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Porters Five Forces Analysis
Porters Five Forces Analysis
By
Gunja Saluja
2008
Abstract
This paper identifies the international competitiveness of Indian textile industry. The Indian
textile industry is one of the largest in the world, with a huge raw material and textile
manufacturing base. Due to its extensive input, it occupies an exceptional place in the Indian
market place. Today this sector is highly globalised but, it is further organizing itself to crave a
bigger share to become the market leader. This large and ancient industry has carved out a
special niche for itself as a facilitator of the countys economic growth and participative
development. However, since few years this industry was striving to recover from a stage of
stagnation but today it is growing at a very fast pace.
This dissertation elucidates the relevant literature on international competitiveness, and further
describes various macro economic factors which are affecting the economy of India. The
researcher has used qualitative research methods in order to satisfy the objectives of this
research. Later, the findings have been discussed with the industrys SWOT analysis. Lastly,
the conclusion of this study discusses the limitations and recommendations.
Acknowledgement
First and foremost, I would like to thank god for his blessings which helped me in completing
this dissertation. I would also like to express my sincere thanks to my supervisor, Mr. Rajesh
Kumar for his support and guidance throughout this research by answering to my queries. I am
also very grateful to the interviewees, for their cooperation for filling up the questionnaires and
giving interviews.
Most importantly, I would like to thank my elder sister Ridhi Saluja, without whose support
this dissertation would not have been completed.
Lastly, I would like to thank Jaskaran Singh Ghumman for his undying support and strength
during my laborious times.
Table of contents
1.
Page No.
Introduction... 1
1.1
Introduction.. 1
1.2
1.3
Research motivation 4
1.4
Structure of dissertation.. 4
2.
Literature review... 6
2.1
Introduction.... 6
2.2
Competitiveness..... .. 7
2.2.1 Porters five force model......11
2.2.1.1 The bargaining power of buyers........... 13
2.2.1.2 The bargaining power of suppliers... 13
Productivity/. 16
2.4
2.5
2.6 Conclusion..... 22
3.
Industry Profile 24
3.1
3.2
3.3
3.4
Geographical spread..... 29
3.5
4.
Introduction.....35
Modernization...36
Setting up of SEZs....37
4.2.4
37
4.2.5
Texsummit 2007
38
38
4.4
5.
43
5.1
43
5.2
44
5.3
44
6.
45
46
Methodology...48
6.1 Research methodology...........48
6.2 Questionnaires.49
6.3 Interviews.....................49
6.4 Locations for the research conducted..50
6.5 Interpretations of the data50
6.6 Limitation of the research50
7.
7.1
Introduction..................52
7.2
REFERENCES
Chapter 1: Introduction
1.1 Introduction:
The Indian textile sector plays an exceptionally significant role in shaping the economy of
India notably in terms of employment, foreign exchange earnings and share in value added.
This sector is the second largest sector after agriculture (Texsummit, 2007). It has come of age
and is gaining acknowledgment on the world platform with excellent textiles manufacturing
base and availability of massive raw material. India being the second largest producer of cotton
in the world, makes it self sufficient, by providing a competitive edge to its competitors
worldwide in terms of cost of raw material. Along with abundant cotton production, India has
availability of highly skilled labour at very low prices. The Indian economy is fundamentally
dependent upon manufacturing of textiles and its trade.
There are many reasons for this industry being so important for Indian economy as it
contributes (4% of GDP) as well as the countrys export (14% of Indias total exports) and
provides employment to the masses (85 million people employed + additional 12 million
expected to find jobs by 2010) (Texsummit, 2007). The government says that Indias share in
world textile can reach to 8% by 2010 (http://www.fabrics-manufacturers.com). This sector
also enjoys a strategic significance due to its foremost contribution to exports and existence of
enormous small and medium enterprises (SMEs).
With dismantling of the quota system in January 2005, investments in the textile sector have
been raising and the export percentage too has increased drastically (Mayer, 2005). Other
government initiatives such as setting up of SEZs (Special Economic Zones) for textiles, and
allowing 100% foreign direct investment in the textile sector have not only helped in creating
opportunities for Indian entrepreneurs, but also for global investors. The structure of
worldwide trade in textiles also marked a significant turnaround after this period, as all the
textile and clothing products can be traded globally without quota-restrictions. The elimination
of quota restrictions on the export of textiles under the Agreement on textile & clothing did
facilitate India in escalating its market share of its major importers, but the growth rate
remained much below the expectations. The dismantling of the quota regime symbolizes both
an opportunity as well as a threat. It can be an opportunity for the reason that markets will no
longer be restricted and, also the domestic market will be exposed to competition. At domestic
front, robust economic growth, rising demand, increasing consumerism, expanding organized
retail and textile SEZs would provide healthy atmosphere for the growth of industry, whereas it
also act as a threat, as markets will no longer be assured by the quotas.
However this sector has been doing really well and has reached $ 47 billion market (Home
fashion, 2007) but there has been a slowdown in this industry from past few years and the
factors like, rigid labour laws, technology obsolescence, lack of training facilities, low
capacity, fragmented structure, poor foreign investment and infrastructure constraints continue
to trouble the industry .
Today, in the international textile market, China is the biggest competitor of India, followed by
turkey, Taiwan, Mexico, Bangladesh, South Korea, Indonesia and Pakistan which are the
emerging rivals.
It is therefore essential to identify the true competitiveness of Indian textile firms in order to
make a true evaluation of the scenario. This study will therefore evaluate the international
competitiveness of the Indian textile industry. It will reveal the immense potential of the Indian
textile industry which will enable this sector to realize its lawful place in the economy globally.
And further, it will examine the Indias export-competitive performance with respect to United
States and European Union.
years and has had a firsthand experience of the textile market in India. While the market size is
huge and the potential to grow is immense, India is still struggling on many grounds. The
thesis sheds light on the areas that need to be worked upon and also the strategies that can help
the Indian firms to strengthen their position in the world market.
After having done the study, author presumes to see herself in a better position to assess the
scenario of the textile market in India and overseas. Also now for her professional textile
career in future, she feels equipped with a better sense of understanding and a broader
perspective to make choices and decisions in business. The driving force behind this research
was not only the interest in this field, but also her passion to successfully run a textile firm
some day. It definitely made the entire research journey more meaningful and worthwhile.
2.1 Introduction:
Every dissertation includes a literature survey and a development of theory which is relevant to
its scope. Therefore this chapter will now concentrate on the literature element, which has
already paid attention on the issue of Competitiveness, Productivity and Global Expansion in
relation to industry. There are many researchers who have explored the idea of competitiveness
and its importance. This literature review has been prepared by critically evaluating and
exploring the relevant studies that has been carried out by various researchers. It is divided into
five sections which will evaluate the work of various researchers on competitiveness,
productivity, increase in global trade and Family Conglomerates. In Section 2.2 Porters work
is assessed as it is the most significant theory which created debate on competitiveness, along
with the arguments of other researchers as well, followed by Section 2.3 and section 2.4 which
will accentuate the study on productivity and increasing global trade. Section 2.5 will
concentrate on the theory of family conglomerates as it has a great relevance to the industry
that is being researched. And it will conclude with the summary of all above sections.
However, it is important to observe that there is not substantial literature available on this
topic, therefore the research will largely be based on the facts and issues which have been
explored earlier on the topics like competitiveness, productivity and expanding global trade.
2.2 Competitiveness:
21st century began with a lot of turbulence, challenges and many opportunities as well.
Continued existence and success in such turbulent times depends a lot on competitiveness of
the concerned industry. The concept of competitiveness is multidimensional as well as relative.
The core stone of debates on competitiveness was first given by (Porter, 1990) which was also
published later as a book, Competitive Advantage of Nations (CAN). His central idea in this
book was to elucidate the reasons why some social groups, economic institutions and nations
advance and prosperous (Porter, 1990). According to him a global strategy is one in which a
firm sells its product in many nations and employs an integrated worldwide approach to doing
so (Porter, pp 54 1990). He further adds that every business should try to achieve
competitiveness through positioning (Bosch, 1997). Competition, according to (Porter, 1985)
determines the appropriateness of a firms activities that can contribute to its performance,
such as a cohesive culture, innovations, or a good implementation.
Since the dissertation is evaluating the international competitiveness of an industry, it will
therefore highlight the four broad factors of a nations environment that will describe that, how
a firm achieves international success in a particular industry, (Porter, 1990). These four
attributes are now commonly known as national diamond. These attributes are as follows:
Factor
conditions,
demand
conditions,
related
and
supporting
industries,
and
firm/strategy/rivalry. It is the most fundamental unit of analysis given by porter, in which the
function of a single factor cannot be analyzed individually, since the result of one determinant
is dependent on others. The framework has been developed by using the theory of five forces
by porter which will be further discussed.
This model will help in analyzing that why some nations are more competitive, while others
are not, also, there are some industries in the nation which are more competitive than others.
Therefore it will help in understanding a nations comparative position in the global
competition. All the determinants are briefly explained ahead in this chapter. Below fig. 1 is
the model by Porter on The Competitive Advantage of Nation.
Fig. 1 Porters Diamond Model for the Competitive Advantage of Nations
points out that the exceptionally high quality factors can also be one of the most significant
advantage. Every country possesses set of particular factor conditions of its own; therefore, it
will build up its industries for which the particular set of factor conditions is optimal. Further,
the factors can be categorized as general and specialized factors. The general factors which are
commonly known as non-key factors, such as unskilled labour, can be easily obtained by any
other organization. The specialized factors on the other hand are the key factors of production
which are not inherited but created, such as capital, skilled labour, infrastructure which helps in
generating sustained competitive advantage because they cannot be easily duplicated by other
firms.
The second corner of the diamond model is related to various demand factors which have a
direct impact on the pace of innovation and product development in the country. The most
essential attributes of home demand are composition of home demand, the size and pattern of
growth of demand and the anticipatory nature of demand which reflects global trend (Porter,
1990, pp. 86). He argues that it is very important for an economy to have a sophisticated
domestic market. If the buyers in the home country are demanding it motivates the company to
innovate and to meet high standards in order to improve the firms competitiveness constantly
and to achieve national advantage in a country, the home base should provide prior signal of
demand trends to its domestic supplier before its foreign competitors.
The third determinant to achieve national advantage is the presence in the nation of supplier
or related industries that are internationally competitive (Porter, 1990, pp.100). A firm enjoys
more benefits of innovative inputs and cost effectiveness, if the local supporting industries are
more competitive. This effect gets strengthened as soon as the suppliers the various suppliers
become strong competitors globally.
From above all the arguments this can be concluded that it is not necessarily the size of the
base market which matters, but also the degree with which the firms are encouraged to
innovate to achieve competitiveness. Hence, a big home market which will enable to meet the
above three conditions and can successfully compete globally.
The last corner of the diamond model is concerned with structures and strategies developed
by domestic firms. (Porter, 1990, pp. 71) explains it as conditions in the nation governing
how companies are created, organized, and managed, and the nature of domestic rivalry.
Various cultural aspects like working principles, interaction between the employees, employee
- employer relationship, plays a very significant role. Distinctive corporate objectives such as
commitment amongst labor force are also of great significance. All these factors are influenced
largely by the structure of control and ownership.
(Porter, 1990) also argues that to achieve competitive advantage on a more global scale it is
important for firms to understand the trend of domestic rivalry and the strategies played by
them.
Lastly, Government and chance are two such factors which influence the above four
factors, but they themselves are not the determinants. The governments job in porters model
is to act as a catalyst and as a challenger to encourage the firms to inspire them to achieve
competitive performance at a much higher level. Together these six factors structure a system,
thus explaining that why some companies flourish more than others. This model therefore
identifies the degree to which, firms can hold advantage of their home-base, to develop
relations with other countries to become more efficient on a global front.
The above model is further supported by porters five force model which will evaluate the
competitiveness of Indian textile industry.
ii.
iii.
iv.
v.
It also enjoys the availability of cheaper labour cost over many developed countries like US,
Hong Kong, South Korea, Taiwan. It is one of the biggest advantages because of lower wage
rate the overall production cost comes down, giving rise to economies of scale.
The threat of new entrants in the industry increases competition to a great extent. But it also
brings new capacity in the market. Threats seriousness largely depends upon the barriers
present and it also depends that how the existing competitors of the industry react to it (Porter,
1979; Besanko, 2003). In an economy with quota free regime every one aims at capacity
expansion then, but this results into flooded small player in the domestic market since they
cannot venture into global markets. This weakens the pricing scenario for all the domestic
players. Apparently there are no rigid barriers to enter the domestic market in textiles, which
increases the competition even more. For example, even if, the biggest denim exporter (Arvind
Mills), home textiles (Welspun and Alok Industries) or branded apparels (Raymond) think of
consolidation with international companies, even they will also not be able to protect their
margins, unless they are capable of tapping a significant part of the international market
(www.equitymaster.com).
flawed, it has huge potential to compete globally. The following section will now throw light
on the theory of productivity.
2.3 Productivity:
The productivity of a country depends upon the productivity of the companies operating in that
country. As (Dowling, 2008) puts that productivity is the most important determinant in the
long run of a nations standard of living, since it is the root of growth of national per capita
income. The income growth of few developing countries in percentage is given below in
Table 1.
Table1. Income growth of few developing countries
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average
China
8.3
9.1
10
10.1
9.9
9.5
8.8
8.8
8.9
8.7
9.21
India
5.8
3.8
8.5
7.5
8.1
7.6
7.8
7.7
7.28
Pakistan
1.8
3.1
4.8
6.4
8.4
6.5
7.3
7.2
6.9
5.94
Thailand 2.2
5.3
6.2
4.5
4.7
5.5
5.1
5.3
5.08
production, which will measure the labor productivity by no of hours worked. The third
measurement to quantify the productivity is known as the total factor productivity and
measures output per unit of inputs (Blake and Sinclair, 2003). The methodology of expansion
of accounting explains that growth in productivity results from increase in physical capital,
workers ability and total factor productivity (TFP) (Porter and Ketels, 2003). However, TPF
(total factor productivity) do not attributes directly towards capital and labour, but it stresses on
high level of innovation and upgraded usage of technology.
These were some of the competitive measures for an industry to compete with its rivals
globally. Increase in the level of productivity will help a firm, in developing a strong base, in
domestic as well a in the international market. Now, to understand Indias relative
performance, the need for globalization by various researchers is explained to below.
adds that the practical approach pooled with less conservatism direct towards export success.
They also established a theory on negative relation between export performance and
conventional strategies followed by various countries and therefore suggested that if a firm
wants to compete globally conservative behavior will hinder its growth tremendously. Thus
firms trading globally should open up their thoughts and policies if they crave for growth and
expansion in businesses. Globalization has not just changed the face of the developed counties
and cities, but it has shaken the upcoming industrial centers to give them a face lift in order to
remain competitive.
Dowling (2008, p10-11) puts that in the last two years, [the] exports have grown over 25%
per year with China and India included and a very healthy 16% even without China and India
from the Asia pacific region. Both domestic as well as international trade has been on a
remarkable growth. Dowling (2008) further adds that there are many traditional theories that
exist on international trade with various competencies to gain competitive edge. But he
emphasizes on modern international trade theory which is based on the idea of product
differentiation and monopolistic competition to expand internationally. It also highlights the
importance of other factors like, economies of scale and upgradation in influencing the pattern
of trade worldwide. Globalization has also strengthened the substance of new product
development and innovation schemes which are the essential determinants for growth in trade
and the capability of countrys economy to vie in the world market. Table 2 below illustrates
the growth pattern of merchandise exports in percentage in few of the Asian countries:
Table 2: Growth pattern of merchandise exports in few of the Asian countries
2001
2002
2003
2004
2005
2006
2007
China
6.8
22.4
34.6
35.4
28.4
20
17
Hong
-5.8
4.9
12.1
15.9
11.2
11
Kong
Korea
-14
7.9
20.7
30.6
12.1
11
Taiwan
-17.3
6.4
10.5
20.7
8.8
7.4
Malaysia
-10.6
7.2
11
20.9
12
17.8
15.1
Singapore -10.5
5.2
15
24.3
15.7
9.5
Thailand
-7.1
4.8
18.2
21.6
15
15.3
12
India
-1.6
20.3
23.3
23.9
15.8
17
17
Sri Lanka
-12.8
-2.4
9.2
12.7
8.9
This has also been supported by United Nations, (2006) which shows a direct relation between
a countries growth in terms of its GDP and growth in the exports. This report states that,
International trade can help in economic growth and play an important role in growth
divergence across countries. It can be done by improving export opportunities through
economies of diversification or by introducing production activities previously undertaken in
industrialized countries (Dowling, 2008, p-21).
government for growth and development (Prasad and Ghauri, 2004). Although FCs are owned
and controlled by a family, there are other factors that shape a business. These include
national culture and economic policies (Ward, 2000).
In todays highly globalised world, this strategy has immense growth potential and can be an
excellent business partners for Western companies (Cavusgil, 1997; Garten, 1997; Kock and
Guillen, 2001). These markets do not only provide cheap labor and raw material, they also
have ability to generate good revenues. Also there are many companies in industrialized
countries who depend on international markets for both economies of scale as well as profits
(Prasad and Ghauri 2004).
But, there are many western countries, which prefer strategic alliances, due to lack of
experience in such markets (Kock and Guillen 2001). Also FCs comes with certain risks tagged
along. Which includes fragmented infrastructure (sales, marketing), due to which many
important factors gets affected, like; poor distribution systems, narrow communication control,
political instability, improper regulatory discipline and a high level of product diversion
(Arnold and Quelch 1998; Garten 1997a; Khanna and Palepu 1997).
The concept of FCs from the stage of introduction to its internationalization has been explained
in detail by Prahalad and Ghauri. According to them, FCs, most importantly, should realize the
needs of their local market consumers, while making an investment for their enterprise.
Prasad and Ghauri puts that in many countries, for the expansion of FCs, government plays a
very significant role. As supported by (Jones and Rose 1993), this can be in form of tax
incentives, subsidies and special loans. Therefore it becomes very important for them to keep
positive relations with the government.
Foreign coalition: As the FCs grow and reach at the stage of maturity, FCs focus on
competition with domestic rivals and seek out new business opportunities in foreign markets to
increase economies of scale (Kock and Guillen 2001). What arises at this stage is the need for
expansion, extensive access to resources required and organizational knowledge which will
lead them to form joint ventures, international treaties, and agreements on licensing with
Western companies (Kock and Guillen 2001). Another reason of partnership is need to upgrade
administrative and technological capabilities.
As the second or third members of the generation gets involved in the business, who are
usually more skilled and educated, they perhaps start hiring special expert managers of
different fields from outside the family (Jones and Rose, 1993). They might require a new
organizational structure which will meet the challenges of expansion due to international
competition (Prasad and Ghauri, 2004). The common pattern of growth as put by (Dent and
Randerson 1997) is gradual expansion by initiating ventures with a foreign partner, which
involves, importing or exporting inputs, subcontracted components and manufactured goods.
Finally, FCs then have a tendency to penetrate into cooperative agreements which are related
to technical know-how, production and marketing (Luostarinen and Hellman 1994). While
some, by establishing wholly owned auxiliary and joint ventures overseas, and act like world
class corporate (Prasad and Ghauri 2004). As technology becomes vital to retain competitive
advantage, they widen up their company by developing their own technology and R&D centers
(Kock and Guillen 2001).
2.6 Conclusion:
The core objective of this chapter was to identify and then to evaluate the literature on
competitive growth and productivity of developing countries. However, it laid emphasis on
Table 3 Exports of cotton goods from Lancashire to India (In million Yards)
Year
Cotton piece goods
1835
52
1907
2532
1913-14
3159
Like many other countries, the textile sector then became one of the most significant sectors
for the economy of India. Soon after abolition of quotas in 2005 India strengthen itself in
international textile market. It is today Indias most rooted sector which provides direct
employment (formal and informal) to an estimated 38 million people nationwide9 (compared
to the estimated 1.2 million employed in the IT sector, and about 650,000 in the booming
Business Process Outsourcing industry (Tewari, 2005).
An overview of textile export growth from India during last decade has been shown in Figure 4
Figure 4. Indias textile export growth 1991-2003
on the US economy, which has recently reduced the profit margins of Indian exporters due to
depreciation of US dollar.
US dollars. Now, in order to identify the means by which this sector can channelize its
available resources and skills, it is important to understand the structure of Indian textile
industry.
The handloom sector, a section of decentralized textile industry is a highly labour intensive
section that incorporates as a major source of employment to millions of household weavers
along with preserving culture and heritage of the nation. Due to its labour intensive nature, the
sector enjoys various tax exemptions and discounted interest rates by the government and is
often motivated through various government policies and acts (Landes, et.al, 2005).
Source: Self
Northern India, which includes cities like Panipat, Ludhiana, Delhi are the leading
manufacturers and traders of textile goods. Panipat, a district in Haryana and is known by the
name of City of Weaver. It is the biggest textile cluster in India which is well-known for
manufacturing low priced handloom products (Especially Home Products). There are more
than 15000 power looms in the region with the capital investment of Rs. 76.20 crore which
provides employment to 28000 people (Assocham Report, 2008). Total exports from this
district in the year 2005-06 was Rs. 2200 crore mostly to countries like, Germany, Australia,
Canada and Japan. There is also a huge amount of export of carpet from this city which
accounts to Rs. 120 crores, reason being, existence of 65 Carpet woolen spinning units,
manufacturing 72 Lacs Kgs/day Carpet yarn with annual turnover of Rs. 175 crores (Assocham
Report, 2008). Another small city in Punjab, Ludhiana, is a major supply hub of woolen knits,
which is worth $ 200 million to some of the leading fashion houses of EU and US. The capital
city, Delhi, is the leading export axis for apparel is known for its excellent designing and
merchandising skills. The garment retail sector is growing rapidly in this country. It is also
turning out new products such as shoddy and acrylic blankets, tapestry, upholstery, art silk,
polyester, polypropylene and shoddy yarns (Home fashion, 2007).
The southern part of India is a hub for cotton production. Tripura, a city in the east of
Coimbatore city, in Tamil Nadu accounts for 90%of Indias cotton knitwear export, which is
worth Rs. 5,000 crore (Home fashion, 2007). There has been a drastic change since 1980, in
the belt of this small sized, unorganized sector, which recently became more technologically
developed. There are about 7000 units which provide employment opportunities to more than
one million people (Bhushi et al,2004). The export import policy of 2002-2007 made a creditable
tribute for its contribution to the export of India which now calls it a Town of Export
Excellence. Chennai is also one of the largest apparel manufacturing city, especially industries
located in the Ambattur-Padi industrial zone.
Another metropolitan city is Bangalore, has been famous for its silk production since ages, is
now emerging as a technical textile city, including foundation garments and tailored clothing.
It presently accounts for 30 percent of countrys total apparel exports which is amounting to
Rs. 40,000 crore, carrying 1800-2000 textiles and garmenting units in nearby centers like
Salem and Coimbatore (Home fashion, 2007). It has also prompted global brands like Calvin
Klein, Next, Gap and many more.
company to take this decision as it will spread risk by cutting down its dollar billing to half of
the revenue (Reuters India, 2008; Welspun eyes home textile firms abroad).
3. Century Textiles:
Century textiles & industries limited is a Mumbai based company which was started in the year
1897. Today it is Asias one of the biggest cotton textile mill.
In such an extremely
competitive global market, Century's cloth has carved a niche for itself. In the last 20 years
Century Textiles has spent more than US $ 58 million for modernizing the plans and upgrading
its technology. The total sales of this company in year ending 31st March 2008 were 3850
Crores. (www.centurytext.com)
4. Bombay Dyeing:
Bombay dyeing established in 1879, is one of the oldest textile companies of India, is a
flagship company of the Wadia Group dealing into manufacturing and marketing of textiles
and polyester fabrics. Its total sales in the year ending 31st March 2008 was Rs. 959.01 Crores
(www.bombaydyeing.com). It has recently entered into foreign market, a 50:50 Joint venture
agreement for a development project in Mumbai with Larsen and Toubro. The company has
been exporting in many countries like USA, Europe, Australia and New Zealand. An
exceptional strength that this company stands with is its distribution chain all over India, is
controlling more than 600 exclusive showrooms all over (www.myiris.com).
razor sharp focus on each business has facilitated its turnover to reach US $ 1.8 billion
(Datamonitor, 2007). Its key business segments include viscose filament yarn (VFY), carbon
black, branded garments, textiles and insulators with its manufacturing units in India, Thailand,
Indonesia, Malaysia, Philippines, Egypt, Canada, Australia and China (www.jayashreeiril.com).
6. Raymond:
The Raymond Group, established in 1925 and within few years, transformed from being an
Indian textile major to an international conglomerate. With more than 60% of market share in
India, Raymond Ltd. is today the largest integrated producer of fabric in the world
(www.raymondindia.com). With the turnover of about US $ 475.1 million (Datamonitor, 2007)
this group is one of the largest players in Fabrics, denim, cosmetics, air charter and many more.
It also manufactures Kamasutra condoms and high end surgical gloves.
It is vertically and horizontally incorporated to provide their customers total textile solutions.
There are very few companies globally, which offer such a diverse product range of more than
20,000 different range of worsted suiting to cater to customers across occasions, age groups,
and styles (www.raymondindia.com).
4.1 Introduction:
In the last two decades, the Indian textile industry has never looked this self-assured with itself
as it does today. India today is a intensified economy, gaining global attention from all over the
world with government changing its role to facilitate rather than to regulate the industry along
with supportive policies for textile industry and most importantly, the western markets
increasingly accepting Indias differentiated position as a textile source vis--vis the other
Asian industries countries. These all are the factors which have brought in a new perspective to
India as a textile nation.
In an attempt to enhance India's share in the world textile souk, several progressive steps are
being taken by the Government. The Indian government has been acting as a catalyst to
promote this industry; as it is one of the most significant sectors of the economy. To make the
industry more competitive several policies have been introduced by the Government.
Till 1985, the growth of Indian textile sector used to take place in very general terms. It was in
the year 1985; the significance of textile sector in India was realized for the first time. A
separate policy was declared to promote this industry. Later, National Textile Policy was
announced, in the year 2000 which aimed at availability of adequate quality cloth at
reasonable rates, catering to the majority of Indias population (put some ref). It also aimed at
providing employment to a large number of population. The same year also became evident
because the government took initiatives of setting up apparel parks; 2002 and 2003 showed a
gradual decline in excise duties for most types of fabrics while 2004 offered the CENVAT
system on an optional basis (www.dnb.co.in).
4.2.2 Modernisation:
Various other measures have been taken to modernise the textile processing sector in addition
to interest imbursement. The government of India in its Union Budget of 2005-06, announced a
credit linked capital support of 10 per cent (Indian Brand Equity Foundation, 2006). Scheme
for Integrated Textile Park (SITP) has been introduced which is on track to offer world class
infrastructure conveniences for setting up their textile units through the Public Private
Partnership model. Along with that, for procurement of highly developed machines in
powerloom sector; the government endow with 20 per cent of capital subsidy for procurement
of modern machinery in the powerloom sector.
Recently, Indias inclination towards western designers and other international brands (from
UK, Italy, and France) has been observed to enter into a joint venture to cater the domestic
market with more varieties. Carrera invested US$ 252.7 million in textile projects in India
(Indian Brand Equity Foundation, 2006). Many Italian brands like Lotto and Paneria watches,
signed brand franchising deals with Indian players.
Abolition of these quotas correspond to a brilliant prospect for India economy to improve its
global export market share in textile trade by suitable policy response and nurturing an
environment
to
overcome
specific
constraints
now
plaguing
the
industry
(www.thehindubusinessline.com).
Table 4: Export value of textile industry
2004-2005
Export Value US $14 Bn
of
textile
industry
2005-2006
US $ 17.52 Bn
2006-2007
US $18.73 Bn
2007-2008
US $ 21.46 Bn
(Source: Textile Minister, Shri Shankar Singh Vaghela, India Infoline News Service /
Mumbai Aug 13, 2008 10:27)
Table 5. The textile export products America, Under MFA
MFA categories
Product Description
218
219
Duck fabric
225
313
317
362
363
Product Description
Cotton yarn
23
Staple yarn
3 (incl. 3A)
20
39
India market making the export scenario much more competitive than ever. However, the India
government has initiated various reforms to meet the challenges of post-MFA setup, which
intended to encourage huge capital investments and tighten up arduous procedures related to
the tax regime. The Textile Vision 2010 was a result of interaction between the Indian textile
industry and the government which foresees around 12% annual growth in the textile industry
from US$ 36 billion now to US$ 85 billion by 2010. Further, Vision 2010 also intends the
conception of an additional 12 million jobs through this initiative (http://www.dnb.co.in).
4.5 Agreement on Textile and Clothing:
Another most significant outcome was the ATC (Agreement on Textile and Clothing)
agreement by Uruguay Round finally addressing developing countries concerns, as the ATC
was designed to facilitate the integration of the textiles and clothing sector into GATT 1994
(Reinert, 2000) Beyond Phase-out of Quota in Textile and Clothing Trading.
4.6 Appreciation of rupee:
Also, the appreciation of rupee has bought a sharp focus for exporting industries, particularly
the textile sector. The Government is also trying to construct an environment to draw an
investment of Rs 1,40,000 crore in the Eleventh Plan period once the textiles and garment
exports
are
probable
to
rise
from
the
current
$14
billion
to
$40
billion.
(www.thehindubusinessline.com).
Thus, the introduction of such policies led to Indias market presence in world textile market
and increased foreign investment in this sector. And with elimination of quantitative
boundaries on textile goods, liberalisation in huge investment projects and dismantling of
quotas has resulted presence of Indian Market amongst several big brands.
the future can create a 'niche' for itself? And whether India has the capability to market its own
products properly? The author has answered to these questions in the analysis and discussion
section. The following paragraphs will describe the performance of the Indian apparel and
garment industry in the two major markets of world-US & EU.
Indian textile industry is showing phenomenal growth rate recently and is going great guns!
The Indian textile industry registered drastic increase in the exports sale after the abolition of
the quota regime. Currently, India possesses 4 % of global market share which will grow at
least to 8% by 2010 and will have the total value of US $50 billion (Texsummit, 2007).
As believed by Verma (2002), growth in this sector is approaching by the value upgradation of
rather than from capacity expansion. According to the industry sources, first rank in the home
textile is occupied by the terry towels, second by the bath rugs and then follow other made ups.
The increase usage of the wide width looms have resulted in the rise of exports in this segment.
After China and Mexico, India is the third largest exporter of textile to U.S. Lately; China's
URV has declined by 14% whereas on the other hand India has maintained its URV
(Texsummit, 2007 & Confederation of Indian textile industry (CITI).
Terry towel is one of the most renowned exports by the Indian textile industry which is very
popular in EU market. But the period from 1995 to 2007, exhibits the declining trend in both
US and EU markets which is mainly due to the hardening of the prices (FICCI, 2007).
Indian textile industry is facing threats from the many other countries other than China, like
Pakistan, Bangladesh and Vietnam. It is reported that in the year 2007, India was the fourth
largest exporter to US where as Pakistan was above India, it was spotted second (FICCI, 2007).
Indian firms are also performing really well, in the Asia Pacific region. There are many
companies operating Singapore, Japan, and Indonesia. Efforts are also being made to develop
trade between India and various Middle East countries like Bahrain.
Lately, many home textile manufacturers have embarked on introducing collections by using
organic materials. It was recently reported that turkey has been surpassed by India, and is the
largest cotton producer today (Panthaki, 2008). Organic cotton is the cotton that is grown
without using pesticides or chemicals, and is grown in virgin soil. The demand for organic
cotton in increasing tremendously all over the world and is more in the European countries.
Companies in US (Pottery Barn, West Elm) too are going organic. Another important raw
material for textiles, which is gaining demand in the export market, is Jute. Various steps are
being taken by the researchers, to ensure that the quality of jute exported from India, should
match the global market standards.
Chapter 6: Methodology
This chapter will outline the various research methods used by the author to evaluate the
competitiveness of Indian textile industry. To analyze a study there are basically two academic
research methods, Qualitative research approach and quantitative research approach (Saunders
et al. 2003). Both these research methods are used differently for different research purposes.
In relation to data collection for this dissertation, qualitative methods have been used which
includes questionnaires and semi-structured interviews. The research was conducted to
evaluate the International Competitiveness of Indian Textile Industry. It is therefore based on
various competitive advantages that India has over other countries and certain limitations
because of which it lacks to compete with other strong nations.
The dissertation required both, primary as well as secondary data in order to evaluate the
complex global strategies. The secondary data, to analyze the industrys future moves; was
gathered from various books, magazines, companys annual reports, and web access. The
quotations from the interviewees have been used in the next chapter to evidence and support
the analysis. Whereas the primary data collected, was through various interviews and the
questionnaires; conducted with seventeen textile exporters of India that how do they compete
globally. It enabled the author to unfold many important issues and a realistic global scenario
regarding the topic.
6.2 Questionnaires:
For a market research, collecting data from questionnaires is the most common method.
Questionnaires are very economical to gather data from a potentially vast number of
respondents. They are often, one of the most feasible ways to reach a large number of people
(Arnold M. Lund, 2001). Questionnaires are used to collect specific data from market, which
cannot be gathered elsewhere from, for example: books, newspapers and internet access. It is
so because the data collected from this source will be original. The author has used open ended
questions as it allows the respondents to better express their answer as they are most suitable
for an explanatory research.
6.3 Interviews:
Qualitative interviews are often used in an exploratory way which explores the subjective
interpretations of collective experiences. It is a valuable research method for exploring data on
understandings and different peoples opinions about a subject matter. (Arksey and Knight,
1999, p.2, 2007). It can be broadly classified into three types: structured, semi-structured, and
unstructured. The type of interviews used for this dissertation is semi-structured. The quality of
the data gathered in an interview depends on both the interview design and on the skill of the
interviewer (Author Nick Fox).
Gillham (2000) explain that how interviews are one of the best research techniques. Firstly, it
is more flexible, suitable when the sample of research is small, secondly, they are appropriate
when questions are open ended, requiring detailed response, lastly, when the information is
sensitive in character and the interviewee may only reveal it during face-to-face conversation.
Another limitation recognized by the author was, availability of incomplete and broken
information by the interviewees, which aroused due to confidential purposes. The interviewees
were not comfortable in revealing the figures of their companys revenue.
The following chapter will lay down the discussions and authors findings, which will disclose
the limitations of Indian textile industry, along with the recommendations to enhance the
industry future prospects.
that today India ranks second in the world textile market and now the only main challenge it
faces is to beat China. India should therefore focus and work upon its problem areas.
The analysis will now elucidate the competitive performance of India with respect to China in
terms of Infrastructure, labour reforms, international trade trends and government policies.
7.2.1 Infrastructure:
As far as the infrastructure is concerned China is much ahead of India. The Chinese
Government has been investing a lot as compared to India for the development of its
infrastructure, believing that it attracts the foreign investors to a great extent. Now being
specific to the textile industry, the companies operating in China are much more cautious about
the production quality, the technology used, health and education of the employees etc. This is
where India needs to catch up really fast. Particularly the port services in India have been
criticized from all over the world. To be more precise towards different sectors, the port
facilities in India are extremely disorganized and have received criticism from all over the
world. According to the director of Bertling Logistics, Mr. Josi Morreale, "The lack of Indian
port infrastructure is not allowing us to provide service through our own Panamax vessel,
which has resulted in an increase in per unit transport cost by as much as 10%"
(www.mjunction.in). Dowling (2008) also adds that, due to poor port infrastructure, the exports
of textiles of India are at 10% loss with US as compared to other countries like China,
Thailand, South Korea and Indonesia (Dowling 2008, p477). Along with this other
transportation ways, such as roadways and railways also needs to be a lot more developed.
As Mr Ravinder Khanna, The managing director of Sheena exports puts that due to enormous
increase in prices of land (expansion of real estate market) in India and the appreciation of
rupee, the economys overall size is constantly increasing. This gives India advantage over its
biggest competitor China, as the properties are controlled by the state government only. This
restricts foreign investors to setup new industries there. Consequently, it acts as an opportunity
for India.
7.2.2 Labour reforms:
The labour reforms in India are extremely stringent which hampers the growth of textile
manufacturers to a great extent. Mr Manan Saluja, The export manager of Mansarover
Overseas comments that China as compared to India has cheap labour, which is why it attracts
maximum developed countries for their manufacturing activities. He adds that undoubtedly
India also has a vast pool of unskilled labour, but overall production of India goes down due to
obsolete technology base and unskilled human labour. China also has a history of extreme
employment security which has reformed its labour relations drastically and has created a new
labour market, in which workers are highly mobile (http://www.financialexpress.com)
Though, there is a change in this scenario taking place, with increase in the rate of labour
wage in China. India should take advantage of this situation and should also take serious
measures to expertise their labour force. An interviewee Mr. Nimish Arora, The managing
director of Dicitex Dcor says that the government should also take some measures to amend
its inflexible contractual labour laws.
As mentioned before, that China has various facilities for its labour force like heath and
medical centers, India too should make efforts to develop these areas for a better labour force.
7.3.2 Weaknesses:
India, despite of being so self sufficient in factors like cheap labour, raw material, still comes
across many problems to compete in the international market. This is due to its weaknesses
like, fragmented infrastructure which leads to lower ability and hinders the industry to expand.
Large section of the industry is even today engaged in the unorganized sector i.e. powerloom
and handloom sectors (KPMG Report, 2003). The following Fig. 7 shows the degree of
fragmentation in Indian textile industry.
Fig. 7 Degree of fragmentation in Indian Textile Industry
with
special
loans,
with
which
the
later
can
invest
in
latest
machines.
7.3.3 Opportunities:
Though this industry lacks in many areas, but has several opportunities as well, such as
focusing towards research and development in this sector to focus onto new product
development. It will help the Indian companies to grab the larger market share. As commented
by Mr. Ravinder khanna, managing director of Sheena exports that more innovation should be
done to develop smarter fabrics, by using various specialized treatments. Abolition of quotas
is another opportunity for the nation, as it was a complex system of bilateral restraints which
came to an end. The textile trade post 2004, offers many opportunities as various restrictions in
the trade system are removed and it has offered the importing countries to have a wider access
to the world as a consumption marketplace. Also, the industry is moving towards branded
products, which will help India in improving its brand value.
7.3.4 Threats:
As discussed earlier, China is one of the major threats to the Indian textile industry. Apart from
that the structure of the industry in itself is something that needs to be worked upon. The big
Indian players are trying to incorporate the integrated working models of supply chain as the
fragmented structure stands in the way of competing efficiently.
The location of India and its distance from the western countries that it sells to, is another
factor that pulls India back in delivering the best in terms of cost and timeliness.
Neighboring countries like Pakistan, Bangladesh and Srilanka are giving India a tough
competition owing to their still cheaper labour. Though China so far has been considered the
only major competition, but the other neighboring countries mentioned above are also catching
up fast. Lastly, the expiry of the quotas have made the trade free and hence put the firms in an
uncertainty as to the amount of market share they would get.
7.4 Limitations and Challenges faced:
Now after evaluating the competitive performance of India with China, the challenges that are
being faced by Indian firms, can now be identified. The Indian textile industries largely
compete on the following factors:
i.
Quality of products
ii.
Cost effectiveness
iii.
iv.
Though, it has been recognized that India is not utilizing its resources to the fullest and is not
acting upon the above mentioned areas optimally. Therefore there is a dire need overcome
these challenges for India to become the textile leader.
7.4.1 Appreciation of rupee value:
At present, the Indian textile industry is highly disturbed due to economic recession in United
States. The rupee appreciation has taken a toll on the existing thin margins of textile players.
Due to this slowdown in the economy they are bearing huge losses. The hardening of rupee has
also affected the overall textile earnings to a great extent. Many SMEs are laying off their
workers. The chairman of the Clothing Manufacturers Association of India, Mr . Premal Udani
said that around 5, 00,000 jobs are at risk and the export target of $25.06 billion for the year
2008 seems beyond the reach (knowledge.wharton.upenn.edu).
Mr. P.D. Patodia, chairman of the Confederation of Indian Textile Industry reveals in a
conference that "Our competitiveness for the time being has gone away". It has been estimated
that for every 1% fall in the value of the dollar compared with the rupee, profit falls by 1.2%.
(www.knowledge.wharton.upenn.edu). Subir Gokarn, chief economist for Standard & Poor's
Asia-Pacific also comments, "Some exporters will be permanently damaged and not all will
survive.
Authors recommendation:
Since, it has been realized that the Indian exporters are a lot dependent on US buyers, which
has given rise to this terrible situation. Therefore the Indian textile firms should aim towards
expanding their clients portfolio in terms of other countries as well. It will help the firms in
diversifying their risk to a great extent. Along with this the Indian government should take
measures to protect their exporters, so that they do not bear the whole risk. For e.g.: The
government of China has created artificial fixed exchange rates, in which if such situation
arises, it is the government who bears the fluctuations in exchange rates.
7.4.2 Labour reforms:
As mentioned earlier, poor labour productivity in India has been killing economys cost
advantage since very long. One of the biggest factors for deterred FDI is unfavorable labour
policies. Because of this the industrys total output has been very low as compared to other
countries like China. Government of India is not taking enough initiatives to formulate the
labour reforms in India Mr Ravinder Khanna, the managing director of Sheena exports.
.Authors recommendation:
Establishment of flexible labour market can only help this sector, by protecting the workers
from exploitation and catering to their needs. As, the political, social and demographic
structure of India prevent fundamental changes to take place in the existing labour laws.
Therefore, to organize the workforce of this industry the government should develop five year
plans to accomplish this agenda. Along with technical skills, managerial strategic support
should also be provided. For a firm to deliver effective supply chain management, it is very
important to hire people with knowledge in all the related fields. Therefore, fashion and textile
institutes like NIFT should be opened up by the government to provide detailed textile
knowledge to the generation approaching.
Government should establish more textile parks, which will not only provide employment to a
huge number of people but it will also provide those workers with basic health and education
facilities.
7.4.3 Fragmented infrastructure:
There are many exporters who outsource their raw material and other inputs from outside
suppliers. They often face many problems regarding late deliveries, improper transportation,
which disturbs the entire organization (Source: Interviews). However, textile parks and SEZs
are in progress, still there exists, huge transportation cost.
Authors suggestion:
Foreign buyers will always prefer vertically integrated firms instead of firms with dispersed
production units. Therefore to develop the infrastructure of this industry, government should
invest more in this sector. Special loans should be provided by the government to uplift this
sector. The Indian ports should be given special attention along with other transport facilities.
7.4.4 Obsolete technologies and strategies:
The Indian textile industry is far from being sophisticated and up to date. The industry is still
largely dependent on traditional methods of production and dyeing. The handloom and
powerloom sector comprises a huge percentage of the industry. Though these specialized
products help India form a niche in the overseas market, these methods are not the best and
optimal methods of production. This prohibits India to match the production capacity of
competitors like China. The power and water costs in India too are much higher than China and
hence enable China to surpass India in terms of being cost competitive.
Authors suggestion:
Upbeat about the positive trend in the Indian textile sector, the time is ripe for this sector to
attract higher FDI. Once a few overseas players enter the Indian market it would trigger the
momentum for more players to draw closer. Collaboration of Indian firms with international
companies will attract FDI, which can be used in upgrading the technological status of India.
Technology upgradation will therefore help in launching new products of superior quality into
the market. Bu doing so, it will help Indian firms to handle custom made orders, thus helpful in
catering to a niche market. Other product categories in which it needs to enter effectively is
technical textile, which includes, conveyor belts, automobile seat covers. Apart from this, India
should also tap the market of medical textiles (bandages and surgical gloves). It will help the
country improving its global market share. To reform the existing value chain modern
strategies should be adopted. Value added goods should be exported more rather than
exporting just the raw materials (Chaterjee, 2005).
7.4.4 Indias Brand Value:
At the moment the Indias brand value is not at a very influential position. It badly needs to
uplift its image by venturing its products and services in the international market. Not a single
Indian brand recognized at the international level (Trivedi, 2007)
Authors suggestion:
In the present scenario, the trend of industrialization heads towards rising demand structure, in
places like India. Therefore the industry in return should take advantage of its domestic market.
It will help in promoting the brand image of India. Many foreign brands like Mango, Gap,
Esprit, Reebok, and Tommy Hilfiger have already ventured in India. Therefore big Indian
players of textile sector should expand themselves in foreign markets as well. This will help
them in establishing niche market for their (Indian) products, which will encourage India as a
textile economy.
To conclude, this sector needs immense investment for modern technology installation, which
will lead to overall capacity expansion. To enhance the attractiveness of this sector, Indian
government should endow with suitable fiscal incentives to the interested parties. Government
should also encourage, both global manufacturers and small scale manufacturers, to work
together into partnership, as it will help in further boost up in this industry.
Chapter 8: Conclusion
The purpose of this dissertation was to highlight the international competitiveness of Indian
textile industry, which is one of the oldest sectors and hold great significance for its economy.
This has been achieved by assessing the literature that exist on this subject and relating that
theory to the practical world. Until the economic liberalization took place in the country, this
sector was predominantly unorganized. Post 1990s the opening up of this economy led to a
stupendous expansion in this sector. With termination of Multi Fibre Arrangement (MFA) on
January 1, 2005 a plethora of opportunities came in front of the industry.
The competitiveness of this industry can be studied in both the ways, positively as well as
negatively, considering various factors along with it. The industry being so massive in size and
geographically so diverse has immense potential for development and expansion in the near
future. The author, in this study, has examined the international competitiveness of India in
textile sector. She has evaluated the competitiveness of India with other countries in terms of
its production and performance.
There have been several factors (strengths and weaknesses) influencing the performance of
Indian textile firms. Various inherent strengths include availability of cheap unskilled labour,
strong raw material base (cotton, jute, silk), growing domestic as well as international market,
effective supply chain management and variety of distinct local structure. Whereas the
weaknesses which has affected the productivity and have constrained the growth of this
industry includes, highly fragmented infrastructure, rigid labour laws, low foreign investment,
poor domestic policies and usage of obsolete technology. But with government taking several
initiatives to overcome the bottlenecks that hinders the industrys growth, not only the
infrastructure will be improved but with increasing education scenario the productivity will
also be increased as more skilled labour will be available.
Considering the global scenario, for Indian textile industry its major marketplaces are Europe
and US. But, India to be the market leader needs to surpass China, which is its biggest
competitor. It also needs to provide an edge to cater niche market. To cater this type of market,
there is a requirement of continuous innovation process and product differentiation. Since the
Indian industry is dominated by small scale firms, it can optimally cater small orders, whereas,
China is predominantly concentrating only on the mass production. Another added advantage
that India has, is quota restrictions on China that has been applied by US and other countries in
the European market.
Earlier, the industrys growth was quite submissive in overall participation in the world textile
market. It was in mid 1990s when it started receiving orders actively from other countries, but
the experience was at nascent stage. But today, this industry has a very contemporary outlook,
with many effective strategic policies to compete the global market.
The future prospects of the Indian domestic market are also very promising, with strong
increase in GDP, rapid expansion of middle income group accompanied with increasing
purchasing power of consumers. There are many Indian companies planting their subsidiary
units outside the country i.e. US, EU, and UAE. Many mergers and acquisitions are taking
place to draw the attention of foreign investors for better infrastructure and technology. By
summing it all, India is now completely geared up and is propelling towards humongous
growth of the overall industry.
The Indian textile industry is presently worth $ 47 billion and its continual expansion has led
the government to lengthen the Technology Up gradation Fund Scheme in its Texsummit,
2007. This will help the industry to achieve world class quality due to upgraded technology.
According to Ministry of Textiles, (2008) Indias export target of $ 55 billion [will be]
achieved by 2012 keeping following factors [ in consideration]; end of quota regime,
growing world economies, with rising per-capita income, spurring consumption, increased
trade in apparel, driving the demand for fiber, yarn and fabrics, a surge in demand for technical
textiles, a shift from manufacturing/stitching to design-cum-manufacturing and increasing
penetration of high format retail stores.
There are various opportunities knocking the doors of this industry with which it can be the
market leader worldwide. Therefore, to effectively tackle the weaknesses of this sector the
country needs to put high investment in R&D to launch new products and by reducing
transaction cost per unit. It also needs to move towards middle or high end market from low
end market scenario basically to improve their international standards. Another focus area is
organizing the human resource. For higher productivity it is imperative that the workforce
should be skilled and educated. India should also reduce its dependency on the US market, as it
will help it to diversify the possibility of risk.
Abovementioned all the factors will help the country to become a highly competitive player in
global textile market.
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APPENDIX 1
Indias Cotton Trend in Last Six Decades
APPENDIX 2
Sample of the questionnaire used for primary research:
Q.4 According to you what are the strengths and weaknesses of Indian textile industry?
Q.5 How do you envisage/ foresee the growth of the Indian textile industry?
Q.6 How the industry should organize its capacities to meet global buyer expectations?
Q.8 What has been the growth in revenue (%) of your organization?
b. Diversification
c. Marketing initiatives
d. Capacity expansion
e. Modernization
f. Any Other, Please Specify
Q.10 Do you observe any effect on the textile industry due to increase in inflation and
economic slowdown globally? If yes, please elaborate
Q.11 Which market do you cater more, US or EU and why? If any other please specify
Q.13 Do you face any hindrances in cross border transactions? If yes, please specify.
Q. 14 How do you think the industry should the industry channelize its skill-base? India lacks
technology, but it also has one of the lowest labour costs in the world, Comment.
,
Q.15 What kind of concessions and rebates government provides you with?
Contact details:
Name:
Address:
Email id: