19

Comparative Performance of the Indian Apparel Firms
Comparative Performance
of the Indian Apparel Firms
R N Joshi* and S P Singh**
Introduction
The textile and apparel industry in India plays a decisive role in the growth of economy.
It contributes about 4% of GDP, 14% of industrial production and about 17% of export
earnings (Ministry of Textiles, 2007). It is the second largest provider of employment after
agriculture. It employed about 35 million people in 2007. The apparel industry is the final
stage of the textile industry and the maximum value-addition takes place at this stage. It is
a low investment and highly labor-intensive industry. However, the industry is fragmented
and most of the apparel firms are small in size. The reason for this could be the SSI
Reservation Policy that existed till 2001. In addition to this, recently the Multi-Fiber
Agreement (MFA) was phased out in January 2005, and restrictions on imports and exports
have been removed. Consequently, the small and medium-size firms are facing competition
* Research Scholar, Indian Institute of Technology, Roorkee, India. E-mail: rnjoshitextile@yahoo.co.in
** Professor of Economics, Indian Institute of Technology, Roorkee, India. E-mail: singhfhs@iitr.ernet.in
© 2009 IUP. All Rights Reserved.
This paper examines the relative performance of 38 Indian apparel firms
for the year 2007 using multiple input-output evaluation method. The
study is based on the cross-sectional as well as panel data collected from
the CMIE PROWESS database. A nonparametric method, known as Data
Envelopment Analysis (DEA) is applied under input orientation
assumption. Net fixed asset, raw material, power and fuel, and wages
and salaries are selected as inputs and value of gross sales as the output
variable. The main objectives are to identify the relatively efficient and
inefficient firms; set the peer firms for the inefficient firms and suggest
alternative actions that would make inefficient firms relatively efficient.
Further, the study also examines the trend in technical and scale
efficiencies, using a five-year panel data (2003-2007) for a set of 24 apparel
firms. The paper finds that on average the apparel industry could make
a 33% radical reduction in its inputs to produce the same level of output.
The time series analysis reveals that the efficiency scores vary
significantly across years and scale efficiency trend indicates that the
number of firms operating under Decreasing Returns to Scale (DRS)
have increased. The paper also suggests input targets for the inefficient
firms to improve their relative performance.
The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
20
from the large-sized domestic and foreign firms mainly for the domestic, North American
and European markets. In addition to this, appreciation of rupee against dollar and
recession in the US market have further affected the industry. It is observed that the Indian
apparel firms are less competitive when compared to their counterparts in the neighboring
country, China, mainly due to low productivity, obsolete technology, and poor
infrastructure. Hashim (2005) observes a negative growth in the total factor productivity of
Indian garment industry which is mainly due to outdated technology and diseconomies
of scale. Joshi et al. (2005) finds that Indian clothing firms are less competitive due to low
productivity, low R&D, poor technology and non-availability of finishing facilities. Roy
(2005) also reveals that India’s clothing products have less comparative advantage than
China due to poor quality of fabrics and low productivity. Rangrajan (2005) views that
India’s power, steam and financial costs are higher and the productivity and technology
are lower than those of China, thus the export growth of the industry is impeded.
In this scenario, it is necessary for the apparel firms to improve their performance
vis-à-vis their competitors. For this, an assessment of the individual firms’ relative efficiency
becomes imperative to know the extent of deviation of a firm’s actual output from its
targeted output. The most popular approach to measure relative efficiency is Data
Envelopment Analysis (DEA). It is a nonparametric linear programming approach
introduced by Charnes, Cooper and Rhodes (CCR) in 1978 (Charnes et al., 1978) and
further extended by Banker, Charner and Cooper (BCC) in 1984 (Banker et al., 1984). In the
last three decades, DEA has been extensively applied for studying the performance of
service as well as manufacturing entities.
In India, very few studies have been carried out on productivity and efficiency of the
apparel and textile industry. Researchers have studied different issues like productivity
trends in cotton industry (Chadrasekharan and Sridharan, 1993), nature of ownership,
firm size and technical efficiency (Kumar and Pillai, 1996), productivity level in apparel
manufacturing (Bheda, 2002), and cost and productivity in Indian textiles and its
post-MFA implications (Hashim, 2005). These studies have used the ratio analysis and
Ordinary Least Square (OLS) estimation method to measure the productivity and efficiency.
These studies are of little significance when the objective is to identify and analyze maximal
efficient firms in comparison to less efficient ones.
DEA and Malmquist Productivity Index (MPI) methods have been used by some
researchers to assess the performance of individual firms and to compare inter-firm
performance. Zhu (1996) evaluates the efficiency of 35 textile mills of Nanjing Textile
Corporation by using assurance region DEA model. Burki and Terrell (1998) investigate
technical and scale efficiencies of small manufacturing firms from nine industries in
Pakistan, including knitting mills, using the DEA approach. Chandra et al. (1998) evaluates
the efficiency scores of 29 Canadian textile mills using CCR-DEA model. Mahadevan
(2002) applies DEA to enlighten growth performance of Malaysian manufacturing sector.
Chen (2003) applies DEA and MPI to evaluate the technical efficiency and Total Factor
Productivity (TFP) growth for textile, chemical and metallurgical industries. Duzakin and
21
Comparative Performance of the Indian Apparel Firms
Duzakin (2007) analyze performance of 500 major industrial enterprises in Turkey,
including textile and apparel, using output-oriented super SB model under Constant
Returns to Scale (CRS) assumption.
Some DEA-based studies on Indian manufacturing industry were also done. Solankar
and Singh (2000) measure the relative efficiency of 40 Indian textile-spinning firms for the
period 1997-1998 using DEA-BCC model. Singh (2003) studies the performance of
22 Indian industries in terms of employment, productivity, and efficiency for the year
1997-1998 with DEA. Kumar (2004) analyzes the TFP growth in the industrial
manufacturing of 15 Indian states by means of MPI. Joshi and Singh (2008) examine the
TFP growth and efficiency trends in Indian textile industry by using MPI. Saranga (2008)
estimates the performance of 50 auto-component manufacturing firms in India using DEA,
for the year 2003.
The review of literature on the subject clearly indicates that so far there has been no
study on Indian apparel industry, that has used DEA to measure the relative efficiency of
individual firms. This paper attempts in this direction. It estimates the Overall Technical
Efficiency (OTE), Pure Technical Efficiency (PTE), Scale Efficiency (SE), slacks and input
targets for 38 apparel firms for the year 2007; sets the peer firms for the inefficient firms;
and suggests alternative actions that would make inefficient firms relatively efficient. As
apparel firms are located in different regions of India, regional variations in the efficiency
scores are also examined. An attempt is also made to study the performance of apparel
firms over a period, by estimating efficiency trends for 24 apparel firms for the period,
2003-2007.
Data and Variables
The study is based on the cross-sectional as well as panel data collected from the PROWESS
database. The cross-sectional analysis is based on the data collected from 38 apparel firms
for the year 2007. These firms are spread over the western, southern and northern regions
of the country. These firms are diverse in size, origin, ownership and presumed abilities.
However, all are in the same line of business and working under similar market conditions.
DEA methodology is used to assess the relative technical efficiency, Pure Technical
Efficiency (PTE) and Scale Efficiency (SE) of these selected firms.
We intended to collect five-year panel data for all the selected 38 firms, but due to
non-availability of data for some firms in certain years, we had to reduce the number of
firms to 24, for which the data on the selected input-output variables were readily available
for all the five years. Therefore, we use the panel data of only 24 firms for the period 2003-
2007 to examine the year-wise performance of the apparel industry. For this purpose,
trends in OTE, PTE, and SE scores of individual firms are estimated.
Selection of appropriate input and output variables for the efficiency estimation is an
important stage in DEA analysis. A model with a large number of variables may fail to
have any discriminatory power between firms because most firms will tend to be rated
efficient (Majumdar, 1994); hence input-output variables in DEA analysis should be
The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
22
minimal. We identify the potential input-output variables by reviewing the DEA literature.
We observe that most of the studies on the manufacturing sector have used gross output or
gross sales and value added as output variables. When value added is used as an output
variable (Ahuja and Majumdar, 1998; Majumdar, 1998; Mahadevan, 2002; and Jajri and
Ismail, 2006), labor and capital could be considered as input variables. As energy and raw
material also contribute largely to the manufacturing output of a firm, their proper utilization
and slack analysis should also be done. For this, value of output or gross sales would be an
appropriate output variable. Most of the DEA studies on manufacturing industry have
used it as an output variable and labor, capital, energy and material as input variables
(Burki and Terrell, 1998; Zheng et al., 2003; Bhandari and Ray, 2007; Wu et al., 2007; and
Joshi and Singh, 2008). After reviewing the literature, it is found that Mukherjee and Ray
(2004), Hashim (2005), Mukherjee (2008), and Saranga (2008) have also used value of
output as an output variable and number of employee, capital, power and fuel, and material
as input variables to assess the productivity and efficiency of Indian manufacturing.
In this paper, we also consider gross sales as an output variable and net fixed asset, raw
material, power and fuel, and wages and salaries as input variables. The input-output
data are shown in Table A1 (in the Appendix) and the lists of selected 38 apparel firms
along with their codes are shown in Table A2 (in the Appendix).
Correlation and regression analyses are conducted to know the extent of variation in
gross sales caused by the variation in the selected input variables. The results, given in
Table A3 (in the Appendix), indicate that gross sale is significantly related to these inputs.
About 95% of variations in the output variable are explained by these explanatory input
variables.
The input and output variables are defined as follows:
• Gross Sales (GS): This is the sum of firm’s sales and income from non-financial
services. It includes the income of the firm earned through the sale of industrial
goods and its various associated incomes (measured in Rs. cr).
• Net Fixed Assets (NFA): These are the total fixed assets net of accumulated
depreciation. It includes capital work in progress and revalued assets if any
(measured in Rs. cr).
• Raw Material (RM): It shows the value of raw material that is consumed by a
particular company (measured in Rs. cr).
• Power and Fuel (PF): It provides the sum of the expenses incurred by a company on
power, fuel and water (measured in Rs. cr).
• Wages and Salaries (WS): It includes payments made in cash or kind by a company
to or on behalf of all its employees. The wages and salaries is a sum total of the
salaries, bonus, contribution to provident fund and gratuities, staff welfare and
training expenses, arrears paid, reimbursements and other expenses on employees
(measured in Rs. cr).
23
Comparative Performance of the Indian Apparel Firms
Methodology
This paper applies DEA approach to measure the relative efficiency of the apparel firms in
India. DEA is a linear programming-based technique that converts multiple outputs and
inputs into a single measure of firm level performance. Using only observed output and
input data of the firm, this technique evaluates how efficiently the inputs are converted
into outputs. This novel technique was first formulated by CCR in 1978 using Farrell’s
(1957) output-input measure of performance by means of a fractional mathematical
program. In this model, the ratio of the weighted output to weighted inputs for each firm
being evaluated, is maximized. It is known as CCR model based on CRS. In this study, we
exercise the CCR and BCC input-oriented models. Generally, the number of firms is
considered greater than the total of number of inputs and outputs. Hence, it can be noted
that the dual model will be simpler to solve than the primal as it has a few constraints.
Assuming that the selected sample has n firms (j = 1, 2… n) with m inputs and s outputs.
The level of i
th
input and r
th
output observed at firm j are x
ij
and y
rj
respectively. The dual
form of the CCR primal model can be formalized by denoting the input weights of firm k by

k
and the input and output weights of other firms in the sample by
j
. The technical
efficiency ( )
k
  Min * = of the firm k assuming input orientation is the optimal value of

k
, which can be measured using the following CCR model:

÷ ÷
¯ ¯
=
÷
=
+
m
i
i
s
r
r k
S S
1 1
Min  
...(1)
subject to:
s r y S y
rk r rj
n
j
j
.... 1
1
= ¬ = ÷
+
=
¯

m i x S x
ik k i ij
n
j
j
.... 1
1
= ¬ = +
÷
=
¯
 
m j
j
,.... 1 0 = ¬ > 

k
is unrestricted in sign
1 0
0 ,
s <
>
÷ +

i r
S S
where
+
r
S = slacks in the r
th
output,
÷
i
S = slacks in the i
th
input and  = non-Archimedean
constant. Since 
k
= 1 is a feasible value, and the optimal value of this model is 1
*
s
k
 .
If, 0 and 0 , 1
* * *
= = =
÷ +
i r k
S S  , then the firm k is Pareto efficient.
The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
24
Another version of DEA was specified by BCC in 1984 which assumes Variable Returns
to Scale (VRS). The principal difference between BCC model and CCR model is the convexity
constraint. In the BCC model 
jk
s are restricted to summing to one
|
|
.
|

\
|
=
¯
=
n
j
jk
1
1 , i.e. 
. If we
impose
¯
=
s
n
j
jk
1
1 
instead of
¯
=
=
n
j
jk
1
1  , then the model is converted into Non-Increasing
Returns to Scale (NIRS) model. Similarly, if we impose
¯
=
>
n
j
jk
1
1  instead of
¯
=
=
n
j
jk
1
1  ,
then the model is known as Non-Decreasing Returns to Scale (NDRS) model.
CCR efficiency is considered as OTE and BCC efficiency as PTE. If a Decision-Making
Unit (DMU) achieves both OTE and PTE equal to one, it shows that firm is operating at
Most Productive Scale Size (MPSS). If a DMU has BCC score equal to one and CCR score
less than one, it is operating locally efficiently but not globally efficiently due to its scale
size. Thus, incompetence in any DMU may be caused by the inefficient operation of the
DMU itself or by the disadvantageous conditions under which DMU is operating (scale
inefficiency). SE is measured as a ratio of CCR efficiency to BCC efficiency.
Results from Cross-Sectional Analysis
Input-oriented CCR and BCC models are applied to estimate the OTE, PTE and SE of the
individual apparel firms for the year 2007.
Overall Technical Efficiency
Table 1 demonstrates the scores of OTE, PTE, SE and Returns to Scale (RTS) of the individual
apparel firms in India for the year 2007. The efficiency score obtained from CCR model is
termed as OTE and the efficiency score of BCC model is termed as PTE. OTE scores suggest
that a firm is on the frontier if it scores equal to one under CRS technology. Table 1 shows
that out of 38 firms, 6 firms are technically efficient as they have OTE score equal to one.
The remaining firms are inefficient. For inefficient firms, this model identifies a set of
reference efficient firms that can be used as benchmark for them. For example, the firm
AF-5 is one of the most inefficient firms among the selected firms as its OTE score is only
0.39. To be on the frontier, this firm has to follow the best practices of firms AF-8 and AF-15,
which are the reference firms as shown in the Table A4 (in the Appendix). Out of these two,
AF-8 may be assumed as a benchmark for AF-5 as it has higher peer count of 9. We find that
the average OTE score of the 38 apparel firms is 0.67, which implies that on an average,
these firms have to reduce inputs by 33% to achieve the existing level of output. Already
6 firms are on the efficiency frontier, in which AF-27 is positioned as the best practice firm
with the highest peer count of 20 in the whole sample has shown in Table A4 (in the
Appendix). Therefore, this firm can be considered as a role model for the inefficient firms
(Agarwal et al., 2005). Peer count shows how many times the firm has been referred in the
reference set of inefficient firms. Best practice firm will have a higher peer count and can be
25
Comparative Performance of the Indian Apparel Firms
considered as a benchmark firm for the inefficient firms. Therefore, AF-27 may be the leading
firm among the selected sample.
Pure Technical Efficiency
The BCC model presumes the VRS and the efficiency measured is known as PTE or
managerial efficiency. PTE deals how efficiently the inputs are converted into outputs,
irrespective of the size of the firm. This model obtains the pure resource conversion of
efficiencies achieved by firms, irrespective of whether these firms obtain Increasing Returns
to Scale (IRS), Decreasing Returns to Scale (DRS) or Constant Returns to Scale (CRS). Table
1 also illustrates the scores of PTE and RTS measured under VRS assumption.
The result reveals that out of 38 apparel firms, 13 are efficient under VRS technology as
their PTE score is equal to one. Average PTE score of these firms is 0.77, implying that an
individual firm can be comparatively efficient reducing all its inputs by about 23%.
The AF-30 is the most incompetent firm with the PTE score of only 0.42. This firm has to
Code OTE PTE SE RTS Code OTE PTE SE RTS
AF-1 0.66 0.87 0.77 IRS AF-22 0.67 0.67 0.99 IRS
AF-2 0.58 0.73 0.79 IRS AF-23 1.00 1.00 1.00 CRS
AF-3 0.77 0.79 0.98 DRS AF-24 0.74 0.76 0.97 DRS
AF-4 0.39 0.60 0.65 DRS AF-25 0.81 1.00 0.81 DRS
AF-5 0.39 0.89 0.44 IRS AF-26 0.60 0.67 0.89 DRS
AF-6 0.54 0.57 0.94 IRS AF-27 1.00 1.00 1.00 CRS
AF-7 0.83 0.83 0.99 DRS AF-28 1.00 1.00 1.00 CRS
AF-8 1.00 1.00 1.00 CRS AF-29 1.00 1.00 1.00 CRS
AF-9 0.47 0.47 0.99 DRS AF-30 0.41 0.42 0.97 DRS
AF-10 0.57 0.65 0.88 DRS AF-31 0.48 1.00 0.48 IRS
AF-11 0.39 0.39 0.99 DRS AF-32 0.43 0.46 0.94 DRS
AF-12 0.68 1.00 0.68 DRS AF-33 0.74 0.84 0.87 IRS
AF-14 0.46 0.63 0.73 DRS AF-34 0.56 0.64 0.87 IRS
AF-15 0.61 1.00 0.61 IRS AF-35 0.55 0.58 0.94 DRS
AF-16 0.68 0.69 0.99 DRS AF-36 0.55 0.56 0.97 DRS
AF-17 0.39 0.50 0.79 DRS AF-37 1.00 1.00 1.00 CRS
AF-18 0.87 1.00 0.87 DRS AF-38 0.73 1.00 0.73 IRS
AF-19 0.89 1.00 0.89 DRS AF-39 0.87 0.88 0.99 DRS
AF-20 0.42 0.45 0.93 DRS
Mean 0.67 0.77 0.88
_
AF-21 0.68 0.70 0.96 IRS
Table 1: OTE, PTE, SE and RTS of the Indian Apparel Firms for the Year 2007
Note: AF: Apparel Firm, OTE: Overall Technical Efficiency, PTE: Pure Technical Efficiency, SE: Scale
Efficiency, RTS: Return to Scale, Mean is the average value of firms AF-1 to AF-39.
The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
26
decrease its inputs by 58% for the existing level of output, to be on the efficiency frontier.
This firm may follow the best practices of firms AF-25, AF-27, AF-28 and AF-29 which are
in its reference set as efficient firms.
It is also observed from Table 1 that AF-12, AF-15, AF-18, AF-19, AF-25, AF-31, and
AF-38 have low OTE score, but they have 100% PTE score. For example, AF-31 has a OTE
score of only 0.48, but its PTE score is 100%. This clearly indicates that this firm is capable
of converting its inputs into outputs with 100% efficiency, but its OTE is low due to low SE.
This demonstrates that if the effect of scale size is neutralized, this apparel firm can become
efficient. It is noticed that out of 13 VRS efficient firms, only AF-31 has zero peer count and
the other 3 firms have only one peer count, therefore these firms may not be considered as
the best practice firms to be followed by the inefficient firms. AF-8, AF-27, AF-28 and AF-29
turn out to be relatively better performing firms having a peer count of 9, 20, 16 and 11,
respectively. Out of these best practice firms, AF-27 has the highest peer count of 20 as
shown in Table A4 (in the Appendix). Thus, it can be a role model for most of the incompetent
firms. The best practices of this firm can be followed as norms or benchmark by the inefficient
firms to monitor their performances.
Scale Efficiency
SE measures the divergence between the efficiency rating of a firm under CRS and VRS
assumptions. The VRS rating can be obtained when the scale size of firm is under control.
Larger the divergence between CRS and VRS efficiency ratings, lower the value of SE and
consequently more adverse the impact of scale size on productivity (Thanassoulis, 2001).
SE is the ratio of OTE to PTE. As PTE is always greater than OTE, hence the SE will be s 1.
If the value of SE is one, then the firm is operating at optimal scale and there is no adverse
impact of the scale size on the efficiency of the firm. If the value of SE is less than one, it will
be under IRS or DRS.
Table 1 shows the SE scores of individual firms. It shows that out of 38 apparel firms,
6 firms are scale-efficient while the remaining firms are scale-inefficient. These 6 firms
operate at the MPSS. The average SE of the 38 apparel firms is 0.88, which implies that
these firms may have to correct their scale size by 12% to achieve the same level of output.
AF-5 has the lowest SE score (0.44), followed by AF-31 (0.48). These firms are operating
under IRS. It can also be noticed that the firm AF-31 is efficient under VRS, but inefficient
under CRS. This suggests that it may increase scale size in order to become efficient under
CRS. Out of 38 apparel firms, 54% firms are operating under DRS which imply that these
firms could not utilize the scale capacities efficiently.
Target Setting for Inefficient Firms
DEA identifies the input and output targets for the inefficient firm to render it relatively
efficient. Each firm can become efficient by achieving these targets, determined by the
efficient reference set for that firm. The efficiency score and the optimal slack value provide
the target points on the efficiency frontier that the inefficient firm can achieve by adjusting
its inputs, as input-oriented DEA model is used for analysis.
27
Comparative Performance of the Indian Apparel Firms
The target input is defined by the following formula:
m i s x x
i ik k ik
........, , 2 , 1
* * *
= ÷ =
÷

where
*
ik
x = The target input i for the k
th
firm
ik
x = Actual input r for the k
th
firm
*
k
 = Efficiency score of the k
th
firm
* ÷
i
s = Optimal input slacks
Input slacks indicate the need for reduction in particular inputs, which are shown in
Table A4 (in the Appendix). The difference between the actual input and target input
represents the quantity of inputs to be reduced to shift the firm on to the efficiency frontier.
Table 2 presents the percent reduction required in actual inputs to achieve target for a
firm to operate at efficient frontier in terms of VRS technology assumption. The actual and
target inputs and outputs are given in Table A3 (in the Appendix). It is observed that on an
average, 40% of NFA, 19% of RM, 49% of PF and 36% of WS should be reduced to produce
the given output, if an average inefficient firm has to operate at the level of the efficient one.
It is also observed that in order to become efficient, the most inefficient firm, i.e., AF-5 can
theoretically reduce its NFA by 69%, RM by 12%, PF by 27% and WS by 60%. Out of total
Firm GS NFA RM PF WS Firm GS NFA RM PF WS
AF-1 0 60 13 14 13 AF-20 0 59 55 55 58
AF-2 0 44 26 70 26 AF-21 0 30 30 57 46
AF-3 0 21 21 80 24 AF-22 0 46 33 90 33
AF-4 0 63 40 61 68 AF-24 0 24 24 42 24
AF-5 0 69 12 27 60 AF-26 0 60 33 58 33
AF-6 0 84 43 88 43 AF-30 0 66 58 58 58
AF-7 0 17 17 51 40 AF-32 0 78 54 74 54
AF-9 0 89 53 85 53 AF-33 0 54 16 47 15
AF-10 0 38 35 35 35 AF-34 0 36 36 35 57
AF-11 0 83 61 85 61 AF-35 0 54 42 85 42
AF-14 0 57 37 37 37 AF-36 0 48 44 92 44
AF-16 0 34 31 60 31 AF-39 0 12 12 36 52
AF-17 0 74 50 50 60 Mean 0 40 19 49 36
Table 2: Percent Reduction Required in Actual Inputs and Output
of Inefficient Apparel Firms in the Year 2007
Note: AF: Apparel Firm; GS: Gross Sales; NFA: Net Fixed Assets; RM: Raw Material; PF: Power and
Fuel; WS: Wages and Salaries; Mean is the average value of firms AF-1 to AF-39.
The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
28
38 firms, 25 firms are required to reduce the inputs to achieve the same level of output.
Similar conclusion can be drawn for other firms also. Out of the total inefficient firms,
17 are operating at DRS and 8 at IRS. This implies that most of the firms can become
efficient, if they decrease their inputs as shown in Table 2.
Results from Time Series Analysis
Average efficiency scores of OTE and SE of the apparel firms are also compared to investigate
how the industry has performed during 2003-2007. Panel data of 24 apparel firms have
been analyzed for this period. Year-wise efficiency scores are obtained to study the trends
in OTE, PTE and SE. Figure 1 indicates that the average OTE of 24 apparel firms has
declined during the period 2003-2007. This indicates that apparel industry has not
performed efficiently during this period. An average firm would be efficient if it could
reduce the inputs by 27% to produce the same level of output. The OTE shows high
fluctuation across the years. It is observed that OTE increased in 2005 and 2007, but
declined in 2004 and 2006.
Figure 1: Average OTE, PTE and SE of 24 Indian Apparel Firms
OTE PTE SE
0.5
0.6
0.7
0.8
0.9
1.0
E
f
f
i
c
i
e
n
c
y

S
c
o
r
e
2003 2004 2005 2006 2007
Table 3 shows the trend in the firm-wise development of the efficiency scores. It is
evident that only two firms, AF-28 and AF-29 are consistently efficient during 2003-2007
as they have OTE scores of 1.00. The efficiency of firm AF-3 increased from 0.79 in 2003 to
0.96 in 2007. On the other hand, AF-31 shows deceleration in its efficiency scores during
the same period. The overall efficiency trend of 24 firms indicates that there exists a large
variation in the OTE scores, implying that their performance was inconsistent.
OTE is decomposed into PTE and SE by applying the BCC-DEA model. The results
illustrate that there is not a large variation in average PTE scores, as the scores range from
0.80 to 0.87 which are shown in Table A5 (in the Appendix). On the contrary, magnitude
of the average OTE scores range from 0.65 to 0.82, showing a large variation across years.
This clearly shows that performance of the apparel industry is largely affected by SE, and
not much by pure conversion of inputs into outputs (i.e., PTE). This is evident from the SE
29
Comparative Performance of the Indian Apparel Firms
scores that vary from 0.76 to 0.95. Table 3 also shows the trends in SE of 24 firms during
2003-2007. The analysis shows that only two firms, namely, AF-28 and AF-29 have
remained consistently scale efficient during the entire study period.
A firm that operates under IRS may improve its efficiency by increasing its plant size,
as its size is below optimum, while a firm that operates under DRS may improve its efficiency
by reducing the plant size as its size is beyond the optimum scale (Banker and Thrall,
1992). The SE of AF-4, AF-15, AF-17 and AF-31 have declined during 2003-2007, in which
Firm
OTE SE
Code
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
AF-1 1.00 0.76 0.69 0.78 0.68 1.00 0.85 0.74 0.89 0.93
AF-2 1.00 0.76 0.90 0.37 0.58 1.00 0.97 0.98 0.85 0.91
AF-3 0.79 0.67 0.67 0.70 0.96 0.96 0.99 0.98 0.98 0.98
AF-4 0.54 0.55 0.62 0.51 0.39 0.99 1.00 0.99 0.67 0.39
AF-7 1.00 1.00 1.00 0.80 0.83 1.00 1.00 1.00 0.80 0.99
AF-11 0.99 0.51 0.72 0.37 0.44 0.99 0.78 0.92 0.76 0.93
AF-13 1.00 1.00 1.00 0.08 1.00 1.00 1.00 1.00 0.08 1.00
AF-15 0.78 0.59 0.58 0.59 0.60 0.78 0.59 0.58 0.59 0.60
AF-16 1.00 0.77 1.00 0.54 0.68 1.00 0.99 1.00 0.67 0.99
AF-17 0.52 0.56 0.65 0.66 0.39 0.97 0.99 0.91 0.77 0.79
AF-22 0.69 0.63 0.74 0.62 0.66 0.98 0.99 0.99 0.87 1.00
AF-24 0.70 0.71 1.00 0.95 1.00 0.82 0.77 1.00 0.95 1.00
AF-25 1.00 1.00 1.00 1.00 0.98 1.00 1.00 1.00 1.00 0.98
AF-26 0.56 0.55 0.62 0.50 0.60 1.00 0.99 1.00 0.58 0.82
AF-27 0.90 1.00 1.00 1.00 1.00 0.90 1.00 1.00 1.00 1.00
AF-28 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
AF-29 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
AF-30 0.81 0.55 0.47 0.53 0.41 1.00 0.96 0.97 0.87 0.97
AF-31 0.61 0.41 0.55 0.35 0.48 0.76 0.41 0.55 0.35 0.48
AF-33 0.77 0.73 0.72 0.72 0.73 0.77 0.73 0.73 0.75 1.00
AF-34 1.00 0.73 0.65 0.71 0.56 1.00 0.73 0.76 0.84 0.72
AF-35 0.62 0.60 0.57 0.54 0.55 0.95 0.94 0.96 0.56 0.94
AF-36 0.57 0.53 0.59 0.44 0.55 0.91 0.98 0.98 0.67 0.97
AF-39 0.87 0.81 0.84 0.79 0.87 0.98 0.99 0.91 0.79 0.97
Mean 0.82 0.73 0.77 0.65 0.71 0.95 0.90 0.91 0.76 0.89
Table 3: Trends in OTE and SE of 24 Indian Apparel Firms During 2003-2007
The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
30
AF-31 was operating under IRS as shown in Table A5 (in the Appendix). These firms
would have improved their performance by expanding the plant size. The SE of firm AF-33
has improved during the period 2003-2007, and it can further improve its performance by
increasing its size. Table 3 also shows that SE scores were lowest in the year 2006, in
which 13 out of 24 firms were found to be operating under DRS. It suggests that average
performance of the industry was not satisfactory in 2006, subsequently some improvement
in OTE was noticed in the year 2007.
Regionwise Analysis
Indian apparel firms have been classified into three regions, namely, northern, western
and southern. To study whether there is any significant difference in the performance of
apparel firms across these regions, we estimate the efficiency scores of individual apparel
firms in three regions. Out of the selected 24 apparel firms, 5 firms are located in western
region, 6 firms in southern region, and the remaining firms are in northern region of India.
The average efficiency scores of these regions are shown in Table 4. Result indicates that
the firms in the western region are more technical and scale efficient as compared to their
southern and northern counterparts. The southern region firms also show declining trend
in SE during 2003-2007. However, we find that the performance of all the three regions
were lowest in 2006.
Table 4: Regionwise Efficiency Trends of 24 Indian Apparel Firms
Note: W: Western, S: Southern; N: Northern; OTE: Technical Efficiency; PTE: Pure Technical Efficiency;
SE: Scale Efficiency; Number of Firms (24) = W (5) + S (6) + N (13).
Year
OTE PTE SE
W S N W S N W S N
2003 0.817 0.806 0.829 0.855 0.845 0.879 0.952 0.958 0.942
2004 0.780 0.739 0.700 0.791 0.854 0.810 0.983 0.884 0.879
2005 0.831 0.750 0.763 0.838 0.865 0.853 0.989 0.874 0.903
2006 0.703 0.711 0.597 0.885 0.911 0.821 0.779 0.778 0.747
2007 0.755 0.624 0.724 0.767 0.853 0.790 0.980 0.742 0.922
Average 0.777 0.726 0.722 0.827 0.865 0.831 0.937 0.847 0.879
Conclusion
This paper attempted to investigate the comparative performance of the Indian apparel
firms using cross-sectional data for the year 2007, and also studied the performance over
a period of time using the panel data. The study reveals that out of 38 firms for which DEA
was conducted, 6 firms constitute the efficient frontier under the CRS technology
assumption, and 13 firms under the VRS technology assumption. The SE scores confirm
that 6 firms operate at MPSS. Out of 32 scale-inefficient firms, 21 firms are found to operate
under DRS and rest under IRS. The mean OTE is 0.67, indicating that on average the firms
should make a 33% radical reduction in its inputs to produce the same level of output.
31
Comparative Performance of the Indian Apparel Firms
AF-8, AF-23, AF-27, AF-28, AF-29 and AF-37 have the OTE scores of unity and thus they
constitute the efficiency frontier. Among the efficient apparel firms, the most efficient is
AF-27 as it has the highest peer count of 20. On the contrary, AF-4, AF-5, AF-11 and AF-17
are the most incompetent firms.
The results of VRS model show that out of 38 firms, 13 firms are pure technical efficient
as they have efficiently converted their inputs into outputs. However, 7 of them are technical
inefficient due to scale-size effect. AF-12, AF-15, AF-18, AF-19, AF-25, AF-31 and AF-38
firms are efficient under VRS assumption, but inefficient under CRS assumption. This
indicates that these firms can improve their OTE by enhancing their scale of operation.
Estimated SE scores reveal that 6 firms operate at MPSS. It is also observed that out of
25 VRS inefficient firms, 8 have IRS and 17 have DRS. This suggests that most of the firms
have to reduce their scale of operation to achieve efficiency.
This study suggests that on average, an inefficient firm can reduce 48% of NFA, 19% of
RM, 49% of PF and 36% of WS in order to operate at the level of an efficient firm. The time
series analysis reveals that the efficiency scores vary significantly across years and SE
trend indicates that the number of firms operating under DRS have increased during the
five-year period. Further, looking at the scores of the individual firms, it is observed that
out of 24 firms, only 2 firms have remained consistently on the efficient frontier, while the
remaining firms show rise and fall in their efficiency scores over the period. The regionwise
efficiency trend indicates that there is no significant difference in the OTE across regions of
India, though overall performance of the apparel industry is better in the western region of
India. The paper also suggests input targets for the inefficient firms to improve their relative
performance.
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The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
36
Appendix (Cont.)
Variables NFA RM PF WS GS
NFA 1.000 – – – –
RM 0.870 1.000 – – –
PF 0.772 0.689 1.000 – –
WS 0.889 0.711 0.737 1.000 –
GS 0.874 0.980 0.704 0.739 1.000
Note: NFA: Net Fixed Assets; RM: Raw Material; PF: Power and Fuel; WS: Wages and Salaries;
GS: Gross Sales.
Table A3: Correlation Matrix of Input-Output Variables
of Indian Apparel Firms for the Year 2007
Table A2: List of Sampled Indian Apparel Firms
Note: RMG: Ready Made Garments; S: Southern; N: Northern; W: Western; E: Eastern; L: Limited;
R: Region.
Source: PROWESS Database, CMIE, Mumbai
Name of the Firm Code R Name of the Firm Code R
Acknit Industries L AF-1 E Major Exports L AF-21 W
Addi Industries L AF-2 N Mangalam Ventures L AF-22 N
Bhandari Hosiery L AF-3 N Nash Fashions (India) L AF-23 N
Celebrity Fashions L AF-4 S Oswal Knit India L AF-24 N
Celebrations Apparel L AF-5 W Page Industries L AF-25 S
Cethar Industries L AF-6 S Pearl Global Ltd. AF-26 N
Colorplus Fashions L AF-7 S Poddar Developers L AF-27 W
Crafted Clothing Pvt. L AF-8 S Raymond Apparel L AF-28 W
Everblue Apparel L AF-9 W Rupa & Co. Ltd. AF-29 E
Evinix Accessories L AF-10 N Samtex Fashions L AF-30 N
G I V O L AF-11 N Scott Industries L AF-31 N
Gokaldas Exports L AF-12 S Silver Spark Apparel L AF-32 S
Haria Exports L AF-13 W Spenta International L AF-33 W
Integra Apparels Pvt. L AF-14 S Spice Islands Apparels L AF-34 S
Karan Woo-Sin L AF-15 S S P L Industries L AF-35 W
Kewal Kiran Clothing L AF-16 W Suvidhi Weavers L AF-36 W
Kitex Garments L AF-17 S Trigger Apparels L AF-37 S
Koutons Retail India L AF-18 N York Exports Ltd. AF-38 N
Link Up Textiles L AF-19 S Zodiac Clothing Co. L AF-39 W
Madura Garments L AF-20 S
37
Comparative Performance of the Indian Apparel Firms
Appendix (Cont.)
Table A4: Input Slacks, Reference Set and Peer Count of Indian Apparel Firms
for the Year 2007
Firm Code
Slacks in Inputs (Rs. cr)
Reference Set Peer Count
NFA RM PF WS
AF-1 6.92 0 0 0 15, 27, 29, 23 0
AF-2 1.23 0 0.35 0 15, 8, 27 0
AF-3 0 0 1.11 0.10 23, 28, 37 0
AF-4 35.95 0 1.69 18.42 28, 12 0
AF-5 8.92 0 0.08 1.15 8, 15 0
AF-6 9.17 0 0.66 0 15, 8, 27 0
AF-7 0 0 0.79 3.42 8, 28, 27 0
AF-8 0 0 0 0 8 9
AF-9 13.69 0 0.31 0 28, 29, 27 0
AF-10 0.50 0 0 0 29, 19, 25, 27 0
AF-11 5.90 0 0.29 0 27, 28, 8 0
AF-12 0 0 0 0 12 1
AF-14 3.79 0 0 0 19, 29, 25, 27 0
AF-15 0 0 0 0 15 6
AF-16 0.70 0 0.86 0 28, 29, 27 0
AF-17 27.72 0 0 3.55 28, 25, 27 0
AF-18 0 0 0 0 18 1
AF-19 0 0 0 0 19 2
AF-20 2.39 0 0 0.92 8, 28, 27 0
AF-21 0 0 0.07 0.44 28, 37, 26 0
AF-22 1.51 0 1.41 0 15, 29, 27 0
AF-23 0 0 0 0 23 3
AF-24 0 0 0.10 0 18, 22, 28, 29 0
AF-25 0 0 0 0 25 4
AF-26 25.95 0 1.51 0.16 28, 8 0
AF-27 0 0 0 0 27 20
AF-28 0 0 0 0 28 16
The IUP Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, 2009
38
Appendix (Cont.)
Table A4 (Cont.)
Firm Code
Slacks in Inputs (Rs. cr)
Reference Set Peer Count
NFA RM PF WS
AF-29 0 0 0 0 29 11
AF-30 2.65 0 0 0 29, 28, 25, 27 0
AF-31 0 0 0 0 31 0
AF-32 12.20 0 0.47 0 29, 28, 27 0
AF-33 4.52 0 0.19 0 29, 15, 27 0
AF-34 0 0 0 0.70 38, 27, 37 0
AF-35 10.10 0 6.45 0 27, 29, 27 0
AF-36 0.50 0 1.58 0 8, 28, 27 0
AF-37 0 0 0 0 37 3
AF-38 0 0 0 0 38 1
AF-39 0 0 0.90 14.96 8, 28, 27 0
Firm PTE RTS
Code
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
AF-1 1.00 0.90 0.93 0.88 0.73 CRS IRS IRS IRS IRS
AF-2 1.00 0.79 0.92 0.43 0.64 CRS DRS DRS DRS IRS
AF-3 0.82 0.68 0.69 0.72 0.98 IRS DRS IRS DRS IRS
AF-4 0.54 0.55 0.62 0.76 1.00 IRS DRS DRS DRS DRS
AF-7 1.00 1.00 1.00 1.00 0.84 CRS CRS CRS DRS DRS
AF-11 1.00 0.66 0.79 0.49 0.47 DRS DRS IRS DRS DRS
AF-13 1.00 1.00 1.00 1.00 1.00 CRS CRS CRS IRS CRS
AF-15 1.00 1.00 1.00 1.00 1.00 IRS IRS IRS IRS IRS
AF-16 1.00 0.78 1.00 0.80 0.69 CRS DRS CRS DRS DRS
AF-17 0.53 0.57 0.72 0.86 0.50 IRS IRS DRS DRS DRS
AF-22 0.70 0.64 0.75 0.71 0.67 IRS DRS DRS DRS CRS
AF-24 0.85 0.92 1.00 1.00 1.00 IRS IRS CRS IRS CRS
AF-25 1.00 1.00 1.00 1.00 1.00 CRS CRS CRS CRS DRS
AF-26 0.56 0.56 0.62 0.87 0.73 IRS IRS CRS DRS DRS
Table A5: Trends in PTE and RTS of 24 Indian Apparel Firms During 2003-2007
39
Comparative Performance of the Indian Apparel Firms
Appendix (Cont.)
Table A5 (Cont.)
Firm
PTE RTS
Code
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
AF-27 1.00 1.00 1.00 1.00 1.00 IRS CRS CRS CRS CRS
AF-28 1.00 1.00 1.00 1.00 1.00 CRS CRS CRS CRS CRS
AF-29 1.00 1.00 1.00 1.00 1.00 CRS CRS CRS CRS CRS
AF-30 0.81 0.57 0.49 0.62 0.42 IRS DRS DRS DRS DRS
AF-31 0.81 1.00 1.00 1.00 1.00 IRS IRS IRS IRS IRS
AF-33 1.00 1.00 0.99 0.96 0.73 IRS IRS IRS IRS DRS
AF-34 1.00 1.00 0.85 0.84 0.78 CRS IRS IRS IRS IRS
AF-35 0.65 0.64 0.59 0.97 0.58 DRS DRS DRS DRS DRS
AF-36 0.62 0.54 0.60 0.65 0.57 IRS DRS DRS DRS DRS
AF-39 0.89 0.82 0.93 1.00 0.90 DRS DRS DRS DRS DRS
Mean 0.87 0.82 0.85 0.86 0.80 – – – – –
Note: CRS: Constant Returns to Scale; IRS: Increasing Returns to Scale; DRS: Decreasing Returns
to Scale.
Reference # 21J-2009-08/11-02-01
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