Article 3 of 5

WHAT AILS THE INDIAN APPAREL INDUSTRY - A SERIES

In this 3rd article in a series of 5, I look at the various policy constraints faced by the Indian textile & Apparel industry.

Textile Industry is the only industry that is self-sufficient and complete in cotton value chain- producing everything from fibers to the highest value-added finished product of garments. Its growth and vitality therefore have critical bearings on the Indian economy at large.

Indian textile and clothing sectors have a tremendous potential, only a portion of which has been exploited due to policy constraints. There lies a considerable potential that has not been exploited primarily due to government policy marked by ad hocism, fragmented vision, and political opportunism.

First, we will discuss what are these policy constraints?

Product Specific Cost

The typical cost structure of garments would have raw materials contributing about 55% of the cost, while fabrication, overheads and finishing constitute 22%, 15% and 9% of the cost of garment. The fabrication and overheads are a result mostly of garment industry’s decentralized structure policy as has been discussed in previous articles. Fabric cost is a function more of the productivity at the textile manufacturing stages.

In India, one big stumbling block to higher garment productivity is the structure of the Indian textile sector. With about 57% of fabric being produced in the decentralized power looms, the quality of fabric supply to the garment sector is poor. Since garment manufacturing is reserved for SSI in India, most of these units are small, catering to small sized seasonal demands of fashion garments. Their demand for fabric too, therefore, is in small lot, which organized mills cannot competitively produce. Besides, with the demand for Indian garments overseas being fashion-driven, production flexibility of a high order is required to switch from one styles/colour to another at short notices. Power looms again are better suited as suppliers, compared to organized mills.

Factor cost

Despite technological advances, clothing sector remains labor-intensive and hence its manufacturing is secularly shifting away from developed to developing countries. Textile production has seen considerable technology improvement, but that has only partially restored the comparative advantage of developed countries in textile manufacturing. Hence in the garment sector, labor cost assumes great significance in production costs.

India compares very favorably with other developing countries in terms of labor costs. Only Bangladesh, Pakistan and Vietnam’s labor costs are marginally lower than India’s.

However, evidence suggests that low wages are not a factor of competitiveness. High wage levels reflect high skill, productivity and automation which in turn, are important factors of export competitiveness. We know that in India garment industry pays higher wage which in turn determines the export performance of Indian garment units.

The reason for poor productivity in garmenting is due to the fragmented structure that has arisen as a result of governments SSI reservation policy. This has prevented modernization, quality investments, scale adoption, and change in product mix from cotton garments to mass clothing items based on synthetic and MMF fibers. This has also therefore impeded the growth in exports to non-quota markets like Latin America and Asia who demand for blended and synthetic garments in high numbers. Indian fiscal and customs policy too has discriminated against development of synthetic base in India in line with the government belief that ‘synthetic is for the classes and cotton is for the masses.’

Land cost

This is another principal cause for low levels of competitiveness across the entire manufacturing value chain. The land cost index per square feet as a ratio to GDP is very low in most of the Asian countries as compared to Delhi, Mumbai, Bangalore where garmenting hubs are located. This itself is a result of distortions in the land market and government policies regarding land use. Such high prices deter the large process houses, garmenting factories and large retail showrooms to come up.

Cost of raw material (fibre)

Indian cotton prices are controlled by the government. Sometimes domestic prices are lower than international cotton prices of comparable varieties due to ban on imports and control on exports of cotton. In 1980s, when for each of the varieties of cotton, Indian prices were lower than their international counterpart, it gave a cost advantage to Indian textile and garment exporters. ‘Cotton for the masses and synthetic for the classes’ was the implicit belief that underlay the government policy in India. As a result, while cotton prices were not allowed to move up, synthetic fibre was deliberately priced uncompetitively against cotton.

In a dynamic environment where demand is uncertain and significantly seasonal, product life cycles are short, and the competitive intensity is high companies that organize for functional integration tend to outperform those that are organized for functional excellence.

The Indian textile and clothing industries have one of the longest and most complex supply chains in the world, with as many as 15 intermediaries between the farmer and the final consumer. Each contributes not only to lengthening of lead times, but also adding to costs. By the time cotton worth Rs 100 reaches from farmer to the spinning unit, its cost is inflated to Rs 148. By the time it reaches the final consumer, it costs approx. Rs 36000. This is unacceptable if India is to become competitive. The industries would need to develop this SCM perspective and rationalize costs at every stage in the entire supply chain, and not only within their firms, or between themselves and their vendors and suppliers.

The supply chain in India is extremely fragmented chiefly due to the government policies and lack of coordination between industry and relevant trade bodies. It is noteworthy that the countries that are globally competitive are the ones who have a significantly consolidated supply chain.

The structure of the Indian textile and clothing sectors has been the biggest stumbling block in any effort to reform the industry in India lately. It squarely goes to Indian government textile policy’s credit as to why such a fragmentation came about in the first place.

Conversion Efficiency

This is a function of the technology employed and the organization skills, aside from the softer areas of strategy and knowledge management. The level of technology in the spinning sector is relatively better compared to weaving sector. The level of technology in the weaving sector is low compared to other countries of the world. The rate of modernization also has been very slow.

Since it is the cutting operation in garmenting, which is capital intensive, yet most of the Indian firm’s investment is in sewing machines, and that special and processing machines form a very small part of the total number of machines, unlike other Asian countries. Countries such as Hong Kong and China have invested significantly in such special machines that add significant value to product and improve productivity levels for their firms as whole. That is not the case in India. And this fits in very well also with the fact of SSI reservation of garmenting in India. Unlike other Asian countries where average size of garment firm and hence the average level of investment is higher, typical Indian garmenting unit is small, and hence incapable of investing big. The large-scale firms who enter into garmenting have to undertake 50% export obligation. So, the firms in garmenting are small, and hence incapable of investing much. That affects productivity as well as competitiveness.

Management Practices and Organizational Skills

Manufacturing management is a key link between technology adoption and competitiveness of firms. Productivity gains are indeed achieved through better managerial practices on the existing technology. Manufacturing management also includes factors such as the work environment, capabilities and operational performance.

Productivity in Indian apparel sector is lower compared to other countries. For instance, compared to 20.6 womenswear blouses that Hong Kong manufactures per machine per day, India manufactures only 10.2. Similar figures for trousers for Hong Kong and India are 19.3 and 6.8, or in men’s shirts are 20.9 and 9.1. Poor ‘organization of functions and tasks’ (OFT) was the most important contributor to poor productivity in Indian apparel sector. Moreover, the garment factory owners are almost ignorant about international issues, and even issues related to the WTO and other Trade Pacts.

Now we will discuss the Competitiveness and the challenges of Apparel Industry.

This brings us to a question

What Is Competitiveness?

Competitiveness is about productivity, which in turn is a function of factors related to cost of products, as well as those related to non-price factors such as delivery schedules, reliability of producers, and such intangible factors like image of the country/company and brand equity.

Together, they define the competitive sinews of a product to compete under conditions of free market.

Challenges of Apparel Industry

The fashion industry works hard to give the world new looks in garments and accessories, but it comes with a price on resources as well as finances for the factory. It’s about time everyone in the industry accepted that we need to take steps to make the industry more sustainable for the age-old brands as well as the new upcoming labels. The biggest factors to consider while we work towards making the fashion industry more self-sustainable would be:

Cost of procuring raw materials

The increasing cost of procuring raw materials is one of the biggest challenges the fashion industry faces. The cost to not only grow, but also transform and treat the raw materials needed for making new fabrics and design lines has been on the rise since a long time now. Unless technology can help us recycle fabrics and garments more efficiently, the current cost of collecting raw materials will further challenge the fashion industry.

Labor

Many factories in various countries have been highlighted for the use of slave labour as they give the world their vast fashion lines to parade and flaunt. While the masses have been made aware of the conditions the workers are forced in, the fashion industry faces the brunt of negative emotions and constant disruption in the factories, as workers and consumers alike demand better working conditions and pay.

Workers’ rights remain a concern despite many initiatives (mainly led by or in collaboration with ILO) in the past two decades - Too many audits, often with confusing requirements from different buyers, resulting in high costs for producers.

The Increase of Utility Cost

In a textile and garments factory, four types of utilities are commonly used; Electricity, Water, Steam, Compressed Air. Among these, electricity is the main part of the utility because electricity can be used to get the other three.

The cost of electricity and the erratic distribution plays a havoc in the production time. Hence Indian factories normally use Diesel generator to generate electricity increasing the cost of electricity generated. This increases the overall garment production cost.

The solution to this problem is the government can provide electricity to the industry with a smart dedicated power distribution.

Special Skilled Manpower

To make some innovation it is required to get some skilled manpower. Through special skills, special and specific tasks can be done effectively and efficiently. Special skills like; handling CNC machine, Design PLC, use of CAD, etc. For the garments sector, most of the garments workers are not well educated, it is not easy to get and manage especially skilled manpower. So, this will be a big challenge for apparel industry owners.

The solution to this problem is, adapt more skill development programs, training programs taken by the Indian Government. This brings us to the next point of worker turnover.

Worker Turnover

Worker turnover or employee turnover is one of the common problems and it is a challenging task for textile and garment owners because as long as they are unskilled they will like your job but when they become skilled, they try to switch one company to another company. The problem is, you provide training to the unskilled worker to make them skilled but after becoming skilled they are not always promised to give their valuable output to your company. It is something like you are extracting juice from lemon but cannot take the juice on your own. You are losing your skilled worker, losing your invested money, and also opening scope your competitors to steal your best workers. I personally consider this problem as the biggest challenge for the apparel industry.

But the question is, how to get rid of this problem? The easiest solution is the need to provide a competitive benefit to the workers. First, understand their needs and provide their needs, it can be a monetary or non-monetary benefit.

Adaptation of Automation

Advanced technology helping us with the adaptation of automation in every industry. Lots of innovation already has been done by which many garments already increased their productivity, where fewer man power is used. Man power is replaced by advanced technology; this means the machine is replacing the human being. Although automation is not possible for every section of the textile and garments industry some of the sections of garments can be automated which will not only increase the effectiveness of the resources but also increase the effectiveness of overall operations. The factory owner will face this challenge if he does not have enough knowledge of technology and how and from where one can adapt automation for the factory.

To deal with this challenge one must invest in developing skilled mechanical and industrial engineers who will be responsible for bringing automation to the factory.

Environmental Issues

In the apparel industry, the textile is producing a huge amount of waste, especially chemical is used for dyeing, printing, washing which is ultimately dumped into the river water. A huge quantity of water is used for garments washing and there is no efficient scope for reusing this water. Garments buyers and consumers are now also concerned about the environmental effect of dumping of garments waste.

Lack of transparency across the chain is a major issue - Environmental issues (water use, waste, energy) are overshadowed - Lack of clarity as to which initiative the factory should sign up to and what the added benefit could be compared to others - Price is still the determining factor for most buyers.

The Brands are equally responsible and must take care, especially of two major issues which get lost in the journey between Farm to Shelf,

Consumer Sentiment

The millennials will soon be the largest demography in the world, with the largest say in the way people spend their money. The fashion industry will be compelled to take into consideration what the millennials prefer and that implies a change in almost every depart of their organization. Right from the methods used to grow and treat the raw materials, to the working conditions of the laborers in the factories overseas. While the millennials want to focus more on the overall sustainability of the globe, they are not ready to bear the burden of the increase in price a sustainable product comes with, that is something the fashion industry will have to bear the brunt of and find a way to overcome soon.

Respecting all Cultures and Races

While the increased growth of social media may have been a boon for the fashion industry, with people having access to fashion brands from across the globe at their fingertips, it has also proven to be a curse. The speed by which a campaign spreads across the globe and the need to keep the entire globe in mind while coming up with a new line of garments and products has never been more important as it is now. The sentiments of everyone and all religions across the globe has to be kept in while working on a new label, line, and product. The speed of social media and the spread of a possibly negative campaign can be a challenge that can break fashion brands or give them a stronger hold on the global level.

As a fashion producer faces these challenges in the field every day and work daily towards improving the sustainability levels of the fashion industry in every assignment they take up and every project they see to completion.

RELATED TOPICS:#Apparel,Fashion,Innovation,Textile,indian textile,industry,competitive,knits,wovens,powerlooms,Sanjay Lal