An Assignment On “Apparel Industry“ For the subject of Sales And Distribution Management Submitted to : Mr.Snehal Bhatt , Faculty of AIM Submitted by : shreyas parmar , MBA – III Roll No :- 51 Anand Institute Of Management Affiliated to Gujarat Technological University APPAREL INDUSTRY Introduction:- The textile and apparel industry is one of the leading segments of the Indian economy and the largest source of foreign exchange earnings for India. This industry accounts for 4 percent of the gross domestic product (GDP), 20 percent of industrial output, and slightly more than 30 percent of export earnings. The textile and apparel industry employs about 38 million people, making it the largest source of industrial employment in India. The study identifies the following structural characteristics of India‘s textile and apparel industry. India has the second-largest yarn-spinning capacity in the world (after China), accounting for roughly 20 percent of the world‘s spindle capacity. India‘s spinning segment is fairly modernized; approximately 35 to 40 percent of India‘s spindles are less than 10 years old. During 1989-98, India was the leading buyer of spinning machinery, accounting for 28 percent of world shipments. India‘s production of spun yarn is accounted for almost entirely by the ―organized mill sector,‖ which includes 285 large vertically-integrated ―composite mills‖ and nearly 2,500 spinning mills. India has the largest number of looms in place to weave fabrics, accounting for 64 percent of the world‘s installed looms. However, 98 percent of the looms are accounted for by India‘s power loom and handloom sectors, which use mostly outdated equipment and produce mostly low-value unfinished fabrics. Composite mills account for 2 percent of India‘s installed looms and 4 percent of India‘s fabric output. The handloom and power loom sectors were established with government support, mainly to provide rural employment. These sectors benefit from various tax exemptions and other favorable government policies, which ensure that fabrics produced in these sectors are price competitive against those of composite mills. The fabric processing (dyeing and finishing) sector, the weakest link in India‘s textile supply chain, consists of a large number of small units located in and around the power loom and handloom centers. The proliferation of small Processing units is due to India‘s fiscal policies, which favor small independent hand- and power-processing units over composite mills with modern processing facilities. The production of apparel in India was, until recently, reserved for the small-scale industry (SSI) sector, which was defined as a unit having an investment in plant and machinery equivalent to less than $230,000. Apparel units with larger vi investments were allowed to operate only as export-oriented units (EOUs). As a result, India‘s apparel sector is highly fragmented and is characterized by low levels of technology use. The history of textiles in India dates back to the use of mordant dyes and printing blocks around 3000 BC. The diversity of fibers found in India, intricate weaving on its state-of-art manual Looms and its organic dyes attracted buyers from all over the world for centuries. The British colonization of India and its industrial policies destroyed the innovative eco-system and left it Technologically impoverished. Independent India saw the building up of textile capabilities, diversification of its product base, and its emergence, once again, as an important global player. Today, the textile and apparel sector employs 35.0 mn people (and is the 2nd largest employer), generates 1/5th of the total export earnings and contributes 4 per cent to the GDP thereby making it the largest industrial sector of the country. This textile economy is worth US $37 bn and its Share of the global market is about 5.90 per cent. The sector aspires to grow its revenue to US $85bn, its export value to US $50bn and employment to 12 million by the year 2010. Despite substantial growth, comparing to the international readymade garment market of nearly 183mn USD, the Indian readymade garment market is still in a budding phase. Due to the higher the introduction cost of brand in India for the foreign players, domestic players have no fear of any outside competition. The main obstacle to the organized players is the huge unorganized scenario of the market. In a move to compete, the organized players have rolled out their own strategy of standardizing the goods. India‘s imports of apparel are very small, largely because of import restraints and other market access barriers. Almost all of the $9 million in imports of clothing and accessories in 1998 consisted of apparel parts and trimmings, which were imported duty-free by export-oriented units for use in the production of garments for export. India‘s major export markets for textiles and apparel are the United States and EU, which accounted for 46 percent of its textile exports and 74 Percent of its apparel exports in 1997 (see tables 4-5 and 4-6, figures 4-1 and 4-2). However, India‘s export shares in the U.S. and EU markets have declined since 1994, which Indian industry sources have attributed to tighter quotas in these markets for products in which they are competitive and formation of preferential trade agreements by the United States and the EU. In an effort to expand its exports, India has diversified its export markets to no quota countries and, in some instances, relocated production to neighboring countries such as Nepal and Mauritius which, at that time, had few quotas.111 Apparel accounted for just over half of India‘s exports of textiles and apparel in FY 1994-95 and FY 1998-99 (see table 4-7 and figure 4-3). India‘s exports of yarn grew rapidly during this period, with their share of India‘s textile and apparel exports increasing by nearly 4 percentage points to 16 percent. Slightly more than 80 percent of India‘s yarn exports consisted of cotton yarn; India now supplies about 20 percent of world exports of cotton yarn. Made-up textile articles also increased their export share from 13 to 16 percent, while the export shares for fabrics dropped by 3.5 percentage points to 17 percent. Market:- India is the world‘s fourth-largest economy, the third-largest in Asia, and the second-largest among emerging nations.88 The Indian market reflects considerable diversity in income levels and lifestyles. Although India‘s per- capita GDP is one of the lowest among the developing countries, a significant segment of the population (an estimated 200 million people) has significantly higher income. A 1998 study by the National Council of Applied Economic Research (NCAER) projects that India‘s middle class will expand to include nearly half the country‘s total population by 2006.89 the same study projects that the rich and the middle income class together will increase from 29.6 million households in 1997-98 to 97.1 million households in 2006-07. According to a recent article in The Strategist, Indian consumer credit is growing by 35 to 40 percent annually; new cardholders are increasing by 25 to 30 percent annually.90 Buying has become a year-round phenomenon in India; seasonal demand has gradually disappeared from the Indian market in just the past 5-10 years. The Indian market for domestic readymade apparel is estimated at $5.5 billion (Rs200 billion) to $8 billion (Rs300 billion) annually.101 Trade sources estimate that menswear accounts for 25 percent of the readymade apparel market (by quantity); women‘s wear, 48 percent; and children‘s wear, 17 percent.102 Approximately 20 percent of the apparel produced in India consists of branded ready-to-wear garments.103 Brands are more prominent in menswear, particularly shirts, trousers, and jackets.104 Most national and regional brands are supplied by the large organized apparel firms. Major Players :- - Mayur - Siyarams - Raymond - Raid n Taylor - Vimal - Dinesh - Grasim - Gwalior - Mafatlal Competitiveness of Indian Textile & Apparel Industry:- India is one of the few countries that own the complete supply chain in close proximity from diverse fibers to a large market. It is capable of delivering packaged products to customers comprising a variety of fibers, diverse count sizes, cloths of different weight and weave, and panoply of finishes. This permits the supply chain to mix and match variety in different segments to deliver new products and applications. This advantage is further accentuated by cost based advantages and diverse traditions in textiles. Indian strength in spinning is now well established – on unit costs on ring yarn, open-ended (OE) yarn as well as textured yarn, Indian firms are ahead of their global competitors including China. Same is true on some woven OE yarn fabric categories (especially grey fabrics) but is not true for other woven segments. India contributes about 23 per cent of world spindles and 6 per cent of world rotors (second highest in the world after China). Fifty five per cent of total investment in Technology in the last decade has been made in the spinning sector. Its share in global shuttle less loom, however, is only about 2.8 per cent of world looms (and is ranked 9th in the world). The competitiveness in the weaving sector is adversely affected by low penetration of shuttle less looms (i.e., 1.69 % of Indian looms), the unorganized nature of the sector (i.e., fragmented, small and, often, un- registered units, low investment in technology & practices especially in the power loom, processing, handloom and knits) and higher power tariffs. There is, however, a recent trend of investment in setting up hi-tech, stand-alone mid-size weaving companies focusing on export markets. India also has the highest deployment of handlooms in the world (handlooms are low on productivity but produce specialized fabric). While production and export of man-made fiber (and filament yarn) has increased over the years, Indian industry still lags significantly behind US, China, Europe, Taiwan etc. Challenges facing Indian Textile and Apparel Industry:- Textile supply chains compete on low cost, high quality, accurate delivery and flexibility in variety and volume. Several challenges stand in the way of Indian firms before they can own a larger share of the global market: Scale: Except for spinning, all other sectors suffer from the problem of scale. Indian firms are typically smaller than their Chinese or Thai counterparts and there are fewer large firms in India. Some of the Chinese large firms have 1.5 times higher spinning capacity, 1.25 times denim (and 2 times gray fabric) capacity and about 6 times more revenue in garment than their counterparts in India thereby affecting the cost structure as well as ability to attract customers with large orders. The central tendency is to add capacity once the order has been won rather than ahead of the demand. Customers go where they see both capacity and capabilities. Large capacity typically goes with standardized products. These firms need to develop the managerial capabilities required to manage large work force and design an appropriate supply chain. For the size of the Indian economy, it will have to have bigger firms producing standard products in large volumes as well as small and mid size firms producing large variety in small to mid size batches (the tension between the organized and un-organized sectors will have to be addressed first, though). Then there is the need for emergence of specialist firms that will consolidate orders, book capacities, manage warehouses and logistics of order delivery. Skills : Three issues must be mentioned here : (a) there is a paucity of technical manpower – there exist barely 30 programmers at graduate engineering (including diploma) levels graduating about 1000 students – this is insufficient for bringing about technological change in the sector; (b) Indian firms invest very little in training its existing workforce and the skills are limited to existing processes (Chandra 1998); (c) there is an acute shortage of trained operators and supervisors in India. It is expected that Indian firms will have to invest close to Rs. 1400 bn by year 2010 to increase its global trade to $ 50 bn. This kind of investment would require, by our calculations, about 70,000 supervisors and 1.05mn operators in the textile sector and at least 9 112,000 supervisors and 2.8mn operators in the apparel sector (assuming a 80:20 ratio of investment between textiles and apparel). The real bottleneck to growth is going to be availability of skilled manpower. Cycle Time: Cycle time is the key to competitiveness of a firm as it affects both price and delivery schedule. Cycle time reduction is strongly correlated with high first pass yield, high throughput times, low variability in process times, low WIP and consequently cost. Indian firms have to dramatically reduce cycle times across the entire supply chain which are currently quite high (Chandra, 2004). Customs must provide a turnaround time of ½ day for an order before Indian firms can they expect to become part of larger global supply chains. Indian firms need a strong deployment of industrial engineering with particular emphasis on cellular manufacturing, JIT and statistical process control to reduce lead times on shop floors. Penetration of IT for improving productivity is particularly low in this sector. Innovation & Technology: A review of the products imported from China to USA during January–April 2005 reveals that the top three products in terms of percentage increase in imports were Tire Cords & Tire Fabrics (843.4% increase over the previous year), Non-woven fabrics (284.1% increase) and Textile/Fabric Finishing Mill Products (197.2% increase) (FICCI, 2005). None of these items, however, figure in the list of imports from India that have gained in these early days of post-MFA. Entry into newer application domains of industrial textiles, nanotextiles, home furnishings etc. becomes imperative if we are to grow beyond 5–6% of global market share as these are areas that are projected to grow significantly. Synthetic textiles comprise about 50 per cent of the global textile market. Indian synthetic industry, however, is not well entrenched. The Technology Up gradation Fund of the government is being used to stimulate investment in new processes. However, there is little evidence that this deployment in Technology has accompanied changes in the managerial regimes – a necessary condition for increasing productivity and order winning ability. Domestic Market: The Indian domestic market for all textile and apparel products is estimated at $26 bn and growing. While the market is very competitive at the low end of the value chain, the mid or higher ranges are overpriced (i.e., ‗dollar pricing‘). Firms are not taking advantage of 10 the large domestic market in generating economies of scale to deliver cost advantage in export markets. The Free Trade Agreement with Singapore and Thailand will allow overseas producers to meet the aspirations of domestic buyers with quality and prices that are competitive in the domestic market. Ignoring the domestic market, in the long run, will peril the export markets for domestic producers. In addition, high retail property prices and high channel margins in India will restrict growth of this market. Firms need to make their supply chain leaner in order to overcome these disadvantages. Institutional Support : Textile policy has come long ways in reducing impediments for the industry – sometimes driven by global competition and, at other times, by international trade regulations. However, few areas of policy weakness stand out – labor reforms (which is hindering movement towards higher scale of operations by Indian firms), power availability and its quality, customs clearance and shipment operations from ports, credit for large scale investments that are needed for up gradation of technology, and development of manpower for the industry. These are problems facing several sectors of industry in India and not by this sector alone. In conclusion, competitive strategies are developed by sector level firms and it‘s their individual and collective initiatives that secure higher market share in global trade. While one has to be ever vigilant of non-tariff barriers in the post MFA world, the new market will be won on the basis of capabilities across the supply chain. Policy will need to facilitate this building of capabilities at the firm level and the flexible strategies that firms will need to devise periodically. Distribution:- India has a large family-owned and fragmented sales and distribution network, with centralized purchasing for chain stores and supermarkets only a recent (5-10 year) phenomenon. There are over 1 million market intermediaries—wholesalers, stockiest, transporters, and retailers— involved in the distribution of consumer goods, including apparel. While urban areas have outlets ranging from supermarkets to small neighborhood retail stores, villages are served by smaller stores. Since the distribution channels are largely independently owned and supply multiple brands, dealer development is of the utmost importance in both urban and rural areas. There are six types of commercial distributors in the market: importers, indenting agents, wholesalers, commission agents, retailers, and dealers. Because the Indian market was completely closed to textile and apparel imports prior to April 1995, the distribution structure for imported textile products is not well developed. Importers generally handle a broad portfolio of goods rather than specializing in a specific textile or apparel product. For shirt fabrics, bed sheets, towels, and other home furnishings, retailers typically source from wholesalers who, in turn, source from importers. However, retail stores play an important marketing role in home furnishings, vis-a-vis commercial offices, designers, architects, and furnishers, and tend to seek an exclusive arrangement for these products.106 In industrial fabrics, specialized dealers, rather than retailers or wholesalers, work directly with importers. Transportation and Communication:- Railways, road, and air are the principal means of transportation in India. India has one of the largest railway networks in the world–almost 63,000 kilometers (km) with more than 7,000 stations. India also has a fairly developed trucking system, with many private-sector firms providing freight services; the road network extends to 2.7 million km and links all towns and over 50 percent of the villages. There are 5 international airports and 88 domestic airports linked by private- and public-sector airlines. In addition, 11 major and 139 minor ports along India‘s nearly 7,000 km coastline provide links between the coastal towns and villages, although poor development of ports and inadequate docking facilities cause delays and other shipping problems. An expansion of the courier business, with the entry of global leaders like DHL and Federal Express during the 1990s, has greatly enhanced the reach of Indian marketers. Telecommunication services have improved substantially during the past 5 years with new policies promoting private-sector participation. Consumer Finance:- India has about 300 commercial banks with more than 61,000 branches. Over half the branches are located in rural areas.107 Consumer financing has become an accepted method of marketing consumer durables. Several nonbanking financial intermediaries are engaged in leasing and hire-purchase activities which help sales of consumer durables. The credit card business is growing rapidly, with the number of credit card holders doubling since 1997 to 2 million. All standard international cards, as well as cards offered by 21 domestic banks, are accepted in the country. Product Range and Geographic Distribution:- A limited fabric base and lack of product specialization are major weaknesses of the Indian apparel sector. India‘s production of apparel for Export is dominated by cotton. The predominance of cotton apparel reflects the fact that Indian cotton traditionally has been much less expensive than Synthetics and cotton blends. In addition, India‘s customs and excise taxes on synthetic fibers, yarns, and fabrics have been significantly higher than those on cotton.126 Few exporters in India have concentrated their efforts on product specialization. Almost all offer a wide range of garments.127 This lack of product specialization has limited the growth of many Indian exporters in the global market.128 Quality problems are another deterrent to expanding export shares in the global market. The majority of fabrics made in India are of low quality and limited varieties, which limits the product range and tends to lower the unit value realized in dollar terms.129 Further, India has historically concentrated on exporting apparel to the EU and U.S. markets; most Indian exporters are too small to deal with buyers from diverse, non- English speaking countries.