India's textile wet processing - Quo Vadis?

1. Abstract

The Indian Textile Wet Processing Industrymust improve its productivity

Who says so?

Two very important bodies from within India say so:

Firstly, the Finance Ministry of the Indian Government,

Secondly, the Indian Cotton Mills Federation (ICMF)

These two bodies consider the need to improve productivity is necessary for the industry to meet the competitive challenges ahead as itgrows from a total value of US $ 36 billion to US $ 85 billion over the next 6years.

This need to improve productivity applies across the whole spread of sectors in the Value Chain; and has led to the formation of a third body the NationalManufacturing Competitive Council (NMCC).

Investment in the Indian textile industry over the spectrumof Spinning; Weaving; Knitting; Dyeing & Finishing; and Garment Confectionsectors will amount to US $ 31 billion over the next 6 years.

Over 36% of this investment will take place in the Dyeing& Finishing sector.

Therefore, the need to improve Productivity in the Dyehouseis more important than in any other sector.

This paper looks at Dyehouse Productivity from a completelydifferent angle:

• How can Dyehouse Productivity be improved?
• What are the critical success factors?
• What are the typical problem areas?
• What improvements have been made in other countries?
• Who is setting a lead?
  
  

This paper attempts to place the challenges facing theIndian Textile Industry into a global context. It does so by a detailedconsideration of Cost, Value and Productivity within the dyehouse, and bydrawing on experiences observed in dyehouses across four continents (Table 1).

This paper offers a blueprint for significantly improved profits for those dyehouse owners, managements and investors wishing to steal a march ontheir competitors, both within India and across its international markets.

VOLUME is VANITY . VALUE is SANITY

References

1)    Dr Sanjay Gupta: India Told to Aim Higher : International Dyer : Sept 2004

2)    Mr P Chidambaram:Release of ICMF Vision Statement: New Delhi: August 2004.

3)    Vision Statement:Indian Cotton Mills Federation: August 2004.

4)    Dr B KKrishnaraj Sanavarayar: Chairmans Desk : ICMF : 02/12/04 www.icmfindia.com .

5)    Dr B KKrishnaraj Sanavarayar : Textile Times ; ICMF : 02/12/04 www.icmfindia.com .

6)    Wake up Call for Indias Textile Industry: Report of Expert Committee on Textile Policy : ICAC2004.

7)    StatisticalOutline of India 2003-04: Tenth Five Year Plan;

8)    WernerInternational : Labour Costs in the Textile Industry : www.wernertex.com

9)    NathanAssociates; USA: Changes in Global Trade Rules for Textiles and Apparel.

10)  The GentianGroup : Private Communication 14/12/04 : Mr M A Buttery ; Managing Director;Mike.Buttery@GentianGroup.com

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3. Summary of the Indian Inward Looking View

• Indian Textiles could (potentially) grow from US $ 36 billion to US $ 85 billion over the next 6 years.

• Future prospects for Indian Textiles look good but competition will be fierce.

• Only the Fittest will survive, let alone prosper.

• India Textiles Must improves PRODUCTIVITY across the whole Value-Chain.

• Abolition of quota-free tariff charges in January 2005 will favour Indian Textile imports. But China, and others, will also benefit.

• Given the low productivity of the workforce, Indias strength of (relatively) low labour cost has not been fully exploited.

• Value Addition needs to be a Key Driver for the Indian Textile Industry to achieve its full potential.

• Indian Textiles need to command premium prices; need to target niche products and markets; need to redesign products in higher value-added segments of international business.

• The Dyeing & Finishing sector is critical in these growth drivers, since it holds the key to fabric (and bsequent garment) quality.

• The Processing Sector (Dyeing & Finishing) is currently one of the weakest links of the Value-Chain and must look particularly towards Productivity improvements.

• Over 36% of the total investment which will take place in the Indian Textile Industry over the next 6 years will be in the Dyeing and Finishing sector.

• The need is to create new capacity, and to refresh existing capacity.

2. Full Article

2.1 Scope of the Authors Study

Table 1: Dyehouse Audits by Author by Country

It leads to some very interesting observations; which defy any text book or theoretical treatise. The study, when taken as a whole, reflects on what real people are doing in a real world.

The lessons are there to be learned.

The dangers are there for all to see.

2.2.       Background

The current state of the Indian Textile Industry has been reviewed from within by both the Finance Ministry of the Government (Ref 2) and the Indian Cotton Mills Federation (Ref 3). This was reported by Dr Sanjay Gupta (Ref 1).

The main points from these internal analyses will be summarised in this paper.

The overriding conclusion from both sources is that there is a clearly defined need for the Industry as a whole to improve Productivity; but particularly so within the wet processing sector (ie. within the dyehouse).

2.3 The Government View

During the last Olympic games, Mr P. Chidamabaram (Ref 2), then the Union Finance Minister for the Indian government, advised the Indian Textile Industry to adopt the Olympic Games Motto and become :

He was speaking to the textile and garment industry after releasing the vision statement document for the India Cotton Mills Federation (ICMF), in New Delhi.

In this document (issued in 2005) the ICMF has estimated that the Indian Textile Industry has the potential to reach US $ 85 billion by 2010, from its current US $ 36billion, at an annual growth rate of 11%.

2.4 Vision Statement of the Indian Cotton Mills Federation. (Ref 3)

By 2010, the Indian Textile and Apparel Industry can achieve a potential size of US $ 85 billion with:

• a domestic market of US $ 45 billion

• exports of US $ 40 billion (6% of share of global textile trade)

• 60% of the exports as garments

• a contribution of 35% to Indias total export basket.

• the creation of over 12 million jobs
• 5 million through direct employment in the textile industry
• 7 million in allied sectors.

2.5. A Review of the Indian Textile Industry from Within

The Chairman of the ICMF, Dr. B. K. Krishnaraj Vanavarayar has presented an excellent summary of the current situation of the Indian Textile Industry (Ref 4).

We may summarise the following pointers from Dr. Vanavarayars first edition of Textile Times; (Ref 5).

2.5.1 Neglect in the Indian Textile Industry

• The Indian Textile Industry has been a Pioneer industry, providing a generation of resources upon which other industries have benefited.

• The industry has been (relatively) neglected in the period from 1970 1992, as the profitability of the industry has been continually eroded

• This erosion has been due to measures taken by the government in order to protect the cotton growers, large labour force and consumers.

2.5.2 Future Prospects

• The recent liberalisation measures (Ref2) have presented the Textile Industry with a golden opportunity to retain lost glories.

• With the active help from the Indian Government, India CAN recover lost ground as a world supplier of high quality textiles.

2.5.3 Indian Textile Industry and its Global Position

• The Indian Textile Industry is the second largest in the world.
• It has the largest cotton acreage (9 million hectares).
• It is the third largest cotton producer.
• It ranks fourth in terms of staple fibre production, and sixth in filament yarn production.
• India accounts for (circa) 25% of the Global trade in cotton yarn.
• It is the largest producer of Jute, the second largest producer of silk and the 5^th largest producer of synthetic fibre / yarn. (Ref 6).

2.5.4. The Indian Textile Industry within the Indian Economy

• The Indian Textile and Apparel industry :
• contributes to circa 3.6% of Indias gross domestic product
• accounts for 25% of Indias exports.(Ref 7).
• The Textile Industry accounts for about 20% of industrial production.
• The Textile Industry employs over 15 million people.
• Textiles and Garment exports account for 39% of Indias total exports.
• Globalisation has brought opportunities for Indian Textiles.
• But Globalisation also brings threats which have to be addressed (particularly from cheap imported fabrics).
• If the WTO means better distribution of world trade, it will not be free for all and only the fittest will survive.
• WTO benefits for Indian Textiles will also apply to other developing countries.
• The Indian Textile Industry has great potential, but great challenges ahead.
• It must maximise its strengths and minimise its weaknesses.

Table 2: Strengths and Weaknesses (Indian Textile Industry) (Ref 2)

2.5.6 Availability of Low-Cost Labour

Fig1: Hourly Labour Costs in the Textile Industry

(Source: Werner International: Ref 8)

Hourly Labour Cost US $ per hour

2.5.7 Competitive Edge (Ref: 2)

• In terms of labour cost per hour , India already enjoys :
• a significant competitive edge over developed countries like USA; UK and Italy.
• some competitive edge over newly-industrialised economies like Hong Kong; Taiwan, Mexico, Southern Europe and coastal China.
• and relatively no competitive edge over mainland China, Pakistan and Bangladesh.

• But labour cost in real terms must include some assessment of productivity. Labour cost per batch of finished cotton meeting the required specification is always going to be more meaningful than labour cost per hour.

2.5.8 Indias Presence across the Value Chain

Fig 2: The Value Chain in Textiles

India is one of the few countries which have a presence across the entire value chain of the Textile and Apparel Industry.

A well defined strategy will enable Indias textile industry to shift focus to Value Added products.

The greatest value addition in the textile chain is generated in the apparel segment.

2.5.9 Investment in the Indian Textile Industry

In order to achieve the vision, investments of US $ 36 billion will be needed within the period from 2004-2010.

These will be needed to modernise existing capacities, and to create fresh capacity.

Over 36% of these will be required in the Dyeing and Processing sector (Fig 3).

Fig 3: Investment by Sector (US $ million)

(Indian Government Estimate (Ref 3)

2.5.10 Country Competitive Landscape

The existence of trading quotas in the international textile and apparel industry has effectively shielded the exports from developed economies from competition. The quota elimination from January 1^st 2005 means that those gloves will be off; and certain countries will be put at risk.

The countries most at risk will be those which developed because the quotas held some other counties back. An analysis of US Imports of apparel by region, (Ref 9), has provided an assessment of risk of loss of market share.

The risks are categorised as high, medium and low (Fig 2); and are shown in terms of both US $ million and % of total imports within a given trading zone.

The analysis shows that countries which have erstwhile enjoyed competitive exports by virtue of quota free access treaties and mechanisms (such as AGOA; NAFTA and CBI) will be affected adversely once the quotas are removed. The quota system restrained growth of market share of Asia and China.

Similarly, preferential suppliers to Europe are likely to find similar problems post 2005. Countries with no particular cost or location advantages (like ASEAN) and countries which have historically enjoyed high quota holding (like Hong Kong) , will also find a shift in the relative export volumes which fall into the high risk category.

Fig 4: USA Apparel Imports by Source and Risk Level

2002 2005 (by US $ million)

Calculations based on data from the US;

Department of Commerce OTEXA Office

Notes: Trade Associations used in Fig 4 are as below (Ref 10)

NAFTA = North American Free Trade Association; (Canada; USA; Mexico)

SSA = Sub Saharan Africa (about 50 nations)

BBI = Caribbean Basin Initiative

Basically, these all represent efforts by the US government to ameliorate the impact of MFA and WTO quota and tariff charges. The intent is to permit US businesses to relocate labour intensive operations to (relatively) lower cost countries, and than have the goods re-imported to the US under certain rules of origin.

2.5.11 Indias Competitors

Indias exports fall into the low risk category because of its well developed domestic textile industry.

Despite this, Indias exports do face serious competition from the following countries :

• China
• Bangladesh
• Pakistan
• Sri Lanka

Table 3: Competitor Strengths and Weaknesses