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The Strong Second

NEW DELHI, India — There’s more than one apparel-manufacturing powerhouse in Asia.<br><br>While much attention has been paid to the potential explosion in Chinese apparel exports when World Trade Organization nations drop quotas on...

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Shekhar Agarwal, of Rajasthan Spinning & Weaving Mills Ltd., claimed that when quotas are lifted in 2005, “While China will be a formidable competitor, India will be number two in the world.”

NEW DELHI, India — There’s more than one apparel-manufacturing powerhouse in Asia.

While much attention has been paid to the potential explosion in Chinese apparel exports when World Trade Organization nations drop quotas on textiles and garments in 2005, executives in India contend that their industry will also be positioned for strong growth.

Companies are investing heavily in modernizing their equipment to increase productivity and capacity, and the government has allocated $2.5 billion to help them prepare for that milestone. Indian textile and apparel executives argue that the world’s second-most-populous country also has potential to be the second-largest supplier of textiles and apparel in the post-quota environment.

“India will definitely be a prominent player in the international textile market after 2004,” said Shekhar Agarwal, vice chairman and managing director of Rajasthan Spinning & Weaving Mills Ltd. “While China will be a formidable competitor, India will be number two in the world,” he claimed.

The confidence in this nation’s industry is based on its size and strength. India’s textile industry accounts for more than 6 percent of India’s gross domestic product, 18 percent of industrial production and 25 percent of export earnings. India has about 2,900 textile mills with 38 million spindles, 1.5 million smaller power looms, 3.8 million hand looms and 12,400 processing factories. The industry together employs an estimated 11 million workers.

Globally, India is the third-largest producer of cotton and cellulosic fiber and yarn, the second-largest producer of silk and fifth largest producer of synthetic fiber and yarn. India is the world’s largest exporter of cotton yarn today, with a 25 percent share of the world market. However, it ranks 13th in exports of fabrics and apparel because of quota restrictions by the U.S. and EU, which constitute its major markets. The bulk of Indian textile and clothing exports of $13 billion are cotton yarn; fabrics and made-ups, and cotton apparel, though exports of man-made fiber products are catching up.

“Only three countries in the world — China, India and Pakistan — have a strong and complete textile chain, manufacturing everything from fiber to finished fabric,” contended D.K. Nair, secretary general of the Indian Cotton Mills Federation, an industry group. While manufacturing executives in the U.S. and Europe would dispute that assertion, the low wages and costs in the three countries Nair named have given them a sizable advantage against their wealthier competitors.

“From 2005,” Nair continued, “overseas buyers will want to source textiles from countries where the entire chain is available because lead times are coming down.”

A government policy document released last year said in the next five years India should “build world-class, state-of-the-art manufacturing capacities, to attain and sustain a preeminent global standing in manufacturing and export of textiles and clothing.” The target: To grab 8 percent of the world market by 2010 from 3.1 percent now.

Industry executives contend that goal is reachable.

“India is geared to face the challenges of the quota-free world,” said S. Rajagopal, executive director of the Cotton Textiles Export Promotion Council. “India, with its raw-material base, skilled work force, low conversion cost and a strong economic and banking system is ideally placed to become a major sourcing point for textiles beyond 2005.”

However, both the Indian government and industry acknowledge that the challenges of the quota-free era will be many, given the lack of modernization in a large number of Indian textile mills and apparel factories. Government policy in the 1970s favored small business and creation of jobs, discouraging investment by larger textile mills. This resulted in technological obsolescence and the eventual closure of many mills. Most fabric is now produced by small power looms, which lack economies of scale and cannot upgrade technologically, leading to problems of quality.

The government document acknowledged the Indian textile industry has not reached its full potential due to policy restrictions on investment and growth. But the government has begun to take corrective measures.

“The textile industry needs huge investments, especially in weaving, processing and garment making,” Chintan Parikh, chairman of the Indian Cotton Mills Federation, pointed out. “The investor-friendly national budget for fiscal 2004 has, for the first time, brought such large investments within the realm of possibility.”

Despite the former restraints, some textile and clothing manufacturers have steadily upgraded and modernized their plants to prepare for the challenges of quota-free trade.

“Many companies in the apparel industry have realized there will be intense competition,” said Sudhir Dhingra, chairman and managing director of Orient Craft Ltd., one of the country’s biggest apparel exporters. “Some companies have moved up rapidly, others not so much, while some are still sleeping.”

Dhingra said the top 10 clothing exporters in India, including his own Orient Craft, are ready with the latest technology and large capacity, as they have been facing competition for several years from apparel makers in China and other countries. Orient Craft has built six new factories in the past five years to add capacity, taking the total to 17 units totalling 600,000 square feet of manufacturing space. It recently added a state-of-the-art plant of 340,000 square feet, offering multiproduct manufacturing under one roof. Orient Craft, which has 12,000 employees, can manufacture 1.2 million pieces of woven and knit apparel a month.

The company’s exports in fiscal 2002 were $92 million, and included women’s blouses, skirts, pants, shorts, dresses, jackets, outerwear, men’s shirts, kids’ wear, knitted shirts and T-shirts.

Pradipto Roy, associate director with the New Delhi-based consultancy firm KSA Technopak, an affiliate of Kurt Salmon Associates, said Indian companies have lagged in improving systems and processes, servicing, product development and merchandising.

Dhingra contended Orient Craft has not lagged in these areas. The company has 900 people involved in developing new products and is setting up a studio staffed with young designers.

A key weakness in India’s textile chain in the past has been fabric processing. Both the government and industry are addressing this problem.

“The textile industry in India is undergoing a sea change in its approach to production of fabrics,” said Rajagopal, of the Cotton Textiles Export Promotion Council. “With tax and economic reforms being undertaken by the government, India will provide a strong fiber and fabric base for production of value-added textile products.”

One apparel company has decided to start processing fabrics in-house.

Harish Ahuja, managing director of Shahi Exports House, a large apparel exporter, said: “As part of backward integration, we have set up a processing plant with the latest Swiss equipment for fabric dyeing and printing.”

According to Ahuja, Shahi Exports also has been expanding and upgrading continuously over the past few years. It now boasts a capacity of 1.6 million pieces of woven and knit apparel a month and exports $110 million a year in goods to a long list of well-known U.S. retailers and apparel brands. Shahi Exports has a chain of 18 factories with 17,000 employees in the cities of New Delhi, Bangalore, Faridabad and Noida. The company imports 40 percent of its fabric requirements from the Far East.

It’s not just clothing manufacturers who are upgrading and modernizing.

“As a matter of policy, we plow back part of our profits to technology upgrade, modernization, and value addition,” said Agarwal of Rajasthan Spinning and Weaving.

The company, which belongs to the LNJ Bhilwara group, had textile sales of $265 million a year, with exports valued at $116 million. (Figures are converted from the rupee at the current exchange rate.) Bhilwara group is fully vertically integrated, handling all steps including spinning, weaving and knitting, processing fabrics and manufacturing apparel.

“We have prepared ourselves very well for the post-2004 era,” said Agarwal. “Exports as a percentage of our total sales are increasing every year.”

The group plans to earn 50 percent of its revenues from exports by 2005, up from 42 percent now.

Agarwal said textile manufacturers in India have to become quality conscious, more service oriented and cost effective.

“The name of the game is survival, survival of the fittest,” he said.

For many nations and companies, quota limits have offered some degree of assurance of market access: Major importers have been forced to spread their orders around because they’ve been limited in where they can buy from. Many observers have suggested this has propped up some businesses that would not otherwise be competitive.

Several Indian textile executives said they realize the days of almost-assured exports are numbered.

The Nahar group, based in the northern Indian city of Ludhiana, has a spinning capacity of 400,000 spindles and a product range that includes fabrics and hosiery. Its sales are $450 million, with exports of $115 million. The production facilities have been awarded latest quality certification.

“Our business is also facing winds of change,” said Gursharan S. Dhiman, director in the Nahar group. Nahar is upgrading its spinning and processing plants and adding capacity in spinning, knitting, weaving, dyeing, processing and apparel manufacturing to benefit from economies of scale.

For its part, the Indian government has set up a technology upgrade fund for the textile industry. As of February, an amount of $2.5 billion had been set aside and $2.1 billion disbursed from that fund. The government also is allowing companies to import textile machinery at low rates of duty.

All this modernization and capacity addition, when complete, is expected to make India competitive in a host of textile products.

“India will be most competitive in yarn and fabrics,” said Agarwal, of Rajasthan Spinning and Weaving.

Apparel exports are also expected to grow. According to Nair, of the Cotton Mills Federation, India’s strengths are in blouses and skirts, men’s shirts and trousers, and T-shirts. There are quota restrictions on all these products at present. Once the quotas are lifted, exports could triple, Nair predicted.

Exports of man-made fiber and fabrics have been growing steadily, said Anil Bamba, executive director of the Synthetic and Rayon Export Promotion Council. Indian manufacturers are most competitive in all kinds of filament and blended yarn, gray fabrics, polyester-viscose fabrics and other blended fabrics.

Industry executives concede that China will be a formidable competitor. But Nair contended India’s focus is different from China’s. India’s production is more geared to cotton, while Chinese manufacturers focus more on synthetics. He also said Indian manufacturers focus on smaller orders, while many Chinese firms focus on very large orders.

“India has advantages of high skills and flexibility, medium capacity and low costs,” said Roy, of KSA Technopak. According to Roy, overseas buyers will look for countries that are politically stable, respect human values, offer an infrastructure that makes it easy to do business, have locally available raw materials and have good business ethics.

Two areas where China scores better are its labor laws and infrastructure. In India, manufacturers have to work within the constraints of rigid labor laws that make firing employees in bad times virtually impossible. Congestion is a problem throughout India’s infrastructure, particularly at ports. The government is now addressing these issues.

“India is in a favorable situation,” Roy said. “The world is looking at options outside of China, and India scores favorably. Proximity to raw material will be a key area that buyers will look for in the future.”

The advantages of doing business with India have prompted leading overseas chains to set up offices in India. These include the Swedish fashion garment retailer H&M International, Wal-Mart Stores Inc., J.C. Penney Co. Inc., Gap Inc. and Marks & Spencer. In 2002, megaretailers bought $1.5 billion worth of apparel from India. India’s total shipments of apparel and textiles to the U.S. last year came to $2.99 billion, according to U.S. government data.

Indian Textile Minister Kanshi Ram Rana said Wal-Mart and Gap are keen on making India a major sourcing hub, with the former targeting $5 billion worth of apparel by 2010, up from $700 million now. That number could not be independently verified.

India’s story is not just about exports. With its population of 1.05 billion people, it is a huge market for textile and apparel products. Imports of textiles and fabric are currently low at $1.5 billion, but once textile quotas are abolished, India too will be forced to open its doors to foreign textiles and clothing.

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