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Amit Mittal, MBA

Operations Excellence | Performance Improvement | Leadership | Business Analysis | Global


Supply Chain & Negotiation |
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The Indian Textile Industry is the


Engine for Economic Growth
Jun 14, 2015
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Indian textile industry is at a cross road and could be a possible
engine of growth for Indian economy, however companies need to
gear up and develop strategy that focuses from efficiency to
innovation-Says Amit Mittal, Textile Consultant.
Introduction
India is hemorrhaging. With one of the highest debt rates in the world, a
volatile rupee and enormous inequality, redistribution cannot solve the
problem. India must focus on wealth creation, and it has one engine that
the Policy makers appear to have forgotten. Indias Textile and Apparel
industry is the countrys 2nd largest employer after agriculture, the 14
percent contributor to industry, 4 percent to GDP, 11 percent to export
earnings and providing direct employment to over 45 million people. India
is second largest producer of cotton in the world. It produces 23 percent of
the worlds total cotton produce. Per capita consumption of cotton in
North America is about 31 kgs., West Europe is 22 kgs., China is at 17
kgs., and India is about 7.5 kgs. whereas, the worlds average is 11 kgs.
The growing worlds population, increase in consumption of textiles in the
emerging economies will drive polyester consumption at par with cotton.

The Indian textile industry is set for strong growth, buoyed by both strong
domestic consumption as well as export demand. Abundant availability of
raw materials such as cotton, wool, silk and jute and skilled workforce has
made India a sourcing hub. According to Ministry of Textiles, the current
size of Indias textile and apparel industry is estimated at 441,800 crores
in 2012. By 2020, Indian textile and apparel industry is expected to reach
1,034,000 crores with CAGR of 11%.

Growth Drivers

There are number of factors driving the textile industry growth. Organized
retailing in India is currently at 5% and it is expected to grow up to 24%
by the year 2020. The 40% of the demand of organized retailing comprises
of apparel and textile, therefore increase in organized retailing space will
exceptionally impact the apparel and textile demand. This growth will be
further supported by the higher disposable income of the people and
increase in working women to 32% by 2020 compared to 26% in 2010.
Urbanization is expected to grow to 40% by 2031 contributing 75% of the
GDP. During the last decade the middle income group population in India
has increased 4 folds. Even the earning population (age 15-60) has grown
to 60% further boosting the domestic consumption. Strengthening of the
banking in India and increased usage of the credit cards thus increased the
spending of the people.

The sustainable real GDP growth rate is about 8%, sustained by increasing
industrial output, rising disposable income and increasing nuclear families
have supported construction activities thereby driving the
demand for textiles. Even automobile and packaging industry has
reinforced textile growth. The hospitality industry is growing at 10% and
health care industry is growing by 13% per annum. An increase in hotel
rooms or increase in number of hospitals will drive the demand for work
wear, technical textiles and home textile products.

The main export growth drivers for Indian apparel and textile industry are
mainly related to cost, availability of raw material and China emerging as
a developed economy. There has been steady shift in textile
manufacturing towards low cost Asian countries. China with 36% (year
2010) contribution is leading world textile and apparel market. China with
more than $ 8 trillion GDP with the growth rate of 7.6 % is slowly moving
towards developed economy. Textile industry in China is losing its focus
to other high end industries due to higher manufacturing cost, compliance
and pollution issues, impelling Chinese government to concentrate on less
energy consuming industries leaving textile aside. Even increase in
Chinas per capita income has impacted the export market as country is
moving towards self-consuming economy. India is in a favorable position
compared to China given the skilled and cheap labour cost, abundance of
raw material and younger earning population. Apart from this, buyer
would like to de-risk their sourcing by concentrating on other Asian
countries. There is untapped export opportunity in other Asian and Latin
American developing countries due to rising income, population and
increasing organized retailing.

Challenges
But, its very challenging for companies to operate in current setup.
Textile and garments industry is fragmented with small and/or
unorganized units dominating the landscape. The primary reason for the
fragmented nature of the industry is the government policy which
encourages small investments across the value chain in weaving, knitting
and garments. Each of these stages of the value chain requires
comparatively lower capex and engages semi-skilled workforce available
in regional textile manufacturing clusters. Spinning segment has seen
modernization in terms of technology upgradation, but the bigger
challenge remains to drastically alter the technology landscape in power
loom sector and consequently improve low productivity level

Consumers, globally are increasingly more assertive in demanding


improved labour and social compliance from the retailers at the expense of
potential of boycotts. Thus, retailers globally are seeking reliable,
sustainable and socially accountable supply chain, which has resulted in a
gradual shift in retailers procurement strategies. Textile and apparel
industry comprises of unorganized manufacturers, who due to ignorance
and cost pressures are unable to deliver globally accepted quality product.

Another challenge, that textile and apparel industry is facing, is unreliable


supply chain. Due to fragmented industry nature, there has been very
limited business processes standardization. This has further complicated
the control over the product cost lead to shrinking margins. The delivery
performance is impacted by unpredictable supply chain. This leads to
higher inventory levels in order to ensure timely delivery, thereby
incurring huge interest burden.

Apart from this, most of the companies have issues with organizational
culture and their readiness to face the future. Besides being unorganized
and fragmented, majority of the companies are family driven and lack
professional approach in managing day-to-day business affairs. Even
though there has been increased influx of professionals managing the
businesses, stakeholders are resistant to the much needed change.

Developed economies have been driving the exports market, but these
markets are not immune from a global slowdown and recession. As we
have seen in the past, slowdown in in major markets has adversely
impacted business in India. There might be future changes or disruption
both in domestic and international markets, potentially exposing
companies in this sector to global vagaries.

Way Forward
For companies to survive, excel and outsmart they have to gear up now.
Their strategy should focus from efficiency to innovation.

Efficiency

Indian textile and apparel industry will have to move towards vertical
integration to have better control over cost and supply chain.
Manufacturing excellence will lead to uniform standards and improved
business processes, thus helping in cross functional alignment, integrated
knowledgebase, and performance measurement functions. Implementing
supply chain best practices will lead to improved delivery performance
through resource optimization, better planning and forecasting. A higher
inventory turnover would further reduce product lead time, improve cash
flow and liquidity.

For instance, one of our clients had a very complex supply chain; most of
it was outsourced taking away major portion of margin in value addition.
The supply chain was unreliable and encountered various quality
challenges. Apart from poor warehouse management, the company had
low inventory turnover ratio. Through our initiatives the warehouse was
systematized by adopting 5s methodology and embracing industry best
practice in supply chain. This resulted in inventory reduction by 65% and
wastage drop by 6%. Few processes were realigned and few were shifted
to in-house production which led to 10% improvement in raw material
realization and reduced process cost by 15%.

Product diversification

Besides this, a diverse product mix will help managing product risk and
ensure better product returns. Usually textile manufacturing is focused on
its core product leaving aside complementary product offerings to the
market. Firms have gained by differentiating their product while applying
minor changes in raw material and process used. Further, few clients have
reinvented their approach to market by identifying gaps and modifying
their products to suit the market needs.
Effective organization

It is important to have an effective organization which is flexible and


adaptable to ever changing environment. It is critical not only to have
talented professionals but also to ensure correct alignment of roles with
their skill sets. Regular interactive sessions and proper performance
measurement system will reinforce organizational effectiveness. An
efficient organization with reduced costs and improved margins will be
sustainable in the long run.

Our clients have addressed these issues by adopting the structured


framework. Initially, stakeholders vision and mission is communicated
throughout the company. While aligning professionals to the
organizations vision, professionals are being assessed for individual
capacity and capability. Then, it is critical to diagnose and align individual
capability to various functions within the organization. While aligning the
professionals capability to core functions it is essential to identify and set
key performance indicators (KPI) and monitor it periodically through well-
defined performance measurement system (PMS).

Innovation

Innovation in product, design, brand, channels along with re-engineered


business processes will help companies be ready for future growth
opportunities. Once embraced, they can quickly outsmart competition.

Final Takeaway
India is third largest exporter of textile and fifth largest exporter of
garments in the world. Our garment industry can easily absorb 30 to 40%
of fabric produced by the local textile industry. India has an advantage of
cheap and abundant labour, and a wide variety of fabrics from premium
quality to better quality are all produced in India (Government of India,
2013). The Industry has been designed in clusters to ensure easy access to
it. India can produce garments at a better quality that are priced
competitively vis--vis, provided the industry adopts global best practices.

Indian textile industry is at crossroads. It could be a possible engine of


growth for Indian economy, especially in the area of job creation it has
the potential of generating two million additional jobs (per year??). Jobless
growth of the past decade can be transformed into one that leverages
resources optimally and generates opportunities for the economy and the
people. However companies need to gear up and adopt a strategy that
focuses on efficiency and innovation.

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