Indian textile Industry: Brand strategy and export competitiveness

ABSTRACT

In today’s market economy, which is characterized by a very changeable environment and strong, intense competition caused mainly by enlarging globalization; it is becoming more and more difficult for an enterprise to maintain long-term success. Using techniques such as simply maintaining low costs or innovative solutions are losing their importance. That is why the significance and meaning of brands have been growing recently. The brand is a strategic resource of every firm. Possessing a brand, and knowing how to keep it and manage it well, are becoming keys to reaching success in the market, a source of competitive advantage. “The dismantling of the quota regime represents both an opportunity as well as a threat. An opportunity because markets will no longer be restricted; a threat because markets will no longer be guaranteed by quotas, and even the domestic market will be open to competition”. From 1st January 2005, therefore, all textile and clothing products would be traded internationally without quota-restrictions5. And this impending reality brings the issue of competitiveness to the fore for all firms in the textile and clothing sectors, including those in India. It is imperative to understand the true competitiveness of Indian textile and clothing firms in order to make an assessment of what lies ahead in 2005 and beyond. The aim of this paper is to show that a properly used brand strategy is the enterprise’s most valuable asset and to evaluate export-competitiveness of the Indian textile and garment exports.

INTRODUCTION

Textiles account for 14 per cent of India’s industrial production and around 27 per cent of its export earnings. From growing its own raw material (cotton, jute, silk and wool) to providing value added products to consumers (fabrics and garments), the textile industry covers a wide range of economic activities, including employment generation in both organised and unorganised sectors.

Manmade fibres account for around 40 per cent share in a cotton-dominated Indian textile industry. India accounts for 15% of world’s total cotton crop production and records largest producer of silk.
It is the second largest employer after the agriculture sector in both rural and urban areas. India has a large pool of skilled low-cost textile workers, experienced in technology skills.
Almost all sectors of the textile industry have shown significant achievement. The sector has shown a 3.66 per cent CAGR over the last five years.
India’s cotton textile industry has a high export potential. Cost competitiveness is driving the penetration of Indian basic yarns and grey fabrics in international commodity markets. Small and flexible batches of apparels can be manufactured in India and can provide a larger variety of casual wear and leisure garments at significantly lower costs.
Besides natural fibres such as cotton, jute and silk, synthetic raw material products such as polyester staple fibre, polyester filament yarn, acrylic fibre and viscose fibre are produced in India.

IMPORTANCE OF BRAND

The constantly changing market poses new challenges to clothing enterprises, and the clients’ demands are also continually rising, and so it is necessary every now and again to offer them a higher added value. This added value is a properly planned brand strategy, the so-called branding. Firms without any distinct features, without a clear vision or specific mission, or without permanent values, will sink in the mass of messages hitting the market.

A brand image is defined through its selected symbolic patterns. The most important among these are the brand’s name, logo, and composition of graphic elements and colours all associated with the company. It is crucial for a brand built on these elements to give a clear message to the customer about the kind of company he is dealing with, what its product is and who the clients are. All the elements comprising a brand image have to be closely related to the idea and goals of the company. This certainly helps its positive identification, and as a result a strong and distinct image is created in the customers’ mind. It is important that the customer’s mind should absorb and retain as much information about a brand as possible; some time later this is translated into the reconcilability and prestige of a brand on the market. A brand product offers a sense of safety, and guarantees quality and reliability. Brand values are features that appeal to the emotional sphere of human perception.

Hence a brand is the most valuable asset of a company, and customer satisfaction is the key to a long-term success. As consumers must have a reason for selecting this given brand from among many others, each brand should have a motto apart from its distinctive usability. It is necessary to define why it is different and what its position is. A brand is not an advertisement, but rather a whole philosophy underlying a set of combined actions fixed on the company’s success. It is certainly an indispensable tool allowing effective conquest of markets, retention of the market position, and international competition

BRAND MANAGEMENT

Using a brand strategy is possible in two cases. The first is when a company or a product already exists on the market; the second is when the company wants to enter the market and wishes to make it known to potential clients. The actions carried out in the first case are surely much easier. If a product or a firm already exists on the market, more or less clients have already encountered the brand and have their own concept of it. In such a case, it is only necessary to look for solutions which would enable them to gain an advantage over competitors by their action strategy, stressing the values expected by the targeted market and received positively by them. Here we deal with the strategy of enhancing the existing brand. Naturally it is necessary to analyse in detail whether or not the brand evokes any negative images, or whether or not there have been any drastic crisis situations that would suggest rebuilding the brand under a completely new name.

Although the strategy of enhancing an existing brand surely needs much less financial outlays, and requires a shorter period of time than creating a new brand, it cannot be used in every case. Most of all, the company should based its strategy on a great value added, included in the product, which leads to a high recognisability of the already existing branch.

On the other hand, if we are just introducing a brand onto the market, we must propose some unique solutions, as potential clients should be given the idea of the need which our company can fulfil, something they need subconsciously, and which is different from everything on the market offered so far. Usually, to build a new brand, a company is motivated by the following factors:

growth of competition in the market where the company is active
the need to differ from its competitors;
the entry of known, strong foreign brands on the market;
unused financial resources, thanks to which a new brand can be built;
lack of brands in the enterprise, allowing for a strategy of enhancement

Building a new brand is time-consuming, and needs great financial outlays, with no guarantee that the enterprise will be successful. That is why it is important to create the action plan properly. In order to ensure that the results meet our intentions, it is important to establish some stages which we must go through before we are able to say that the new brand has been created. The stages are shown in Figure 1.

SWOT ANALYSIS IN BRAND BUILDING

Opportunities

Indian apparels accounted for a tiny fraction of less than 3 per cent of overall world export of apparel, suggesting an opportunity for considerable growth. There is a very large domestic market for Indian apparel manufactures. As per McKinsey study, the market size is of Rs 20,000 crore, out of which only Rs 4,000 crore is catered to by branded apparel. So there is still a Rs 16,000 crore market, which is catered by the unorganised small size units. The developed nations, which are the destinations for Indian textile products, use textiles in the form of apparel. Therefore, in order to improve the presence in these markets and capture larger values of the chain the focus needs to be shifted towards the effective performance of the textile-apparel supply chain network, rather than looking at textile industry in isolation.

Threats

Various regulatory, technological and marketing changes were expected to affect India’s textile industry over the next few years. For a product line characterised by unpredictable demand pattern and seasonality on one end and highly labour intensive on other, it is necessary to have flexibility to balance the labour force employment from time to time. There are few factors such as infrastructure and government policies that have caused wide gap in the economic development between India and other nations for textile industry in particular, in spite of enjoying the benefits of abundant cheap labour, low manufacturing cost, available raw materials and a large domestic market.

Strengths

The Indian textile industry is globally more competitive than other industries in the country on relative terms. Most of the inputs required for this sector being available from domestic sources and there are very little requirements of imports and precious foreign exchange. From middle of 1990s, manufacturing units of larger capacity with upgraded technology, mostly in collaboration with a joint venture partner were established. During the same period, Indian consumers could see availability of international brands in domestic market, which were made by Indian garment manufacturers. This had raised the expectation level of discerning consumers and apparel industry faced the challenge to improve its performance from this set of demanding consumers. Importers of Indian apparels were generally satisfied with price and enthusiastic about the ability to source small production quantities. With the entry of international garment companies into India, they bring in new designs, new craftsmanship, modern scientific management and also the marketing strategies. These all can strengthen the competition mechanism so that the industry will gain more resources for developing new products, new brand names, technology development and staff training in order to increase the market competitiveness.

Weaknesses

The small manufacturing units lacked sophisticated planning and information system and failed to offer scale economy. The present labour policy in a way discourages Indian apparel units to set up large size manufacturing set up and achieve economies of scale. A large size unit, by Indian standard, could well be the smallest in size in the competing countries like China, Indonesia, Thailand, Bangladesh, and Sri Lanka.
One major area of concern for the Indian apparel exporters is the declining average unit value realization, which has dropped from $ 4.44 in 1994 to $ 3.70 in 2000. This clearly reflects the Indian exporters’ inability to move up the value chain and the threats of being branded as supplier of low end products in the international apparel market. This leads to the question of whether it makes sense to promote the brand image that exists at present or improve all on the weaknesses substantially before we think of further promotion.

Buyers were frustrated by delivery and production lead times, the absence of large capacity garment manufacturers, and difficulties associated with freight handling. The long and uncertain lead times seem to be the most serious problem, faced by the buyers of finished textile products and apparels. At times, products are delayed by three months, missing a season totally. In such situation, buyers normally ask for discounts, sharing of airfreight burden or full payment of the airfreight, and in worst case cancel the order.

TEXTILE EXPORT

The textile products continue to play an important role in the total export basket of the country. The data about export targets for 2004-05 and the latest status of exports is given at Table 1.

India’s textile exports is expected to grow from the current levels to US$ 50 bn by 2010, consequent to the quota removal. Apparel is expected to be the key export driver, and is expected to reach US$ 25 bn by 2010

(Source: New Textile Policy,, 2000, Government of India).
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.

COMPETITIVENESS OF INDIAN TEXTILE INDUSTRY

India is one of the few countries that own the complete supply chain in close proximity from diverse fibres to a large market. It is capable of delivering packaged products to customers comprising a variety of fibres, 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 shuttleless 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 shuttleless 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 powerloom, 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 fibre (and filament yarn) has increased over the years, Indian industry still lags significantly behind US, China, Europe, Taiwan etc. (Texmin, 2005.)

Indian textile industry has suffered in the past from low productivity at both ends of the supply chain – low farm yields affecting cotton production and inefficiency in garment sector due to restriction of size and reservation. Add to this, contamination of cotton with consequent increase in cost (as it affects quality and requires installation of additional process to clean and open cotton fibres before carding operations), poor ginning (most equipment dates back to 1940s), high average defect rates in production process (which also leads to increase in effective labour and power costs), hank yarn requirement, etc. and its competitiveness gets compromised severely. Similarly, processing technology is primarily manual and small batch oriented with visual colour matching and sun drying. This leads to inconsistency in conformance quality. Lead times across the sector continue to be affected by variability in the supply chain – defect rates average over 5%, average % of orders on time is about 80%, variance in order size across firms is high (e.g., the coefficient of variability of average order size for spinning firms is about 2.6), and on an average, 16 days of sales as work-in-process inventory (the highest for garment firms) and an average of 30 days of sales in raw material inventory (the highest for spinning firms) (Chandra 2004). Some of the hurdles (eg., reservation in the garment sectors) including tariff distortions between the organized and unorganized sectors have now been systematically removed by policy initiatives of Government of India and have opened avenues for firms to compete on the basis of their capabilities.

CHALLENGES FACED BY INDIAN TEXTILE 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 programmes 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 112,000 supervisors and 2.8mn operators in the apparel sector (assuming 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, and low variability in process times, low WIP and consequently cost. Indian firms have to dramatically reduce cycle times across the entire supply chains which are currently quite high (Chandra, 2004). Customs must provide a turnaround time of 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, nano-textiles, 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 Upgradation 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 over priced (i.e., ‘dollar pricing’). Firms are not taking advantage of 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 – labour 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.

CONCLUSION

In conclusion enterprises can use various marketing instruments in their actions. Obviously, managing a brand needs much talent and skill, but most of all some experience. In order to fully exploit the opportunities given by the brand strategy, it needs constant work on the brand, investment in its development and expansion of its capital. Therefore it is worth finding out precisely all the possible aspects of brand managing, if we wish to achieve a position of the leader in a given sector. On the other hand 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.

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