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Chinas Impact On Indian Gar Ind
Chinas Impact On Indian Gar Ind
by
Aditya Marwaha
Abstract
To survive and succeed in garment manufacturing business in todays era of globalisation and
increasing competition, it is important for firms to analyse the environment in which it is
working. With cutting margins between the cost and the selling price, firms have to make
efforts to decrease their cost. Therefore, various factors, in the form of theories, affecting the
success of a firm and the cost of a product are critically evaluated during the literature
review. The theories are global competition; strategic management; PEST analysis; five
competitor force model; and resource based view. The interviews of garment manufactures
were gained so as to get an insider view of this industry and gain the practical side with their
relation to the theories. Integration of China in the global economy is one of the most
significant developments that is affecting the structure and evolution of the global system.
This research mentions what factors is China ahead of India in the garment industry. A
comparison will be made with the garment industry in China, as they are the biggest
competitor. This industry in India needs to be improved, and for this, various
recommendations are outlined which would help enhance the competitive position of the
Indian garment industry in the period of global competition.
Acknowledgement
Before I begin, I would like to thank few people who have supported and guided me
throughout my dissertation. Firstly, I would like to thank my mom, dad and my elder brother
Karan for suggesting me to do research on this topic. It was a great experience for me to
know better about this industry before getting involved into this business. Without your
constant help and support, it would not have been possible for me to complete this research
effectively. Secondly, I would like to thank my Supervisor, Ms. Mona Moufahim, who made
me believe that she was always there to help for my dissertation. Her constant reminders
asking about the updates of my work, fast replies to my e-mails, and also providing detail
suggestions and comments about my work provided me a great vigour. I can never forget the
incident when she had to leave the city for a conference. As I couldnt meet her early on that
day due to some reason, she met me just before leaving the city to help me with my
dissertation. She brought her luggage in her office and left directly to catch the train. Her
interest and faith in my work and in my efforts eventually motivated me more to complete
this research. Thirdly, I would like to thank my friend Hari, for rendering a helping hand in
the final phase of my dissertation.
Table of Contents
ABSTRACT..............................................................................................................................
ACKNOWLEDGEMENTS......................................................................................................
TABLE OF CONTENTS..........................................................................................................
LIST OF TABLES AND FIGURES.........................................................................................
CHAPTER ONE .......................................................................................................................
1. INTRODUCTION ............................................................................................................1
1.1. Research Objectives...................................................................................................2
1.2. Framework of the study .............................................................................................2
1.3. Overview of Textile Sector in the Indian Economy ..................................................3
1.4. Sub-Segments ............................................................................................................4
1.5. Components in the Value Chain of Textile industry .................................................5
Fibre 5
Yarn5
Cloth/Fabric ................................................................................................................6
Textile Processing Sector............................................................................................6
Readymade Garment...................................................................................................6
1.6. Summary....................................................................................................................7
CHAPTER TWO ......................................................................................................................
2. LITERATURE REVIEW .................................................................................................8
2.1. Brief Hostory of Strategic Management....................................................................9
2.2. Strategy ....................................................................................................................10
2.3. Strategic Management Process ................................................................................11
2.4. Internal and External environment analysis ............................................................12
2.5. External analysis......................................................................................................13
Political Environment ...............................................................................................14
Economic Environment ............................................................................................14
Social and Cultural Environment..............................................................................15
Technological Environment......................................................................................15
Threat of New Entrants: ...........................................................................................16
Threat of Substitutes .................................................................................................17
Bargaining Power of Suppliers .................................................................................17
Bargaining Power of Buyers.....................................................................................17
Extent of Industrial Rivalry ......................................................................................18
2.6. Internal Analysis......................................................................................................19
Resources ..................................................................................................................19
Capabilities ...............................................................................................................20
Core Competencies ...................................................................................................20
2.7. Strategic Management Process in Small and Medium Sized Enterprises ...............21
2.8. Global competition ..................................................................................................22
2.9. Value Chain and Value system ................................................................................25
2.10. Clustering................................................................................................................26
2.11. Summary.................................................................................................................27
Chapter 1
Introduction
This research is essential for all existing garment manufacturers and for those who are
interested to start this business in India. It reveals the issues faced by this industry and
highlights the possible recommendations to be applied. Firms can further develop strategies
by looking at the comparative advantage possessed by Indian and Chinese textile and
garment manufacturers highlighted in this research, and therefore manufacture and procure
goods accordingly to sell locally to internationally.
The phase out of WTO agreement on textiles and clothing (ATC) on 1 January 2005 led to
increase in competition among the garment exporting countries around the world. Even
though the global imports of this sector have risen, the production has remained stagnant or
reduced in the medium to high cost countries such as United States, Canada, Mexico, and
Korea. In contrast, low cost countries such as China, India, Bangladesh, and Indonesia
where wages are low, and there is high productivity, pose a strong competitive advantage.
These countries can expand their production as well as export capacities so as to become the
preferred suppliers.
The textile and garment industry involves use of relatively modern technology which is
available at low investment, thereby suiting industrialization in developing countries. At the
same time, it is high value added segment where research and development, and design are
important factors for improving the competitiveness. Many researchers believe that India and
China will dominate the production in this sector (Nordas, 2004, Francois and Spinanger,
2001).
analysing the information obtained from interviews is also elucidated. Chapter four illustrates
the past and current export trends of the garment industry of India and China to USA and
EU15. The major competitor countries of India have also been mentioned. Chapter five
examines the challenges faced by Indian garment manufacturers to position itself successfully
in the global competition. These have been compared and their competitiveness examined,
with regard to China. Furthermore, various recommendations have been mentioned to
improve the competitive position of Indian garment industry in accordance with global
markets. The final chapter provides concluding remarks of the entire research.
1.3 Overview of Textile Sector in the Indian Economy
In the one trillion dollar Indian economy, the textile and garment industry has emerged as one
of the most important sectors in the Indian Economy in terms of investment, production and
employment. It is directly linked to the rural economy and to the agriculture sector. It has
been estimated that one of every six households in the country, either directly or indirectly
depends upon this sector, (Dhanabhakyam and Shanthi, 2008).
This industry is robust and well established, enjoying huge demand in domestic as well as the
international market. Its capacity has been continuously increasing after dismantling of quota
regime. The major factors in determining success of this industry are economies of scale with
higher productivity and low cost. India has an advantage with the existence of a complete
value chain of textiles with the production of yarn, fibre, fabric, and readymade garments.
The textile sector in India contributes four percent to the gross domestic product (Ministry of
Textiles, 2008). It also contributes 14 percent to the total industry production, with 10.9
percent contribution to index of industrial production (Singh, 2007). This sector is the second
largest employment provider after agriculture employing about 35 million people in the
country (Ministry of Textiles, 2008). In addition, it is also estimated that 50 million people
are engaged to this industry for the related activities. The industry attracted investment of
Rs.33000 crore in the financial year 2006-07, which rose by 51% from the investment in
previous year. The textile industry in India is worth $47 billion which constitutes $30 billion
in domestic market and $17 billion for exports market (Report by ASSOCHAM, 2007).
Textile and garments is the second largest export sector in value terms in India after
engineering goods. They together contribute 15.56% in the total merchandise exports which
comprises of 7.51% textiles and 8.15% readymade garments. In the financial year 2006-2007,
this industry grew by 6.76% and 0.83% amounting to $8.3 billion and $8.6 billion in
comparison to 9% and 28% growth in fiscal 2005-2006 (Apparel Export Promotion Council,
2008). It is also Indias largest earner of foreign exports accounting for 35% of the gross
export earnings in trade (Report by ASSOCHAM, 2007). Government has made
commendable efforts to boost this sector by developing various schemes such as Technology
Upgradation Fund Scheme (TUFS), and Scheme for Integrated Textile Parks (SITP) which
will further strengthen the manufacturing base in textile and garment sector as a whole.
1.4 Sub-Segments
Textile industry is vertically integrated which undertakes production of all components in the
textile chain, right from fibre, yarn, fabric to garments. At the same time, it is a highly
fragmented sector that comprises small scale, non integrated industries in spinning, weaving,
finishing and garment making. The unorganised sector forms the bulk of the industries which
comprises of handlooms, powerlooms, hosiery, knitting, readymade garments, khadi and
carpet manufacturing.
Textile industry can be classified into 2 segments on basis of their scale namely organised
sector and unorganised or decentralized sector. The organised sector consists of spinning and
composite mills. Spinning mills perform spinning of cotton yarn from cotton fibres, whereas
composite mills perform spinning, weaving, and processing of natural as well as made fabric.
1.5 Components in the Value Chain of Textile industry
The textile and garments industries form part of a larger production chain (Figure 1)
(Dicken, 2003). The production chain of textiles and garments has been outlined below which
also includes the top players in the industry in India.
Figure 1 The Textiles-Garments Production Chain
Materials
Processes
End uses
HOUSEHOLD GOODS
c.25% carpets etc.
furnishings,
Natural Fibers
Raw cotton,
wool etc.
Textile Industry
YARN
PREPARATION
spinning
Chemical Fibers
Wood, oil,
natural gas
Chemical plants
and
petrochemical
refineries
GARMENT INDUSTRY
design-preparation-production
FABRIC
MANUFACTURE
weaving/knitting,
finishing
PRODUCTION
OF MAN-MADE
FIBRES
a)cellulosics,
b)synthetics
c.50%
basic garments
fashion fashion
-basic garments
garments
DISTRIBUTION
Retail/wholesale
operations
c.25%
INDUSTRIAL GOODS
Belting, upholstery for auto
industry etc.
Industries, Indo Rama Synthetics, Recron Synthetics, Modern Syntex, and Garden
Silk Mills. For woollen yarn, the major players include Indoworth India Ltd., Oswal
Woolen Mills, and BSL ltd.
3.) Cloth/Fabric The type of fabric ranges from cotton, blended, 100% non-cotton,
khadi, silk and wool. Their production takes place at organised as well as unorganised
sector. The major players in Indian industry are Arvind Mills, S Kumar Nationwide,
Alok Industries, Krishna Knitwear and Bombay Dyeing.
4.) Textile Processing Sector The processing and finishing of fabrics is by far the
weakest segment in the value chain of textiles. This is due to lack of modern
technology and inadequate capacity for continuous processing.
5.) Readymade Garment The readymade garment industry, also known as apparel
industry and is the largest contributor of value addition in the whole textile process
chain. The major players of garments in India are Gokaldas Exports, Pataloon Retail,
Aditya Birla Nuvo, Orient Craft, SPL industries, and Vishal Retail.
Each of these stages have their own organisational and technological characteristics that are
recently changing substantially. The textile industry involves two major operations namely
preparation of yarn, and manufacture of fabrics. These can be performed by industry of any
size. The output of this industry is transferred to the end users, in which the garment industry
is the most important (Dicken, 2003).
1.6 Summary
This chapter highlighted the role played by textile and garment industry in the Indian
economy, components involved in its supply chain and the major players in India. The next
chapter literature review mentions various theories and factors that affect the garment
industry in one way or the other.
Chapter 2
Literature Review
This chapter details the literature review consisting of various theories and concepts that
affect the garment industry in a negative or positive way. As the garment industry in India is
dominated by small scale industries, they are struggling to survive due to huge competition
from big players such as China, Mexico, Indonesia, Turkey and Bangladesh present in global
economies. This is due to the upliftment of the quota restrictions in January 2005 which were
earlier imposed on this industry. Therefore, for the success of Indian garment industry, it is
important for firms to understand the theories related to competitive advantage and
environmental analysis. These theories have been published by various authors in their books,
journals and other papers. In this research, they have been further related specifically to the
garment industry of India and China.
This literature review is framed in two areas namely strategy and competitive advantage. A
brief history on how strategic management developed is outlined followed by the definition
of strategy. The components of strategic management process including internal and external
analysis are reviewed and its importance in relation to the garment industry stated. Internal
analysis includes resources, capabilities and core competencies. On the other hand, external
analysis include political environment, economic environment, social and cultural
environment, technological environment, threat of new entrants, threat of substitutes,
bargaining power of suppliers, bargaining power of buyers, and extent of industrial rivalry. .
Later, the importance of strategic management process in small and medium size enterprises
is reviewed. Further, global competition and various other factors affecting an industry are
outlined and the importance of values chain and value system is stated. Recently, clustering
as a strategy has gained significance as it instils innovative measures thereby improving the
competitiveness of small firms so that they can survive in global competitive market.
Therefore, these underlying philosophies have been critically examined by referring to
various related journals and books.
2.1 Brief History of Strategic Management
One of the first scholars to study strategic management was Alfred D. Chandler (1962).He
indirectly referred to the impact imposed by strategies on the internal organisational
environment (Browne, 1994; Chandler, 1962). This resulted in influencing other researchers
and academicians such as Ansoff (1965), Learned et al.(1965) for further study. Andrews
further examined organisations internally in the form of strengths and weaknesses, and
externally in the form of opportunities and threats. The design school of strategic
management was formed on the basis of his work (Feurer and Chaharbaghi, 1995; Browne,
1994; Barney, 1991, 1995). The design school was based on the idea that organisations will
analyse the external environment to appraise the threats and opportunities available and
evaluate the strengths and weaknesses in the internal environment (Child, 1972; Montanari,
1978)
Later in 1980, Michael E. Porter studied industries and market structure in which the
organisations compete. The five forces competitive model developed by him provides
managers in organisations, a method for assessing the market attractiveness to develop a
competitive position within that market (Robbins et al., 2000; Feurer and Chaharbaghi, 1995;
Browne, 1994). The five forces were threat of new entrants, bargaining power of suppliers,
bargaining power of buyers, threat of substitutes, and the extent of industry rivalry. During
1980s, strategy analysis was mainly focused on the external environment. The analysis of
internal resources of a firm for developing strategy gained momentum only in early 1990s
(Grant, 1991). The concept of value chain was also developed by Porter in 1985. It allowed
managers to determine the potential sources that can provide competitive advantage by
examining the links between various activities undertaking in the organisation (Nonaka,
1991). All these developments are important to be recognized by garment manufacturing
firms as their success depends on how effectively these factors are deployed.
2.2 Strategy
The greatest thing in this world is not so much where we are, but in which direction we are
moving.
- Oliver Wendell Holmes
The success of any industry depends on its own and its competitors strategy. For Indian
garment industry to compete successfully, various factors should be analysed that forms basis
to develop a positive strategy. These factors are mentioned later in this chapter. Barney and
Hesterley (2007) defined strategy as a theory about how to achieve high performance by a
firm within the markets and industries it is operating. Grant (1991) defined strategy as the
match an organisation makes between its internal resources and skills...and the opportunities
and risks created by its external environment. Strategy provides direction and scope to an
organisation for a long term through which the firms gain advantage by configuring the
resources within a challenging environment. Therefore, its development forms the basis for
managerial decision making (Browne 1994; Porter 1980; Robbins et al. 2000) who further
have to make a choice between the competing priorities and alternate strategies confronting
the firm (Hitt et al, 2003).
Porter (1980, 1985) mentioned two categories of strategic choices namely business level
strategies and corporate level strategies. Business level strategies are the actions taken by
firms to decide how to gain competitive advantage in single product market (Beard and Dess,
10
1981). It includes cost leadership and product differentiation (Porter 1980, 1985). Corporate
level strategies are the actions taken by firms simultaneously in multiple markets to gain
competitive advantage. It includes vertical integration strategies, diversification strategies,
strategic alliance strategies, and merger and acquisition strategies (Barney and Hesterley,
2006; Hitt et al, 2003). A strategy is selected that supports a firms mission, is consistent with
its objectives, exploits opportunities with its strengths, and neutralises the threats while
avoiding its weaknesses (Barney and Hesterley, 2006). These strategies should be developed
by garment manufacturing firms according the environment it is in.
2.3 Strategic Management Process
Strategic management has two main functions namely strategy formulation and strategy
implementation. Strategy Formulation is the theory and process of determining relevant
course of action creating firms strategies to achieve organisational objectives. Strategy
Implementation is the process of putting the organisational practises and policies in
accordance with the strategy adopted (Barney and Hesterley, 2006; Hitt et al, 2003). It
depends on the nature of knowledge, technology and availability of competent resources. The
strategic analysis process helps to integrate opportunities with the distinctive competencies of
a firm to create an effective strategy (Brown, 1994). The garment firms in India can generate
a number of strategies by analysing its internal and external environment and comparing it
with China as China leads production in this sector. These analyses have been mentioned
below:
11
A vast majority of articles and books have focused on importance of analysing internal and
external environment of firms to understand their present and predict the future (Barney and
Hesterley, 2007; Morden, 2007; Hitt et al, 2003; Macmillan and Tampoe, 2000; Autio et al,
2000; Luffman et al, 1996). It is known that the environment under which the firm operates,
changes over time (Bowman and Faulkner, 1997). Through external analysis, the garment
units can identify the threats and opportunities facing its competitive environment (Leavy,
2003; Black and Boal, 1994; Barney, 1991; Grant, 1991). It can recognize how the
competition in the market is likely to evolve and the implications this would have on them.
Internal analysis helps them to identify its strengths and weaknesses (Analoui and Karami,
2003). The Resource Based View (RBV) of internal analysis helps to understand the scarce
resources and capabilities of a firm required to be a source of competitive advantage (Barney
and Hesterley, 2007; Hooley et al, 1998). It focuses on firms specific resources and includes
assets, capabilities, organisational processes, attributes, information and knowledge (Barney,
1991). This resource based view was developed as an attempt correct the imbalance with
concepts developed by Porter (1980, 1985) (Browne, 1994). This model can be seen since 5
decades (Penrose, 1959) but has gained significance only in early 1990s (Wernerfelt, 1995;
Grant, 1995; Barney, 1991). It has developed as a complimentary aspect in the strategic
management process (Henderson and Cockburn, 1994). However, there is risk of shortsightedness while setting strategy in capabilities during fast changing environment. The
important areas of these two themes have been explained further.
12
Duncan (1972) and Milliken (1987) said that uncertainty exists in a firm due to its external
environment if the decision makers do not understand the future events or are unable to
assign probabilities about the particular changes that will be incurred. Gorry and ScottMorton (1971) divided external information needs for firms into seven characteristics. These
include broad scope information (broad sets of information inputs), timely information
(Acquiring information quickly and on time) (Mangaliso, 1995; Chenhall and Morris, 1986),
current information (marketing data about recent information) , aggregated information
(information being summarised) (Mangaliso, 1995; Specht, 1986), accurate information
(reliability and correctness of output information to satisfy its intended purpose) (Li, 1997) ,
personal information (direct contact with other individuals) and impersonal information
sources (computer generated or market research reports) (Ashill and Jobber, 2001).
According to Luffman et al (1996: 34) Environmental change is one of the major influences
upon the performance of business which is far from control by the organisation. These
trends and events have potential to affect strategies of garment manufacturing units in a
particular country (Tsiakkiros, 2002). For analysing the macro-environment, the important
variables that influence the supply, demand, and its costs should be identified (Johnson and
Scholes, 1993; Kotter and Schlesinger, 1991). The key dimensions for environmental analysis
are political, economic, social and cultural, and technological factors (PEST) (Morden, 2007;
Hitt et al, 2003; Macmillan and Tampoe, 2000; Luffman et al, 1996). There analysis
consequently, should be used to develop contingency plans for threats, and the advantages
should be harvested by identifying the opportunities, while preparing strategic plans for these
units (Byars, 1991). Kotler (1998) claims PEST analysis as an important strategic tool which
is useful for understanding the position of business, its potential, and the direction for
operations. These factors have been highlighted below.
13
14
According to Hitt et al (2003) and Morden (2007), social and cultural factors such as changes
in work patterns, population growth, age structure, family structure, changes in tastes and
habits, and fashion have a direct impact on attitudes of people, consumers, business
behaviour, and cultural values within a society (Morden, 2007; Macmillan and Tampoe,
2000; and Luffman et al, 1996). Hitt et al (2003:49) said that as these factors form a
cornerstone of a society, by often driving demographic, economic, political/legal, and
technological conditions and changes that may increase the opportunities for segmenting and
differentiating the market. Their effect on the garment industry is required to be studied.
2.5.4. Technological Environment
Gavetti and Levinthal (2000) and Coff (1999) suggested that to gain competitive advantage, it
is vital for firms to innovate continuously. This view has been supported by vast literature on
strategic management (Johnson and Scholes, 1993; Capron and Glazer, 1987).The strategic
and operational decision-making depends on knowledge and technological conditions of the
external economy. Hitt et al (2003) and Macmillan and Tampoe (2000) further detailed by
expressing that, technological change effect particularly through new products, processes,
materials, and distribution channels. Developments in technology offer the firms to purchase
in higher quantity, better quality, and replace labour with capital. It also has the power to
change the economic rationale of an industry (Luffman et al, 1996).
Therefore, it is important for garment manufacturing units to conduct PEST analysis and
focus on changes in the external environment that are particularly essential for their
businesses (Macmillan and Tampoe, 2000). Apart from PEST factors, Ashill and Jobber
(2001) included distributors, active end users, market characteristics, competition, suppliers
and natural/physical factors to the list of external factors that affect an organisation. He said
15
that it is difficult for a firm to react to the environment changes quickly due to uncertainty in
their occurrence and therefore the implications cannot be predicted.
In addition to these factors, Porter (1980, 1985) analysed the industries environment as a part
of external analysis. Hitt et al (2003) defined an industry as, a group of firms producing close
substitutes. The changes in the external environment affect organisations; however, the
degree of benefit or loss provided varies (Macmillan and Tampoe, 2000). The industry
environment has more direct effect on the strategic competitiveness of firms in comparison to
the general environment (Hitt et al, 2003). The five forces model developed by Michael
Porter (1980, 2008) is powerful in its ability to position a firm by analysing the economic
forces that are weakest within an industry. Further research is required that focuses on the
competition faced by Indian garment manufacturers from China. Five major variables that
determine the competition in the market between garment industries have been outlined
below.
2.5.5. Threat of New Entrants
High industry attractiveness and low barriers to entry leads to high threat of entry (Macmillan
and Tampoe, 2000). New competition poses a threat to the existing firms by bringing in
additional production capacity which results in lower revenue and returns for the competing
firms if demand of product is not increasing (Luffman et al, 1996; Barney, 1995). Porter
(2008) argued that changes in the barriers can raise or lower the threat of new entrants. For
instance, new competitors may be unleashed on expiry of patents, or may be reduced if the
space to keep new products is limited. Due to low barriers to entry in the garment industry,
competition is gradually increasing.
2.5.6. Threat of Substitutes
16
The availability of products or services performing similar or same functions with the actual
product produced in that industry, and satisfying the customer needs, causes high threat of
substitution in that industry (Porter, 2008; Hitt et al, 2003; Macmillan and Tampoe, 2000).
With advances in technology, the threat of new substitutes being developed increases over
time. To overcome this, Porter (2008) suggested that the companies could introduce new
features in the existing product or provide wider accessibility thereby offering better value to
customers (Porter, 2008). Hitt et al (2003) also supported by stating that the attractiveness of
substitute products can be reduced by distinguishing a product or service through various
element valued by customers such as price, quality, after sales service, and location. These
differences in product need to be evaluated between India and China.
2.5.7. Bargaining Power of Suppliers
High bargaining power of suppliers is when it is difficult to switch between different
suppliers or if the total supply in this industry is only a small part of the suppliers total
output (Macmillan and Tampoe, 2000: 103). Thus, suppliers can exert power over firms by
raising the prices and lowering the quality of its products (Morden, 2007; Hitt et al, 2003).
Porter (2008) said that the power of suppliers changes with time. For example, the airlines
industry was earlier only dependent on travel agents to sell tickets, now due to advent of
internet, these companies are able to sell tickets online directly to customers. With this the
bargaining power of airlines companies increased so as to cut down agents commission.
2.5.8. Bargaining Power of Buyers
As said by Porter (2008), Powerful customers-the flip side of powerful suppliers-can capture
more value by forcing down prices, demanding better quality or more service (thereby
driving up costs), and generally playing industry participants off against one another, at all
the expense of industry profitability. With tremendous competition in the garment industry,
17
this factor needs to be analysed. High bargaining power of buyers is when buyers are easily
able to switch between suppliers of the products required to gain discounts or any additional
services. To counter this, Porter (2008) suggested that services should be expanded by
companies, thereby raise the switching costs of buyers, or by finding alternative ways to
reach customers so as to neutralize the powerful channels.
2.5.9. Extent of Industrial Rivalry
According to Porter (2008), Rivalry among existing competitors takes many familiar forms,
including price discounting, new product introductions, advertising campaigns, and service
improvements. Existence of high rivalry in the garment industry is a cause of limited
profitability (Hitt et al, 2003). Porter (2008) believed that the nature of industrial rivalry can
be altered by mergers and consolidations or by technological advances. He also said that
companies could invest heavily in unique products or expand its support services to
customers.
Apart from the five forces framework developed by Porter (1980), he also mentioned that the
sixth force affecting the industry can be the government ideologies and policies. A different
sixth force was added by Grove (1996) as the power of complementors. Complementors are
the businesses from which customers buy complementary products. Porter (2008) however
disagreed with Grove (1996) and said that like government policy, complements are not a
sixth force determining industry profitability since their presence is not necessarily bad (or
good) for industry profitability. They affect the profitability by the way they influence the
five forces. In addition, Macmillan and Tampoe (2000) mentioned two other forces namely
lobby groups and fashion and fickleness. Lobby groups are able to change the ground rules
within which the firm operates and it influences the values of customers. Increasing rate of
change in fashion and fickleness can also affect the business to a large extent. All these forces
18
threaten the future prospects of garment industry, and therefore should be analysed before
developing a strategy.
2.6. Internal Analysis
Pitts and Lei (1996) contend that to gain maximum competitive advantage, firms need to
recognise the best activities performed by them so as to maximise their effect. Several articles
mentioned that a firm should use their distinctive competencies and strengths in a way that
are different from others to formulate an effective strategy (Bowman, 1998; Mintzberg and
Quinn, 1998; Piits and Lei, 1996; and Ansoff and McDonnel, 1990).
Internal analysis is an effort to explain the internal differences that cause variation in the
firms performance. A rigorous analysis of resources, capabilities, and core competencies of
the garment industry is required as they form the basis of competitive advantage (Hitt et al,
2003). Resources and capabilities are created through history of the organisation that cannot
be changed rapidly and therefore, are the results of continuous addition to the learning
processes (Teece et al, 1992). Their combination in turn creates core competencies (Hooley et
al, 1998). These have to be analysed for the garment industry to develop strategies. They
have been outlined below.
2.6.1. Resources
According to Javidon (1998:60) Resources are the inputs into the organisations value
chain. Amit and Schoemaker (1993) defined them as the stock of available factors being
controlled or owned by a firm. These are tangible and intangible assets that are used to
implement firms strategies (Barney and Hesterley, 2007; Hooley et al, 1998). Their presence
needs to be compared with regard to India and China. Tangible assets include firms physical,
financial, organisational, and technological resources. Hitt et al (2003) and Macmillan and
19
Tampoe (2000) stated that intangible assets are greater source of core competencies than
tangible assets, as they involve intellectual and systems capabilities which are difficult to
understand, purchase or imitate by competitors. Intangible assets in a firm are human
resources, innovation resources, and reputational resources (Hooley et al, 1998, Barney,
1991).
2.6.2. Capabilities
Helfat and Raubitschek (2000); Teece et al (1997) defined dynamic capability as the ability to
organize firms resources that enable them to introduce new products and processes in
accordance to changes in technology and conditions in the market. Hooley et al (1998:101)
referred capabilities as a firms capacity to deploy assets, usually in combination, using
organisational processes to effect a desired end. The foundation of capabilities lay in the
skills, knowledge, and functional expertise of the firms employees (Morden, 2007; Hitt et al,
2003). Burgoyne et al (2001) classified firms strategic capabilities into economic,
technological, human, organisational, management and leadership capabilities. These firm
specific resources and capabilities are referred to strategic assets or core competencies that
provide them with competitive advantage (Hooley et al, 1998). The differences between
capabilities of India and China in the garment industry are needed to be studied.
2.6.3. Core Competencies
Tampoe (1994: 69) defines core competence as a "technical or management subsystem which
integrates diverse technologies, processes, resources and know-how to deliver products and
services which confer sustainable and unique competitive advantage and added value to an
organisation. According to Hamel and Prahalad (1990: 20) competitive advantage of a firm
depends on core competencies that provide potential access to a wide variety of markets;
make a significant contribution to perceived customer benefits of the end products; and
20
finally, are difficult for competitors to imitate for a long period of time (Hafeez et al, 2002;
Hooley et al, 1998, Tampoe, 1994).
From the perspective of RBV, a firm can gain sustainable competitive advantage if the
resources of firm are valuable to the organisation, through exploiting opportunities and
neutralising the threats; are rare or unique in competitive environment of the organisation;
are difficult to copy or imitate; and no substitutes are available for them (Teece et al, 1997;
Porter, 1996, Michalism et al, 1997; Hamel and Prahalad, 1994; Ferdinand, 1999; Barney,
1991).
Thus to summarise internal analysis, firms capabilities are created by combining
organisational resources through various activities, processes or routines (Grant, 1991).
Superior resources, skills, processes, activities, routines, and capabilities are not sufficient for
sustained competitive advantage. Their combination represents collective learning of an
organisation (Hamel and Prahalad, 1990) which is an important capability to be possessed by
them (Barney et al, 2001; Senge, 1990). The ability to improve, learn, and create new
innovative processes is difficult to be imitated by competitors, thereby providing indubitable
competitive advantage (Hamel and Prahalad, 1989).
2.7. Strategic Management Process in Small and Medium Sized Enterprises
As small and medium-sized enterprises (SMEs) play a crucial role to generate employment,
promote innovation, create competition and generate wealth in the economy (Bridge and
Peel, 1999; Smith, 1998; Bantel and Jackson, 1989), a huge amount of research has been
done into strategy formulation and implementation in SMEs (Krishnan, 2001; Hitt and
Ireland, 2000; Berry, 1998; Boyd, 1991; Watts and Ormsby, 1990). The garment industry in
India is dominated by small scale industries, and therefore, different views of various writers
have been stated regarding the relevance of strategic management process in these industries.
21
The use of strategic management procedures for SMEs is argued and stated as inappropriate
by some authors because SMEs do not have enough management and financial resources to
follow the sophisticated techniques of strategic management (Watts and Ormsby, 1990;
Shrader et al, 1989; Cragg and King, 1988). However, Ottewill et al (2000); Jennings and
Beaver (1995) supported that strategic management process in SMEs is essential as by
manipulating the limited available resources, maximum gain can be achieved. It also helps in
providing competitive advantage to them. Many studies such as by Watts and Ormsby
(1990); Wood et al (1988); Bracker et al (1988) and Robinson (1982) have found positive
relationship for a firm in strategic planning and performance. It is also often argued that for a
business to grow and survive in the long term, it has to adopt strategic management
techniques (Wolff, 2000; Hitt and Ireland, 2000; Stone, 1999). Therefore, it can be stated
that, it is important for the Indian garment industry to adopt strategic management process
and analyse the factors mentioned above so as to improve their performance.
2.8. Global competition
Nothing focuses the mind better than the constant sight of a competitor who wants to wipe
you off the map
Calloway, D.W. (1991)
Today, the extent of competition in the garment industry is not only limited by national
boundaries or by the definition of any particular industrial sector, it is now global (Ernst and
Connor, 1989). The firms expand internationally in new markets to exploit the current
competitive advantages in countries consisting of favourable government policies or those
offering low costs (Qian and Li, 1998). Various forces of globalisation such as new
international combinations of buyer and sellers that provide competitive advantage are being
used. Spulber (2007) mentioned four types of barriers or trade costs that a business could face
22
namely transaction costs, tariff and non-tariff costs, transportation costs and time costs.
However, he said that their degree may vary in different countries. Various authors and
researchers such as Baier and Bergstrand (1999), Rousslang and To (1993), Anderson and
Gatignon (1986), and Wiliamson (1981b), also support the view of Spulber (2007), by
mentioning these factors in one way or the other.
Anderson and Gatignon (1986) and Wiliamson (1981b) mentioned that international business
have different cultures, traditions, customs and societies, and therefore, same things (such as
business practises, marketing methods, and languages) can have different meanings in each
country. Rousslang and To (1993) mentioned that transportation costs such as freight on
imports and exports, complex logistics to coordinate the supply chain and distribution
network still pose a barrier to trade goods between countries. The firms incur costs in
marketing, distributing, and tailoring products to different countries (Baier and Bergstrand,
1999). The presence of government 1bureaucracies and geographically dispersed supply
chain has also resulted in higher investment, inventory, and time cost to be faced by a firm
(Spulber, 2007). These factors are present differently in India and China and therefore, their
effect to the garment industry should be known.
Barney and Hesterley (2006) mentioned important sources that provide cost advantage to
firms. They include size differences and economies of scale (volume of production and
specialised machines, cost of plant and equipment, higher employee specialisation, spread
overhead costs); size differences and diseconomies of scale (physical limits to efficient size,
managerial diseconomies, worker de-motivation, distance to markets and suppliers);
Experience differences and Learning curve economies (firms with higher experience have
For more information see Porter, M.E. (2008), The Five Competitive Forces that
Shape Strategy, Harvard Business Review, Vol. 79
23
economies of scale, cost advantages, competitive advantages with higher market share);
Differential low cost access to productive inputs (such as labour, land, capital and raw
material); Technological advantages independent of scale (machines, computers and other
physical tools); and finally policy issues.
By analysing these factors, the Indian garment industry can gain strategic competitive
advantage. Porter (1990) recognised factors such as innovation, improvement and
upgradation as important for organisations. Simon (1996) emphasized on continuous
improvement in the products and services. Spulber (2007: 15) said that the firms much
achieve world class cost efficiencies, product quality and innovation. Hamel and Prahalad
(1991) suggested firms to test launch new products so that the successful products are
recognized. It is known that scale of production, technology, and products are different
among nations. A firm can achieve competitive advantage due to national differences. Porter
(1990) recognised certain attributes that shape the environment for creation of competitive
advantage. These are factor conditions; demand conditions; related and supporting industries;
and firms strategy, structure and rivalry (Figure 2).
Demand
Conditions
Related
and Shape the circumstances of industries through factors such as setting
supporting industry controls on advertisement media or regulations in supporting services
Strategy, Structure, Influences through devices such as capital market regulations, tax
and rivalry
policies, and antitrust laws
24
25
of firms (Guerrieri et al, 2001). Porter (1998: 78) defined clusters as geographic
concentrations of interconnected companies and institutions in a particular field.....They
include for example, suppliers of specialized inputs as components, machinery, and services
and providers of specialized infrastructure. Importance of clusters is now increasingly
recognized as it yields significant insights by providing various options for business strategy
development (Lagendijk, 1999). This development is done by encouraging synergies,
external economies and which result in increasing returns (Feser, 1998). Schmitz (1995a, b)
noted that Marshal (1920) introduced the concept of external economies to show why and
how the location of industry matters, and why and how the small firms could achieve
efficiency and be competitive.
The globalization and liberation of trade has broadened the scope of many markets and thus
intensified the competition. Clustering acts as a driving force in the international market to
enhance the ability of a firm to innovate (Frisillo, 2007; Vanhaverbeke, 2001) and produce
improved variety, reliability, speed of delivery, (Mccormick, 1999; Brautigam, 1997;
Schmitz, 1995, a, b) strategic information exchange (Visser, 1999), and labour market
pooling (Kloosterman and Lambregts, 2001; Porter, 1998). With increasing globalisation,
competition is increased in developing countries from imports, multinational corporations,
and other low cost enterprises. The business cluster approach has been recognised as an
important strategy to help small businesses compete successfully in the global markets. It will
also provide economic gains to help small firms to become more efficient and competitive in
the market (Jacobson and Mottair, 1999). The importance of this strategy for the garment
industry should be understood and developed.
2.11. Summary
26
27
Chapter 3
Methodology
Somewhere, something incredible is waiting to be known
-Dr. Carl Saqan
This chapter explains the overall methodology used to collect data for this research. It starts
with the sources of data collection, the selection and justification of primary research method
used (qualitative interviews), its aspects, types and use of in-depth interviews as a method for
investigating the attitudes, opinions and perceptions of various executives in leading
industries (Riley et al, 2000). It further describes the method used for analysing the data and
verifying the accuracy of information obtained.
3.1. Sources of Data Collection
The information for this study was gathered from both primary as well as secondary sources.
These include, Associated Chambers of Commerce and Trade of India, Books and Journals,
Internet sources and interviews from various executives in garment manufacturing units.
These sources have been further explained.
3.1.1. Associated Chambers of Commerce and Industry of India
First source of secondary information was the Associated Chambers of Commerce and
Industry of India. Important data and figures were collected from them in order to
supplement and support the responses gathered from the interviews of garment
manufacturers. Some new insights into the topic were also gained from research done by
them on the Textile Industry of India.
3.1.2. Books and Journals
28
Information was also collected through books and journal articles published by many
academic practitioners and researchers. The information collected from them is safe to certain
extent as they are published only after a peer-review process (Sapsford & Jupp, 2006).
3.1.3. Internet
Beyond books and articles, the Web gives access to a wide range of other publications that
are not otherwise available. The government sites consist of enormous amounts of
information and articles on wide range of topics including policy documents, legislation and
official documents, local and national research reports and published administrative statistics
(Sapsford & Jupp, 2006). Some of the websites used include Ministry of Finance
(http://finmin.nic.in), Ministry of Textiles (http://www.txcindia.com). Full text newspapers
articles, press media, and reports give access to published works of the whole world such as
Press Information Bureau Government of India (http://pib.nic.in). University sites also
contain information about previous research and sometimes provide access to reports and
summaries online. Some academic organisations as well as many others have their own
websites that include reviews, statistics, publications, or other potentially useful information.
These
include
World
(www.worldbank.org),
Trade
Powerloom
Organisation
Development
(http://www.wto.org),
and
Export
World
Promotion
Bank
Council
and
Apparel
Export
Promotion
Council
(http://www.aepcindia.com).
However, the main problem with using any of the information from this method is the
question on evaluating its worth. As press reports may be news, they cannot be taken
straightforwardly as a fact nor can be work from any other unreliable websites. Hence, these
29
issues have been taken into consideration before making this report through triangulation.
This concept has been explained towards the end of this chapter In the verifying stage.
3.1.4. Interviews
Interviews from Garment Manufacturers in India were taken as the primary source to collect
data. The whole process of selecting this data collection method, conducting interviews and
analysing its data are explained further.
3.2. Why Qualitative research?
As the objective of this research is to explore, interpret and obtain a deeper understanding of
the topic, qualitative research was the most appropriate method to be used that can provide
explanation which is not provided through any other research method. The appropriateness of
this method is further explained. Qualitative methods help to develop rich insights into a
topic that may be difficult to gain initially by using other research methods such as mail
questionnaire and archival data (Bonoma, 1985).
According to Proctor (2000), Quantitative research outshines qualitative methods due to its
ability to analyse the data based on the representative samples which constitutes a large
population with a complete set of categorization for the events or the activities described
(Silverman, 2000). However, this advantage of qualitative research is minimal in this
research as it involves gathering information from various sources and understanding the
topic in depth.
Halfpenny (1979: 801) believes that Qualitative research ... is concerned with developing
concepts rather than applying pre-existing concepts. A researchers ability to carry out
research depends upon the availability of data which forms the basis for analysis and
conclusion. If the real-world input is flawed then the use of technically advanced and
30
important
and
theoretically
meaningful
contributions
(Gephart,
2004:
461).Interviews as a method of qualitative research was chosen over the other techniques due
to various advantages this method carries with this particular research.
3.3. Advantages of Interviews
31
Qualitative research interview is a method suitable for examining topics that are needed to be
explored through different levels of meanings (King, 2004). Interviews provide richer and
better quality of responses than questionnaires as they offer standardised explanations to
certain problems and misunderstandings arising in the data collection process (Oppenheim,
2000).
This method also enhances the existing knowledge by providing the view of an Insider
(Cassell & Symon, 1994) as it adds an inner perspective to an outward behaviour (Patton,
1987:109). This further helps in explaining what people are doing; why they are doing; and
how do they understand the world around them (Rubin, 1995). In our research, this method
provides an understanding of latent issues currently facing the industry. Probing or asking
follow-up questions are also possible through the interviews when particular details have to
be elicited (Patton, 1987). Specific information can be gathered quickly according to the
requirements of the research by directing and controlling procedure of the interviews.
3.4. Disadvantages of Interviews
Interviews require huge resources for designing the interview guide, conducting the
interviews, transcribing and then analysing the transcripts. It is also difficult to analyse the
data collected due to its huge volume. Moreover, the quality of information largely depends
on the interviewers ability to analyse the data. As compared to other methods such as survey
or mail questionnaire, the sample size is usually small and can be subjected to interviewer
and respondents bias.
These issues were addressed in this research as access to relevant contacts to be interviewed
was comparatively easier because the researchers family owned business was of garment
manufacturing. Being in the same field, he had the basic knowledge about this sector and
therefore knew the exact information to be obtained from interviews for this research. Only
32
the important lines or paragraphs were transcribed from the whole interviews and therefore
consumed very less time as it would have taken in transcribing the whole interview.
Important information was noted in the form of notes during the interviews itself. The
problem of availability of huge data for analysis was sort by grouping the information
obtained into different themes. Data analysis method has been explained later in this chapter.
Finally the interviews were conducted until sufficient knowledge was gained for the topic
being researched. Therefore, the small number of samples for the research was not an issue.
3.5. Approaches to Qualitative interviewing
Patton (1987) writes about three basic approaches in collecting qualitative data through indepth, open-ended interviews. They are informal conversational interview, general interview
guide approach, and the standardized open-ended interview. Each of these types serves
different purposes that determine the interview questions before the actual interview.
The Informal, conversational interview or unstructured interviews as described by Patton
(1987) involves spontaneous questions to be asked by the interviewer in the natural flow of
an interaction. No predetermined questions are possible for such kind of interview as the
interviewer does not know precisely the things that are going to happen and the appropriate
questions to be asked according to the flow of the conversation (The World Bank, 2008).
Therefore, the data collected from this type of interview is extremely difficult to pull together
and analyse. This is because each person being interviewed responds differently and
questions are asked according to that flow itself (Patton, 1987). This may also result in
diverting from the main topic required to research. This method consumes great deal of time
to find patterns emerging at different points of time with different people (McKay, 2006).
According to Hoepfl (1997), the general interview guide approach or semi-structured
interviews intend to ensure that same general area of information is collected from each
33
34
Kvale (1996), details seven stages of in-depth interview enquiry. They include thematizing,
designing, interviewing, transcribing, analysing, verifying, and reporting. Each step has been
briefly examined below along with the strategies adopted for their implementation in this
research.
1.) Thematizing: The purpose of the research was stated, the conceptual and theoretical
understanding of the investigated theme was formulated. The key questions concerned here
were why, what and how of the interview. Why clarifies the purpose of the study. What
concerns with obtaining knowledge in advance of the topic to be investigated. How relates
to the different techniques of interviewing that were used for obtaining the intended
knowledge about the theme and its analysis (Kvale, 2007). After deciding the general purpose
of the interview, the key information to be collected from the interview was pinpointed.
Knowledge about the topic was obtained before investigation in order to recognise whether
the knowledge obtained by the interviews was new and thus recognising that it makes
significant contribution to the research topic (Kvale, 2007).
2.) Designing: After deciding the specific information to find from the research, a design of
the interview was prepared. The design was planned by considering the seven stages of
investigation. It resulted in obtaining the intended knowledge and the moral implications of
the study (Kvale, 2007). This process has been explained further.
3.) Interviewing: The purpose and need of interview was to know the views and understand
the real world scenario of the garment industry from the perspective of different
manufacturers. The possible advantages and disadvantages, strength and weaknesses, and the
future prospects of the two countries India and China were needed to be studied during the
interview. This purpose and need was determined so that the interviewees can understand the
35
importance of the interview. This method of qualitative research was employed with the
objective to acquire richer data about the issue.
According to Patton (1987:108), in-depth interviewing involves asking open ended
questions, listening to and recording the answers, and then following up with additional
relevant questions. It helps probe beneath the surface, soliciting details and providing holistic
understanding from the interviewees point of view. Thus, the purpose of interviewing was
to understand the complexities, phenomenon and various perspectives of different
manufacturers of the garment industry so as to generate new ideas and develop future
strategies (Hoque, 2006).
3.6.3.1. Sampling
Identifying the respondents who constitute a fair representation of the entire population for
collecting the data was a major task before the interview. Dalkey and Halmer (1963)
mentioned specific criteria for the selection of panel experts. Firstly, they should exhibit high
degree of knowledge and experience in the subject matter. Secondly, they should be
representative of their profession in a way that their suggestions and opinions are adaptable or
transferrable to the population (Schofield, 2006). Thus, the sample selected should enable the
researchers to advance the current theoretical knowledge by providing significant empirical
contexts, illustrations or situations (Mason, 2002).
Potential participants for this study were identified through their expertise in garment
manufacturing in the Indian environment. They included Directors of organisations,
Marketing Executives and Production Managers. On the negative side of this research, due to
availability of limited resources, the companies interviewed were only from India and do not
constitute any garment manufacturers from China.The idea behind qualitative research is to
purposefully select participants who are suitable to provide best answers to the research
36
questions (Creswell, 1994). Therefore, the respondents were selected on the basis of 5 years
of minimum level working experience in garment manufacturing unit. This was done so that
the persons being interviewed are experts in their field who understand current and the past
issues, and therefore constitute a substantial variety of viewpoints.
According to Patton (2002) there are no set of rules for an appropriate sample size as it
depends on the actual situation being scrutinised. This indicates that the number of samples
selected should be according to the knowledge and understanding provided by them of the
overall current scenario and other relating information (Mason, 2002). Therefore, unlike the
survey method where the researchers target a specific sample size, interviews were conducted
until suitable justification was gained on the topic being researched (Yin, 2003b). In-depth
interviews were conducted from 10 garment manufacturers in India using open-ended semi
structured questions. The duration for each interview was 45-60 minutes.
Open ended questions are used when the nature of the questions is complex, its dimensions
are unknown and topic being researched is exploratory (Stacey, 1969 in Newell, 1995).
Therefore, open ended questions were used over closed ended due to nature of topic being
researched. Many scholars contend that by allowing respondents to answer questions in their
own words, the salient concerns related to the enquiry can be instigated (Geer, 1988) and the
imposition of predetermined responses while gathering the data (Patton, 1987:122) can be
minimised. Yin (1994) mentions that open questions form an integral part of the interviews
that certifies the respondents to see themselves as informants and not mere interviewees.
Therefore, these interviewees tend to provide more information. They also bring about
discussion of the related issues arising during the interview. On the other hand, closed ended
questions should be used where the alternate replies are limited and clearly known (Stacey,
1969). This format forces people to choose among a fixed set of responses (Geer, 1988).
37
Thus, in order to know the views of informants, only open ended questions correspond with
this research.
3.6.3.2. Stages of Interview
The actual interviews were conducted in three parts. The first part involves certain
preparations for the interview. The second part of the interview guide comprises the actual
interview questions, and probing questions. The final part lists the things done after the
interview.
First Stage: Preparation for Interview
The general purpose of the interview was explained to the interviewees. The relationship of
particular questions to that overall purpose is an important piece of information that goes
beyond the simple asking of questions (Patton, 1987:126).Although, the interviewer might
be clear with reasons for asking a particular question, these may be unclear to the
respondents. Therefore, respect is communicated to the people being interviewed by
explaining them why these questions are being asked. This helps in increasing the motivation
of the interviewees to respond questions openly and in detail (Patton, 1987).
Before the actual interview, the respondents were ratified that their opinion is important.
They were thanked for providing their support.This helped to make the interviewee feel the
process of interview valuable. Rapport was established and confidentiality of the data was
assured before the interview to the respondent. During the analysis, the confidentiality of has
been maintained by mentioning the quotes stated during the interviews by various firms in the
form of Firm, A, Firm B, Firm C and so on. Further, the format of the interview was
explained. As time is a precious element, they were indicated the usual length of the
interview. Permission for recording the data was also taken. A tape recorder forms an
38
What are the aspects in which China is better than India and vise-versa?
What are the reasons behind lower production cost in China compared with India?
Are the government policies favouring or hindering for the development of this
industry?
39
How can they be improved, thus making them more conducive for the garment
industry?
What is the role played by the export promotion councils in both the countries?
The interviewee was given signal for the upcoming concluding question by saying as with,
My final question is What do you think are the Future Prospects of India and China in the
garment industry? The order of the questions asked varied depending on the situation, and
additional questions that arose during the interview were raised. The purpose of probing is to
deepen the response to a question and gain richness associated with the data so obtained
(Patton, 1987). These questions were offered in a conversational and naturalistic style of
voice in order to follow-up the initial responses. The last questions might be to allow
respondents to provide any other information they prefer to add and their impressions of the
interview. These research questions were carefully prepared according to the themes analysed
during the literature review. If any other important point was identified during the interview,
the literature related to it was added.
As the interview was aimed to collect information, neutrality was maintained in the content
of responses gathered. In the situation of a clash between the responses of different
interviewees, it was further clarified with them.
Third Stage: After the interview
Any correction and clarifications required on the written notes were made. This was done for
increasing the accuracy and reliability of the interview notes. Further, the tape recorder was
verified if the recording has come out successful. The quality of recording play an essential
role as the presence of background noise or the tape being left blank would virtually serve as
the recording to be worthless. Due to malfunction of the recorder in one of the interviews,
40
extensive notes were made of the information provided by the interviewees. Observations
regarding the knowledge of the respondent for the particular questions were made during the
interview. Observational data also includes the location of the interview conducted; the
interviewees reaction to the interview and any other relevant information that helped
developed a context for interpreting and creating logic out of the interview (Patton, 1987).
My (researcher) contact information was also provided to the companies being interviewed so
that they could get in touch in the future. Finally, the respondents were thanked for spending
their valuable time for the interview.
4.) Transcribing: To transcribe means to transform, or to change from one form to another.
Transcribing here means reproduction from an oral interview to a written mode of
conversation or text. The interview material was prepared for analysis by encoding the
important passages during the interview in a form amenable for closer analysis. However,
this stage was the most difficult and time-consuming part of using the recorded interviews.
As interviews were conducted in India, they were in Hindi as well as English. Therefore,
transcribing all the interviews in English was a tough task. However, due to bilingual skill of
the researcher, this task was completed efficiently.
5.) Analysing: As stated by Patton (1987: 140), examining an interview after it is completed
can also be the beginning of analysis. The analysis of qualitative data is a creative process.
This process requires intellectual rigour, and demands significant hard and thoughtful work.
The interviews were analysed based on the purpose and topic of investigation and the nature
of material obtained. The notes collected during the interviews and the other data transcribed
were used to analyse the data. Bogdan and Biklen (1982: 145) defines qualitative data
analysis as "working with data, organizing it, breaking it into manageable units, synthesizing
it, searching for patterns, discovering what is important and what is to be learned, and
deciding what you will tell others". However, interpretation involves attaching meaning and
41
significance to the analysis, explaining descriptive patterns, and looking for relationships and
linkages among descriptive dimensions (Patton, 1987:144). The data was analysed in
different stages as suggested by Miles and Huberman (1994). They are:
First Stage Consolidation and data reduction
Through comparative method, the data from interviews was organised and reduced in order to
construct various themes and categories.
Step 1: Constantly make notes on relevant data and patterns
Step 2: Writing down main ideas and identify categories.
Step 3: Grouping different themes together
Step 4: Form categories into which these themes or groups can be consolidated.
Second Stage Data Display and Interpretation
Data is simplified in this stage so as to interpret and draw conclusions.
Step 1: Data was transferred to visual form for making comparison and interpretation.
Step 2: Data was interpreted and conclusions were drawn.
6.) Verifying: Data was integrated in a framework to gain greater insights and to verify
themes in accordance to the validity criteria. The data was interpreted according to the
research questions as well as the literature review. Professionals in the garment industry
exhibiting high degree of knowledge and experience were interviewed. The validity,
reliability and generalizability of the findings were ascertained. Validity refers whether the
interviews were successful in investigating the intended areas (Kvale, 2007) and reliability
refers to the consistency of the results obtained on different occasions (Hammersley, 1992).
42
Validity and reliability checks were made throughout the interviews including the analysis.
Various methods of data collection have their own advantages and disadvantages. The
information obtained from various interviews was matched with views of different
respondents and was also backed up with facts and figures researched in reliable secondary
sources of data through internet, books, and journals. Therefore, weakness arising in
obtaining information from one interview can be supplemented from second source or third
strong source. This method is called triangulation (Seale, 1999). It results in checking the
accuracy of the same phenomenon or research question from more than single data source
(Decrop, 1999).
7.) Reporting: The final step of the process is to share what has been learnt from the in-depth
interviews. The whole research was a part of the dissertation submitted to University of
Nottingham. The data analysed and results thus obtained were also given to the different
manufacturers that were interviewed.
3.7. Summary
Therefore to conclude, this chapter details the methodology adopted for this research. Various
problems incurred during the research were mentioned along with the measures taken for
limiting or removing their effect. Both primary and secondary data sources have been used
for this research as each method has their own advantages and limitations. The importance of
interviews as the primary source of data in this research is also mentioned. In addition,
various stages involved in the interview process have been outlined along with the method
used for analysing the data. The next chapter illustrates the past and current export trends
from India and China to US and EU in garment industry.
Chapter 4
43
6.305
7.38
15.33
Figure 3 shows the past export trend of India and China to the world. It can be interpreted
that while the global imports of value of garments from the year 2000 to 2005 have increased
by 35.76%, export contribution from India and China have increased by 42.75% and
104.12%. China dominates production in this sector, and is a major competitor to India. It has
grown at a fast pace. India has also performed well in comparison to its contribution to global
imports in terms of increase in value of its exports. According to ASSOCHAM (2007) the
44
apparel exports in India in the year 2006 were $8.61 billion which marginally increased in
2007 to $8.68 billion. Their division of exports for the year 2007 is shown in Figure 4.
Figure 4 Share of components in total exports of Apparel from India
Component
45
46
Figure 6 Exports of Knit and Woven Garments to the United States of America
Rank Origin
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
World
China
Mexico
Indonesia
India
Vietnam
Hong Kong
Bangladesh
Honduras
Cambodia
Philippines
Thailand
Sri Lanka
Guatemala
Dominican
Italy
Pakistan
10,723
6,845
2,402
2,277
2,506
3,878
1,872
2,742
1,418
1,765
1,823
1,553
1,947
2,036
1,585
1,147
56.77
-8.99
19.99
34.31
6.37
-9.13
21.17
-2.09
20.08
3.21
0.6
6.46
-6.66
-10.09
-4.12
10.99
16,810
6,230
2,882
3,059
2,665
3,524
2,268
2,685
1,703
1,822
1,833
1,653
1,817
1,831
1,520
1,273
19,868
5,448
3,675
3,242
3,158
2,817
2,809
2,518
2,131
1,999
1,859
1,687
1,667
1,535
1,474
1,427
18.19
-12.55
27.5
6
18.49
-20.08
23.85
-6.24
25.17
9.7
1.39
2.03
-8.28
-16.14
-2.98
12.11
Note: Knit and woven garments are defined as commodities with HS codes of 61 and 62.
Source of data: U.S. Dept. of Commerce, Bureau of Census by World Trade Atlas in
Yamagata (2007)
4.2. Exports to Europe
Europe reached an agreement with the Chinese government called transitional arrangement
on 10th June, 2005, for restricting the growth of garment exports of 10 categories in Europe
between 8 and 12.5% per year. This agreement will be in force until liberalisation of trade in
2008 so as to ensure a period of adjustment to this industry for EU15 and the developing
countries (Report by ASSOCHAM, 2007). For this reason, the exports figures of various
countries to EU15 are outlined in Figure 7.
It can be seen that exports from China and India to European Union15 grew in 2005 at
54.41% and 33.74%. During the same time, imports from whole world by EU15 rose by only
7.83%. In 2006, the world average for imports by EU15 grew at 10.74%, whereas exports
from China rose by only 6.84% and from India 17.65% (Yamagata, 2007). The percentage
growth in exports in 2006 from China dropped sharply and from India reduced to almost half.
47
Other major competitors such as Bangladesh, Hong Kong, Indonesia, and Sri Lanka grew at a
fast pace.
Figure 7 Exports of Knit and Woven Garments to the EU15
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
20
32
34
-
Origin
World
China
Turkey
Bangladesh
India
Romania
Hong Kong
Tunisia
Morocco
Indonesia
Bulgaria
Poland
Vietnam
Sri Lanka
Pakistan
Thailand
Hungary
Czech
Cambodia
Mauritius
Madagascar
Myanmar
China
and
Hong Kong
Rate of Change
(Jan-Oct, %)
2004
2005
Oct.2006
2005/04
2006/05
65,552
13,714
9,348
4,578
3,020
4,572
2,394
3,215
3,004
1,637
1,300
1,432
757
1,002
1,126
1,079
928
884
643
636
196
457
16,108
69,864
20,361
9,776
4,356
3,992
4,287
2,056
3,059
2,814
1,468
1,331
1,242
820
986
959
955
934
602
587
550
222
237
22,417
65,323
19,032
8,365
4,853
4,048
3,495
2,771
2,527
2,420
1,487
1,226
1,036
1,021
997
937
898
790
576
566
499
237
222
21,802
7.83
54.41
6.94
-5.85
33.74
-4.61
-30.67
-2.39
-5.32
-14.1
3.74
-12.79
3.02
-2.83
-10.87
-13.37
5.11
-27.75
-10.32
-14.88
15.43
-49.45
-42.06
10.74
6.84
1.4
33.37
17.65
-3.32
103.91
-2.49
2.58
23.94
10.49
-2.97
52.61
22.74
13.98
14.78
-0.24
13.55
19.77
7.73
28.21
10.75
13.72
Note: Knit and woven garments are defined as commodities with HS codes of 61 and 62.
48
49
highlighted from the information obtained from the interviews conducted, and from other
secondary resources.
50
Chapter 4
Analysis/Discussion/Recommendations
This research will investigate and bring out the competitiveness of Indian garment industry as
compared to China, followed by issues related to this industry in India. Further
recommendations for garment industry of India that are required to be taken both on domestic
as well as external front have been provided at firm and government level. With this research,
the firms in India could recognize its strengths and exploit them and find measure to
neutralize its threats and avoid its weaknesses (Barney and Hesterley, 2006). By considering
the internal and external environment factors that are further mentioned, businesses related to
garment and textile industry specifically in India can develop an effective and successful
strategy.
5.1. Factors determining Competitive Advantage of India and China
5.1.1. Labour: Training, Productivity and Laws
The availability of low cost and skilled man power in India and China provides competitive
advantage to them in garment industry. India comprises of highly trained managerial
workforce. However, it does not provide professional and adequate training to the workforce
at the lower level. Therefore, the skills are also limited to only the existing processes
available. The current training and educational infrastructure in the Indian textile and garment
Industry is insufficient. The requirement in the core technological work of production is 5
million trainees whereas the capacity is only 4 4.5 million people (Report by ASSOCHAM,
2007). It was also estimated that training is required to be given to over 1 million trainees
every year (Ministry of Finance-Government of India, 2008). Training is provided to people
51
working in few areas of work in the garment industry and the government does not take go
till the root level to provide training.
Both countries have unskilled workers, they work and become skilled (Director, Firm C)
Indian government only tries to train pattern makers or masters, or certain machine
operator (Director, Firm B)
Government in China provides support for training of workers. In India there is a
government body but it does not go till the root level to train the workforce (Director,
Firm G)
The firms in China provide more training facilities; therefore the people working there
have more technical knowledge (Director, Firm E)
The Chinese firms heavily invest in training of its workers in modern technology. It provides
training with its secondary and technical education programs which provide long term benefit
to the individual firms by imparting technical knowledge to the workforce. On an average,
the firms in China provide 70 hours of training each year to an experienced worker. On
contrary, firms in India provide only 10 hours of training in a year (Chandra et al., 1998).
The performance of an industry is significantly dependent on the performance of its
workforce. The efficiency and quality of labour force in India is not up to the mark. A key
reason for low productivity and high cost of manufacturing in the garment industry in India is
lack of discipline among the labour employed. A major problem this industry in India is
facing is labour unavailability which causes further numerous problems linked to it.
The work force in India is not work oriented. They take work just for granted (Director,
Firm G)
52
The main factor China is better is their manpower. It is much more productive, and
efficient. It is proactive (Director, Firm B)
Due to large population in China, there is exploitation of workers. There are insufficient
jobs available in factories for intake as compared to the people requiring jobs (Director,
Firm F)
Many migrant workers come for jobs... they are exploited by employers in China to work
more. They need to submit their IDs and sometimes even deposit something (Director,
Firm C)
Given a job to produce 100 garments to workers in China is completed without the need of
supervisors. But it is not completed in India even in 2-3 days until multi-layer management is
deployed (Director, Firm G)
China has an advantage due to higher labour productivity in manufacturing garments. This is
due to the fact that the current workforce available in China is much more than the jobs
available there. Therefore, the migrant workers are exploited to work more at the same wage
rate leading to higher efficiency and less cost of production. As these migrant workers do not
have full residency permits in cities, they, therefore, live in employer owned dormitories
which are very crowded and dirty. The cost of work visa is paid by the employer in advance
and thus in return the workers are in debt, even before beginning their contract. These
workers have to pay deposits to the employer or hand over their documents of IDs. This
results in enforcing excessive overtime and flexible hours by the employers. The report by
Oxam - Trading Away our rights found that the women in China employed in the garment
industry face 150 hours of overtime every month (Raworth, 2004). Out of them, 60% have no
written contract and 90% had no access to social insurance. However, the standard working
hours in China are between 10-12 hours which sometimes can extend up to 15-16 hours a day
53
with one or two days off a month (Wong, 2005). It was found by The All China Federation of
Trade Unions (ACFTU) that 62% of workers worked 7 days a week and about 25% of them
did not get their wages on time (Raworth, 2004). In addition, another major issue is nonpayment of wages to workers and also wages being withheld for a many months (Cooney,
2004). Wages in the garment industry are also lower than the other manufacturing industries
in China (Kurt, 1999).
In China all the factories are in the suburbs. And all the big factories have very big area of
land. The labour works there, and sleeps there. When they work, they are really working. But
in India the factories are very close to the cities, and labour is all in a hurry to go home. In
India all labours are staying outside the factories. They might leave for house, and might not
turn up for 3 days. Indian labour is not very sincere to the job (Production Manager, Firm
H)
In our country (India), everything affects this industry, there is holi, there is diwali, or any
other festival. Lot of holidays are there in India. When the crop season starts, most of the
labour goes to their places to work in this field, and in China this is not the case. They go for
only 1 New Year holiday. It is about 2-3 weeks or so, and thats it for the whole year
(Director, Firm A)
This is not the case with this industry in India. As workers are exploited by manufacturers in
China to work more; In India, the workers exploit the manufacturers and cause huge
problems to them. The biggest obstacle for development of this industry in India is labour
problem. As the firms are small and located near the cities, the workers may take a leave for
few hours and not turn up for many days. Large number of holidays due to festivals, other
seasonal work such as in agriculture and lack of discipline cause a major problem for this
sector.
54
The labour laws play a major role in the reducing or increasing the manufacturing cost of
products which further determines the competitiveness of the industry. The development of
this industry in India suffers due to establishment of various rigid labour laws. A research
done by the World Bank scores the level of rigidity out of 100 of hiring and firing rules of
different countries. India has been rated amongst the most rigid countries with a score of 48.
Neighbouring countries such as China had a score of 30 (Basu, 2005).
To change labour in China is easy. If they hire 50 workers today, they can fire 20 workers
the second day. It is up to you. But in India, it is not possible. There is no policy. If they are
not working efficiently, you cannot just let them go (Production Manager, Firm H)
There are three main provisions that have been given huge attention. They are Industrial
Disputes Act (1947) (Provisions related to retrenchment, layoffs and closure), Contract
labour Act (1970) and Trade Unions Act (1926) (Any 7 people can get together, form and
register a union) (Verma, 2002). The Industrial Disputes Act (IDA) (1947) mentions the rules
for hiring and firing of workers. This law has restricted the growth of Indias textile, more
specifically the garment sector where seasonal production is required. Flexibility is required
in the labour laws which would allow for contract labour in export oriented units to adjust
their work force according to the demand. For instance, a firm wants to manufacture a
product having seasonal or volatile demand. It wants to hire workers on contractual basis by
offering them higher wage than usual but also making clear beforehand that they could be
asked to leave by giving a months notice. This kind of contract does not have a legal
standing as the IDA mentions various situations through which a labour may or may not be
retrenched. The Contract Labour Act (1970) also restricts the textile units to outsource and
appoint labour on contractual basis (Business Line, 2007)
55
The labour laws in India should be changed. The working hours should be extended from 48
to 60. China performs efficiently as their working hours are longer (Director, Firm C)
The overtime charged by workers proves to be very expensive in India (Director, Firm G)
A modification was made in the IDA in 1980s, which required a firm to gain permission
from the state government to fire a worker in an industry where more than 100 workers are
employed. This law is concrete even if the firm is consistently making losses. The prior
permission is also very difficult to obtain from the government regarding the same (Nair,
2008). Another law hampering the growth of garment industry in India is the restriction of
maximum working hours. According to this law, a worker cannot work for more than 48
hours a week (8 hours a day) even if he is willing to work more. On contrary, the labour laws
in China state that a worker can work 10 hours a day and 60 hours a week. The labour laws
present do not affect this industry on such an extent.
5.1.2. Structure
Structural challenges relate here to the operations of the entire textile industry as a single
entity. Garment industry in India is fragmented in structure which increases the cost as well
as lead time. It is dominated by small scale based unorganised sector. This is attributable to
lack of coordination between the industry and trade bodies that comprise the supply chain.
The whole process including different entities such as cotton producers, spinners, weavers,
dyers, finishers, knitters and apparel producers are interdependent in their growth. These
firms cannot compete individually but their competitiveness depends on how good their
supply chain is. A big challenge for the government of India is to consolidate this industry.
This consolidation was necessary due to various reasons as pointed out in the interviews.
They are to increase the efficiency level, overall size of the industry, controlling the cost,
realizing the benefits of economies of scale, reducing the problems of labour, raw material,
56
and also to expand the export market. Due to fragmented structure in India, production of
various components in its supply chain is done in scattered areas which lead to increase in
cost and other procurement problems. However, China on the other hand enjoys more
consolidated structure in its supply chain, consisting of fewer departments and therefore, less
paperwork involved. At the same time, the labour working in a firm stays at a far of place in
India where as in China, the worker stays in the factory premises and all the components
required for a garment manufacturing unit are produced at the same place.
"We have to deal with different companies for procurement of raw material. But it often
happens that our production (in India) schedule gets delayed due to late delivery of raw
materials from auxiliary suppliers. This causes higher lead time and increases the cost
(Director, Firm E)
The lack of single window clearance from government (in India) causes delays in setting up
new facilities and exporting. But, turnaround time in setting up a facility in China is
comparatively very less. Same is true for exports (Director, Firm B)
In India, labour is working at one place and living at other place. That consumes lot of time.
In China, all the labour of a company stay together, they work and sleep. They stay at the
factory premises (Production Manager, Firm H)
In China, everything is produced in the same place (Director, Firm C)
Karandikar (2005) support this area of findings of the research. He said that the competitive
countries to India such as China, Korea, Mexico and Turkey have significantly consolidated
supply chains. Rousslang and To (1993), in general, mentioned that transportation costs such
as freight on imports and exports, complex logistics to coordinate the supply chain and
distribution network still pose a barrier to trade goods between countries.
57
5.1.3. Infrastructure
By comparing the two countries, the infrastructural facilities in China are better than that
available in India for the garment industry. In India, the transport and electricity constrictions
have acted as major obstacle for the growth of this sector. There are infrastructural
bottlenecks and efficiency constraints such as high transaction time at ports and
transportation time. This is due to capacity constraints. The shipping of a container consisting
of garments from India to the US is costlier as compared to the other countries in Asia. It was
also gained from interviews that the facilities such as manufacturing management practices,
process and product innovation, transport and handling equipments, and environmental
control systems are inferior in India as compared to other global competitors such as China.
The companies in China are benefited due to better infrastructure than Indias, thereby
reducing their cost and turnaround time. This view has also been supported by Silk & Malish
(2006: 106), Friedman (2005), and Porter (1985) who categorized infrastructure into
secondary activities in the value chain and value system.
Ports in India are not equipped with fast handling of cargo. The cost is more. The lead time
is shorter in China because of better connectivity (Director, Firm I)
The power facilities, the port facilities, the transport facilities, are cheaper and better in
China than in India (Director, Firm B)
Buyers prefer China because their lead times are shorter, their infrastructure is much better
than India (Marketing Executive, Firm D)
China is developing its infrastructure at a faster rate than India (Director, Firm G)
In accordance to the previous research, various facts and results have been found supporting
the findings from the interviewees. The Indian road network is largest in the world but still
58
the national highways constitute only 2% which carry approximately 40% of the total traffic
across the country. Karandikar (2005) found that China in comparison to India, benefit 13%
in the total cost of shipping garments from Shanghai to US East Coast due to efficiency in
handling of materials. This further brings disadvantage to the Indian economy by bringing an
additional cost during presence of complex supply chains and just in time inventories
(World Trade Organisation, 2007) in the world.
Another major problem faced by Indian textile and apparel industry is power shortage. This
industry is one of the most energy intensive in terms of power per unit of consumption.
Running the factories on generators (in India), increases the cost by 2.5-3 times. Power in
China is available subsidised and these problems of shortages and high cost are not there
(Production Manager, Firm H)
Government in China has supported in the sense that their infrastructure cost is much lesser
as compared to India. The electricity cost is less over there (Director, Firm E)
All the major companies of the world are in China today because the land is cheap, labour
is cheap, electricity is cheap, and automatically everything is cheap. That is the reason, the
production is cheapest (Director, Firm G)
Due to shortage of power and high tariff rate charged by state governments, the textile and
garment industry in India is rendered to be uncompetitive in the international markets. This
affects the most to the small and medium sized enterprises because the shortages in power
results in increasing the cost of production, and also failure to deliver the products on time. A
loss in the range of 10% to 30% in machinery utilisation in India is caused due to power cuts
every year (Report by ASSOCHAM, 2007). On contrary, China is equipped with good and
low cost power facilities, and thus having a higher competitive advantage. The power is
59
available at subsidised rates from the government, thereby benefitting this industry. Thus,
garments in China can be produced at lower cost than they can be produced in India.
5.1.4. Technology
India suffers from technological obsolescence that affects productivity as well as other
activities in the entire value chain. China is ahead in production technology as they
manufacture and export the highest number of machinery in the world. Most of the garment
machineries imported in India, are from China or from Taiwan. These are available at
significantly lower price, and are of appropriate qualities as available in Japan. The reason
behind low cost of Chinese machines is that they copy the advanced technology developed in
other countries and mass produces it. Therefore, the same technology is available to
industries in India a bit later and at higher cost as compared available to garment
manufacturers in China.
The machinery used is not a major difference between these two countries. China makes and
India imports (Director, Firm F)
As China is currently a developing nation and has limited financial resources, it does not
innovate (Director, Firm I)
China is better in copying the technology rather than innovating. They mass produce the
copied technology and therefore manufacture the machinery involved for manufacturing a
garment at a cheaper cost (Director, Firm B)
China is not a good innovator. The research and development cost is also much less
because they do not involve too much resources for innovation. Their machinery
manufactured might not be as good as the best technology available like that in Japan but it
60
is very good at the cheap price it is available, so people buy it (Marketing Executive, Firm
D)
Today all mass production of machinery is from China or Taiwan (Director, Firm C)
China is using its own machines on itself. As they produce products, they know better than
you know, or I know (Production Manager, Firm H)
These statements and findings support the literature. Qian and Li (1998) said that firms
expand internationally to use the low cost resources available in other countries to exploit the
competitive advantage. India imports machineries from China in huge quantities so as to
exploit the competitive advantage possessed by them. Porter (1990) also said that technology
available is different in different nations. Competitive advantage can be gained by a firm due
to these national differences. These substitute machines which are developed in China by
copying the technology available in Japan or anywhere in the world at low cost makes it an
attractive product. Thus, it can be seen, China has an advantage as it is ahead in technology
from India.
5.1.5. Raw Materials
Indian has rich resources of raw material. After leaving behind USA in production of cotton
this year, India has become the second largest producer the world. It is rich in resources of
fibres such as polyester, viscose, and silk and is also one of the largest producers of natural
and man-made fibres. China on the other hand enjoys similar advantages with abundant raw
materials. It is the worlds largest producer of cotton, however it was gained through
interviews as well by findings of previous researchers that the quality of cotton produced is
better in India (Sud, 2008). However, by upgrading the mills in India would put it at par with
the Chinese output. China has an advantage on this aspect as the Chinese mill owners obtain
61
finance at a cheaper rate. They also have a larger marketing network. Due to use of
automated machinery, the quality of raw materials produced in China such as that of
polyester and silk is better and cheaper as compared to India. Handloom and powerloom
machines are used for the production of raw materials in India as most of the industries in this
sector are small scale.
Cotton, you know, is much cheaper in China. Polyester, silk..... most of it is produced by
China. India also produces it in large quantities (Production Manager, Firm H)
Quality is better in China because the machines are most of automatic. We still have
handloom and powerloom type machines. We have lesser number of automotive machines
(Director, Firm E)
The variety of accessories available in China is not there in India. Buttons, cotton tapes,
different styles collars are imported. Their garments are pieces of attraction because of good
labelling and packing (Director, Firm A)
It was also gained that India is competitive in woven wear and cotton products where as
China is more economical in production of knitwear and non-cotton products. The Indian
garment manufacturers import from China various accessories required during the production
such as buttons, zips, and laces, as they are available at cheap prices. All the respondents said
that the fabrics available in China are of better quality and some of their types are not even
available in India. Most of the garment manufacturers import fabrics from China in huge
quantities. It is very important for firms for producing garments at low cost if the resources
are available nearby. Their ease of access results in creating competitive advantage between
different firms. This view is supported by various researchers such as Barney and Hesterley,
(2007) and Hooley et al (1998).
62
63
China consists of more attractive industries than India for foreign investor to invest. As more
of foreign direct investment (FDI) goes to China, and due to availability of cheap labour, the
scale of production is high. This results in lowering the cost of production and therefore, has
also led Chinese economy to prosper a bit faster than India. While on the other hand, the
present government policy in India allows 100% FDI in this sector. Still, the foreign
investment is less, and the manufacturers have a lower scale of production. The reason has
been outlined further.
Since the market (in India) is not organised and there are very small players with very low
turnarounds, they do not attract FDI (Director, Firm I)
As given in the literature and found out by many researchers, FDI plays a very important role
in determining the success of an industry (Kee, 2005; Alfaro et al, 2003). However, it was
found through interviews that in garment manufacturing firms, currently, FDI does not play
an important role in the Indian context.
In garment industry we see, India and China already have the technology and resources.
There is no need for FDI from any other country (Director, Firm E)
Foreign direct investment is not important for this industry in India (Director, Firm B)
This is because, largely, the garment manufacturing units are SSI. Moreover, these industries
can easily get loan from public sector banks. Most of the technologically advanced machinery
available in this sector is imported by India from China, which dominates the production of
machinery. Until the size of the garment manufacturing firms in India increases, FDI would
not play a significant role and the foreign investors would also not be attracted.
5.1.8. Export Finance and Subsidies
64
65
new and fashionable trends which further promote this industry in both the countries. They
have large, potential domestic as well as international market.
India and China have advantages that same factories manufacture products for domestic
and export market (Director, Firm E)
Lot of Multinational companies with big brands are coming up, so there are good prospects
for development of India and China (Director, Firm C)
Same firms in India and China produce garments for domestic as well as export markets. A
large number of famous brands are continuously expanding their market in both these
countries. Emerging retail industry and various malls also provide huge opportunities for the
apparel sector.
5.1.10. Iconic Brand
Buyers prefer to outsource their products from China for a variety of reasons that have been
mentioned earlier. The Indian garment industry lacks iconic brand image between various
segments within it which hinders the overall growth of this sector. India is famous for sectors
such as Information technology, auto and FMCG. Promotion of Brand India on basis of
garment industry is an important step required to be taken for strengthening this industry. As
India has a good fashion industry, it should be promoted more.
66
higher efficiency in China and other factors discussed earlier, it has become the buyers
preferred choice which has resulted in lower sales volume for Indian manufacturers. Both
these countries are competing for exports to the same market. It is a great task for Indian
manufacturers to tackle the aggression posed by Chinese firms over the international market.
India and China are procuring products from each other that are cheaper or better available in
the other country. China imports from India the fine quality of cotton yarn used for
manufacturing garments. This is because the quality of cotton produced in India is better.
China has booked most of the good quality cotton yarn manufacturers in India for next 2
years. No other product was mentioned during the interviews. China complements India in
numerous things related to the industry such as garment manufacturing machines,
accessories, fabrics, packing material, laces, and collar tapes.
5.2. Future Prospects of India and China
It is believed by the executives that in future, the market of garments catered by both the
countries would focus on a different route. China will cater to the mass market and India at
the fashion market. China has an advantage of producing garments in larger quantities, due to
better infrastructure, and cheaper labour where as India has advantage to produce garments in
smaller quantities through multi-processes, and sampling.
India and China will have a different market altogether. China will be more focused
towards the big stores and importing companies. India will have more for fashion industry,
more creative work, and smaller yarns (Director, Firm C)
You can never see fashion wear in Chinese clothes (Director, Firm G)
We can create good design in India, what used to be produced in Europe, are shifted more
or less to India. Moreover, a European or American customer wants an instigated design in
67
embroidery which only can be produced by India. China is also doing but they dont do such
instigated (Marketing Executive, Firm D)
India is increasingly looked upon as a major supplier of high quality fashion apparels and
Indian apparels have been appreciated in major markets internationally. It comprises huge
number of fashion oriented design houses creating good designs. The products that used to be
produced in Europe have been shifted more or less to India due to the advantage of good
handwork facilities and trained labour in terms of tailors. The largest markets (Europe and
USA) want an instigated design in embroidery which can be produced better in India than
China. Thus, it can be seen that high rate of fashion and fickleness in this industry affects a
firm in number of ways. This view has been supported by Macmillan and Tampoe (2000),
and regarded it as an important factor.
The availability of cheap labour and high foreign direct investment has implanted China as
major powerhouse for manufacturing of garments. The diversity of population is higher in
China and everybody is looking for work. All the major machinery plants of the world have
their subsidy in China because of cheap labour. However, its growth can be limited due to
weakness in its legal system. A great concern for investors in China remains the possibility
for political instability. Moreover, it is also said that due to one child policy in China, the
labour force in few years from now would start shrinking because most of them would be
retired and the new population will be lower as per the requirement. Therefore, the
competition between labours in China for jobs will be reduced, which, further, will result in
less exploitation of workers, and therefore, reduction in efficiency, productivity, and higher
cost of production. This kind of political change in environment resulting in social and
cultural environment change have a direct impact on business behaviour and this view is
supported by many authors and researchers such as Morden (2007), Hitt et al (2003),
Macmillan and Tampoe (2000), and Luffman et al (1996).
68
It is right that a garment was earlier manufactured cheaper in China, but the quality
produced was lower than India (Director, Firm J)
Chinese goods are considered as inferior to Indian goods (Director, Firm B)
The products in China are never considered to be of high quality (Director, Firm E)
Garments produced in China are always considered use and throw (Director, Firm A)
Before 4-5 years, companies such as Gap, Nike did not outsource the production of their
garments to India. Earlier they thought that India would not be able to provide the
appropriate quality. However, now if the two products are compared, the quality of the
garment produced in India would be better than produced in China (Marketing Executive,
Firm D)
The buyers of garments now find it cheaper to procure goods from India than from China
due to currency fluctuation (Director, Firm C)
Chinas currency has risen and Indias currency has come down (Director, Firm G)
For big companies such as Gap and Nike, India was not recognised as the suitable sourcing
destination of their garments. However, now due to good quality of garments at low cost are
being provided by Indian manufacturers, the trend and production from China is shifting to
India. In addition, the currency of China has appreciated and that of India has depreciated.
Therefore, India is becoming a more attractive destination than China for procuring garments.
5.3. Government Schemes Issues - Indian Garment Industry
5.3.1. Bureaucratic Hurdles
A large number of schemes are launched for the different segments in the textile and garment
sector. However, the existing schemes are being continuously modified which not only
69
obstructs the pace of expenditure of the government but also creates a number of unnecessary
procedural formalities for the industrial units or the applicants. For example Scheme for
Integrated Textile Parks (SITP) was launched in 2005 after merging two schemes namely
Apparel Parks for Export Schemes (APES) and Textile Centres Infrastructure development
Scheme (TCIDS).
5.3.2. Technology Upgradation Fund Scheme (TUFS)
For upgrading the technology of existing domestic textile units and setting up new units with
state-of the-art technology (idbibank.com) so as to enhance the competitiveness in the
international markets, the Technology Upgradation Fund Scheme was launched in India on
1st April 1999. It provides reimbursement of 5% on the normal interest charged on the term
loan or 5% of the exchange fluctuation from the base rate on foreign currency loans
(Ramakrishnan, 2005). It also provides additional incentive to the textile and garment units
to avail 10% capital subsidy for the processing machinery (Singh, 2008). With this, the
Indian textile and garment manufacturers would be able to overcome the burden of
technological obsolescence and thus compete with the rival countries having lower interest
rates. This burden is further borne by the government.
However, the amount sanctioned by the government in the Union Budget 2007-08 was
Rs.911 crore. This amount is highly insufficient as the government has to reimburse Rs.1000
crore for loans sanctioned in that year as against Rs.550 crore in the year 2006-07 (Report by
ASSOCHAM, 2007). This resulted to a significant problem of fund crunch to the textile
units.
To be more precise, the spinning and composite sub-segments of the textile industry have
received only 32.5% and 29% of the total amount being sanctioned by the government under
TUFS since the launch of the scheme. The processing and garment segments have received
70
mere 9% and 5% of the total amount (Report by ASSOCHAM, 2007). This shows that the
TUFS needs to concentrate on these segments as they are important products in the textile
manufacturing chains and earn the maximum foreign exchange.
5.3.3. Scheme for Integrated Textile Parks (SITP)
With an objective to provide world-class infrastructure facilities by creating new textile parks
of International standards at the potential growth centres on the Public-Private Partnership
model, the Scheme for Integrated Textile Parks was approved in July 2005. This scheme was
launched by merging the Apparel Parks for Export Scheme (APES) and the Textile Centre
Infrastructure Development Scheme (TCIDS) (Press Information Bureau - Government of
India, 2007).
The objective of APES was to create exclusive expert zones of excellence of apparel and
manufacturing which would help boost exports in this sector (Export Promotion Council,
2002). On the other hand, the objective of TCIDS was to modernize and fill in the gaps in the
current infrastructure at the existing major textile centres in order to remove the impediments
to production (Press Information Bureau - Government of India, 2003). These parks which
includes cluster of related firms are necessary for the success of the garment industry.
In order to implement the scheme, the Special Purpose Vehicles was created to provide
operational autonomy to protect it from various public sector evils. The support provided by
Government of India (GOI) to the scheme is limited to 40% of the project cost subject to a
ceiling of Rs.40 crore. This is provided by way of Grant or Equity (Apparel Export
Promotion Council-1, 2008). Each of the Integrated Textile Parks (ITP) would consist of
facilities such as testing laboratory, training centre, design centre, trade centres, display
centres, warehousing facilities, and raw material departments (Apparel Export Promotion
Council -2, 2008).
71
As many as 30 textile parks have been sanctioned by the government as per the X Five Year
Plan. The project cost estimated (for common infrastructure and common facilities) is Rs.
2893.42 crore and an estimated investment in these parks would be Rs. 15258 crore. These
parks after getting functional will generate employment to 5. 45 lakh people with annual
production of Rs. 24024 crore (Press Information Bureau - Government of India, 2007). This
scheme was provided Rs. 150 crore by the government for the Tenth Five Year Plan. This
amount was later revised to Rs. 545 crore. An amount of Rs. 3000 crore is set for the
Eleventh Five Year Plan (Report by ASSOCHAM, 2007). Thus, for the success of SITP,
there is a need to minimize the procedural difficulties in the project clearance which is rests
upon the government (Report by ASSOCHAM, 2007).
5.4. Summary
To sum it up, it can be said that the India (comprising of garment manufacturers and the
government) still needs to perform efficiently in huge number of areas outlined above.
Therefore, certain recommendations and suggestions have been outlined for the improvement
of garment industry in India. These were gained through interviews and from other secondary
sources. They are mentioned below:
5.5 Recommendations
5.5.1. Labour Laws and training facilities
The stringent labour laws in India hamper the competitiveness and growth of garment
industry in the international market. All the respondents supported the viewpoint that to
compete with the global level, liberalisation of the internal labour policies in India is required
by looking into the long-term vision for the textile and garment sector. These laws are rigid
72
for the special characteristics (seasonal production) and requirements of this sector. Labour is
required to be protected from exploitation but some of these laws prevent creating jobs for
them (Chatterjee, 2004). The government in order to refine these laws should work jointly
with industries and labour unions in a phased manner which would result in incorporating
development of industry as well as the workforce. The government should also learn from the
neighbouring countries and work towards developing the strength of low labour cost
possessed by India. Various researchers agree that the laws should be studied and reviewed
by the government in accordance to current situation as they play an important role in
affecting the structure and competitiveness of business (Morden, 2007; Macmillan and
Tampoe, 2000; Luffman et al, 1996).
More transparency is required in Labour reforms. We dont want any direct support, but
the bureaucratic issues like, you know, lot of involvement in labour by various government
departments, create problems for our units. These departments require lot of paperwork
requiring certain records to be kept on day to day basis (Director, Firm E)
Indian garment industry is facing huge shortage of professionals with technical knowledge
and trade aspects of this sector. It is believed by experts that more national level training and
educational institutes should be built up which would impart technical education to the
workforce of this industry. Extensive training would empower them with abilities to make
improvements in the firms productivity. These professional training institutes should also be
developed in rural and sub-urban areas of India. They should provide practical knowledge
through short term courses. It is important for firm as well as the government that the
industry constitutes well educated workers. However, financing and investment required is a
critical issue for the training programs. Investment should be made by both government and
the industries. The report by ASSOCHAM (2007) pointed out that, apart from training and
skill upgradation of workers at the factory or the shop floor level, the garment technologists
73
and the entrepreneurs should also be trained not only in the technical and managerial
disciplines but also in merchandising, evaluation and laboratory management, interpretation,
quality management, use of I.T. solutions, and other social and environmental issues. The
major training institutes in India are National Institute of Fashion Technology, Pearl
Academy of Fashion, and JD Institute of Fashion Technology (Albuquerque, 2007). Due to
huge capacity expansion and production increase plan in the textile and garment sector, the
intake should be increased by improving the infrastructure of these professional and industrial
training institutes.
The new institutes should follow model of successful institutes that are already running such
as National Institute of Fashion Technology (NIFT) (Director, Firm G)
Various examples were reported by Levine (1995) through which productivity and
profitability of a firm can be increased. These are pay for knowledge, employment security,
sharing of gains, and employee ownership. Continuous investment should be made by the
firms for training their workers in order to gain strategic advantage for minimum of next 2-3
years after training. The importance of human resource and knowledge as intangible assets of
a firm that affects the competitiveness of an industry has been highlighted by many
researchers (Macmillan and Tampoe, 2000; Hooley et al, 1998, Barney, 1991).
5.5.2. Manufacturing Expertise
Along with various policy initiatives required to be taken, strengthening the production base
of garment industries is important measure to be taken by various firms. Most of the firms do
not follow any scientific approaches for shop floor planning and control. Various planning
tools such as Materials requirements planning (MRP) and Just in time (JIT) need to be
introduced in the Indian firms. These concepts if followed from procuring the raw material, to
74
production of garments till their delivery would tremendously enhance the competitiveness of
Indian Garment industry.
In order to reduce this problem, a garment manufacturer recommended a method followed by
them during the interview. A database connected through internet should be created by a firm
which links various entities in its supply chain. In this database he said, all the entities post
updates of their status of the products to the related industry in its supply chain. This helps
increase coordination between them which further helps in organising various decisions to be
taken across the chain. This method would also help in identifying weakness in the whole
supply chain. Along with this, another manufacturer recommended that a national technology
centre related to garment industry should be opened which would provide regular updates on
the computer screen of the latest technology available from whole world related to
machinery, production methods, the research centres, suppliers and buyers. They should also
provide solutions to various technical problems faced by garment manufacturing units by
charging a fee.
5.5.3. Infrastructure
As this industry is also involved in manufacturing fashionable garments which have limited
shelf life, it is extremely important to improve these facilities so that the products can reach
consumers in quickest possible time. This is related to building of adequate air and marine
transport, power, and logistics facilities. This is essential for the development of garment
industry. Efficient power management system is required to be put in place which can result
in less power cuts. States should also offer power at low cost to the new investments being
made in this sector. Improvement in infrastructure would further lead to improvement in lead
75
time in procuring and delivering the goods (Morden, 2007; Macmillan and Tampoe, 2000;
Porter and Miller, 1985, Porter, 1985).
5.5.4. Brand India
As the garment industry in India can produce customised products according to requirements
of buyers, it should be developed with image of a fashion-oriented destination. It should be
promoted by showcasing the ethnicity, designing and exclusivity of the Indian garments in
the global market. Various measures should be adopted jointly by private firms and the
government for enhancing the image of India as an attractive destination for international
marketers due to the availability of good quality low cost resources in manufacturing,
designing and marketing.
5.5.5. Trade Diversification
Indias exports are highly concentrated in the region of Europe and USA. The government
should encourage the garment manufacturers to export their products in other markets with
high growth potential that have not been tapped by the competitors. Early mover advantage
would help these firms to trade in these areas with bright long term prospects. Growth rates
of 3.6% and 3.3% have been forecasted in the regions of Middle East & North Africa and
Sub-Saharan Africa for the period of 2008-2030 by The World Bank in its report Global
Economic Prospects (2007). For the same period, they estimated that Euro area and the US to
have growth rate of 2.4%. The share of garment exports of India in Africa and Middle East
currently is only 1.3% and 8.7%. This indicates that these countries posses huge opportunity,
and India could strategically expand in these markets. However, this would require support
from Government. Therefore, in order to provide huge investment with nature of risk in
unstable economic conditions especially in the Africa region in a short period of time,
76
demands for special fiscal and monetary incentives to be given for new ventures being
established.
5.5.6. Changes in Existing Schemes and Establishment of Special Economic Zones
5.5.6.1. Bureaucracy reforms
A large number of schemes exist which are meant for various segments of the textile
industry. These schemes should be re-looked and brought together if relevant. This would
help realize their benefits by reducing the bureaucratic and procedural hurdles. The schemes
that are doing well should be given more focus by providing adequate provisions for their
budget. On the other hand, the schemes that are not performing well should be scrapped,
thereby reducing the preventable burden on the government. For clearing these projects and
schemes launched by the government, a large number of government authorities are involved
in multiple locations for obtaining the necessary papers, permits and so on, which leads to
further delay. Therefore, for the success of these schemes, the government should device a
system through which the projects can be cleared from a single location or entity. This would
help in reducing the huge cost and time involved.
5.5.6.2. TUFS
The amount sanctioned by the government under TUFS fall short of the amount to be
reimbursed to the various segments. Therefore, the amount allocation should be increased.
The spinning and composite sub segments have already received approximately one-third of
the amount. However, the processing and garment sector have been totally neglected under
this scheme. These segments earn maximum foreign exchange and also constitute important
value added products in the industries chain.
5.5.6.3. SITP
77
Timely completion of textile parks should be ensured by the government under the SITP. The
target in term of production and exports that have been set should be fulfilled. The
government should take certain measures for providing adequate power supply and thus
ensuring uninterrupted supply chains. This would result in reduction of manufacturing cost to
a large extent, thereby making this industry very competitive in the international market.
5.5.6.4. Special Economic Zones
The establishment of special economic zones have paved a path to converge large promoter
companies with the small and medium sized firms establishing themselves in these zones.
Government should provide additional incentives to the small and medium scale firms in
these areas who are involved in manufacturing and exporting of garments. This would help
these firms to harness to their full potential thereby enhancing their competitiveness in the
global markets. These zones should also ensure creation of integrated supply chains by
linking them with appropriate logistics support for exporting their products. These special
economic zones for textile and apparel products should be promoted for giving a boost
thereby strengthening the manufacturing sector of Indian economy. This would also hammer
the increasing competition prevailing in the international markets.
Textile and apparel parks are a great source to provide help to small firms to become more
efficient and competitive in the market. The problem of fragmented structure leads to high
inventories in the supply chain. As most firms focus on optimising the individual elements
comprising the chain such as raw material suppliers, intermediate goods supplier, dyeing
units, finishing units, manufacturing apparels, distributors and retailers, it leads to lack of
organisation between them. Along with this, lack of production plans, high inventory levels,
variability due to uncertain events such as unavailability of resources, breakdowns, or defects
in products intensifies this problem. Therefore, a strategy should be adopted that will help
78
reduce the variability and increase coordination across the chain. As mentioned in literature,
the business cluster approach has been recognised as an important strategy to help small
businesses compete successfully in the global markets. This view as explained earlier (in
Chapter 2) is supported by various authors (Lagendijk, 1999; Jacobson and Mottair, 1999;
McCormick, 1999; Feser, 1998; Brautigam, 1997; Schmitz, 1995a, b; Baptista, 1996).
Locating the related firms together leads to increase in output of a firm, which brings about
reliability, economies of scale, enables pooling of labour, reduces problems of raw materials,
reduces lead time, improves speed of delivery, and also helps in exchanging strategic
information between related industries (Kloosterman and Lambregts, 2001; Visser, 1999;
McCormick, 1999; Porter, 1998; Brautigam, 1997; Schmitz, 1995, a, b). By closely situating
and linking various units involved for manufacturing of garments, this industry can improve
tremendously. This approach would lead these units to gain economically, by increasing their
output and perform like a larger unit. The uncertainty possessed by a firm being operating in
a fragmented environment can also be reduced through clusters.
5.6. Summary
To summarize, India should make efforts to effectively capitalize its available resources with
the challenges it is facing. Further, the above mentioned changes should be made and
recommendations followed so as to enhance their performance and competitiveness in this
industry.
79
Chapter 5
Conclusion
It can be seen that the competitive position of the garment industry is determined by various
factors. These theories such as global competition; strategic management; PEST analysis;
five competitor force model; and resource based view are important as they enhance structure
of the analyses of internal and the external environment for the garment industry. An insight
into this industry was gained through interviews conducted of various garment manufacturers
in India. The relation of these theories in the practical environment was also realized.
However, out of all the factors, it was found that foreign direct investment does not play an
important role for this industry in India. This was due to the fact that the most firms in this
industry in India are small in size.
After the phase out of Multi Fibre agreement in 2005, and subsequent quotas and restrictions
applied to Chinas exports to EU and US, competitor countries such as Bangladesh, Vietnam,
and Turkey were benefited. The exports from these countries grew as exports from China
were limited. High import duties reduced advantage this advantage for India. However, till
date, China is a major power in the garment industry with the maximum exports worldwide.
It is able to provide decent quality of garments at a lower price. In comparison to India, the
buyers of garment currently prefer to source from China than India. This is due to various
positive factors for China such as better infrastructure, shorter lead time, better trained labour,
favourable labour laws, higher labour productivity, abundant raw materials, and mass
production which lead to economies of scale.
The domestic policies in India have constrained its competitiveness and growth. India enjoys
certain advantages such as low labour costs, raw materials, and availability of all components
in the chain of textile industry and therefore, should make efforts to effectively capitalize its
80
resources with the challenges it is facing. The re-organisation and technology upgradation of
garment sector is required at three levels. These are Firm level, Industry level and
Government Level. Strategic thinking is required in devising new industrial policies for
improving the competitiveness of this sector. It requires high skilled technical workforce
which is not currently available. Investments in education and training of the workforce have
to be made continuously.
81
Appendix
Acronyms
APES - Apparel Parks for Export Schemes
ASSOCHAM - The Associated Chambers of Commerce and Industry of India
ATC - Agreement on Textiles and Clothing
CLA - Contract labour Act
EU15 European Union Comprising of 15 countries
FDI - Foreign Direct Investment
FMCG - Fast Moving Consumer Goods
IDA - Industrial Disputes Act
ITP - Integrated Textile Parks
JIT - Just in time
MFA - Multi Fibre Agreement
MRP - Materials requirements planning
PEST Political, Economic, Social and Cultural, Technological
SEZ Special Economic Zones
SITP - Scheme for Integrated Textile Parks
SMEs - Small-Medium Enterprises
SSI - Small Scale Industries
TCIDS - Textile Centres Infrastructure development Scheme
TUA - Trade Unions Act
TUFS - Technology Upgradation Fund Scheme
USA United States of America
WTO World Trade Organisation
82
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