TEXTILEINDUSTRYREPORT OVERVIEWOFTHETEXTILEINDUSTRY TheIndiantextileindustryisonethelargestandoldestsectorsinthecountryandamong themostimportantintheeconomyintermsofoutput,investmentandemployment.

t.The sector employs nearly 35 million people and after agriculture, is the secondhighest employer in the country. Its importance is underlined by the fact that it accounts for around 4% of Gross Domestic Product, 14% of industrial production, 9% of excise collections, 18% of employment in the industrial sector, and 16% of the countrys total exportsearnings.Withdirectlinkagestotheruraleconomyandtheagriculturesector,it hasbeenestimatedthatoneofeverysixhouseholdsinthecountrydependsonthissector, eitherdirectlyorindirectly,foritslivelihood. A strong raw material production base, a vast pool of skilled and unskilled personnel, cheap labour, good export potential and low import content are some of the salient features of the Indian textile industry. This is a traditional, robust, wellestablished industry,enjoyingconsiderabledemandinthedomesticaswellasglobalmarkets. IndiavisvisGlobalTextiles TheglobaltextileandclothingindustryisestimatedtobeworthaboutUS$4,395bnand currentlyglobaltradeintextilesandclothingstandsataroundUS$360bn.TheUSmarket is the largest, estimated to be growing at 5% per year, and in combination with the EU nations,accountsfor64%ofclothingconsumption. The Indian textile industry is valued at US$ 36 bn with exports totalling US$ 17 bn in 20052006. At the global level, Indias textile exports account for just 4.72% of global textile and clothing exports. The export basket includes a wide range of items including cottonyarnandfabrics,manmadeyarnandfabrics,woolandsilkfabrics,madeupsanda varietyofgarments.Quotaconstraintsandshortcomingsinproducingvalueaddedfabrics andgarmentsandtheabsenceofcontemporarydesignfacilitiesaresomeofthechallenges thathaveimpactedtextileexportsfromIndia. Indiaspresenceintheinternationalmarketissignificantintheareasoffabricsandyarn. Indiaisthelargestexporterofyarnintheinternationalmarketandhasashareof 25%inworldcottonyarnexports Indiaaccountsfor12%oftheworldsproductionoftextilefibresandyarn Intermsofspindleage,theIndiantextileindustryisrankedsecond,afterChina,and accountsfor23%oftheworldsspindlecapacity Around6%ofglobalrotorcapacityisinIndia

ByDun&BradstreetIndia

The country has the highest loom capacity, including handlooms, with a share of 61%inworldloomage.

IndiasTextileIndustryStructure Cotton textiles continue to form the predominant base of the Indian textile industry, though other types of fabric have gained share in recent years. In 199596, the share of cottonandmanmadefabricwas60%and27%respectively.Morerecently,cottonfabrics accountedfor46%ofthetotalfabricproducedin200506,whilemanmadefibreshelda share of 41%. This represents a clear shift in consumer preferences towards manmade fabric. TheTextileandApparelsupplychain

Thefibreandyarnspecificconfigurationofthetextileindustryincludesalmostalltypesof textilefibres,encompassingnaturalfibressuchascotton,jute,silkandwool;synthetic/ manmadefibressuchaspolyester,viscose,nylon,acrylicandpolypropylene(PP)aswell asmultipleblendsofsuchfibresandfilamentyarnssuchaspartiallyorientedyarn(POY). Thetypeofyarnusedisdictatedbytheendproductbeingmanufactured. TheManmadetextileindustrycomprisesfibreandfilamentyarnmanufacturingunitsof cellulosic and noncellulosic origin. The cellulosic fibre/yarn industry is under the administrative control of the Ministry of Textiles, while the noncellulosic industry is undertheadministrativecontroloftheMinistryofChemicalsandFertilisers. It is wellestablished that India possesses a natural advantage in terms of raw material availability. India is the largest producer of jute, the secondlargest producer of silk, the thirdlargest producer of cotton and cellulosic fibre/yarn and fifthlargest producer of syntheticfibres/yarn. Theindustrystructureisfullyverticallyintegratedacrossthevaluechain,extendingfrom fibre to fabric to garments. At the same time, it is a highly fragmented sector, and comprises smallscale, nonintegrated spinning, weaving, finishing, and apparelmaking enterprises. The unorganised sector forms the bulk of the industry, comprising handlooms, powerlooms, hosiery and knitting, and also readymade garments, khadi and carpetmanufacturingunits.Theorganisedmillsectorconsistsofspinningmillsinvolved only in spinning activities and composite mills where spinning, weaving and processing activitiesarecarriedoutunderasingleroof. AsinJanuary2006,therewere1779cotton/manmadefibretextilemillsintheorganised sector,withaninstalledcapacityof34.1millionspindlesand395,000rotors.Ofthese,218 werecompositemillswhichaccountedforjust3%oftotalfabricproduction,with97%of fabric production happening in the unorganised segment. Cloth production in the mill sectorhasfallenfrom1,714millionsqmtrsin19992000toaprojected1,493millionsq mtrsin200506,decliningatarateof2%perannum.Asaresult,thenumberofsickunits intheorganisedsegmenthasalsobeengrowingrapidly. Thecompetitivenessofcompositemillshasdeclinedincomparisontothepowerloomsin the decentralised segment. Policy restrictions relating to labour laws and the fiscal advantagesenjoyedbythehandloomandpowerloomsectorshavebeenidentifiedastwo ofthemajorconstraintsresponsibleforthedecliningscenarioofthemillsector.

Nonetheless,overallclothproductioninthecountryhasbeengrowingat3.5%perannum since 2000, with growth driven largely by the powerloom sector. Being the largest manufacturer of fabric in the country, the powerloom sector produces a wide variety of cloth,bothgreyaswellasprocessed.AccordingtotheMinistryofTextiles,thereare1.923 mn powerlooms in the country distributed over 430,000 units. The sector accounts for 63% of the total cloth production in the country and provides employment to 4.815 mn people. Thehandloomsectoristhesecondhighestemployerinthecountryafteragriculture.The sectoraccountsfor13%ofthetotalclothproducedinthecountry,notincludingwool,silk andhandspunyarn.Theproductionofhandloomfabricshadgoneupto4629mnsqmtrs in2005,from500mnsqmtrsinthe1950s,representinganannualgrowthofaround4%. Thesectorisweigheddownbyseveralproblemssuchasobsoletetechnology,unorganised productionsystems,lowTheManmadetextileindustrycomprisesfibreandfilamentyarn manufacturing units of cellulosic and noncellulosic origin. The cellulosic fibre/yarn industry is under the administrative control of the Ministry of Textiles, while the non cellulosic industry is under the administrative control of the Ministry of Chemicals and Fertilisers. XV productivity, weak marketing links, overall stagnation in demand and competitionfromthepowerloomandmillsectors. Knitting and hosiery units account for around 17% of fabric production in the country. According to data available for the year 2000, India had about 6,000 knitting units registered as producers or exporters and most of these units were registered as small scaleunits. TrendsinProduction Yarn and fabric production has been growing annually at 1.9% and 2.7% respectively, since2000.Yarnproductionhasincreasedfrom3,940mnkgin199900to4,326mnkgin 200405.Manmadeyarnhasdrivenmuchofthis,showingarobustgrowthof4.3%inthe last five years. Spun yarn production and the cotton yarn sector have also grown, albeit lessimpressively,recordinggrowthsof2.4%and0.6%respectively.

Source:MinistryofTextiles,GoI

Fabric production has been growing at 2.7% annually between 2000 and 2005, driven primarily by the smallscale, independent powerloom sector. Growth in the 100% non cottonsegmenttouched5%,followedbycottonfabricat1.5%andblendedfabricat0.3%. Fabric production touched a peak 45,378 million sq mtrs in 200405, and in Nov 06, production recorded a robust 9% growth compared to the corresponding period in the previousyear.

Source:MinistryofTextiles,GoI

TradeScenario AccordingtotheprovisionalDGCI&Sdata,textileexportsduringfiscal200506stoodat around US$17 billion, recording a 22% growth yearonyear. Except for manmade textiles, all segments in the textile industry, including handicraft carpets, wool and silk, haverecordedagrowthinexportsduring200506thefirstyearsincethephasingoutof thequotasystemintheglobalmarket. Readymadegarments(RMG)isthelargestexportsegment,accountingforaconsiderable 45%oftotaltextileexports.Thissegmenthasbenefitedsignificantlywiththetermination oftheMultiFibreArrangement(MFA)inJan05.In200506,totalRMGexportsgrewby 29%,touchingUS$7.75bn.In200304and200405,thegrowthinRMGexportswas8.5% and 4.1% respectively. The jump in 200506 exports has been largely due to the eliminationofquotas. Exports of cotton textiles which include yarn, fabric and madeups constitute over 2/3rd of total textiles exports (excluding readymade garments). Overall, this segment accountsfor26%oftotaltextileexports.AccordingtotheMinistryofTextiles,in200506, total cotton textile exports Source: Ministry of Textiles, GoI Source: Ministry of Textiles, GoI XVI were worth US$ 4.5 bn, implying a growth of 27% over the exports in 200405, whichwereworthUS$3.5bn. Manmadetextilesexportshavewitnessedadeclineof2.5%in200506.Between1999 2000and200203,manmadetextilesexportsweregrowingataround30%perannum. Theslowdownbegansince200304andhavebeenonthedeclinesince. MajorexportdestinationsforIndiastextileandapparelproductsaretheUSandEU,which together accounted for over 75% of demand. Exports to the US have further increased since 2005, post the termination of the MFA. Analysis of trade figures by the US Census BureaushowsthatpostMFA,importsfromIndiaintotheUShavebeennearly27%higher thaninthecorrespondingperiodin200405. SegmentwiseExports,20022006(US$bn) Category CottonTextiles ManmadeTextiles Silk Wool ReadyMadeGarments Handicrafts Jute Coir&CoirManufactures Total 200203 3.62 1.53 0.49 0.29 5.75 1.42 0.20 0.08 13.37 200304 3.68 1.86 0.56 0.35 5.92 1.11 0.25 0.08 13.80 200405 3.54 2.05 0.59 0.42 6.02 1.01 0.28 0.11 14.03 200506 4.49 2.00 0.69 0.47 7.75 1.24 0.29 0.13 17.08

Investments Investmentsinthetextilessectorcanbeassessedonthebasisofthreefactors: Plan schemes such as the Technology Upgradation Funds Scheme (TUFS), TechnologyMissiononCotton,ApparelParks,etc.UndertheTUFSscheme,atotal ofRs916bnhasbeendisbursedfortechnologyupgradation.Therearearound26 ApparelParksineightstatesinIndia,withatotalestimatedinvestmentofRs134 bn Industrial Entrepreneurship Memorandums implemented from 1992 to Aug 06, amountingtoRs263bn Foreign Direct Investments inflows worth US$ 910 mn have been received by the textileindustrybetweenAug91andMay06,whichaccountfor1.29%oftotalFDI inflowsinthecountry.

Thoughsignificantinvestmentsarebeingmadeinthetextilessegment,thebulkofthem areinthespinningandweavingsegments.AcumulativetotalofUS$6.67bnininvestment isexpectedby2008.Ofthis,morethantwothirdsisexpectedinthespinningandweaving segments,whileonly25%isexpectedinprocessingandgarmentunits.

Source: Ministry o Textiles GovernmentInitiatives

The Governments role in the textile industry has become more reformist in nature. Initially,policiesweredrawntoprovideemploymentwithaclearfocusonpromotingthe smallscale industry. The scenario changed after 1995, with policies being designed to encourage investments in installing modern weaving machinery as well as gradually eliminatingtheprodecentralisedsectorpolicyfocus.TheremovaloftheSSIreservation for woven apparel in 2000 and knitted apparel in 2005 were significant decisions in promotingsettingupoflargescalefirms.GovernmentschemessuchasApparelParksfor Exports (APE) and the Textile Centres Infrastructure Development Scheme (TCIDS) now provideincentivesforestablishingmanufacturingunitsinapparelexportzones. ThenewTextilePolicyof2000settheballrollingforpolicyreformsinthetextilesector, dealingwithremovalofrawmaterialpricedistortions,clusterapproachforpowerlooms, pragmaticexitofidlemills,modernisationofoutdatedtechnologyetc.Theyear2000was also marked by initiatives of setting up apparel parks; 2002 and 2003 saw a gradual reductioninexcisedutiesformosttypesoffabricswhile2004offeredtheCENVATsystem onanoptionalbasis.TheUnionBudgetof20052006announcedcompetitiveprogressive policies,whosesalientfeaturesincluded:

Amajorboosttothe1999establishedTechnologyUpgradationFundSchemeforits longevitythroughaRs4.35bnallocationwith10%capitalsubsidiesforthetextile processingsector Initiationofclusterdevelopmentforhandloomsector Availabilityofhealthinsurancepackageto0.2mnweaversfrom0.02mninitially Reduction in customs duty from 20% to 15% for fibres, yarns, intermediates, fabrics and garments; from 20% to 10% on textile machinery and from 24% to 16%inexcisedutyforpolyesterorientedyarn/polyesteryarn Reductionincorporatetaxratefrom35%to30%with10%surcharge Reductionindepreciationrateonplantandmachineryfrom25%to15% InclusionofpolystertexturisersundertheoptimalCENVATrateof8%

TomeetthechallengesofthepostMFAsetup,theGovernmentofIndiainitiatedareforms process which aimed at promoting large capital investments, pruning cumbersome procedures associated with the tax regime, etc. The Textile Vision 2010 was born as a result of interaction between the government and the industry which envisages around 12% annual growth in the textile industry from US$ 36 billion now to US$ 85 billion by 2010.Additionally,Vision2010alsoproposesthecreationofanadditional12millionjobs throughthisinitiative.

SMESINTHETEXTILEINDUSTRY ThephasingoutoftheinternationalquotasystemisamajorturningpointfortheIndian textile industry an opportunity and a threat. The textile industry is among the SME intensive sectors in India, largely an outcome of government policies during the early years of Independence. Focusing on promoting domestic employment, largescale productioninthetextileindustrywascurtailedthroughrestrictionsontotalcapacityand level of mechanisation. Several textile items were reserved for the small scale segment. Thesepoliciespromotedtheextensivegrowthofsmallscaletextileenterprisesthatwere highlylabourintensive,thoughiterodedthecompetitivenessoftheindustryandactedas adisincentiveforcapitalinvestment. Thesepoliciespursuedfromthe1950stothe1970sresultedinthedominanceofthe decentralisedpowerloomandhandloomsectorsinthetextileindustry,whicharemainly smallandmediumscaleenterprises.Infact,manyofthelargetextilecompaniesarealso conglomeratesofmediumsizedmills.StatisticsreleasedbytheMinistryofTextilesshows a highly fragmented industry, except in the spinning subsegment. The organised sector contributesover95%ofspinning,buthardly5%ofweavingfabric.SmallScaleIndustries (SSIs)performthebulkoftheweavingandprocessingoperations. Dereservationoftextileproductshasbeenapriorityareaforthegovernmentsince1997, which was believed to be the most effective way to foster productivity and efficiency withinthesector.Alltextileitemswereremovedfromthereservationlistby2005.These measures were a prerequisite to compete globally in the postMFA regime. As trade barrierscomedownandcapitalmobilityincreases,large,organisedandintegratedfirms will gain importance in establishing a presence in the global market and to tap opportunities. In the new scenario of a quotafree world, the readymade garments sector will play a crucial role in the economy, in terms of contributing to exports as well as employment generation, considering its inherent labourintensive nature. In the cloth production segment,thehosieryandmillsectorsarelikelytobethegainers. DefiningMSMEs TheMicro,SmallandMediumEnterprisesDevelopmentAct,2006,whichcameintoeffect fromOctober2,2006,defineSMEsonthebasisofinvestmentsinplantandmachinery. Forenterprisesengagedinthemanufactureofgoods: MicroInvestmentinplantandmachinerylessthanRs2.5mn SmallInvestmentinplantandmachineryoverRs2.5mnbutnotexceedingRs50 mn MediumInvestmentinplantandmachineryinexcessofSSIlimitbutlessthanRs 100mn

Forenterprisesengagedinprovidingorrenderingofservices:

MicroInvestmentinequipmentnotexceedingRs1mn SmallInvestmentinequipmentoverRs1mnbutnotexceedingRs20mn MediumInvestmentinequipmentisinexcessofSSIlimitbutlessthanRs50mn

BuyerDrivenNetwork Theglobaltextileindustry,abuyerdrivennetwork,isdominatedbyretailers,marketers andmanufacturers.Inthenewlydefinedbusinessenvironmentfortextiles,retailerslike Zara,H&M,etc.haveredefinedthelifeoffashiontrendsfromtheearlierfivetosixmonths toaroundtwomonths.Inthisscenarioofsuchshortshelflife,thesmallscaleoperations of Indian SME apparel manufacturers gives them the flexibility to service custommade orders at low cost. It is likely that India will become a preferred destination for global manufacturersandretailersaswell,andbigopportunitiesforSMEsareforthcoming. Today, apart from the big Indian textile manufacturers like Gokuldas Exports, Alok Industries, Raymonds, Welspun India, Arvind Mills and Madura Garments, several small andmediumsizedapparelmanufacturershavealsobecomesignificantcontributorstothe total apparel exports of the country. Cotton knitwear suppliers of Tirupur, hosiery suppliersofLudhianaandsuppliersofhometextilesfromTamilNadu,KeralaandPunjab, amongothers,havebeenacceptedashighqualityandcosteffectiveapparelsuppliersin internationalmarkets. These regions are also SME dominated textile clusters that have emerged either due to market access, availability of raw material or private initiatives. The textile industry of Indiaoperateslargelyintheformofclustersmostlynaturalclusterswithroughly70 textile clusters producing 80% of the countrys total textiles. Based on a UNIDO study conductedonSMEclustersinIndia,somenoteworthytextileclustersinclude:

Panipat,accountingfor75%ofthetotalblanketsproducedinthecountry Tirupur,responsiblefor80%ofthecountryshosieryexports Ludhiana,whichaccountsfor95%ofthecountryswoollenknitwearproduced.

ClusterbasedApproachtoDevelopment Inspiteofsomenaturaladvantagessuchaslowcostsandflexibility,theSMEssufferfrom disadvantagesofbeinginarelativelyisolatedenvironment. TheGovernmentofIndiasclusterdevelopmentinitiatives,involvingtechnicalassistance, subsidies for technology upgradation and marketing support, have strengthened the competitivenessoftheSMEs,whichhasalsoconsolidatedtheirpositionintheglobalvalue chain. A case in point is the initiative undertaken by the Textile Committee under the Ministry of Textiles, which has undertaken a clusterbased programme for capacity buildingintextileandclothingSMEsinacross20clustersinthecountry.

SomekeybenefitsofaclusterbasedapproachfordevelopingSMEsare:

Networkingamongenterprises Economiesofscale Improvedbargainingpower Technologyandskillupgradation Globalvisibilityandbeingpartofthevaluechain Easieraccesstofinance Greaterinstitutionalsupport.

AmongthesuccessesoftheTextileCommitteesclusterdevelopmentinitiativeshasbeen the acquiring of intellectual property rights protection for the Pochampally Ikat tieand dyesari,fromAndhraPradesh.ItisthefirsttraditionalIndiancrafttoreceivethisstatusof XXVIII geographical branding,and isexpected to benefit at least 100,000weaversinthe state.ThepowerloomclustersinSholapurandSalemarealsofollowingsuitinacquiring geographicalindicationsprotection. Another successful initiative is seen in the Terry Towel cluster of Solapur, where some majorinterventionswereundertakenbythecommitteesuchassettingupofapolytechnic institute, acquiring quality certifications for some of the units, setting up an export consortiumandestablishingnetworks. The concentration of textile firms in the form of clusters is to a natural advantage for adoptingaclusterbaseddevelopmentapproachofthetextileSMEsegment.International and domestic experience has proved that this approach has helped firms in attaining competitivenessarequisiteintodaysnewmarket. LinkingwiththeGlobalValueChain An inevitable outcome of the opening up of the textile markets is the rationalisation of supplierbasebylargeretailchainssuchasWalMartandGap.Undersuchcircumstances, it will be difficult for small enterprises to individually meet the requirements of these internationalbuyers.Hence,itwillbeessentialtobuildvaluenetworksthroughlinkages withlargeplayerswhocanwinlargeorders,whilesmallerplayersservicetheseorders. Thisentryintovaluenetworkswillnotonlylinkupsmallplayerstotheglobalvaluechain but also assure a market for their products. Incorporation of textile SMEs as third and fourthtiersupplierswillbeaneffectivewayofensuringthattheygainfromthegrowing demands of the global market. However, here the role of the government and the large textilecompanieswillbeimperative. SWOTAnalysisofIndianTextileSMEs Strengths Selfreliance Manufacturingflexibility Weaknesse Highlyfragmented Highdependenceoncotton

Abundance of raw material production Designexpertise Availabilityofcheaplabour Growing economy and domesticmarket Progressivereforms

Lowerproductivity Decliningmillsegment Technologicalobsolescence Nonparticipants in trade agreements

Opportunities

Threats Stiff competition from Endofquotaregime developing countries; Shift in domestic market to especiallyChina brandedreadymadegarments Pricingpressure Increaseddisposableincome Locationaldisadvantage Emerging mall culture and International labour and retailexpansion environmentallaws

IndianTextileClusters Cluster Location Guntur State AP Product Specialisation Powerloom CottonGinning Powerloom Crochetlace Tieanddyeing Jeans/RMG Powerloom Powerloom RMG/Hosiery RMG Textileprinting Powerloom Powerloom Weaving Powerloom RMG Powerloom RMG Powerloom &

Nagari AP Narsapur AP Pochampally AP Anantpur AP Sirsilla AP Warangal AP Delhi Delhi Ahmedabad Gujarat Jetpur Gujarat (Rajkot) Gandhinagar Gujarat Surat Gujarat Vijapur Gujarat Bhiwani Haryana Gurgaon Haryana Panipat Haryana Bangalore Karnataka Belgaum Karnataka

Bellary Karnataka Jeans Gadag Karnataka Powerloom Mysore Karnataka Silk Ernakulam Kerala Powerloom Faizlure Kerala Powerloom Kannur Kerala Handloom MallappuramKerala Powerloom Palakkad Kerala Powerloom Burhanpur MP Powerloom Chanderi MP Handloom Indore MP RMG Jabalpur MP RMG/Powerloom Maheshwar MP Handloom Ujjain MP Powerloom Bhiwandi Maharashtra Powerloom Ichalkaranji Maharashtra Powerloom MadhavnagarMaharashtra Powerloom Cluster Product State Location Specialisation Malegaon Maharashtra Powerloom Mumbai Maharashtra RMG/Hosiery Nagpur Maharashtra Powerloom,RMG Pune Maharashtra RMG Solapur Maharashtra Powerloom Balasore Orissa Powerloom Dhenkanal Orissa Powerloom Ganjam Orissa Powerloom Nuapatna Orissa Tussarsilk Amritsar Punjab Powerloom Ludhiana Punjab Woollenknitwear Jaipur Rajasthan Garments Jodhpur Rajasthan Handprocessing Kishangarh Rajasthan Powerloom Sanganer & Hand block Rajasthan Bagru printing Bhavani & TN Hometextiles Chennimalai Karur TN Hometextiles

Madurai Rajapalyam Salem Surampatti Tirupur Agartala Banda Gorakhpur Jhansi Kanpur Lucknow Mau Noida Varanasi Kolkata Ranaghat

TN TN TN TN TN Tripura UP UP UP UP UP UP UP UP WB WB

Tie & dye, hand printing,RMG Surgicaltextiles Powerloom Powerloom Knitwear/Hosiery Handloom & Loin Looms Powerloom Powerloom Powerloom Hosiery Chikan embroidery Powerloom RMG Powerloom Hosiery/RMG Powerloom

Source:D&BResearch,UNIDO,SIDO

FUTUREOUTLOOK Expectations are high, prospects are bright, but capitalising on the new emerging opportunitieswillbeachallengefortextilecompanies.Someprerequisitestobeincluded inthegloballycompetingtextileindustryare:

Imbibingglobalbestpractices Adoptingrapidlychangingtechnologiesandefficientprocesses Innovation Networkingandbettersupplychainmanagement Abilitytolinkuptoglobalvaluechains.

The Indian textiles industry has established its supremacy in cotton based products, especiallyinthereadymadegarmentsandhomefurnishingssegment.Thesetwosegments will be the key drivers of growth for Indian textiles. Readymade garment exports were worth US$ 8 bn in FY06 and will cross US$ 16 bn by the end of 2010, assuming a conservative growth of 15% per annum. According to estimates, investments in textiles areexpectedtotouchUS$31bnby2010. The readymade garment segment will be the principal driver of growth even in the domesticindustry.ThechangingpreferencesofIndianconsumersfrombuyingclothto readymadegarmentshavepromptedseveralcompaniestomoveupthevaluechaininto thefinishedproductssegment. StrategicInitiatives Business integration especially forward integration by the larger textile companies has been prominent among Indian companies. Several companies that are engaged in fabric manufacturing, are now keen to enter the readymade garments space. A recent entrant is Siyaram, which launched its readymade garments range in Nov 06, following suitwithothermajorslikeCenturyTextilesandRaymonds. Mostofthelargetextilecompanieshaveoptedforaninorganicgrowthstrategytoscaleup operations. Acquisition is the most logical step towards integrating operations and building the value chain. Domestic acquisitions are on the rise, while acquiring foreign assetsisyettogaintraction.Somerecentdomesticacquisitionsthathavebeenexecutedin 2006includeKSL&IndustriesacquisitionofDeccanCooperative,andAmbatturClothing taking over Celebrity Fashions. Another growing phenomenon observed among Indian textilecompaniesisthesettingupofmanufacturingfacilitiesinstrategicregionsoutside India,where they canavail of duty concessions andreduce exportleadtime.Zodiac and AmbatturClothinghavesetupfacilitiesintheGulfregiontocutdownonexportdelivery schedulestotheEuropeanandUSmarkets.RaymondshassetupaunitinBangladeshto availofthezerodutyaccesstotheEU.

Thistrendisseenprimarilyamongthelargedomesticplayers,whoaretryingtoachieve sizable scales in order to win orders from the large retailers in the US and EU. Global retailers prefer largesized companies that can scale up capacities consistently, keep up withdeliveryschedulesandmeettheirgrowingdemand.Theyhaveclearpreferencesfor companieswithintegrateddesign,processandmanufacturingfacilities. Aninterestingcommonalityincountrieswithsuccessfulgarmentexportsisthattheyhave a much lower level of subcontracting than India. A study during the 1990s found that apparel firms Future Outlook XXXIII in India subcontracted 74% of their output, as comparedtoonly11%inHongKong,18%inChina,20%inThailand,28%inSouthKorea and36%inTaiwan.Consequently,thesecountrieshaveawiderbaseofexportsandhave doneverywellinthemarketforlargevolumesofuniformproducts. ForeignAcquisitionsbyIndianTextileCompanies Period May01 Jun01 Sep01 Sep03 Dec04 May05 Jun05 Dec05 May06 May06 Jul06 Jul06 Acquirer ArvindMills AmbatturClothing Raymonds JindalPolyester JCTLtd RelianceGroup ZodiacClothing GHCL MalwaIndustries MalwaIndustries WelspunIndia SpentexIndustries AcquiredCompany License Of Healthtex Kidswear BrandOfVfCorpn(USA) Colourplus(UK) Regency Texteis Portuguesa Limitada(Portugal) RexorGroup(France) CNLTMalaysia(Synegal) ICIPakistanLtd(Pakistan) Shirting Company Located In AlqozeIndustrialArea(Dubai) DanRiver(USA) Emmetre Tintolavanderie Industrial(Italy) ThirdDimensionApparels(Italy) CHTHolding(UK) TashkentToyetpa Tekstil Ltd (Uzbek) Rosebys(UK)

Jul06 GHCL Source:D&BResearch

TheexportsmarketwillremainfavourableforIndiatill2008,whenquotarestrictionson China end. Post 2008, competition will become tougher. This will be the phase in which Indian textile companies will come under tremendous pricing pressures and tighter product delivery schedules. Nevertheless, the valueadded segments of readymade garments,homefurnishingsandmadeupswillcontinuetogrow.

ImplicationsforSMEs Thenewbusinessdynamicshavevaryingundertonesacrossthevaluechain.Thesegment thatislikelytobehitisweaving.TheSMEsinthepowerloom andhandloomsectorwill face significant churn in the future. Spinning mills that account for 95% of the yarn and fibreproduction,willmoveupthevaluechainintoweaving.Thiswillerodetheviabilityof thehithertoprotectedpowerloomandhandloomoperatorsnumberingover400,000,who have remained insulated from competitive forces so far. A possible remedy could be for theseweaverstoalignwithbiggerplayersorintegrateoperationsthatwouldensureoff takeoftheirproducts. The fragmented industry structure has in the past been beneficial in generating employment, but will be difficult to sustain in a globally competitive environment. For fabric manufacturers in the unorganised segment, this will mean inefficient units losing outeventually,whilethemoreefficientanddynamiconesaligningwithmanufacturersor buyers.For readymade garment SMEs, rising demand and preference for readytowear outfitsinthedomesticmarketwillsustainalargenumberofunitsinthissector.Thiswill bethemostthrivingsegmentintheindustryandSMEswillplayakeyrole. Indias key assets include a large and lowcost labour force, sizable supply of fabric, sufficiencyinrawmaterialandspinningcapacities.Onthebasisofthesestrengths,India will become a major outsourcing hub for foreign manufacturers and retailers,with compositemillsandlargeintegratedfirmsbeingtheirpreferredpartners.Itwillthusbe essential for SMEs to align with thesefirms, that canensure a market for theirproducts andneworders. Weaknesses of the Indian textile industry include fragmentation of the industry, lengthMessages in this topic (1) y delivery times, delays in customs clearance and high transportationandinputcosts.Totacklethesefactors,theGovernmentwillhavetoplaya key role. Infrastructure development, reforms in labour laws and significant policy supportwillbeessential.
Source:www.dnb.co.in