What is happening Around the World?


A month can make such a difference! Oscar night is finally overand the India centric Slumdog Millionaire has won 8 Oscars, which is a feat thathas put really India in the center of Hollywood and in fact the world. When theauthor wrote the February column, Slumdog Millionaire had 10 nominations and inthis intervening month this India centric film was talk of the world whicheventually culminated in the best film award. From the entertainment industrypoint of view and general perception that surrounds such a fabulousachievement, things look greener for India. However most of the times realitytrumps perception and imagination. From manufacturing point of view, for India to walk and run, a third leg is needed. As the saying goes, it is good to start witha bitter pill and end with a sweeter one. However in the case of internationaltrade and manufacturing, the reality is such the Oscar nights are a distancefuture. Although this might sound pessimistic, it is good to infuse realitythan glitz and imagination in to the minds of Indian entrepreneurs and policymakers. Apart from the media glitz and the feel good story of Oscars, PresidentObama's $787 billion stimulus package and his forthcoming State of the Unionaddress to the joint session of the congress is getting its due share attentionfrom the global press. Why is this so? Because, United States still has so muchinfluence on international trade and economy. The American Recovery andReinvestment Act-2009 has 787 billion US dollars of stimulus money to boost theeconomy within 18 months. A majority of it is for spending towards rebuildingbridges, schools, and providing broadband connectivity across the United States. This should have been music to the ears of international trading partnerswith United States like India and China if all things were normal. However thisis not the case. This stimulus package has "Buy American Protectionist"language albeit in a toned down fashion." Before the American Recovery andReinvestment Act was signed into, law the Democratic congress insisted onprotecting the United States jobs and manufacturing industry by includingrestrictions on the use of goods and services towards recovery. However due tointernational pressures, the United States government relaxed stricterregulations on the "Buy American" provisions. In the final law, thosenations that have trade treaties such as NAFTA and other preferential tradetreaties will have access to bid on the projects that are supported by thestimulus package. So countries such as Canada, Mexico and those in EuropeanUnion are the gainers. However, BRIC nations such as Brazil Russia, India and China are excluded from participating in the trade and development activities that aresupported by the stimulus bill. Although people may have difference of opinion onprotectionist policies and its impact on international trade, the reality is India has fallen on the wrong side of the equation and is a loser. This scenario will be ablow for the export driven industries in India such as IT and textiles. Moreimportantly, an amendment in the final law insists that the uniforms and other clothmaterials which will be used by the United States' Transportation Security Agencyshould be made in America and use products that are American. These tradepolicies restrict the opportunities for India and other BRIC nations to exportand participate in the recovery related trade in the US. This situation is notonly pertaining to the United States of America. The prolonged recession in United Kingdom and France is forcing these governments to take steps to protect jobs of theircitizens by bringing in more regulations. United Kingdom recently witnessedlabor strike due to the employment of non-UK citizens in an oil refinery in Lincolnshire. The UK government has to come-up with some sought of undertaking to convincethe striking laborers to ensure their job safety, which shows the seriousnessof the situation that is embracing the world right now. What have these scenariosgot to do with the Indian textile industry? Post MFA era, the Indian textileindustry thrived due to its export which saw a reverse trajectory in 2007 and2008. Even a small variation in the dollar-rupee exchange rate can create a havocin the textile industry. Such a situation was witnessed in 2007 when the worldwas not in a recession. But since December 2007, United States is in officialrecession which is leading to lower consumer spending and closing of retailstores across the United States. JCPenney just announced that its 2008 4thQuarter sales is nearly 10% lower than the one in the previous year. Thissituation is not a welcoming one for Indian textile export sector. So it isimperative for the Indian textile industry which is labor and infrastructureintensive to look beyond the current and conventional opportunities. Economistspredict that the economy may start recovering only during the spring of 2011,i.e., two years from now. So this period which will be a stressful one for the Indiantextile industry will provide new and untapped opportunities. One such opportunityis in the diversification of the Indian textile industry to cater to itsdomestic base in short term and explore export opportunities in the near longterm. This strategy will be particularly timely now as it helps the Indiantextile industry to plan ahead and start growing until the global economy startsrecovering as early as 2011.


 

Options for the Indian Textile Industry: Diversification


The mantra here is diversity within limits. Although diversification is not a panacea to the difficulties which are faced by the Indian textile industry, at least it gives some life support to the industry in the current dire economic situation. Diversification here refers to three aspects;

1. scale;

2. quality

3. innovation.


What we mean by diversification here is not to just ask for expansion or investments by the industry in totally new areas, which are outside the core competency of a particular industry. For instance, until the global economy starts recovering, it is not judicious for a spinning sector to invest into technical textiles sector or spread thin. Rather it will be logical for the spinning sector to think in terms of enhancing its scale, improving the quality of its products and trying to look into incremental innovation. These three factors, i.e., enhancing the scale of operation, improving the quality and improving creativity utilizing existing resources to innovate new products are the three legs upon which the Indian textile industry should stand. Such an approach will slowly take the conventional commodity sector into the boundaries of specialty textiles sector or technical textiles. This is the logical diversification and the need of the hour.


Scale, Quality and Innovation


An industrialist will feel nervous in the current situation to enhance his scale of operation when the markets are basically flattened. The clarion call made here is not to blindly expand but to harmonize scale, quality and innovation towards better output to create new opportunities. For example, a recent study by the Federation of Indian Chambers of Commerce and Industry on the opportunities that are existing in the defense sector for the Indian textile industry has called for a better coordination and education of procurement and other opportunities that are existing with the Indian defense sector. In addition, it calls for the Indian textile industry to invest in Research and Development for developing value-added and functional textiles that could be used by the Indian military and also the Indian military to make procurement procedures friendly for the Indian textile industry. In view of expansion, Indian spinning sector can enhance its output by effectively developing high performance yarns and products using high performance fibers such as Nomex, Kevlar, fire retardant fibers in different combinations which will be of use to the Indian defense and aerospace sectors. This kind of expansion of scale which is rather unconventional will not only provide a Plan B to the commodity spinning sector but also will provide the Indian conventional spinning sector an opportunity to get its foot in the defense sectors door. Such kind of activities is possible nowadays because of the existence of either sales or subsidiary offices of high performance fiber manufacturers such as Lenzing, AG in India.


Another leg of the stool on which the Indian textile industry should stand is the constant effort to enhance the quality of its products Industrialists and traders have become more aware of the perks for improvement in the quality and quality labels. Indian textile industry is fortunate to have access to the workshops on quality improvement and quality standards by international professional organizations such as the USA based American Association of Textile Chemists and Colorists and the UK based Society of Dyers and Colorists. The availability of these workshops in India most recently at subsidized costs is a good opportunity which the Indian industry should seize. Indian trade bodies such as the Confederation of the Indian Industry and the Federation of Indian Chambers of Commerce and Industry should raise the quality bar on its members products and should serve as a good ambassador in promoting the improvements in the quality of Indian goods in international trade forums. With the enhancement in scale and the quality of the products, incremental innovations will expand the product basket of the Indian textile and manufacturing industries. Such a three prong approach will be an immediate requirement for the Indian textile industry to see some growth light at the end of the dark tunnel.


 

Creation of Domestic and International Market Mix


Looking at the global economic situation from Australia to America, it is clear that it will take two more years for the economy to revive and grow. More importantly, as the textile industry is dependent on the buying power of consumers, it is difficult to envision an immediate recovery. Governments around the world are doing their best to boost consumer confidence and provide tools for consumers to spend. Australian government has announced a stimulus package of over 40 billion Australian dollars which includes cash bonus with an aim of spearheading sales. The United States government as part of its recovery plan will provide tax deduction of $8 to $13 per week with a view of encouraging consumers to buy. The fact that money is returned to the tax payers in the form of a monthly tax deduction is to prevent savings by consumers and improve spending. These spending enhancement measures will take some time to provide real impact. Even though these industrialized nations which are important for Indias export dependent textile sector are doing all they can in terms of fiscal stimulus and monitory policies, a recent report by the National Association for Business Economics based in Washington DC, USA has predicted that the unemployment rate in the United States will rise to 9 percent by the end of 2009 from its current 7.6 percent. More importantly, an alarming signal for commodity industries such as the textile is the prediction by the National Association for Business Economics that the consumer price index will decline 0.8 percent in 2009. Many negative factors such as the decline in consumer price index, lack of consumer confidence, increase in unemployment rate and home foreclosures in developed economies will have negative effect on Indias export sector. Therefore, time is ripe for all stakeholders of the Indian textile industry to sit together and come-up with a market model which can serve as a cushion in recession and bleak export scenarios. Such a model should be based on a mix of domestic and international opportunities for the Indian textile industry. Although this may not be recession proof solution, it will be a safety net than what is excising currently in India. How can this be achieved? The solution to this is to diversify by enhancing the scale of operation with a different twist. As explained above, enhancement of scale is not merely a vertical expansion but a horizontal one. In other words, expanding the product basket and product mix for a particular industry based on its core competency and resources. The second point is to have incremental quality enhancement which will have bottom to top quality improvement; thirdly, creative measures with the help of incremental innovation to develop new products with existing resources should be given an equal priority.


Three Immediate Priorities for the Indian Textile Industry


Why is Indian textile industry lagging behind China? Why is the Indian garment/fashion industry lagging behind Italy? We all have clear answers to these questions. They are: scale and quality. Indian textile industry and for that matter the Indian manufacturing industry has to chase the Chinese and Italian industry to achieve output and quality. Whereas, by properly utilizing the available resources and engaging in collaborations with the Indian R&D sectors, incremental innovations can be quickly achieved in the Indian textile industry. These small innovations may help the Indian textile sector to catch-up with the Chinese and Italian industry. Here it is useful to refer to a column in the widely read USA based Atlantic Monthly. James Fallows of the Atlantic Monthly in one of his famous reports from China, "China Makes the World Takes, July 2007," admires the manufacturing power of China and attributes it to its abundant manpower resource. Basically, the economy of scale in the manufacture of commodity products has given China this competitive edge. So the situation which was rosier years back in China is changing, when its competitive advantage i.e., low cost abundant labor is getting somewhat eroded due growing labor power in other low wage countries. Today, 20 million migrant workers are jobless in China who are returning back to their villages due to slump in export and loss of jobs. At the same time, high labor wage countries which are known to produce designer products such as Italy are struggling to keep their factories open. What is the best solution in this situation? Those countries that offer a balance of good quality products at competitive prices will have better opportunity. Also if emerging markets like India which could not only develop its industry base to cater to export markets but also to serve its growing middle class domestic market will be the winners in near long term.


To reach this milestone, the Indian textile industry should stand on three legs which are:


1. enhancement of its scale, which is horizontal and logical diversification;

2. improvement in the quality of its products

3. innovation. The future for the Indian textiles sector rests in these legs.



The article was originally published in Textile Review, March 2009



About the Author


The author is associated with Nonwovens & Advanced Materials Laboratory, Texas Tech University, Lubbock, Texas, USA.