Is India's Textile & Apparel Exports losing the race? An Analysis of World T&C Exports 2015-19

The Indian textile industry is of vital importance to the Indian economy. The textile industry contributes to 7% of industry output in value terms, 2% of India’s GDP. It contributes to 11% of the total merchandise exports out of India. It employs 45 Million people directly and another 60 Million people in allied sectors, including a large number of women and rural population. Undoubtedly, it is one of the largest in the world with a large unmatched raw material base and manufacturing strength across the value chain.

The data has been analyzed for World’s Textile & Clothing Exports (Chapters 50 to 63) during the period of past 5 calendar years, available on the Comtrade website (www. https://comtrade.un.org/Data/) along with Bangladesh Export Promotion Bureau website (http://epb.gov.bd/site/view/epb_export_data/-) since Data for Bangladesh is not available in Comtrade after the year 2015.

Detailed Year wise Data 2015-2020:

Since the above data is very detailed and difficult to grasp immediately, I have plotted the data only for 2 years – 2015 and 2019 in the below table, so that the trends could be understood easily.

Textile & Clothing Sector:

• The world’s Textile & Clothing Exports have grown at a CAGR of 1% over past 5 years 2015 - 2020. It was at the level of 800 Billion US $ in the year 2019.

• Till the year 2017, India used to be the 2nd largest exporter of T&C in the world market after China. However, its rank has now dropped to 5th in the year 2019.

• Till the year 2018, India’s share in the global trade in T&C was 5%, but has now dropped to 4% in the year 2019.

• India had a de-growth of -1% CAGR over the past 5 calendar years.

• All other countries in the top 10 list of T&C exporters had a positive CAGR growth, except China, India & Hong Kong.

• Vietnam has grabbed a substantial market share. It has grown at a CAGR of 10%, and moved up from 6th rank to 2nd rank in the past 5 years.

• Even the developed countries like Germany & Italy have overtaken India in the world ranking of largest T&C exports.

• Though, China’s share has dropped from 36% to 33%, but it still retains the 1st rank of largest exporter of T&C in the world, as all other countries look pygmies when we compare the absolute export volume numbers.

Breaking up the data further between Textiles (Chapters 50 to 60, 63) & Clothing Sector (Chapters 61, 62), following is the Data:

Textile Sector:

• World’s Textile Exports have grown at a CAGR of 1% over past 5 Calendar Years to the level of US $ 345 Billion in the year 2019.

• China’s share has grown to 35% at a CAGR of 2% over past 5 years.

• India’s had a de-growth of -1% and it also lost its rank from 2nd to the 3rd largest exporter of Textiles.

• Vietnam is growing very fast at a CAGR of 13%.

Clothing Sector:

• World’s Clothing Exports have grown at a CAGR of 1% over past 5 Calendar Years to the level of US $ 455 Billion in the year 2019.

• China had a massive loss of share in the Clothing exports of the world. It share dropped from 37% to 30% over past 5 years and had negative CAGR of -4%.

• India’s had de-growth of -1% CAGR. Its Clothing exports have practically stagnated.

• All other countries in the top 10 list of Clothing exporters had a very healthy positive CAGR growth, except China, India & Hong Kong.

What is troubling India’s Apparel & Clothing Exports?

Global trends in the Apparel and Clothing trade clearly indicate a large scale shift away from China, creating a potential market of billions of Dollars for other countries to try and capture. In past 5 years (2015-19) China has vacated space worth US $ 24 Billion in the Apparel & Clothing Segment. Unfortunately India has failed to grab any of it. On the contrary it has lost US $ 3 Billion between 2015 and 2019. This was Pre-Pandemic Era.

The Indian Clothing industry is largely fragmented and lacks scale, thanks to the archaic labor laws, which restricts freedom to layoff workmen during slack business period. An apparel stitching factory in India is on an average 1/5th in size of that found in countries like Bangladesh, Vietnam and China. Small size makes it more difficult to invest in technology and product innovation as it requires high upfront capital investment in the product development lab & design centers. Such investments do not offer any tangible or immediate returns.

Market access is a challenge. Bilateral trade treaties & FTAs have fundamentally altered the global trade flows in apparel sourcing. Lack of such preferential trade agreements creates barriers of distinct disadvantage for Indian exporters. As a result, our access to key markets is weakened.

India today is not in a position to offer total garment package solution to the leading International Brands & Retailers.

The Indian Textile Mills, even though they make the finest quality of the fabrics in the subcontinent, have most advanced product development & creative design capabilities, essentially have to ship their fabrics to various Garment Conversion countries like Bangladesh, Vietnam, etc. who enjoy flexible labor laws, big factories offering economies of scale and therefore high productivity at low cost.

Today the leading Apparel Brands & Retailers prefer to opt for an integrated solution of buying a total Garment package. They would rather focus their energies and efforts on their main business of marketing & retailing, rather than diverting them to manage fragmented supply chains from multiple countries. No sensible buyer will chose to buy fabric from one country & get it converted to garments in another country.

All the above factors consequently make it more difficult to attract big global brands to source from India.

What are the customer expectations?

Today, the customer gives priority to following attributes in business:

• Innovative Product.

• New product offerings in sync with the fast changing fashion.

• Fast delivery to meet fast changing & short fashion cycles.

• Assurance on the promised Product & Delivery Integrity.

• Competitive price.

• Sustainability in product manufacturing.

What are India’s existing strengths?

• A vibrant domestic textile and clothing industry of over US $ 100 Billion in size.

• Excellent ecosystem from Fiber to Fashion already in place in the domestic market.

• Existing significant and important place in the world market of Textiles & Clothing.

• Large pool of talented technical & managerial executive level manpower.

• Abundant young labor force.

What needs to be done by India?

Global trade in textiles & clothing is dominated by big multinational retailers and brands. It is estimated that they control about 80% of global trade. An important criterion for a big buyer is the ability to procure consistent quality in requisite volumes for all its chain of stores. This trend recently is also becoming visible in the domestic mass market of apparel retail. Hence scale becomes important in the textile & clothing value chain, which will require interventions / initiatives from both the government and the industry. Some of them are discussed below:

Flexible Labor Laws:

• Make labor laws fully flexible to allow freedom to close down a unit, layoff & retrench workmen. At present you require permission from government for above activities (in case the factory employs over 300 workmen).

• The law should be compliance based rather than permission based. This will remove the fear from the minds of serious & committed entrepreneurs to hire large labor force at a single location. Currently companies put up small units at multiple locations keeping the muster roll strength below 300, to bypass the stringent provisions of this archaic labor law.

• Flexibility in the labor laws, will bring in the advantages of economies of scale, as entrepreneurs will come forward to set up large scale units employing over 30,000 to 50,000 workers under one roof on the lines of China, Bangladesh and Vietnam. This will help to boost the productivity, reduce unit cost of manufacture, and enable higher allocation for upfront investments in the product development equipment. Large production base will allow absorption of higher fixed costs like hiring the best managerial talent in the industry.

• Such a move will also automatically encourage shift of employment from informal sector to the formal sector bringing in better work conditions for the workmen.

• Half hearted efforts like introduction of Fixed Term employment, increasing no. of workmen limit from 100 to 300, will not help. An entrepreneur who takes the risk to invest big, wants a hassle free exit route to quit the business, in case it does not work out for him.

• Please read an excellent note prepared by FICCI in the year 2014 given in the link: http://ficci.in/SEdocument/20301/FICCI-NOTE-ON-LABOUR-POLICY-REFORMS.pdf

• Apparel industry is highly labor-intensive in nature, and looking at the social fabric of India, women will be allowed by their families to take up employment in this sector. This can bring in a significant social change and women empowerment in the Indian Society.

Scale up and verticaly integrate to improve speed to market:

• World over, the fashion cycles are shrinking. The customer wants a faster turnaround for their samples and bulk orders. Hence having integrated vertical setups from Fiber, Yarn, and Fabric to Garments at a single location is the logical solution.

• In my previous published Blogs, I have already pointed out that above higher scale and complete vertical integration has been achieved by Home Textiles & Bed Linen sector to a great extent. Therefore, their exports are on a steady rise. However, unfortunately the Fabric Mills & Garment manufacturers for apparel end-use have not been able to put their act together. Please read my previous Blog: https://www.astuteconsult.in/post/how-important-is-textiles-clothing-contribution-in-the-india-s-commodity-exports-from-2015-2020

• To solve the complex issue in the Apparel Fabrics & Garment sector, either the fabric mill has to vertically integrate forward into garment manufacturing, necessitating employment of huge labor force, or the Garment factory has to backward integrate into Fabric & Yarn manufacturing which will require huge Capital Investment.

• Investment in the textile sector is very capital intensive, whereas investment in the clothing sector is labor intensive.

• Since the Garment factories are small, massive resource mobilization for the backward integration looks difficult. But possibility of a fabric mill forward integrating into garment manufacturing will be simple, if the labor laws are made flexible, as explained above.

Market access – Break trade barriers

• Globally, the US and EU are the largest consumers of textiles & clothing. For India, USA and EU markets absorb more than 50+% of our exports.

• Both the US and EU have signed FTAs and Preferential trade agreements with various countries which are our main competitors in the export of T&C trade.

• Indian companies face trade barriers compared to other competing countries like Bangladesh, Vietnam, Sri Lanka and Pakistan. These barriers pose a hindrance to business with our most important markets.

• Countries like Bangladesh, Sri Lanka and Pakistan benefit by ~10% on the landed price of products due to their GSP+ status with EU. Vietnam has entered into preferential trade agreements with both US and the EU. More developed countries like Korea have entered into FTA with the EU to improve market access. India needs to similarly expedite an FTA with the EU. This will benefit the apparel, made-ups and textile industry significantly. EU is our largest trading partner. FTA will neutralize some of the price disadvantages that India faces today.

Focus on Innovation & Sustainability:

• Companies need to push their product development teams for making innovative products to meet the customer expectations in terms of new emerging fashion trends. Innovation coupled with Sustainability can be in various forms.

• Companies should make significant investments in setting up a product development facility equipped with state of the art sampling machines. This will enable production of small sample lots with very quick turnaround.

• Companies should give special focus on the use of eco-friendly chemistry used in the processing and finishing technologies both for fabrics and the garment washing.

• Companies should focus on the 'Process re-engineering' to save on energy consumption, increased water recycling, and proper effluent treatment.

• Companies should seriously consider adopting new processes, so as to use the recycled raw material inputs like Polyester and Cotton extracted from the Pre & Post-consumer waste.

I firmly believe it is still not late. India continues to be uniquely positioned to capitalise on the opportunity to increase global trade in T&C. It has an abundant availability of a young labor force waiting in the wings to contribute to the nation building. We are not a novice in the export market. There already exists an ecosystem from fibre to fashion and a vibrant domestic market. The only need is to address the above issues which have now become chronic in nature.

I hope I have given you a fair idea of current state of India’s Textile & clothing sector, along with my thoughts on the suggested solutions.

Kindly visit my website www.astuteconsult.in to read my other blogs and see my videos on the textile industry. In case you need to get in touch with me, you can find the details on the contacts page of my website.