To realise the real potential, players have to be sensitive to the needs of each player in value chain. If they work in tandem, then only they can win confidence on their customers and in their own business proposition. Long term value chain partnerships are the answer to this issue, especially towards the end of value chain, where India has capacity and competency constraints.
Indian textile and apparel industry is the second largest manufacturer in the world after China. With an estimated domestic consumption of US$ 63 billion and an export value of US$ 32 billion, it contributes to about 5 percent of the US$ 1.8 trillion Indian economy. India is among the very few countries which have presence across the entire value chain. Despite all the inherent strengths, Indian industry has failed to capitalise on them.
While a smaller neighbouring exporter– Bangladesh has been able to increase its apparel exports from nowhere at the turn of this century to more that Indian exports currently; India’s exports have stalled in recent years. India is nowhere close to the kind of FDI that the several other Asian exporters– Vietnam, Thailand, Bangladesh, et cetera. have been able to garner. This is despite the better raw material and skilled manpower scenario.
In terms of positioning in global industry, India is mostly recognised as a quality cotton yarn producer rather than for any specific apparel category say Sri Lanka for Lingerie. Similarly, the kind of design and skill oriented positioning that Turkey has been able to develop in garment sector is largely missing.
The Challenge
One of the underlying reasons for less than optimum performance of garment sector is the structural weakness in the manufacturing value chain. The pivotal issue within the chain lies with the fabrics manufacturing and processing sector, which suffers from lack of capacity and use of obsolete technologies, to an extent that the upstream and downstream processes are not able to utilise their full potential.
On one hand, where India exports large quantities of raw fibre, yarn and greige fabrics; the garment industry is facing the constant unavailability of fabrics, both in quantity as well as quality terms.
Opportunity at the Horizon
China has dominated the global textile and apparel trade scenario in last two decades with a share in the range of 40 percent. However, the emerging trends indicate that China might have attained the peak share; by 2025 its share is expected to reduce by 5 percent points. Apart from increasing manufacturing costs, such a market share loss is expected because of: Growth of Chinese domestic apparel demand from US$ 150 bn in 2012 to US$ 545 bn. by 2025 will cause an additional demand of US$ 400 bn. thereby putting pressure on exports and increase of imports as well.
This lower-than-market performance will create a vacuum of US$ 100 bn plus by 2025. China’s loss of share in global trade will throw up opportunities for other exporting countries to take up the market share.
India with the second largest manufacturing set-up and other inherent advantages stand a chance to become a major gainer provided the industry can address the structural weakness timely and effectively.
Way Forward
In order to make a meaningful impact in the global trade scenario, the foremost need is to realise garment manufacturing activity as the engine of growth and undertake policy as well as strategic measures to facilitate its growth. On the supply side, there is an urgent need to invest in value chain from fabrics to garments to balance the value chain structure.
Investment for capacity enhancement or upgradation of fabric manufacturing and processing activity will enable the availability of fabrics types beyond the standard cotton based. Synthetic fabrics, coated fabrics, et cetera, are the categories of high demand in which Indian presence needs improvement.
The unorganised nature of industry causes various inefficiencies to get imbibed into the system; prime among them is opportunistic pricing mechanism. Garment players place orders to fabric players after receipt of orders and play one against other to negotiate prices. When suddenly a big order comes in market, scarcity of supply base happens and prices go up.
To realise real potential, players have to be sensitive to needs of each player in value chain. Long term value chain partnerships are the answer to this issue. The coordination between garment players and fabric suppliers for long term delivery commitments will not only create predictability but also helps both to plan investments in the right direction.
