The Indian textile industry is one of the oldest and most significant industries

in the country. It accounts for around 4 per cent of the gross domestic product
(GDP), 14 per cent of industrial production and over 13 per cent of the
country's total export earnings. In fact, it is the largest foreign exchange
earning sector in the country. Moreover, it provides employment to over 35
million people. The Indian textile industry is estimated to be around US$ 52
billion and is likely to reach US$ 115 billion by 2012. The domestic market is
likely to increase from US$ 34.6 billion to US$ 60 billion by 2012. It is
expected that India's share of exports to the world would also increase from
the current 4 per cent to around 7 per cent during this period.
Textile industry provides one of the most fundamental necessities of the
people. It is an independent industry, from the basic requirement of raw
materials to the final products, with huge value-addition at every stage of
processing . Infact , it is estimated that one out of every six households in the
country directly or indirectly depend on this sector.
Here we analyze the sector's dynamics through Porter's five-factor
model.

1) Threat of New entrants

Indian Textile Industry is very dependent on personal contacts and

experience. The new actors would have to bring some kind of client base along
with the new establishment. Product differentiation may constitute a barrier
of entry as manufacturers are heavily dependent on references and word of
mouth. Without any established client portfolio it is difficult to attract, endure
increased costs in creating sample collections to show potential customers.
Hence, in startup phase costs are not only associated with the manufacturing
required but also with the costs for designers and creating samples. In the
sense of reference dependency, barriers of entry are considered as very strong.
 
As the new entrant has limited experience in textile manufacturing and there
are no built up relationships with customers, they might experience
disadvantages relative to the established competitors.
Governmental policies do affect the business environment to some extent. An
example of this is subsidies, which are offered to companies establishing
production in certain regional areas.
In addition to these potential barriers of entrance, new entrants may have
second thoughts about entering the new market, if existing manufacturers
may retaliate on new entrants. The Indian textile industry though, has such a
large population of manufacturers so any new actors may hardly be noticed by
the competition, which minimizes the risk for retaliation.
 2) Bargaining power of customers (demand scenario)

Global textile & clothing industry is currently pegged at around US$ 440 bn.
US and European markets dominate the global textile trade accounting for
64% of clothing and 39% of textile market. With the dismantling of quotas,
global textile trade is expected to grow (as per Mc Kinsey estimates) to US$
650 bn by 2012 (5 year CAGR of 10%). Although China is likely to become the
'supplier of choice', other low cost producers like India would also benefit as
the overseas importers would try to mitigate their risk of sourcing from only
one country. The two-fold increase in global textile trade is also likely to drive
India's exports growth. India's textile export (at US$ 15 bn in 2005) is
expected to grow to US$ 40 bn, capturing a market share of close to 8% by
2012. India, in particular, is likely to benefit from the rising demand in the
home textiles and apparels segment, wherein it has competitive edge against
its neighbors.

Hence, the bargaining power of customers is strong. For that reason, it is of

importance for a producer of apparel to differentiate their products or
production so it will not compete with price as primary mean.

Differentiation is accomplished either by quality or service. Differentiation

can be considered as especially important in the Indian textile industry since
contracts are usually set on short-term basis and are rarely set more than six
months ahead. Hence, there is a need to tie the customer to manufacturers
without the need of explicit contracts. And Thus, the bargaining power for the
Customer is improved.

3) Bargaining power of suppliers (supply scenario)

India is a country where we have numerous players in textile industry which

all are varied in terms of size and power. There has been increase in
production and supply of textile products in last few decades globally, mainly
due to rapidly changing social and economic structure of the countries
worldwide. In past few years, especially after the removal the trade related
tariffs and non tariff barriers in 2005, Asian countries such as India, china,
Hong Kong and Japan have emerged as major players in this particular
industry, mainly due to their changes on economic front and infrastructure
developments.

The large number of available suppliers in India gives an initial indication of a

weak bargaining position for the supplier group.
Additionally, the supplier group lacks switching costs and has a low level of
product differentiation. This leads to great possibilities for textile
manufacturers to scout the supplier group for best terms and prices for
production. As a result, manufacturers can contact a large number of suppliers
and play suppliers against each other. Such behavior weakens the bargaining
power for suppliers and as a result pushes prices down and makes prices
similar among suppliers.
An advantage which the Indian Suppliers group have capitalized on is,
Due to their ability to integrate forward in value added chain, they have
achieved a better bargaining position towards textile manufacturing.

As previously seen, companies in the textile and apparel sector have

established forward to create vertically integrated company groups.
Deep relationships between manufacturers and suppliers illustrate how
important the textile manufacturing industry is for the supplier group. An
example of this is how suppliers and manufactures interact in activities such
as research and development (R&D). By this process the supplier obtains
knowledge on what customers downstream in the value added chain demands.

4) Threat of substitute products

When using such a broad term as Textile, there are obvious reasons for
identifying substitute product groups proves difficult.
Of course, there are variations in types of clothing and material. Variations in
textile segment can also be identified as trends in fashion and styles. Hence
products within the apparel segment can act as substitutes but the general
conclusion still stands; there’s no substitute to apparel.

5) Competitive rivalry within the industry

The textile manufacturing segment in India is made out of numerous

manufacturers which all are varied in terms of size and power. It is a massive
sector with thousands of companies producing apparel. The apparent high
growth rate of total textile exports indicates that the rivalry between
manufacturers is low. The growth rate is high in some product segments but
even negative in others. Hence, the rivalry between apparel manufacturers is
diverse since they enjoy different growth rates.

Additionally, textile as a perishable product group is in the risk of temptations

to cut prices when demand slackens. For example, when there are recessions
in the business cycle apparel prices will drop significantly in price. Both these
factors exemplify and indicate that the rivalry between manufacturers is high.

As Indian apparel manufacturers are pressured to lower prices in order to stay

competitive with companies abroad, the overall rivalry within the industry
gets companies to expand their customer base in order to keep profits up. It is
therefore reasonable to believe that such expansions may occur on the behalf
of competitors if possible, and thereby increase the rivalry in the industry.

https://www.equitymaster.com/detail.asp?
date=03/31/2006&story=1&title=Indian-textile-industry-Porter-analysis