IMPRESSIONS from a Cross-section

Global Knitwear Industry is very big and has a vast potential for growth but only in the cheap labour countries as it is a labour intensive industry. The main countries of production are China, India, Bangladesh, Pakistan, Thailand, Vietnam etc.

Currently the industry is going through a bad phase because of overall global slowdown. The European market is bad; there is no demand. There is an economic slowdown in all business sectors so their import is at the minimum level. The whole of Europe depends on these countries (India, China, Bangladesh, etc.) only since they don’t manufacture themselves. The garment imports in Europe are also much less; the volumes are not very big. Therefore the business will automatically come down in these countries.

Likewise USA, though it may be comparatively better than Europe, is also in bad shape. So, the slowdown is worldwide.

Moreover, when there is a big gap in the demand and supply, when supply is more and demand is less, then the customer dictates you. The overall cost of production in all the countries has gone up. In China labor charge has gone up while in India labor as well as cost of electricity has gone up.

Cotton yarn sector, since the last 2 years is in a very turbulent state. In India, since 2 years, yarn rates were somewhere around Rs. 105-110 per kg which went up to Rs. 250 last year, and then suddenly it dropped but not below Rs. 180. Now, currently it has again gone up to about Rs. 195.

This means that the overall cost of garments has gone up and due to inflationary effects in all the countries and the slowdown; people are not in a position to buy as many garments as they used to buy. So when there is less demand and more supply and when your cost of production has gone up you are unable to command a good price. This leads to the profitability of the units coming down because when the units are not working up to the full capacity due to which per unit cost goes up while the profits come down.

Besides, since it is a labor intensive industry, there are a lot of job losses following the situation. He expanding capacity reduces and the industry is not expanding right now. Garment is an essential element like food but people may defer because the priority of buying garments may not remain a priority when you have yet to pay for your house, or your car and education, now that education has become so expensive. The priorities change with changing economic cycles; when people don’t have jobs they won’t buy as many garments as they used to.

(Contd.)

Talking about the domestic market, the domestic market is also poor now because the govt. has imposed a 12% excise duty on garments last year which adds to the cost as well as the interest rates have also gone up ranging between 13-16% which is very high and is killing the industry. Moreover, most of the garment manufacturers belong to the SME category. The govt. justifies its moves in the wake of inflation but this is not acceptable and not at all helpful for the industry because the inflation cannot be controlled by making the interest rates so high. I strongly believe the interest rates should come down and should be not more than 10%.

In all, be it the export market or the domestic market, the industry is suffering because of less demand, slowdown and working at under capacities.

At this time the people should improve their quality by adopting new technologies. But again I have apprehensions on this as the people wouldn’t like to spend when there is shortage of money. There are going to be financial casualties in the current year and may be in 2013; some of the units might even close. Looking at the history, it is noticed that the economic cycle keeps repeating in 7-8 years.

However, there will definitely be a turnaround for the better by the end of 2013 or beginning of 2014. According to the judgments of economists, 2014 will be the year when the industry will start reviving and there will be a good demand because of various reasons. The slowdown may improve and there may be a boom 2014 onwards. Moreover, in India since there are the central elections in 2014, the govt. may change which will again aid the revival of the industry. Worldwide also, all countries are making their own efforts to improve the economy. This is the time when we should adopt good systems, good technologies, good production, machinery and how to reduce costs, reduce wastages, minimize energy usage, and bring down the cost of energy. This is my advice to people whoever has access to these facilities must adopt these so that we become more competitive and we may increase the profitability by decreasing our input costs.

This is the appropriate time to upgrade the manufacturing facilities with latest technologies and energy saving devices to improve quality, cut down the cost and improve competitiveness. This is also a high time for entering into technical and marketing collaborations to explore the untapped markets.

India, being a cotton growing country and also having a sizeable synthetic yarn manufacturing facilities along with availability of cheap labour and a strong domestic market, has a great potential for growth in this sector. There is a need for high class skill development centers in India. The prospective investors should invest in the mid size garment manufacturing companies to reap rich dividends. Europe, USA, South Africa, Canada and Brazil will remain good clients in future.