire barriers to cover the urethane foam seats on all

aircraft to prevent the production of highly toxic cyanide gases when such foams burn

during airplane accidents.

PURIFICATION OF WATER AND AIR

Whole-body gas suits are required to protect soldiers from the chemicals used in gas

warfare today. These chemicals can kill by absorption into the bloodstream through skin.

The suits allow for transport of perspiration moisture to prevent soldiers from being

overcome internally as would occur from a non-permeable film covering. It is well

known to chemists that a cube of activated charcoal powder measuring one inch on each

side has an adsorptive capacity equal to a football field. It was therefore believed that

properly constructed porous carbon fibres could exhibit superior gas-adsorption

capability. Drinkable sea water is now available through properly prepared hollow fibre

reverse osmosis modules. Sea water is forced through these modules under a pressure of

400 pounds per square inch. Pure drinking water passes through the hollow fibre wall

while concentrated salt water exudes out of the end. Concentration of liquids that

normally deteriorate from heating is possible with reverse osmosis fibres and membrane

systems. Many liquids, including orange juice and tomato juice, can be concentrated by

pressure without heat to preserve the thermally unstable flavour ingredients. Most

orange-juice concentrate on the market today is prepared this way. Similarly

32

concentration of gases can be achieved by proper use of membrane and fibre

composition. Gas-separation systems are currently in use at most U.S. petroleum

refineries.

CONSTRUCTION MATERIALS

Super domes and stadiums are being constructed with roofs of silicone-coated fibreglass.

This is particularly important in northern areas where heavy snowfall has caused the

collapse of heavy concrete roofs. At the Hubert Humphrey dome in Minnesota, 800,000

square yards of such material in two layers allow warm air to be circulated to melt the

snow. At an air terminal in Saudi Arabia, a multi-funnel design allows circulation by

convection of the air up through hollow top ports. Many shopping malls are turning to

these flexible composites to allow for more freedom in architectural design, improved

aesthetics, better air circulation, and better light transmission.

Rapid technological advances in the textile industry have opened now opportunities for

many technical disciplines, but have resulted in a shortage of textile chemists, textile

engineers, and textile-management executives. Some U.S. colleges with textile-

engineering programs report that they could place nearly three times as many students in

well paying jobs as they are currently graduating. Together with a bright outlook for

further rapid advances and new products with unusual but useful properties, this shows

that textiles remain among the most dynamic contemporary sectors in technology.

33

CHAPTER-5

INDIA’S COMPETITIVENESS

CONTRIBUTION TO ECONOMY:

With 3.9 million handlooms, India is the highest handloom producing country in the

World. 30% of the total export income is generated by textile alone, it is second largest

Employer industry after agriculture. The textile industry constitutes approximately 14%

of country's total industrial production.

THE WORLD MARKET SHARE

In spite of the Chinese dominance, India has a fair opportunity to grab a substantial stake

in the projected garment market share. According to PHD Chamber of Commerce and

Industry (PHDCCI), post-MFA, India's market share in the US is expected to go up to 15

per cent from the present 4 per cent. In the EU, the market share increase is expected to

be 50 per cent from the current 6 per cent to 9 per cent

Table showing the India’s Competitiveness with Other

Country

There is no denying India is competitive enough and will become even more competitive

once its infrastructure issues are sorted out. China has probably already reached its peak

and further improvements may not be as dramatic, henceforth

34

Table No: 5.1 Countries and their positive and negative aspects with regard to textiles

Key countries / regions

Key positives Key negatives

China Efficient, low cost, vertically integrated

Growth at the cost of profits

India, Pakistan Vertically integrated, low cost

Lacks economies of scale and

infrastructure support

Mexico (NAFTA), Turkey

Proximity to market, duty and quota free

Lack China and Indias degree of

competitiveness

ASEAN (Vietnam, Cambodia, Indonesia)

Cheap labor No other cost or locational advantage

AGOA (African) countries, Bangladesh

Quota and tariff free, cheap labor

Lacks integration and China and Indias

degree of competitiveness

Hong Kong, Korea, Taiwan

Trading hubs proximity to China

No cost advantage, protected currently by

quotas

USA and EU Non-quota barriers likely to prove irritant

to imports

US$ 400 bn trade loss likely ov

Source - Industry, I-SEC Research

35

Indian Textiles targets- 11th Five year Plan (2007-2012)

Market size of US$ 115 Billion

Export target US$ 55 Billion

Domestic market US$ 60 Billion

India’s market share in world textiles trade to grow from 3% to 8 %

12 Million additional jobs

Investment Rs.150,600 Crs

Table No:5.2 Textiles Export Target (In Billions)

Year ( April March) Target Achievement

2006-07 19.73 19.62

2005-06 15.565 17.80

2004-05 15.16 13.04

2003-04 16.31 13.16

2002-03 15.05 12.41

2001-02 13.72 10.76

Source: Textile India Progress

Top 10 Exporters (Textile)

Country 1990 1997

Billion US$ % share Billion US$ % share

Hong Kong 7.99 7.68 14.6 9.42

China 7.10 6.82 13.83 8.92

South Korea 6.04 5.81 13.35 8.61

36

Germany 14.00 13.46 13.05 8.42

Italy 9.80 9.43 12.9 8.32

Taiwan 6.13 5.90 12.73 8.21

USA 5.03 4.83 9.19 5.93

France 7.21 4.65 5.86 5.64

Belgium-

Luxembourg6.54 6.29 7.01 4.52

Japan 5.88 5.65 6.75 4.35

Top 10 Exporters (Apparel)

Country 1990 1997

Billion US$ % share Billion US$ % share

China 9.41 9.14 31.8 21.06

Hong Kong 15.37 14.92 23.11 15.30

Italy 12.07 11.72 14.85 9.83

USA 2.57 2.49 8.68 5.75

Germany 7.82 7.59 7.29 4.83

37

Turkey 3.44 3.34 6.7 4.44

France 4.65 4.51 5.34 3.54

UK 3.08 2.99 5.28 3.50

South Korea 8.11 7.87 4.19 2.77

Thailand 2.86 2.78 3.77 2.50

Total (top 10) 69.38 67.36 111.01 73.52

World 103.00 100.00 151.00 100.00

Multifibre Arrangement (1974-94) under which countries whose markets are disrupted by

increased imports of textiles and clothing from another country were able to negotiate

quota restrictions. The MFA was introduced in 1974 as a short-term measure intended to

allow developed countries to adjust to imports from the developing world. The textiles

and clothing industry was, until recently, the only major manufacturing industry that was

not subject to the rules of the General Agreement on Tariffs and Trade (GATT). Instead,

it was subject to extensive use of quotas by the major importing countries. The quota

system started with the Long Term Agreement Regarding International Trade in Cotton

Textiles (LTA) under the auspices of the GATT in 1962. In 1974 the LTA was extended

to cover other materials than cotton, and became known as the Multi-Fibre Agreement

(MFA). At the end of the Uruguay Round of negotiations it was agreed that t countries

wishing to retain quotas would commit themselves to phasing them out gradually over a

10 year period, with the last quotas being lifted 1st of January 2005, as stated in the

Agreement on Textiles and Clothing (ATC).Developing countries have a natural

advantage in textile production because it is labor intensive and they have low labor

costs. According to a World Bank/International Monetary Fund (IMF) study, the system

has cost the developing world 27 million jobs and $40 billion a year in lost exports. At

38

the General Agreement on Tariffs and Trade (GATT) Uruguay Round, it was decided to

bring the textile trade under the jurisdiction of the World Trade Organization. The textiles

and clothing (T&C) industry is considered to be an opportunity for the industrialization

of developing countries in low value added goods. The industry is labor intensive and

thus requires a large number of unskilled workers, including a high share of female

workers. The end of the MFA in 2005 will change international trade significantly and

lead to a restructuring of the sector worldwide. This restructuring process will result in

major employment shifts within and between countries. However, the last three decades

have seen various changes in the clothing and textile sector, thus forcing many countries

to adjust to a constantly altering environment. Now, a number of countries fear that a new

wave of cheap textile and clothing products will flood their markets, threatening their

domestic industries that are not adequately prepared to face the new challenge. There are

also those countries that hope for new export opportunities as a result of a free quota

trade environment and a third set of countries that will lose their preferential access to the

US or EU markets, thus facing higher competition for their exports to them. However,

large tariffs remain in place on many textile products. However, the last three decades

have seen various changes in the clothing and textile sector, thus forcing many countries

to adjust to a constantly altering environment. Now, a number of countries fear that a new

wave of cheap textile and clothing products will flood their markets, threatening their

domestic industries that are not adequately prepared to face the new challenge. There are

also those countries that hope for new export opportunities as a result of a free quota

trade environment and a third set of countries that will lose their preferential access to the

US or EU markets, thus facing higher competition for their exports to them.

CONCLUSION:

India has been repeatedly cited as a major potential beneficiary of the post-quota regime.

The implementation of the ATC, meant as a transition period to full integration of the

T&C sector, occurred in a back-loaded fashion. Before the ATC took effect, a significant

portion of textile and clothing exports from developing countries to the industrial

countries was subject to quotas under a special regime outside normal rules of the

General Agreement on Tariffs and Trade (GATT). These former Multi-Fiber Agreement

39

(MFA) quotas, when carried over into the ATC on January 1, 1995, represented the

starting point for an automatic liberalization process. Liberalization was to be in four

stages, with half of the integration to take place in the first three stages (1995-2005) and

the second half to take place in the final phase in 2005.Famously inward-looking till the

1980s, the Indian textile and clothing industry has become increasingly integrated into

global markets since the late-1980s and 1990s, emerging as one of the top ten global

exporters of textiles and clothing after 1998. India’s apparel exports grew at an average

compound rate of 22% per year throughout the 1980s (Chatterjee and Mohan 1993), and

by about 13% in the 1990s (United Nations Statistical Division, 2005). By 2003, India

exported more than $13.5 billion worth of textile and apparel, up fifteen-fold from the

$0.9 billion it exported in 1985, when apparel exports were just taking off (United

Nations Statistical Division, 2005). This export growth, though slow in comparison to

exporters like China, is impressive because it occurred despite the persistence of many of

the factors that observers have cited as shackling Indian productivity in textiles and

apparel: technological obsolescence, fragmented capacities, low scales of operation, lack

of an exit policy, and rigid labor laws. The domestic reforms of the mid-1980s were

critical in triggering growth in the apparel and textile sector. Their initial focus on

investment and technical upgrading in the textile and apparel sector created a tier of

strong domestic firms in the spinning and apparel sector that increased investment,

modernized their technical base, diversified their product mix and over time emerged as

leading exporters. Trade liberalization of the 1990s deepened the processes that had the

process of deregulation had already begun in 1985 and thus India’s textile and apparel

industry went through many transitions and in the present context is impressive.

40

CHAPTER-6

INDIAN SUPPLY DEMAND SCENARIO

Textile engineering enjoys good growth in the country. The business in 2004-05

amounted to Rs 1,650 crore, which was a Rs-250 crore increase from the year-ago level.

Despite the Bull Run, textile industry is running short of machinery. Today, textile

companies have to wait one or two year for delivery of machines, whereas, orders are

completed within 10-12 months. This growing demand is a tough challenge to cope with

for Lakshmi Machine Works (LMW), Coimbatore. It takes 18 months to fulfill new

orders, but R. Rajendran, spokesperson for LMW, expects the delivery time to be cut

down to 10-12 months in 2006-07 with its new capacities. Two reasons forwarded for the

delay in delivery of machines: textile companies are expanding capacities rapidly and

pace of supply of machinery not in tune with the current demand.

Second reason is the Technology Up gradation Fund Scheme (TUFS) of the Textile

Ministry is likely to end by March 2007. As a result, textile companies wishing to make

the most of the scheme are rushing to place orders for the machines, says C V

Radhakrishnan, Advisor, Textile Machinery Manufacturers Association.

Considering the development of textile industry, India would need 12 million spindles in

the next five years, whereas only 10 million spindles would be provided by domestic

textile engineering industry.

In 2008, the Indian textile industry suffered from overcapacity. There was talk that a

consolidation in the local industry would inevitably have to take place if India is to

41

remain competitive in textiles, but there was also talk that the government may offer a

U.S.-styled bailout of the Indian textile industry in order to keep employment levels high.

These conflicting signals continue to make an assessment of the Indian textile sector

difficult to make.

Chapter-7

FASHION APPAREL INDUSTRY OVERVIEW

The global fashion apparel industry is one of the most important sectors of the economy

in terms of investment, revenue, trade and employment generation all over the world.

Apparel industry has short product life cycles, tremendous product variety, volatile and

unpredictable demand, long and inflexible supply processes. The industry has been in a

transition over the last 20 years. Some of the major contributors are significant

consolidation in retail, increasing use of electronic commerce in retail and wholesale

trade.

The clothing and apparel industry produces finished clothing products made from both

natural and manmade fibers like cotton, silk, wool, linen, polyester, rayon, lycra and

denim. The important segments covered in apparel industry includes children clothing,

mens clothing, clothing for women, bridal wear, mens wedding wear and intimate

apparel. The apparel is sold through three major channels, which are brick & mortar,

catalog and through internet.

Table No:7.1 Apparel Sales by Channel

Category Sales in $ Billion Market Share (%)

Brick and Mortar 169.256 92.9

Catalog 7.177 3.9

Online/ Internet 5,873 3.2

Total 182.306 100.00

42

Source: www.fashionproducts.com (http://www.fashionproducts.com/fashion-apparel-overview.html)

INDUSTRY CHALLANGES

The Apparel Industry is growing at a very high rate but still there are some barriers,

which are hindering the growth of this industry. Some of them are:

• Though the demand for garments is increasing day by day but the production rate has

still not been able to match with the ever rising demand. More production facilities are

needed to meet the demand

• Most of the raw material needed for apparel manufacturing is available in the

developing or under developed countries and these countries do not have enough

resources and manpower to explore them. These countries also do not have finance to set

up factories for clothing and garment production

• Globalization has helped the trade in many ways but due to globalization the

competition has increased and so it is not very easy for the firms to cope up with so much

competition, as they have to meet the deadlines and also maintain quality

• The importers of developed economies are facing very stiff competition as countries

like China are producing good quality products in low prices due to availability of very

cheap labour

• Some trade laws still are very much in favor of developed countries and they need to be

reviewed, to facilitate imports from the developing countries

43

• As apparel industry is fashion driven, and fashion keeps changing, the firms have to

cope with the changing apparel industry trends and still complete orders in time. Thus

they usually have to work under pressure

National Textile Policy 2000:

ON NOVEMBER 2, the Government announced the New Textile Policy (NTP),

outlining measures to make India a global player in textiles and readymade garments by

raising exports from $11 billion to $50 billion by 2010. Of this, the share of readymade

garments will be half. The Government has decided to de reserve the garment industry

from the SSI category to make the former internationally more competitive. Till now, the

garment sector was under SSI reservation, with an investment ceiling of Rs 3 crore, and

the maximum foreign direct investment limit of 24 per cent.

There are two more modifications. First, the FDI limit of 24 per cent has been removed,

and foreign companies will be able to make 100 per cent investments through the Foreign

Investment Promotion Board (FIPB) route. Second, the 50 per cent export obligation on

firms with foreign equity has been done away with.

The Government intends to implement, in a time-bound manner, the Technology

Upgradation Fund Scheme covering all manufacturing sectors of the industry. According

to the Textiles Minister, Mr Kashiram Rana, response to this scheme is improving, and

proposals worth Rs 11,000 crore were received.

According to the RBI, exports of readymade garments in the 11 years from 1987-88 to

1998-99 rose from $1,430 million to $4,444 million -- more than threefold. The annual

average growth rate readymade exports during this period were 10.9 percent, against the

overall export growth rate of 9.7 percent.

44

Exports of readymade to the developed countries are improving. Against exports of $427

million to the US, in 1987-88, they touched $1,503 million -- again, more than threefold--

in 1998-99. There have been similar increases in despatches to the UK, Germany, France,

Canada, Italy, Japan and the Netherlands. There was a decline in exports to the

Commonwealth of Independent States (CIS) because of the unstable conditions.

India was also able to capture markets in developing countries, especially the UAE. The

rising trend of readymade garment exports, even to the most developed countries, proves

beyond doubt the competitive ability of the small sector.

TECHNOLOGY UPGRADATION FUND SCHEME (TUFS):

Government of India, Ministry of Textiles has launched a Technology Upgradation Fund

Scheme (TUFS) for the Textile and Jute Industries, which is in operation since

01.04.1999 for 5 years i.e. up to 31.03.2004. There is no cap on funding under this

scheme. It is an open-ended scheme depending on the capacity of the industry to absorb

funds in bankable and techno-economically feasible proposals.

The main features of the TUFS are given below: -

i) The scheme provides a reimbursement of 5% point on the Interest charged by the

lending agency on a project of Technology Up gradation in conformity with the scheme.

ii) The identified sectors in the textile industry viz. Cotton ginning and pressing,

spinning/silk reeling and twisting/wool scouring and combing/ synthetic filament yarn

texturising, crimping and twisting, manufacturing of viscose filament yarn (VFY) /

Viscose Staple Fiber (VSF), weaving/knitting including non woven and technical textiles,

garments/made-ups, Jute industry are eligible to avail of these concessional loan for their

technology up gradation requirements. Investments in common infrastructure or facilities

owned by the association, trust or co-operative society of the units participating in the

TUF Scheme and other investments specified are also eligible for funding under the

scheme.

45

iii) Technology levels are benchmarked in terms of specified machinery for each sector

of the textile industry. Machinery with technology levels lower than that specified will

not be permitted for funding under the TUF Scheme.

iv) General eligibility condition and sector specific eligibility conditions have also been

specified in the scheme.

v) Nodal agencies for the scheme are as follows: -

For the Textile Industry (excluding SSI sector) – IDBI

For the SSI Textile Sector (Cotton Ginning & Pressing, Weaving, Knitting, Processing &

Garmenting Manufacturing) - SIDBI

For Jute Industry - IFCI

vi) The interest @5% would be reimbursed to the respective nodal agency through the

budget (plan) provisions of the Ministry of Textiles.

vii) The functioning of the scheme is being periodically monitored by TAMC Chaired by

Textile Commissioner and Inter-Ministerial Steering Committee, Chaired by Secretary

(Textiles).

viii) A special cell has been set up in the financing institutions for expeditiously

processing loan application received under the scheme.

ix) All the 18 SFCs, 17 SIDCs and 11 Twin function IDCs, EXIM Bank and NCDC have

been co-opted by SIDBI and IDBI. Further SIDBI has co opted 81 commercial banks, 12

coop. banks and NSIC and IDBI has co-opted 36 commercial banks, 1 co-operative bank

and 4 AIFIs (IFCI, ICICI, IIBI and LIC) have also been co-opted by IDBI. IFCI has co-

opted 3 SFCs, 1 SIDC, 6 commercial banks, 3 AIFIs and Exim Bank for financing jute

industry under the scheme.

x) An option has also been provided to the Small Scale Textile and Jute Industries to

avail of either 12% Credit Linked Capital Subsidy (CLCS) or the existing 5% interest

reimbursement under the TUFS. CLCS-TUFS will be in operation from 1st Jan., 2002 to

46

31st March, 2004. There is no distinction between public sector, co-operative sector or

private sector mills under the scheme, if project proposal is bankable and techno

economically feasible.

Indian textile industry should have focused on all major sectors right from fibre to

fashion and planned for an organized growth across the supply chain so as to compete

with China and even countries such as Pakistan, Vietnam and Thailand. Instead, the

industry had put majority of its stock in the spinning sector. This is clearly evident in the

utilization of Technology Upgradation Fund Scheme effectively by the spinning sector.

Although it is a positive outcome, in my opinion, the industry turned a blind eye on

value-adding sectors such as weaving and finishing.

TEXTILE WORKERS’ REHABILITATION FUND SCHEME (TWRFS):

Textile Workers’ Rehabilitation Fund Scheme came into force with effect from 15th

Sept. 1986.The objective of TWRFS is to give interim relief to the workers rendered

jobless due to permanent closure of the mills. Another reason also was to curtail the

widespread disguised employment in the textile industry. Relief under the scheme is

available only for 3 years on a tapering basis, 75% of the wage equivalent in the first

year, 50% in the second year and 25% in the third year.

The government has established various research associations for the textile industry like

Ahmedabad Textile Industry Research Association, Ahmedabad

Bombay Textile Research Association, Mumbai

South India Textile Research Association, Coimbatore

Northern India Textile Research Association, Ghaziabad

Silk and Art Silk Mills Research Association, Mumbai

It has a few export promotion councils also like

o Handloom Export Promotion Council, Madras

47

o Apparel Export Promotion Council, New Delhi

o Cotton Textile Export Promotion council, Mumbai

o The Synthetic and Rayon Textiles Export Promotion Council, Mumbai

o Indian Silk Export Promotion Council, Mumbai

o Wool and Woollens Export Promotion council, New Delhi

o Carpet Export Promotion Council, New Delhi

o Export Promotion Council for Handicrafts

o Powerloom Development & Export Promotion Council

CHAPTER -8

COMPANY PROFILE

India being one of the fastest growing economies of the world, which has both positively

and negatively, affected the Indian apparel industry. On one hand it has become a major

retailing hub and a host for various multinational companies on the other hand this has a

negative effect on the domestic players. The emergence of mall, brand slavery, fashion

awareness, rise in the income level has further reinforced the competition among the

multinationals and the domestic players and has lead to opening of number of retail

outlets in India.

The introduction of VAT and the growth of organized retail industry are also likely to

push up growth in the textiles and apparel sector domestically too. While the garments

business will pose its own set of challenges in terms of providing flexibility in operations

and dealing with labor productivity issues, an increasing contribution to revenues from

the garments business, which is less capital-intensive and margins-accretive, would augur

well for earnings growth.

GOKALDAS EXPORTS

48

Incorporated in 1979, based in Bangalore, it’s one of India's largest manufacturers and

designer of garments for men, women and children and caters to the needs of several

international fashion brands and retailers. Gokaldas Exports has been a major player in

the readymade garment industry across the globe.

In the present Indian fashion retailing, Gokaldas has grabbed a distinguished place for

itself in the form of "The Wearhouse" catering to the specific fashion needs of the people.

The Wearhouse has high profile outlets in Bangalore, Chennai, Hyderabad and

Coimbatore.

An ISO 9001:2000 Certified Company has a capacity to produce and export 2.5 million

garments a month.

The Group's products include coats, suits, jackets, parkas, windcheaters, ski wear; warm-

ups, surf wear, swim wear; trousers, shorts; casual wear shirts, ladies blouses and dresses

for customers in international market. It mainly operates in India but exports its products

to countries like the United States of America, Canada, Mexico, United Kingdom,

Germany, Austria, Spain, Italy, France, Netherlands, Middle East, South Africa, Japan,

Denmark, Taiwan and Hong Kong. A few of the manufacturing units are 100% export

units with capabilities of mass production. They have the license to import duty-free

fabrics and accessories from all over the world for re-export. It has over 48,000

employees who work in around 48 fully equipped, modern, manufacturing factories.

ARVIND BRANDS

Arvind Mills Ltd. was incorporated in 1931 with share capital Rs.2525000 ($55000) in

Ahmedabad by the Lalbhai group. The Company's operations are divided into the Textile

Division, telecom division and garments division. We will be majorly concentrating on

the garments division. Products manufactured are dhoties, sarees, mulls, dorias, crepes,

shirtings, coatings, printed lawns & voiles cambrics, twills gabardine etc. Arvind Brands

is part of the Lalbhai Group, which holds licenses for leading international brands such as

Arrow, Lee, Wrangler, Gant and Tommy Hilfiger for retail and wholesale sales in the

local market. Its mainstream brands are Excalibur and Flying Machine.

49

In addition, it owns an array of casual sportswear and denim brands marketed in India,

including Flying Machine, Newport and Ruf & Tuf jeans and Excalibur shirts along with

licensed relationship with various international brands like Nautica, Jansport, Kipling,

Hero by Wrangler, Lee Riders and Tommy Hilfiger, and joint ventures with VF

Corporation and Diesel.

But the company is facing severe competition from major brands like Louis Philippe,

Park Avenue and small brands like Trigger and Blackberrys.

It produces about 110 million meters of denim every year and the garment section is

doing extremely well because of the customer loyalty it enjoys. The demand for jeans, in

particular, is expected to rise, as manufacturing companies in the US have shut

operations.

KOUTONS

The winner of “ best retailer leadership award 2008” organized by retail congress,

Mumbai, Koutons Retail India Limited engages in the design, manufacture, and retail of

men’s wear and integrated apparel in India. It currently sells its apparel using the

“Koutons” and “Charlie Outlaw” brands. Mr. Kohli along with his brother in law Mr.

Sawheny partnered to set up Charlie's Creation.

In 1997 the Company diversified its business by introducing non-denim trousers in the

existing product range of denim apparel. The company has inaugurated its 89th family

Store in Hyderabad, which it claims to be its largest store in the country. Koutons India

has an annual finishing and manufacturing capacity of 22.92 million pieces and 12.36

million pieces of apparel, respectively. The capacity utilization for the same was 41.21%

and 21.99% respectively at the end of FY2007.Koutons has 18 manufacturing/finishing

units and 14 warehouses spread across various locations in and around Gurgaon. The

company's strategy is to have small, but more stores. This helps to save costs and at the

same increase reach of the company. The company has a phenomenal growth record.

ZODIAC

50

Zodiac Clothing Company Ltd manufactures, exports and imports garments, textiles

accessories etc. Zodiac has been in the apparel business for a period of 50 years by now

and is known for its quality shirts. Zodiac, is today, the largest selling shirts & tie brand

at Shopper's Stop according to Brand Equity (The Economic Times)

The Company started business in 1954 and export of readymade garments to Europe

started in early '60s, which included mainly ties and shirts. For many decades, Zodiac has

been synonymous with ties. The business of ties is a high fashion business and Zodiac

has taken this to new highs in India and across the globe. In fact, one can say that in India

Zodiac is generically associated with ties. Following Zodiac's huge success with ties, the

company entered the arena of men's accessories with Cuff links, Belts, Wallets and

Handkerchiefs.

In 1973, Zodiac had a stand-alone exclusive shirt shop in Hotel Taj in Mumbai. The

company then entered the domestic shirt segment in late '80s.It employs around 3500

people in 7 manufacturing units in 16 offices located in UK, US, Germany, UAE etc.

Each manufacturing unit is spread over 35000 sq.ft and has modern equipment to spread

60 yards of cloth at a time. All the manufacturing units are same in design and layout.

Quality is maintained throughout the 40 stages of assembly line. All the units have their

own power generating units in order to be efficient. It has its own 80 exclusive outlets

and around 2000 multibranded outlets. Its continuously showing profit and has a

consistently growing export business.

HOUSE OF PEARL

House of Pearl Fashions Limited is a multinational ready to wear apparel manufacturing

company. The company also provides supply chain solutions for the fashion industry

globally along with warehousing & distribution networks in the UK & US. It operates in

11 strategic locations in six continents. It has two brands Kool hearts, DCC in the United

States of America. The brand Kool hearts focuses on the young fashion, where as the

focus of DCC is more towards the Missy segment

It basically deals with 3 streams which are manufacturing to Retailers, souring solutions

for retailers, Marketing, Distribution & Branding for Retailers. It takes care of the whole

51

process from design & development, manufacturing or sourcing till offering a range of

pre retailing services, warehousing to delivering at the door step on a call off basis. It

manufactures a broad range of products comprising of knits, woven, sweaters and

bottoms in basic as well as complex designs.

It has a good manufacturing capacity; the present in-house manufacturing capacity of the

company is twenty million pieces. Per annum spread over more than 725,000 sq feet of

built up area with efficiently designed layouts to ensure smooth flow of materials. The

company is planning to double the capacity by expanding the operations in Chennai,

Bangladesh & Indonesia. It intends to have a capacity of 30million pieces by the end of

2009.

The company adopts integrated marketing techniques and has merchandising teams in

Canada, Europe, HK, UK, and US, closely interacting with existing and potential

customers at their doorstep.

The Company shares were listed on the stock exchanges first time in Feb, 07. It recently

went for a joint venture with LERROS, a premium apparel brand from Germany.

HARIA EXPORTERS

Haria Exports Ltd. is a leading garment exporter in the country for the last twenty four

years. It is a Star Trading Company and has won the golden status certificate in the year

1999. This company occupies a unique place in the industry of the by its contribution to

Industrial output, employment generation and Foreign exchange earnings. Even though

the textile industry has the distinctive advantage in respect of raw material and skilled

labor, the industry is suffering from technology obsolescence which in turn affects the

quality, productivity and cost effectiveness. The high capital cost is impeding the process

of Hi- Tech up gradation. Therefore, the Government of India, Ministry of Textile has

launched Technology Up gradation Fund Scheme for Textiles & Jute Industries of

Rs.25000.00 crores at a concessional rate of interest of appx.5%. In order to compete

with the outside world, the company is paying attention to the application of technology,

closely following up the fashion trends and improved product quality. In order to be more

cost efficient the company has acquired latest machinery which ascertained exact

52

material consumption depending upon the style and pattern. The Government policies,

interest rates, export incentives etc may also affect the overall performance of the

company, but even then the company is optimistic about its revenue and growth.

EVINIX

The company started in 1996 with the manufacture of headgears, baseball caps and high

altitude jackets, using cotton textile and leather, mainly for exports. The company was

incorporated on 1st May 1996 as Evinix Fashion Accessories Private Limited under the

Companies Act, 1956.

Mr. Sanjay Taneja, brother of Mr. Raujeev Taneja (the original promoter of the company)

joined the Company as a Promoter replacing Mrs.Anuradha Taneja, who disassociated

herself from the company. The name of the company was changed to Evinix Accessories

Private Limited from Evinix Xsesryz and a fresh Certificate of Incorporation dated 20th

March 2003 was taken. In March 2005, M/s Ambros Exports Private Limited took equity

stake in the company.

The apparel category constitutes men and women’s shirts, trousers, skirts and tops,

kidswear and nightwear. Organic cotton wear for expecting mothers and infants is an

additional strength. They use Organic cotton and its products through its brand name

“Othentix”- Authentic Sustainable Textiles, lends a unique personality to each garment

manufactured and supplied by Evinix.

The company came out with a principle of Rapid Retail suggesting that every

merchandise has a limited shelf life at CUT stores; CUT is an acronym for Comfortable,

Urban and Trendy. Evinix is setting up CUT stores (averaging 4000-5000 sq feet) in fast

urbanizing young Indian towns. It recently launched the CUT youth style store in Rajkot.

The Rapid Retail business concept embraces the e.t.o.a.d concept i.e. the exact time of

awaited departure when the product will move out to the next best price bracket.

PEARL GLOBAL

53

Pearl Global Limited was incorporated on 23rd October, 1979 under the name Pearl

Agencies Private Limited. The Company became a Deemed Public Company with effect

from 1st July, 1991 The name of the Company was change to PEARL GLOBAL

LIMITED (PGL) on 2nd September, 1993 in terms of Section 21 of the Companies Act,

1956 as per fresh Certificate of Incorporation issued by the Registrar of Companies,

Delhi & Haryana. PGL manufactures, sells, and exports ready to wear apparel in India.

The company primarily produces garments in woven and knitted fabrics. Its products

include casual wear dresses, ladies’ blouses, and bottoms. The company is based in

Gurgaon, India. PGL is a subsidiary of House of Pearl Fashions Limited.

BANG OVERSEAS LTD

Bang Overseas limited’s principal activity is to manufacture and market textiles and

apparels. The Group's textile includes readymade garments, under garments and hosiery.

It markets with a brand name of Thomas Scott. The Group operates only in India. It was

incorporated in the year 1992 and is presently providing fashion fabrics and meeting

ready to wear requirements of the customers in apparel, textile and Retail segment. The

company started the business from trading in textile and since 1998, they are

conceptualizing and designing fashion fabrics and outsourcing the manufacturing process

of the same from countries like Turkey, Portugal, Mauritius and other European

Countries. In the same year, they launched our seasonal fabric collections in textile under

the name "Bodywaves", marketed through their own distribution channel to different

brands and retailers. They have ventured into ready-to-wear mens' segment in 2000 by

outsourcing manufacturing process and in turn selling to various international brands.

They launched ready-to-wear mens' garments under our brand name "Thomas Scott" in

2002. They started their own first apparels manufacturing unit in Bangalore in the year

2005 in the name of Reunion Clothing Company with an installed capacity of 350,000

pieces per annum and in the year 2006 then they started the second manufacturing unit in

the name of Formal Clothing Company with an installed capacity of 360,000 pieces per

annum. At present they have installed capacity of 720,000 and 540,000 pieces per annum

54

at their Reunion Clothing Company and Formal Clothing Company. Their products are

presently retailed through 157 point of sales comprises of our own Retail outlets, Large

format stores (LFS) like Shoppers' Stop, Pyramid, Globus, the LOOT, SAGA and Multi

Brand Outlets (MBO) spread all over India. They cater to the demand of various other

apparel manufacturer and brands also. They have centralized warehousing and logistics

centre at Kalher Village near Bhiwandi to facilitate our supply chain management as

well.

CHAPTER-9

BUSINESS ANALYSIS

SWOT Analysis of textile industry

Strengths

Removal of quota restrictions to give a major boost to the exports.

Export target in textiles in 2010 at USD is 50 billion.

Low per capita consumption of textiles in India as the world

consumption is 6.8, India only consume 2.8 of it. That’s why there is

large scope of manufacturing and exports.

Availability of the cheap labour in India would help the development

of the textiles at the lower cost.

Cost competition is not much in India as majority of Indian

population is not dependent on the big brands like Armani, United

Colours of Beneton etc, so India itself does not hold much

competition with these brands.

55

The large cotton production in India would lead to the development

of the textile mills in the better way, as India does not have to import

the raw material from outside.

There are well established production bases for made ups export as

well as for domestic purpose.

Weakness

The most serious problem of the industry is the lack of adequate

processing facilities; there is over-dependence on hand processors and

traditional items.

The Indian textile industry is fragmented. Most of the SMEs are tiny

and cottage type units without sufficient capital back-up.

The government policies in India for the textile industries are

traditional as they are not upgraded like the up gradation of the

policies for the IT industries.

The quality of wider-width fabrics for meeting the export demand is

lacking in many respects, which is acting as a disadvantage to the

growth of the industry.

The technology used in the most of the textile mills is old enough that

they can’t be modified, but there have to be new machineries

imported to give the edge in technological advancements in this

sector.

Opportunities

As per available information, the market for processed cotton fabric

will increase in the European and other markets and, therefore, the

powerloom industry may benefit and expand substantially. Further

the growth in the export segment will be mainly from cotton made-

ups and garments along with processed fabrics.

Grey fabric export is continuing to grow and will show increasing

trends.

56

Value added products will have greater demand and, therefore,

processing will play an important role.

India with traditional designs and craftsmanship can command a

greater market share for niche products in made-ups and garments.

Indian companies need to focus on the product development and this

could easily be possible as there is the greater scope in the Indian

Market.

As the new generation is keen towards the western culture the

training for specially textiles could be provided to them and they

could be encouraged to develop the efficient sector of India.

Increased use of computer aided designing to develop the designing

capabilities of the textile. Using new technologies and softwares ease

the use of virtual design on the computer and then choosing from

various alternatives.

Threats

Increased competition in the domestic market yield to the

development of the more SMEs which invest more to survive in the

market.

The working area of most of the industries in the textile industries is

not hygienic enough to give the workers more comfortable area to

work in. so this condition has to be improved.

Need to revamp consumer consciousness

Chinese goods are cheap as well as the machinery provided by them

is also cheap. So the threat for the export and designing is the Chinese

Aggression over the International market.

Continuously quality improvement is needed to make sure that people

would rely on Indian goods not on the foreign goods.

57

Traditional items like terry towels are manufactured in EOUs all over

the country with superior quality. This has been eroding the

traditional markets for powerloom and handloom products forcing

them to go for product diversification.

BCG MATRIX

BCG Matrix is also called the Boston Matrix because it was created by Bruce Hendeson

for the company Boston Consulting Group in 1970. The BCG matrix method is based on

the product life cycle theory that can be used to determine what priorities should be given

in the product portfolio of a business unit.

Star

The high growth and high market share brands that exist in Indian market and are the

market leaders. This category consists of the companies like Zodiac, Du Pont etc. These

companies are regularly investing in R&D and gaining market share as time passes.

These stars try to become the cash cows of the future and want to remain in the market.

Cash Cows

The companies which have low business growth and high market share are the cash cows

that generate milk continuously with the small investment to be as the mature company in

the market.

58

Question marks (also known as Problem Childs)

The companies that have high growth rate and lower market share are the question mark

as they could be new ventures started or they are companies that do not have liquidity

enough to increase their share in the market. But these companies have potential to be the

star in the market due to good growth rate and thus they could invest more into their

business to expand as the star and then becoming the cash cows.

Dogs

The dogs are more charitable pets that exist in the market and have the low market share

and low growth rate so these companies are better to get out of the market or much cash

is required to set them up. These companies have the cash traps which ties up the money

in a business with the lower potential.

GOKALDAS

In the present Indian fashion retailing, Gokaldas has grabbed a distinguished place for

itself in the form of "The Wearhouse" catering to the specific fashion needs of the people.

It mainly operates in India but exports its products to countries like the United States of

America, Canada, Mexico, United Kingdom, Germany, Austria, Spain, Italy, France,

Netherlands, Middle East, South Africa, Japan, Denmark, Taiwan and Hong Kong. This

means the company has a high growth rate since its inception.Therefore we put it in star.

ARVIND BRANDS

Arvind Brands is part of the Lalbhai Group, which holds licenses for leading international

brands such as Arrow, Lee, Wrangler, Gant and Tommy Hilfiger for retail and wholesale

sales in the local market. Its mainstream brands are Excalibur and Flying Machine.

In addition, it owns an array of casual sportswear and denim brands marketed in India,

including Flying Machine, Newport and Ruf & Tuf jeans and Excalibur shirts along with

licenced relationship with various international brands like Nautica, Jansport, Kipling,

Hero by Wrangler, Lee Riders and Tommy Hilfiger, and joint ventures with VF

59

Corporation and Diesel.Its enjoys good market share as its customers are loyal to it. But

its rate of growth is not significant.So we put it in cows.

KOUTONS

The winner of “ best retailer leadership award 2008” organized by retail congress,

Mumbai, Koutons Retail India Limited engages in the design, manufacture, and retail of

men’s wear and integrated apparel in India. The company's strategy is to have small, but

more stores. This helps to save costs and at the same increase reach of the company. The

company has a phenomenal growth record. Its market share is excellent. So we put it in

stars.

ZODIAC

Zodiac Clothing Company Ltd manufactures, exports and imports garments, textiles

accessories etc. Zodiac has been in the apparel business for a period of 50 years by now

and is known for its quality shirts. Zodiac, is today, the largest selling shirts & tie

brand .The company then entered the domestic shirt segment in late '80s.It employs

around 3500 people in 7 manufacturing units in 16 offices located in UK, US, Germany,

UAE etc. Its continuously showing profit and has a consistently growing export

business.Market share is not that significant as it is famous only in tie and shirt.So we

place it in question mark.

HOUSE OF PEARL

It operates in 11 strategic locations in six continents. It has two brands Kool hearts, DCC

in the United States of America. The company adopts an integrated marketing techniques

and has merchandising teams in Canada, Europe, HK, UK, and US, closely interacting

with existing and potential customers at their doorstep.Both its growth and market share

is high. Therefore it is placed in stars.

HARIA EXPORTERS

It is a Star Trading Company and has won the golden status certificate in the year 1999.

This company occupies a unique place in the industry of the by its contribution to

60

Industrial output, employment generation and Foreign exchange earnings. Even though

the textile industry has the distinctive advantage in respect of raw material and skilled

labor, the industry is suffering from technology obsolescence which in turn affects the

quality, productivity and cost effectiveness. In order to be more cost efficient the

company has acquired latest machinery which ascertained exact material consumption

depending upon the style and pattern. Considering these it is placed in dog.

EVINIX

The apparel category constitutes men and women’s shirts, trousers, skirts and tops, kids

wear and nightwear. Organic cotton wear for expecting mothers and infants is an

additional strength. Evinix is setting up CUT stores (averaging 4000-5000 sq feet) in fast

urbanizing young Indian towns. It recently launched the CUT youth style store in Rajkot.

The Rapid Retail business concept embraces the e.t.o.a.d concept i.e. the exact time of

awaited departure when the product will move out to the next best price bracket. But

market share is not that significant. So we put it in question mark.

BANG OVERSEAS LTD

The company started the business from trading in textile and since 1998, they are

conceptualising and designing fashion fabrics and outsourcing the manufacturing process

of the same from countries like Turkey, Portugal, Mauritius and other European

Countries. In the same year, they launched our seasonal fabric collections in textile under

the name "Bodywaves", marketed through their own distribution channel to different

brands and retailers. They started their own first apparels manufacturing unit in

Bangalore in the year 2005 in the name of Reunion Clothing Company with an installed

capacity of 350,000 pieces per annum and in the year 2006 then they started the second

manufacturing unit in the name of Formal Clothing Company with an installed capacity

of 360,000 pieces per annum. At present they have installed capacity of 720,000 and

540,000 pieces per annum at their Reunion Clothing Company and Formal Clothing

Company. Their products are presently retailed through 157 point of sales comprises of

our own Retail outlets, Large format stores (LFS) like Shoppers' Stop, Pyramid, Globus,

the LOOT, SAGA and Multi Brand Outlets (MBO) spread all over India. They cater to

61

the demand of various other apparel manufacturer and brands also. Taking into account

their market share and growth,we put it in stars.

Porters Five Force Model

I. Risk of new Entry by potential competitor

1. Brand Loyalty:

The existing players have been in the industry for a long period of time and have established a

good reputation with their customers in domestic as well as foreign market. This has resulted in

the high brand loyalty by customers. But this will not act as a potential barrier for other

companies because most of the Indian textile companies operate in B-To-B segment and all the

players keep competing among themselves for new consignments from the clients

2. Absolute cost Advantage:

Abundant availability of raw material is one of the key advantages of the Indian textile industry;

this also gives a major opportunity to Indian textile industry and creates a barrier for foreign

players to compete with Indian companies in cost advantage.

India is more cost competitive vis-à-vis countries like Brazil, China and South Korea in

manufacture of textiles

62

Cost advantage arises mainly from the large pool of low cost but skilled manpower

available in India

In case of textured yarn and fabric, India is less competitive, which is a result of the

higher tax burden (excise duty) on manmade textiles in the country

India’s position is strong vis-à-vis other countries in most raw materials

Largest producer of jute

Second largest producer of silk

Third largest producer of cotton, accounting for nearly 16% of global production

Third largest producer of cellulosic fiber/yarn

Fifth largest producer of synthetic fibers/yarn

Eleventh largest producer of wool

Cotton - Predominant fabric used in the industry

With 4.13 million metric tons of production, country accounts for almost 16% of

global production of cotton

India also leads the world in cultivated area under cotton (roughly 8.82 million

hectares in 2004-05)

Jute - Occupies an important place in the Indian economy

Has a strong contribution to direct employment as well livelihood in the tertiary

sector and allied activities

India leads globally in jute with its annual production of 7.5 million bales in

2004-05

Silk - Highly remunerative cash crop, with minimum investment and sustained attractive

returns

India accounts for 18% of world raw silk production (15.74 thousand tones

production in 2003-04)

63

India has the unique distinction of being endowed with all 4 varieties of silk -

Mulberry, Eri, Tasar, Muga

Wool - With its annual production of 50.7 thousand tons of raw wool fiber, India

accounts of roughly 2% of global production

3. Economies of Scale:

The textile industry across the value chain is largely decentralized

Units mostly independent and small scale in nature, rather than composite units

undertaking all activities together

Large scope for entry of organised integrated textile manufacturers

Source: www.fibre2fashion.com

The Indian textile industry comprises mostly small-scale, non-integrated spinning,

weaving, finishing and apparel making units

Spinning: Of the 2922 spinning units in 2004, 2699 units were independent in nature,

with 1135 units in small-scale sector and 1564 units of larger scale; independent units

account for 75% of total capacity and 92% of production

Weaving: Of the 5.83 million weaving units in India, only 0.1 million units are in the

organized sector; number of mills have declined in number since 2003, while power

looms have grown

Processing: Industry is dominated by hand processing and independent processing units

64

Manufacturing of garments and made-ups: Industry is dominated by small-scale units,

mostly sub-contractors, a result of SSI reservation of the industry till a few years ago;

almost 90% of garment export units are in the small scale sector

Significant part of this industry fall in unorganised sector and hence there is treat from new

entrants to start operating in this industry

4. Customer switching cost:

As earlier mentioned that the existing players are operating in this industry for a long period and

also have established long term relationship with their customers. Over a period of time these

companies have customised their products as per the needs of the customers therefore customers

also prefer to still to the existing suppliers rather than moving to others as there is a high

switching cost involved here and if the customers switch to new suppliers than again he need to

train the suppliers as per their requirements

5. Government Regulations:

Historically the textile industry in India has been reserved for the small scale sector,

which has been exempted from taxes, thus discouraging investments in increasing scale

The government, through its various Budget announcements has sought to rationalize

taxes

Budget 2002-03: Textiles brought under the ambit of Cenvat (credit for duties

paid on inputs or capital goods) and introduced on all yarns

Budget 2003-04: Cenvat extended across the entire textile chain to include

fabrics, made-ups and apparel; excise duty exemptions on many sectors and

processes, specially SSI removed; excise duty rates reduced

Budget 2004-05: Cenvat made optional - every manufacturer allowed to choose

between a complete exemption from payment of excise duty or adopt the Cenvat

route; excise duties lowered to 4% on cotton textiles and 8% on non cotton

textiles (except man made fibers, polyester filament yarn, nylon filament yarn)

for those claiming Cenvat credit

65

Always government regulations aimed at improving competitiveness of industry to face a post

quota regime

Several government initiatives targeted to attract investments:

Technology up gradation fund scheme:

Scheme launched in 1999 to provide firms access low interest loans for technology up

gradation and setting up new units with state-of-art technology

Scheme has disbursed INR 91.61 bn till 31st December 2005

Policy related to foreign investment:

Up to 100% foreign direct investment allowed in textile and apparel manufacturing

industry, with approval of the Foreign Investment Promotion Board (FIPB)

USD 1.02 bn of FDI in the sector approved between 1991 and 2004

Companies free to set up fully-owned sourcing (liaison) offices, as well as marketing

operations

Upgrading Infrastructure:

“Scheme for Integrated Textile Parks” (SITP), based on public-private partnership model

to build world class infrastructure facilities

Product specific “Cluster Approach” targeting development of 100 additional clusters in

textiles

Technology Mission on Cotton (TMC), focusing on cotton R&D, dissemination of

technology to farmers, improvement of market infrastructure and modernization of

ginning and pressing sector

II. The extent of rivalry among established firms

1. Industry competitive structure:

66

Since this industry is highly fragmented there is always high probability during the boom phase

that many new players could enter this industry which would lead to a price war and ultimately

end up with the bankruptcy of some players or consolidation of industry. So, this is a treat to the

existing players.

But also the existing players work a lot on cost efficiencies therefore the treat of new entrant is

negated by the cost efficiencies of existing players

2. Industry Demand:

In the current scenario textile exports have declined drastically and even in domestic demand

there is a little slowdown. Due to which textile companies are working on reducing cost by ways

of reducing the work force, decrease in operation cost etc. Also this will evoke more rivalry

among the existing players as they all will like to maintain their market share in spite of the

slump in industry

3. Exit Barrier:

This is not just a labour intensive industry but even the cost involved in plant setup is very high

along with that with the invent of many new technologies many companies have adapted to

modern techniques to remain competitive in industry as well as to produce better products for

their customers in lesser time and with lesser cost.

Therefore because of high involvement and emotional attachment with the business as it has been

a traditional business for generations for many companies they still prefer to stick and continue

with the business. But in the current scenario many textile mills have closed down because of

deep cut in demand and high operational cost due to severe global crisis

III. The bargaining power of buyers

Indian textile companies are facing a tough competition from Chinese, Brazilian and

South Korean companies as they are able to produce at a lower cost compared to Indian

companies

This industry is fragmented and there are large number of players in the industry,

therefore buyer get the option of choosing from many suppliers

67

Indian textile industry is no more just a mass producer of textile rather it has moved into

niece segment and has developed capability to produce finest quality of fabric which

provides them distinctive competencies against other countries as well as small players

who could cater to mass consumers only.

Therefore overall buying power of buyer will defer from company to company. Companies like

Arvind mill, Raymond, aditya birla group have achieved certain degree of distinctive

competencies therefore with them buying power of buyer is negated to large extent against their

competencies.

But many small companies who are mass producer of textile face a strong buying power of buyer.

IV. The bargaining power of supplier

Here again bargaining power of supplier dictated by the segment that they are targeting to, for a

niece players and companies who have achieved operational excellence can dictate terms to

buyers but for small players who just produce for mass consumption do not have much say in the

business deal and the prices are mostly dictated by the buyer.

V. The threat of substitute product

Textile itself is a very broader term and is a solution to a very basic need of any human being

therefore there is as such no substitute to this but within the textile industry there are many

substitutes to different category of textiles. In India there are various types of textile produced

from cotton, silk, synthetic etc.

There is always a risk of substitution of one type with the other type also there is constant

research carried out to develop new types of textiles but combining different textiles in different

proportion. But in broader perspective there is no substitute to textile.

68

CHAPTER – 10

FINANCIAL ANALYSIS

As a part of the financial analysis the team has tried to study the existing financial situation of the

selected companies through the study of the annual report of the companies and the movement of

the key financial ratios. The financial ratios selected for the analysis are as follows

o Debt Equity ratio

o Current Ratio

o Inventory Turnover Ratio

o Fixed Asset Turnover Ratio

o Interest Coverage ratio

DEBT EQUITY RATIO

A measure of a company's financial leverage is calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is

using to finance its assets.

69

Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial

statements as well as companies'.

A high debt/equity ratio generally means that a company has been aggressive in financing its

growth with debt. This can result in volatile earnings as a result of the additional interest expense.

If a lot of debt is used to finance increased operations (high debt to equity), the company could

potentially generate more earnings than it would have without this outside financing. If this were

to increase earnings by a greater amount than the debt cost (interest), then the shareholders

benefit as more earnings are being spread among the same amount of shareholders.

INTEREST COVERAGE RATIO

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest

coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of

one period by the company's interest expenses of the same period: 

The lower the ratio, the more the company is burdened by debt expense. When a company's

interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable.

An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to

satisfy interest expenses.

FIXED ASSET TURNOVER RATIO

Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed

assets (on the balance sheet). It indicates how well the business is using its fixed assets to

generate sales.

70

Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has

less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate

that the business is over-invested in plant, equipment, or other fixed assets.

This ratio is often used as a measure in manufacturing industries, where major purchases are

made for PP&E to help increase output. When companies make these large purchases, prudent

investors watch this ratio in following years to see how effective the investment in the fixed

assets was.

INVENTORY TURNOVER RATIO

Inventories represent stocks of ready made goods or raw materials that are needed to be kept in

order to be able to meet the orders of clients. Their management represents a significant challenge

to managers since keeping the right level of inventories is a key to an efficient management of

resources. Thus, most manufacturers have to deal with warehouses in which to put their

productions and materials.

The inventory-turnover ratio gives a general view on the inventories of a company. In

order to calculate it you should divide the annual sales of the company by its inventory.

Inventory Turnover = Sales / Inventory

The result represents the turnover or inventory or how many times inventory was used

and then again replaced. This number is representative for a one year time period. If the

value of the inventory-turnover ratio is low, then it indicates that the management team

doesn't do its job properly in managing inventories.

71

For example, company ABC has $10 million in sales for the previous year. Its inventory

for the same year is $50 million. So, its inventory turnover ratio is 0.2, which is

significantly low and means that the company will need five years to deplete the existing

inventory.

The turnover ratios of companies are compared in order to determine their efficiency of

inventory management. Between companies with different inventory turnover ratios

usually investors select the one with higher turnover, because it indicates higher

inventory efficiency.

The current ratio is a financial ratio that measures whether or not a firm has enough resources to

pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities.

It shows the liquidity available with the company to pay off its immediate financial obligations.

It is expressed as follows:

The current ratio is an indication of a firm's market liquidity and ability to meet creditor's

demands. Acceptable current ratios vary from industry to industry. If a company's current

assets are in this range, then it is generally considered to have good short-term financial

strength. If current liabilities exceed current assets (the current ratio is below 1), then the

company may have problems meeting its short-term obligations. If the current ratio is too

high, then the company may not be efficiently using its current assets.

Low values for the current or quick ratios (values less than 1) indicate that a firm may

have difficulty meeting current obligations. Low values, however, do not indicate a

critical problem. If an organization has good long-term prospects, it may be able to

borrow against those prospects to meet current obligations. Some types of businesses

usually operate with a current ratio less than one. For example, if inventory turns over

72

much more rapidly than the accounts payable become due, then the current ratio will be

less than one. This can allow a firm to operate with a low current ratio.

If all other things were equal, a creditor, who is expecting to be paid in the next 12

months, would consider a high current ratio to be better than a low current ratio, because

a high current ratio means that the company is more likely to meet its liabilities which fall

due in the next 12 months.

INDUSTRY AVERAGE

The textile readymade and apparel industry has been increasing its operating revenues year on

year at a brisk rate. The number of companies that are in this industry has increased three folds

from around 33 companies in 2008 to around 90 companies recently. This increase in the number

of companies can be attributed to the rise in the sales revenue.

Table No 10.1 Industry Average various Financial Indicators

(Rs in Crs)

   Year Latest 2008 2007 2006 2005 2004

Companies No. 90 33 44 47 53 48

  Sales Turnover 7,419.89 5,606.93 5,050.62 4,235.84 2,837.85 2,235.28

  Operating Profit 1,026.91 834.69 780.71 611.91 272.65 184.65

  Reported Net Profit 416.8 361.08 361.1 299.76 100.88 54.17

Source: Capitaline Database

73

The industry average of the key financial ratios is as follows

Table No 10.2 Industry Average of ratios

Year Latest 2006 2005 2004

Debt-Equity Ratio 1 0.99 1.19 1.02

Current Ratio 1.58 1.43 1.64 1.83

Fixed Assets Turnover Ratio 2.95 2.54 3.16 2.15

Inventory Turnover Ratio 4.44 3.77 4.54 3.35

Interest Coverage Ratio 3.97 5.56 2.97 2.77

Source: Capitaline Database

We find that the capital Structure of the Industry has reached a position wherein the companies

are raising capital through debt and equity in the same ratio of 1:1 The current ratio is also

moving slowly up recently despite the fall in 2006 towards the optimum ratio of 2:1. At present it

is at 1.58:1 The two turnover ratio’s namely Fixed Assets Turnover Ratio and the Inventory

Turnover Ratio are becoming high. This is a positive sign if the turnover ratio is high. The

interest coverage ratio has dropped noteably but this can be attributed to the expansion plan of

companies.

Chart No: 10.1 Ratio Industry Average

74

0

1

2

3

4

5

6

Debt-EquityRatio

Current Ratio Fixed AssetsTurnover Ratio

InventoryTurnover Ratio

InterestCoverage Ratio

LATEST

2006

2005

2004

Source: Capitaline Database

ARVIND BRANDS

Arvind Brands which is the largest producer of Denim clothing is one of the most famous names

in the apparel industry the company is known for its huge exoansion plans in future

Table No: 10.3 Arvind Clothing Financial Performance

(Rs in Crs)

75

ARVIND CLOTHING 2004 2003 2002 2001 2000

Sales Turnover 64.71 61.24 52.41 49.13 47.45

Operating Profit -1.91 2.68 0.75 5.38 6.3

Adjusted Net Profit -4.51 -0.18 -1.45 1.69 3.39

Source: Capitaline Database

Arvind Clothing Faced a loss in the year 2004 this led to the company deciding to sell one of its

Business Units in 2006. Arvind Clothing expansion plans and the launch of Denim products for

the Indian market can be quoted as reasons for this loss.

Table No 10.4 Arvind Clothing Cash Flow Statement

(Rs in Crs)

ARVIND CLOTHING Mar-04 Mar-03 Mar-02 Mar-01

Cash Flow Summary        

Cash and Equivalents at Beginning of the year 1 0.94 0.75 1.76

Net Cash from Operating Activities 2.69 2.56 2.41 -1.54

Net Cash Used in Investing Activities -2.24 -1.21 -0.32 -0.79

Net Cash Used in Financing Activities -0.07 -1.29 -1.92 1.32

Net Inc/(Dec) in Cash and Cash Equivalent 0.38 0.06 0.17 -1.01

Cash and Cash Equivalents at End of the year 1.38 1 0.92 0.75

Source: Capitaline Database

The cash flow clearly indicates that the loss in the year 2004 is mainly due to the heavy cash

outflow for investing activities. Company’s accounts revealed that approximately 2.38 crores

worth of fixed assets were purchased as a part of the expansion plan.

Table No 10.5 Arvind Clothing Key Financial Ratios

ARVIND CLOTHING LTD Mar-04 Mar-03 Mar-02 Mar-01 Mar-00

76

Debt-Equity Ratio 2.62 1.89 1.59 1.35 0.91

Current Ratio 1.54 1.31 1.22 1.47 1.35

Fixed Assets Turnover Ratio 3.78 3.92 3.54 3.45 3.54

Inventory Turnover Ratio 2.95 2.7 2.54 2.74 3.43

Interest Cover Ratio -1.1 1.01 -0.03 1.71 3.39

Source: Capitaline Database

The company has a very high debt ratio. This is dangerous as the company is also spending a lot

on the procurement of fixed assets. The current ratio is however 1.58 and shows that the company

has good liquidity. The fixed assets turnover has reduced in 2004 this is understandable as the

company has purchased a lot of new assets. The Inventory turnover however is growing at a

stable pace. The interest coverage ratio is in the negative as the company is facing losses. The

company has to depend on reserves for interest payment.

Chart No 10.2 Arvind Clothin Key Financial Ratios

Source: Capitaline Database

BANG OVERSEAS LTD

Bang Overseas is a company which depends on high specialisation. It also recently issued an IPO

for raising the required capital. It only manufactures and exports men’s formal and casual wear to

a restricted number of clientele. As it depends on the business with a few clients the company has

been hit hard by recession lately. Delayed payments on credit deliveries have eroded the

operating profits of the company. However the other non-operating income has provided some

relief to their share holders.

77

Table No 10.6 Key Financial Indicators of Bang Overseas LTD

Latest Results (Rs Cr)

Period-Ended Dec-08 Dec-07 Variance [%]

Sales 28.98 29.88 -3.01

Other Income 2 0.74 170.27

PBIDT 2.13 4.02 -47.01

PBDT 0.83 2.65 -68.68

PBIT 1.59 3.72 -57.26

PBT 0.29 2.35 -87.66

Source: Capitaline Database

It is pretty evident from the above financial indicators that the company is facing the brunt of

recession. The sales have come down by about 3% and this has pulled the profit before tax (PBT)

by around 87%. This is very huge considering the company’s interest to expand by way of issuing

shares through its IPO. A look at the cash flow statement in Table No: will provide an insight

about the liquidity position of the company. Cash Inflow is prominent only from financing

activities and that is because of the IPO. These are not good signs for the share holders because

the company is failing to raise cash from the operating activities and is dependent on financing

activities for its needs.

Table No 10.7 Cash Flow of Bang Overseas LTD

Bang Overseas LTD

(Rs in Crs)

Particulars Mar- Mar- Mar- Mar- Mar-

78

08 07 06 05 04

Cash Flow Summary          

Cash and Cash Equivalents at Beginning of the year 1.13 1.04 0.3 0.41 0.33

Net Cash from Operating Activities -1.5 1.54 -1.58 -2.54 0.39

Net Cash Used in Investing Activities -14.73 -5.72 -7.24 -0.23 -0.12

Net Cash Used in Financing Activities 70.99 4.27 9.56 2.66 -0.19

Net Inc/(Dec) in Cash and Cash Equivalent 54.76 0.09 0.74 -0.11 0.08

Cash and Cash Equivalents at End of the year 55.89 1.13 1.04 0.3 0.41

Souce: Capitaline Database

Share market Woes

The inability to provide positive signs to the shareholder has reflected in the share prices of Bang

Overseas LTD. The share value pummelled down along with the sensex due to recession.

However recently the company due to its high quality products is recuperating well and the stock

prices are going up.

Bang Overseas Scrip Performance Details

Source: http://money.rediff.com/companies/bang-overseas-ltd/16070099

79

Key Financial Ratios

The key financial ratios of Bang Overseas are given below. The Debt Equity ratio has gone down

notably because of the IPO issue in Jan 2008. The company current ratio is well above the 2:1

ratio and is at a comfortable 2.83:1 ratio. The liquidity position is very favourable. The Fixed

ratio is also becoming better and the fixed assets which were purchases by the company are

useful in earning operating income.

Table No 10.8 Key Financial Ratios of Bang Overseas

BANG OVERSEAS LTD Mar-08 Mar-07 Mar-06 Mar-05 Mar-04

Debt-Equity Ratio 0.49 2.03 2.32 1.81 2.22

Current Ratio 2.83 2.2 3.14 3.35 3.19

Fixed Assets Turnover Ratio 8.26 6.87 8.65 24.84 25.92

Inventory Turnover Ratio 5.75 6.03 4.61 3.23 2.66

Interest Cover Ratio 4.54 5.11 3.03 2.73 1.73

Source: Capitaline Database

The inventory turnover ratio has gone down this is also understandable as the company is design

specific company which purchases goods only on demand or on order. The interest coverage ratio

has come down because of the decrease in sales during 2008.

GOKALDAS EXPORTS

The vision of Gokaldas exports is to set a precedent in the global garment manufacturing industry

through continuous innovation, exceptional products, focused services and enhanced customer

80

satisfaction. In the First Quarter of 2008-09 (Q1), Gokaldas Exports Ltd. has achieved a total

revenue of Rs.272 crores which is 12% higher than the Q1 of last year (2007-08). The stand alone

EBIDTA achieved in this Quarter is Rs.30 crores as against last year’s of Rs.25.96 crores. An

increase in EBIDTA of 16% is achieved in spite of the fact that Rs.8.30 crores of Foreign

Exchange notional losses. The PAT stands at Rs.11.05 crores as against Rs.10.52 crores of last

year thereby showing the increase of 5%. This increase in PAT could have been much higher but

for the impact of Forex volatility which have been accounted to the extent of Rs.18 crores (loss).

Both the EBIDTA and the PAT would have been much higher if the performance would have not

been impacted by the rupee volatility.

The apparel industry as a whole went through a challenge in the first quarter of 2008 due to the

thrust of recession in our major markets, rising crude prices and unfavourable economic

environment across the world. The rising cotton prices and chemical dyes prices pose a big threat

to India’s competitiveness, in addition to the impact of inflation on wages. Gokaldas despite

being the largest exporter of garments in the country has been impacted.

Table No 10.9 Key Financial Indicators GokalDas Exports

Latest Results (Rs Cr)

Period-Ended Dec-08 Dec-07 Var [%]

Sales 273.56 281.13 -2.69

Other Income 17.18 10.53 63.15

PBIT -2.24 27.52 -108.14

PBT -15.28 19.31 -179.13

Source: Capitaline Database

Share Market Situation

The share market position is very grim because of the huge forex losses it suffered due the

strengthening of the rupee against the dollar the scrip value has pummelled notably in the last six

months to one year because of recession

Table No: 10.10 Cash Flow Statement of Gokaldas Exports (Rs Cr)

Gokaldas Exports LTD 2008 2007 2006 2005 2004

81

Cash and Cash Equivalents at Beginning of the year 3.66 1.63 19.6 28.49 4.15

Net Cash from Operating Activities 8.66 27.6 -11.83 -6.02 33.35

Net Cash Used in Investing Activities -34.08 -81.32 -145.09 -65.76 -22.02

Net Cash Used in Financing Activities 21.99 55.75 138.95 62.89 8.5

Net Inc/(Dec) in Cash and Cash Equivalent -3.43 2.03 -17.97 -8.89 19.83

Cash and Cash Equivalents at End of the year 0.23 3.66 1.63 19.6 23.98

Source: Capitaline Database

The company is generating cash from operating sources despite forex woes; the company has

however taken a lot of debt to finance its purchase of fixed assets. Unlike other exporters

Gokaldas depends on mass production and so is in direct competition with the Chinese

counterparts. The company is forced to invest in fixed assets to maintain its clientele as their

mission is to make deliveries on time.

Key Ratios

The key financial ratios of Gokaldas denotes that the company’s capital structure is depended

more on equity rather than debt. For a company which depends on foreign exchange and which is

prone to exchange rate fluctuations having less debt is very helpful.

Table No 10.11 Key Ratios of Gokaldas Exports

Key Ratios 2008 2007 2006 2005 2004

Debt-Equity Ratio 0.75 0.69 0.8 1.76 2.18

Fixed Assets Turnover Ratio 3.11 4.06 5.18 7.58 0.82

Inventory Turnover Ratio 2.71 3.31 3.87 4.94 0.45

Interest Cover Ratio 2.94 4.55 5.75 4.7 6.39

Current Ratio 1.51 1.6 1.73 1.36 1.31

82

Source: Capitaline Database

The Fixed asset turnover has also reduced due to the purchase of fixed assets. The inventory

turnover is decreasing the company is making bulk orders rather than small orders to avoid rupee

fluctuations. The interest coverage ratio is low as the company at present is at losses. The current

ratio is reducing as the company cannot recuperate its debts from its clients.

Chart No 10.3 Key ratios of Gokaldas Exports

0

1

2

3

4

5

6

7

8

Debt-EquityRatio

Fixed Assets Inventory Interest CoverRatio

Current Ratio

Key Ratios of Gokaldas Exports

2008

2007

2006

2005

2004

Source: Capitaline Database

EVINIX ACCESSORIES LTD

83

Evinix Accessories is a company which was started with an aim of exporting sports bags to the

US market later it diversified and started its own retail outlets apart form exporting apparel to the

foreign markets. Its key financial indicators state that the company despite a reduction in sales is

able to generate profits from the operating activities. Unlike other companies it is not dependent

on other income for posting profits.

Table No 10.12 Key Financial Indicators of Evinix Accessories

Latest Results (Rs Cr)

Period-Ended Dec-08 Dec-07 Var [%]

Sales 25.32 28.18 -10.15

Other Income 0.35 0.46 -23.91

PBIDT 1.9 5.72 -66.78

PBDT 1.31 5.02 -73.9

PBIT 1.56 5.51 -71.69

PBT 0.97 4.81 -79.83

Source: Capitaline Database

Share Market Situation

The scrip value is recovering thanks to the retail business of Evinix Accessories

Evinix Scrip’s Performance Performance Details

84

Source: http://money.rediff.com/money/jsp/company.jsp?companyCode=16490229

Unlike other players of the fashion apparel industry who are dependent heavily on foreign clients,

Evinix has its own retil outlets and this flexibility of gaining from domestic production has helped

the company to not face the plight of huge losses due to recession which other companies are

facing.

Chart No 10.14 Evinix Scrip’s Performance at BSE for the last one year

Source:http://money.rediff.com/money/jsp/company.jsp?companyCode=16490229

Key Ratios

The key financial ratios of Evinix are given below. Thanks to the equity capital raised in 2007 by

the way of an IPO the Debt equity ratio is coming down such a capital structure will ensure that

the risk is shared by all the share holders. This is utmost necessary in the times of downturn. The

current ratio and interest coverage ratio are favourable to the shareholders and the return on assets

has also considerably increased over the previous years. The company however is going back to

bulk orders and so inventory turnover is reducing

85

Table No 10.13 Key Ratios of Evinix Accesories

EVINIX 2008 2007 2006 2005 2004

Debt-Equity Ratio 0.33 0.17 0.46 9.07 9.83

Current Ratio 2.31 2.62 1.28 0.89 1.2

Interest Cover Ratio 7.71 7.73 14.59 6.98 -2.46

Fixed Assets 5.69 5.45 7.21 9.14 1.86

Inventory 4.03 6.26 9.66 8.98 1.84

Source: Capitaline Database

HARIA EXPORTS

Haria Exports comparatively is a small player in the apparel industry. The impact of recession is

quite evident in the key financial indicators of the company. The sales have come down by

around 75% and have almost come to one fourth of the previous year.

86

The company has recorded a profit of just 7 lacs in the last year and this profit also was due to the

earnings from the non operating activities.

Table No 10.14 Key Financial Indicators of Haria Exports

Latest Results (Rs Cr)

Period-Ended Dec-08 Dec-07 Var [%]

Sales 0.42 1.69 -75.15

Other Income 0.27 0.19 42.11

PBIDT 0.22 -0.38 -157.89

PBDT 0.21 -0.71 -129.58

PBIT 0.09 -0.58 -115.52

PBT 0.08 -0.91 -108.79

Source: Capitaline Database

Share Market Situation

In February 2008 the company issued a notice to its shareholders about the rights issue of shares.

This increased the share prices in that month but later the share prices came down drastically.

Haria Exports Ltd has informed the market that the ratio for the issue of Equity Shares on Rights

Basis is “3 : 2 shares”

Chart No 10.4 Scrip Performance of Haria Exports

87

Source: Capitaline Database

Key Ratios

The key ratios of Haria suggest that the capital structure is on dependent on Thick equity. The

current ratio is however only 1.83 but the ideal ratio is 2:1. The Asset turnover is also very less

and this is not a good sign. The Inventory turnover ratio is very less which indicates that the

company buys supplies at once a not when required. The interest coverage is at 7 and has

improved thanks to the company’s increased income from non operating income

Table No 10.15 key Financial ratios of Haria Exports LTD

Haria Exports 2008 2007 2006 2005 2004

Debt-Equity Ratio 0.71 0.57 0.29 0.29 0.31

Current Ratio 1.83 1.25 1.17 1.23 1.35

Fixed Assets 0.13 0.02 0.03 0.69 4.1

Inventory 0.4 0.04 0.06 1.22 7.58

Interest Cover Ratio 7 0 -18.85 -4.3 -0.96

88

KOUTONS

Koutons Retail India Ltd is the leading retailer of readymade and stylish fashion wear brand in

the country today. A company which is not only dependent on foreign clients but is also

dependent on domestic consumption and hence the company has recorded good profits and also

an increase over the last year. Arguably this is one of the best performers in the industry despite

recession and other apparel manufacturers suffering.

Table No 10.16 Koutons Financial Indicators

Latest Results (Rs Cr)

Period-Ended Dec-08 Dec-07 Var [%]

Sales 228.96 173.1 32.27

Other Income 13.35 1.7 685.29

PBIDT 43.79 31.19 40.4

PBDT 23.78 21.51 10.55

PBIT 40.14 26.95 48.94

PBT 20.13 17.27 16.56

Source: Capitaline Database

Share Market Position

89

Koutons has its retail logistics in place appropriately to suit the market needs and track the key

areas which are future business opportunities. Therefore the share market has also reacted

positively to the Koutons scrip the percent increae is more than that of the Sensex. This are

positive signs for a company in an industry plagued with falls in scrip prices.

Chart No 10.5 Scrip Performance of Koutons at BSE

Source: Capitaline Database

Key Ratios

The company relies more on debt rather than equity capital. The company being in the retail business has very good liquidity as the customers in the retail shops provide CASH ON DELIVERY (COD), this is quite evident as the current ratio is almost ideal at 1.96:1. The company has a return on assets ratio at around 12.7:1 and hence the company is making very good use of the assets that it has procured.

Table No 10.17 Koutons Key Financial Ratios

Koutons 2008 2007 2006 2005 2004

Debt-Equity Ratio 1.23 1.42 2.52 2.75 2.67

Current Ratio 1.96 1.54 1.37 1.38 1.31

Fixed Assets Turnover 12.7 12.7 16.93 21.72 10.88

Inventory Turnover 1.73 1.71 2.71 5.69 2.96

Interest Cover Ratio 3.51 4.53 6.91 2.97 1.87

Source: Capitaline Database

90

ZODIAC CLOTHING COMPANY

Zodiac Clothing is another company which has notched an increase in the sales due to the

domestic orientation. But unlike Koutons due to the high expenses that the company has zodiac

has made profits only to the tune of 4.39 crores before taxation despite making a sales of

approximately 72 crores. The rest 68 crores are operational and non operational expenses of the

company. It is very interesting that the company has notched up 20 percentage increase in sales.

The company has to apply cost cutting measures and it will become a leader in the fashion

apparel industry.

Table No 10.18 Key Financial Indicators of Zodiac Clothing Company

Latest Results (Rs Cr)

Period-Ended Dec-08 Dec-07 Var [%]

Sales 71.86 59.42 20.94

Other Income 5 5.62 -11.03

PBIDT 5.86 9.99 -41.34

PBDT 5.53 9.57 -42.22

PBIT 4.72 9.11 -48.19

PBT 4.39 8.69 -49.48

Source: Capitaline Database

Share Market Position

The zodiac scrip is valued at around 192 Rs and the scrip has been moving quite incessantly in

the BSE. The stock is frequently traded one and the volatile movements can be attributed to this

reason. Feb 08 was a time when investors expected a lot from the company when the quarter FY1

results showed that the sales increased despite slowdown.

91

Zodiac has 16 offices across the world in USA, UK and Germany apart from India. It is not only

a mere exporter but it sells its brand of products in various countries with self outlets.

Chart No 10.6 Scrip Performance of Zodiac Clothing at BSE

Source: Capitaline Database

Key Ratios

Zodiac has one of the best interest coverage ratio in the industry at around 13:1. the capital

structure however is on thick equity and debt forms a small portion of the capital this enables the

company to payback interest. The fixed assets turnover ratio and the Inventory turnover ratio

have reduced this is something the company management has to look out for and maintain

according to the interest.

Table No 10.19 Key Financial ratios of Zodiac Clothing

Zodiac 2008 2007 2006 2005 2004

Debt-Equity Ratio 0.24 0.27 0.21 0.22 0.29

Current Ratio 1.6 1.57 1.45 1.33 1.39

Fixed Assets 4.13 4.22 4.42 5.48 7.37

Inventory 5.52 5.81 5.6 6.16 6.11

Interest Cover Ratio 13.95 10.59 6.61 7 7.13

Source: Capitaline Database

92

CHAPTER 11

FUTURE SCENARIO

Despite not being the market leader there are a few advantages that India has over its competitors.

These strategies will help India gain Supremacy over other countries in specific exports.

DESIGN

Design has emerged as a source of competitive advantage in Indian apparel exports in recent

years—especially given the relatively ‘young’ export history of Indian apparel and the

general image of low quality often associated with some Indian apparel exports. As one firm

who is a major supplier for several European and US specialty stores such as Nike explained,

“When items have complicated designs with complex patterns, many fabrics, a variety of

colours -- you have to break them down. Many different operations and techniques are

required; you have to figure them out” (Gokuldas Exports Interview 2005). When buyers

have such items, many of them tend to come to India, this firm said, rather than going to

Bangladesh or China. “A Chinese firm would probably refuse the order. In their system, the

more complicated the design, the more complicated the line gets, and lower the efficiency.

This complicates the bottom line. It is not worth their while” – especially if the volumes are

small (Gokuldas Exports, Interview, 2005). The Chinese produce similar products and try to

exploit the economies of scale that it achieves through mass production.

According to experts this is mainly because of the legacy of the sector’s industrial

organization—the historically small average scales of operation in Indian apparel created the

conditions for the preservation of generalist skills—of the master tailor—at the heart of the

Indian apparel industry. These general purpose skills allow complexity to be handled cost-

effectively and flexibly given that the rigidities of too narrow a division of labour are absent

The firm mentioned above explained that Indian firms are used to handling small-runs, and

“In India We have skilled manpower available cheaply, we have tailors who have the ability

and the willingness to do complex designs. They have been doing it for years. In China the

line workers are industrial workers – not tailors, their production line needs relatively simple

designs that can be easily broken down and mass produced” (Interview, Gokuldas, 2005).

93

The flatter division of labour associated with small operations, short runs and variable

designs, has both, created a demand for general-purpose skills at the core of the work

organization, as well helped maintain craft-like skills and a generalized design sensibility

within a key segment of the apparel workforce. (Meenu Tewari, Working Paper 2005) This is

the reason hy high customisation is possible in designs. In the future most of the apparel

industry will be ruled by customised products so India has a chance to gain supremacy.

SCALING

A growing number of Indian textile and apparel firms are leveraging their traditional capacity

to handle small runs and variable designs to move toward the flexible production of higher

value, customized products, does not mean that Indian textile and apparel firms are not

scaling up, or producing for volume-buyers like Wal Mart, or facing the growing pressure on

margins by ramping up production volumes. Despite the assumed reluctance of Indian textile

and apparel firms to scaling up in the face of India’s rigid labour laws and lack of an exit

policy, they have invested over $700 million in new equipment, new mills and products and

expected to spend $2.5 billion more by the end of 2005 (Business Week Online, 2004).

The average scale of production in the Indian textile and garment industry has been rapidly

inching upward in the decade leading up to the removal of quotas. Three features are striking

in this regard: (Meenu Tewari, Working Paper 2005)

First, it was aided by the progressive liberalization of restrictions on capacity increases by the

government starting in the mid-1980s and continuing through the 1990s and early 2000s.

Second, there has been significant forward integration by yarn-makers and spinning mills into

garments. For example, Arvind Mills, the largest producer of blends and denim in the country and

the 3rd largest denim producer globally till recently supplied fabric to virtually every major

clothing brand in the world – Levis, Gap, Dockers and so on. Three years ago it, integrated

forward into jeans and T-shirts, investing more than $30 million in 10 new factories to increase

its apparel sales (Interview, Ahmedabad 2005, Business India 2005). The firm has set up several

joint ventures in the area of blended fabrics, and has introduced its own brands in the domestic

and export market including ‘Ruf-and-Tuf’ jeans for the mass domestic market. Raymonds, a

94

Mumbai-based firm, and one of the oldest and largest producers of suiting and shirting fabric

in the country, invested in two large, highly sophisticated, state of the art formal suit and

bottom’s factories in Bangalore in 2003-4. Even before the plants were fully commissioned,

Japanese retailers had placed orders for their entire capacity for two years (an unusual

development given the low levels of penetration of India’s suppliers in the Japanese apparel

marker).

Third, there is a growing trend of backward integration by small and medium knitwear and

garment exporters into yarn making, and significant investments in the adoption of new

technologies by firms at every segment of the value chain. For example, Tirupur, which has

been celebrated for the past two decades as a vibrant small-firm based knitwear export cluster

can no longer be considered a predominantly small scale cluster, as the Chairman of the

Tirupur Exporters Association once noted. “Firms have been aggressively modernizing in the

last five years, investing in the latest stitching, pattern making, cutting, embroidery, and

dyeing machines. If I buy one CAD machine today it costs me Rs.12.5 million; this itself is

me well beyond the investment limit for small scale units. At least 30 garment exporters have

set up their own yarn-making mills. The equipment is state of the art, and costly. None of the

mills are small in scale. So, Tirupur is no longer a town of small scale producers – except

perhaps some job-working garment converters.” (Interview, Mr. Subramaniam, Tirupur

Exporters Association, April 25, 2005).

Finally, firms are investing in what some have called “manufacturing services” (Berger et. al.

1997). Many firms are adopting IT-driven production process control systems, as well as

productivity enhancing audits—particularly energy audits. Noting that energy costs generally add

up to 11-12% of total production costs, compared with 6-7% in direct labour costs, many firms

reported in field interviews that the rationalization of energy consumption was often the first,

and most important step to cutting costs (Interviews by Meenu Tiwari, Bangalore 2005,

Tiruppur 2002, 2005). Some firms reported savings of up to 30-40% in energy costs as a

result of these measures (Interview Precot Mills, 2002). Many firms have turned to captive

gas-fired plants (especially the larger firms such as Gokuldas, Karle, Orient Crafts,

Raymonds, Interviews by Meenu Tiwari, 2005) while clustered firms such as in Tiruppur,

especially in industrial parks, have set up captive and dedicated sources of power.

95

Rationalization of energy use and attempts to lower energy costs are closely related to

automation. Automation, and the deployment of extensive electronic production tracking

systems as well as statistical process control systems to monitor work flows, is associated

with efforts by apparel and textile firms to raise productivity and lower wastage, cut down-

time, reduce rejection rates, as well as to ensure consistency. Automation seems to be as

important to firms that produce high volumes-low-margin customers as to those who are

investing in design-intensive operations (Meenu Tiwari, 2005)

‘CUSTOMIZED MASS PRODUCTION’

Customised mass Production has crept slowly into the Indian textile Industry. Arvind

Mills for example is the largest producer of Denim materials. There are two famous

examples of customised mass production according to Meenu Tiwari they are

Himmatsingka Seide Limited and Welspun India Limited.

HSL has a narrow focus – it focuses predominantly on home furnishings (curtains and

upholstery) of silk for the high end export market. It is almost entirely vertically

integrated - apart from filament yarn and silk waste which are imported from China,

every aspect of the production process – from the processing of the yarn, to designing and

weaving and finishing of the fabric is carried out in-house in a two-million-meters-per-

annum capacity plant with 115 computerized looms (the largest silk manufacturing

facility in India). It is almost entirely vertically integrated - apart from filament yarn and

silk waste which are imported from China, every aspect of the production process – from

the processing of the yarn, to designing and weaving and finishing of the fabric is carried

out in-house in a two-million-meters-per- annum capacity plant with 115 computerized

looms (the largest silk manufacturing facility in India). the design and rapid delivery of

small batches of highly customized home-furnishing fabric that fetch high realization

rates.

With typical runs of 120m to 150m per customer, HSL’s unit values of its

custom-designed products are about $US 20 per meter on average – about 60% higher

96

than the industry mean (Interview, HSL, 2005 and HSL company documents). These

$20/m products are retailed at $100-$120 by its clients in the EU and US. Ninety percent

of these designs are done in-house in what the firm calls its highly technically

sophisticated “design kitchen” where the company uses sophisticated process control

systems and computerized facilities to mix and match and develop its finely detailed and

finished products. The company, with 650 employees, and huge market capitalization of

$160 million (nearly 5 times its annual sales of $34 million) HSL has a portfolio of

20,000 products, and introduces 2000 new products per year, on average. (Interview by

Meenu Tiwari, HSL, Bangalore, 2005) HSL strenuously distinguishes itself from the Wart

Mart model Their Philosophy “we don’t sell to Wal Mart; we sell to Ralph Lauren Home”

Another vertically integrated company is Welspun India Limited (WIL) Asia’s

largest, and the world’s fifth largest, Terry towel producer. WIL’s aim is to be the largest

mass manufacturer of made-ups. It wants to “replace US home-textiles giants Pillowtex and

West Point Stevens as the largest home-furnishing manufacturers” and is committed to

making the investments that it will take to do so (Asian Textiles Journal, 2005). It is already

one of Wal Mart’s largest Indian suppliers. A supplier to 12 of the top 20 retailers of the

world, its primary buyers are Wal Mart, K-Mart, Target, J.C. Penny, Tommy Hilfiger,

Shopko, Calvin Klein

The niche markets are where large volume producers like China and Bangladesh are

not threats. The theme of leveraging small production runs, incorporating design, and

technology, especially IT-based production services, while scaling up are some of the

patterns that cut across the emerging firm strategies in the textile and apparel industry today.

To sum up several common patterns run across the recent trajectories of top

performers in Indian textiles and apparel exports: (a) a background in textiles, (b) recent

forward integration into value added apparel or value added fabrics (technical textiles), (c)

strong use of technology, especially software based systems monitoring protocols, and other

production and process tracking systems to streamline production, (d) an emergent focus on

design (and in some cases product development), (e) and institutional investments in western

markets—especially in the strategic purchase of small design and distribution networks in the

major markets in the US and EU.

97

FIG NO:11.1 GROWTH JOURNEY WELLSPUN INDIA LTD

98

CHALLENGES FACED

Textile supply chains compete on low cost, high quality, accurate delivery and flexibility in

variety and volume. Several challenges stand in the way of Indian firms before they can own a

larger share of the global market (Pankaj Chandra, 2005)

Cycle Time: Cycle time is the key to competitiveness of a firm as it affects both price and

delivery schedule. Cycle time reduction is strongly correlated with high first pass yield, high

throughput times, and low variability in process times, low WIP and consequently cost. Indian

firms have to dramatically reduce cycle times across the entire supply chain which is currently

quite high (Chandra, 2004). Customs must provide a turnaround time of ½ day for an order

before Indian firms can they expect to become part of larger global supply chains. Indian firms

need a strong deployment of industrial engineering with particular emphasis on cellular

manufacturing, JIT and statistical process control to reduce lead times on shop floors.

Penetration of IT for improving productivity is particularly low in this sector.

Innovation & Technology: A review of the products imported from China to USA during

January–April 2005 reveals that the top three products in terms of percentage increase in imports

were Tire Cords & Tire Fabrics (843.4% increase over the previous year), Non-woven fabrics

(284.1% increase) and Textile/Fabric Finishing Mill Products (197.2% increase) (FICCI, 2005).

None of these items, however, figure in the list of imports from India that have gained in these

early days of post-MFA. Entry into newer application domains of industrial textiles, nano-

textiles, home furnishings etc. becomes imperative if we are to grow beyond 5–6% of global

market share as these are areas that are projected to grow significantly. Synthetic textiles

comprise about 50 per cent of the global textile market. Indian synthetic industry, however, is not

well entrenched. The Technology Up gradation Fund of the government is being used to

stimulate investment in new processes. However, there is little evidence that this deployment in

technology has accompanied changes in the managerial regimes – a necessary condition for

increasing productivity and order winning ability (Chandra, P, 2004)

99

Domestic Market: The Indian domestic market for all textile and apparel products is estimated at

$26 bn and growing. While the market is very competitive at the low end of the value chain, the

mid or higher ranges are over priced (i.e., ‘dollar pricing’). Firms are not taking advantage of the

large domestic market in generating economies of scale to deliver cost advantage in export

markets. The Free Trade Agreement with Singapore and Thailand will allow overseas producers

to meet the aspirations of domestic buyers with quality and prices that are competitive in the

domestic market (FICCI, 2005). Ignoring the domestic market, in the long run, will peril the

export markets for domestic producers. In addition, high retail property prices and high channel

margins in India will restrict growth of this market. Firms need to make their supply chain leaner

in order to overcome these disadvantages.

Institutional Support: Textile policy has come long ways in reducing impediments for the

industry – sometimes driven by global competition and, at other times, by international trade

regulations. However, few areas of policy weakness stand out – labour reforms (which is

hindering movement towards higher scale of operations by Indian firms), power availability and

its quality, customs clearance and shipment operations from ports, credit for large scale

investments that are needed for up gradation of technology, and development of manpower for

the industry. These are problems facing several sectors of industry in India and not by this sector

alone.

In conclusion, competitive strategies are developed by sector level firms and its their individual

and collective initiatives that secure higher market share in global trade. While one has to be ever

vigilant of non-tariff barriers in the post MFA world, the new market will be won on the basis of

capabilities across the supply chain. Policy will need to facilitate this building of capabilities at

the firm level and the flexible strategies that firms will need to devise periodically.

100

FUTURE PROSPECTS

The global apparel manufacturing industry is expected to grow more than ever in times to come.

According to an estimate, the global apparel industry will reach a value of US$ 1,781.7 billion by

the end of 2010. The apparel manufacturers are now adopting new techniques to increase their

trade. New business models and competitive strategies are used to enhance profits and growth.

The consumer is more aware and more demanding with the development of media like television

and Internet. They have more choices in quality, price and design. This is the reason why apparel

chains all over the world are focussing more on improving the quality of the product and offering

in varied range of fashion designs. Apparel manufacturers are developing methods to keep up

with the pace of change like offering on wholesale prices to survive in the global competition.

Though the above trends show a very positive picture but according to some experts, the dilution

of MFA (Multi Fiber Agreement)1 will make a lot of apparel workers to loose their jobs, in many

regions of USA, Asia, Central and Latin America and these jobs will shift to China. The World

Bank report says, this will be one of the largest short-term transfers in history. Despite these

developments the apparel industry is estimated to grow at very high pace and will provide

employment to a large number of people all across the world.

The Textiles Ministry headed by Union Textile Minister Shankersinh Vaghela has set an

ambitious cumulative annual growth rate (CAGR) of over 20 percent to be achieved by the year

2010. This will be achieved through aggressive exports of textile from $50 billion to $130 billion.

CONCLUSION

India is now a fast emerging market inching to reach half a billion middle income population by

2030. All these factors are good for the Indian textile industry in the long run. Even though the

global economic crisis seams to be worsening day-by-day, as long as economies are emerging

and growing as those in South and South East Asia, textile industry is here to grow provided it

takes competition and innovation seriously.

101