Strategy For Increasing India's Share in Global Exports of Made-Ups

Welspun Group | Textiles
Strategy for Increasing India’s Share in Global Exports of Made-ups

April 7, 2015, FICCI
1
Significance of 2015 for Global Textile Industry
Emergence of Quota Free World – 1st January, 2005
It’s a decade of Quota Free World.
2
Consuming World and Producing World
Consuming Countries
Producing Countries
3
Global Share of Textile & Made Ups Exports (Excluding Apparel)
Global Export of Textiles – 2005 (Value %) Global Export of Textiles – 2014 (Value %)
Others Japan Others

Japan 8% 2% 11%
3% China Pakistan
Pakistan 20% 3%
3% Chinese Taipei China
3% 35%
Chinese Taipei
5% Hiong Kong, China
4%
Hiong Kong, China
7% Korea, Rep.
European Union (28) 4%
35% Turkey
Korea, Rep.
5% 4%
Turkey United States
3% 5%
United States India
6% 6%
India European Union (28)
4% 24%
Value of Exports - US$ 218 bn Value of Exports - US$ 338 bn
China has emerged as most competent Textile Economy in Quota Free World.
Source: UN Comtrade, Wisedge Analysis
4
Global Textile Market
US$ bn Global Textile and Apparel Trade Category wise Share of Global Trade (2013)
1400 Other
5.9% CAGR 6.6% CAGR 1180 10%
1200 Made Ups
4%
1000 Fibre
6%
800 723 770 Yarn
707 7%
Apparel
600 56%
473
400 Fabric
17%
200
0
2005 2011 2012 2013 2020
Global textile and apparel trade recovered in 2013 and is expected to grow @ 6.6% for
next 7 years and reach a size of US$ 1.18 trillion by 2020
Source: UN Comtrade, CII Knowledge report and Wisedge Analysis

5
Steady Growth in Made Ups Global Trade
Global Made Ups Trade Trend

40.0
35.0 1.5 CAGR 2005-12

1.5
1.4 1.4
30.0 8.2 5%
7.7 Table Linen
1.2 7.4 7.2
25.0 Other Home Linen 7%
6.3 Bed Linen
US$ bn
20.0 1.0 12.5 Furnishing 6%

11.8 Blankets
4.5 12.0 11.2 6%
15.0 10.4 Grand Total
10%
7.6
10.0 8.0 8.5 6%
7.6 7.6
6.8
5.0 5.1
3.3 3.9 4.4 4.8 5.3
2.3
0.0
2005 2010 2011 2012 2013 2014
Home textiles / made-ups trade has grown at a steady pace with bed linen having the
highest trade share and higher growth in Blankets
*Data for 2013 and 2014 is being extrapolated on the basis of CAGR 2005-12
Source: UN Comtrade
6
Made Ups Exports Leadership - FY2012-13

Global Exports of Made Ups - FY 2012-13 (Top 5)
48%
10% 8%
5%
2%
China Pakistan India Turkey Bangladesgh 3630 365
7
China’s GDP Per Capita

GDP Per Capita – China (2000 – 2013
8,000
7,000 6,807
6,000
5,000
4,433
current US$
China
4,000
3,000
2,000
1,490
949
1,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in
the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making
deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars.
Source: worldbank.org
8
Agenda
1. Learning from China’s Strategy
2. Shifting International Trade Pattern
3. India’s Strategy
9
Agenda
10
Comparison of GDP Per Capita

GDP Per Capita - India vs China (2000 – 2013)
8,000
7,000 6,807
6,000
5,000
4,433
China
current US$
4,000 India
3,000
2,000
1,490 1,417
1,499
949
1,000 740
457
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in
the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making
deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars.
Source: worldbank.org
11
China – 2005 to 2015
• Global Hub for manufacturing

• World’s largest manufacturing economy
• World’s largest exporters of the goods [$2.34 trillion (2014)]
• World’s largest economy by purchasing power parity (PPP) [$19.230 trillion (PPP; 2014)]
• Second largest importer in of goods [$1.96 trillion (2014)]
• GDP - $9.24027 trillion (current US$, 2013)
• GDP per Capita - $6,807 (current US$, 2013)
• Average Growth Rate - 10% (over past 30 years)
• Population below poverty line - 6.1% (2013)
• Labour Force - 787.6 million (2012)
• Unemployment - 4.1% (Q2, 2014)
Source: worldbank.org, www.wikipedia.org

12
China’s Game Plan
To build-on the strength of the large population, a low skill
industry to alleviate poverty and to build infrastructure for
future value added high-tech manufacturing.
13
China’s Strategy
• Aggressively Adjusting Industry Structure
o China government made some aggressive decisions and executed them in disciplined way.
• Artificially Undervalued Currency

o In 2005, China held Renminbi (Yuan) at undervalued rate by pegging it to USD.
o This led to improve competitiveness of Chinese textile exporters.
• FDI
o Increased flow of Foreign Direct Investment by foreign companies established through
Joint Ventures employed investments on machines, plant, technology and skills.
 Location of parks near Coast Line

• Textile parks are located near coast line to strengthen supply chain
 Economies of Scale
o Large scale manufacturing unit to gain economies of scale
14
China’s Strategy
• Improve Competence by Shifting Focus from Pricing to Costing
o Low price points to gain market share
 Focus on Total Costs Superiority

o Efforts was made to reduce all the cost elements such as labour cost, cost of materials etc.
 Compliance of Social and Labour Standards

o Adherence to compliances like social responsibility, child labour, health and safety,
e.g. SA 8000 widely adopted by Industry.
• Strengthen Supply Chain

o Focus on making an efficient system and optimum resource allocation
o Enlarge market, build up more marketing channels and gain controlling right in global
supply chain.
o Development of Industrial Parks near coastal area.
15
China’s Strategy
 Aggressive Skill Development Programme

o Vocational and Education training integration with Schooling.
o Stipend programme for Secondary School Education in rural areas
o Regulations in Law such as “Citizens shall have the right to receive vocational education.”
16
Skill Development: The Chinese Model

VET System in China – School and Outside school system
Vocational Education and Training (VET)
School based Outside School System
Primary Education Pre-employment

Adult training, Re-
training, On the job
employment training
training
Junior Secondary Vocational Junior Secondary

• Employment Training Centre
• Private Training Centre
• Enterprise sponsored Training Centre
• Vocational Senior Secondary • Senior Skilled

Senior Secondary Vocational Senior Secondary • Regular Specialised Secondary • Workers
• Adult Specialised Secondary School
• Skilled worker / Technical Schools
General Higher • Junior vocational/specialised colleges

Education Vocational Higher Education
• Technician colleges
• Polytechnic colleges
Employment
17
Number of Vocational Training Institutions and Trainees in 2006
Number of Training
Type Institutions Number of Trainees
Technical Schools 2,855 27,03,000
Employment Training Centres 3,289 79,72,000
Private/Civilian-run training centres/NGOs 21,425 1,90,50,000
Enterprise-sponsored training centres 22,000 3,00,00,000
Source: www.ccsenet.org, International Business Research, Vol.1- No.3, 2008

18
Sources of Educational Funds

Year 2010
Amount Sources of Fund for Education

Source
(billion Yuan)
A. Government Appropriation for Education 1467.01

B. Funds from Private Schools 10.54
3% 1% 1%
C. Donations and Fund raising for running 10.79
schools 21%
D. Income from Teaching, Research and

other Auxiliary Activities and Tuition & 410.61
Miscellaneous Fees
E. Other Educational Funds 57.24
75%
Total Fund (A+B+C+D+E) 1956.18
Government Finances
Income from Teaching and Research
1956.18 bn Yuan = INR 19,75,742 Crores [@ Exchange rate – 1 CNY = 10.1 INR] Other Educational Funds
Funds from Private Schools
Donationas and Fund raising
Source: www.ccsenet.org, International Business Research, Vol.1- No.3, 2008

19
Agenda
20
Shifting International Trade Pattern
• After setting the trade free from quantitative (quota) restrictions, USA and EU have tried to
influence the trade by creating trade blocks and preferential access by means import
duties.
• USA, EU and Japan traditionally had threat perception about each other ……. For the first
time these three are joining hands for trade.
TPP (Trans Pacific Partnership) (12 Countries)

Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA and
Vietnam
TPP covers product standards and …..
Intellectual Property rights, FDI, Competition policy, Environment, Labour, State owned
Enterprise policies, E-commerce, Govt. Procurement, Technical Barriers to trade,
transparency in Health care technologies and pharmaceuticals regulatory coherence.
21
Shifting International Trade Pattern
• TPP controls over 35% of World Trade (Over 50% along with TIPP).
• The Countries outside TPP will suffer loss of market access due to non tariff measures.
• TPP is likely to be “Yarn Forward” ROO (Rules of Origin Agreement).
• The Chinese Textile Industry is shifting base to Vietnam.
TIPP (Trans Atlantic Trade and Investment Partnership)

USA and EU
RCEP (Regional Comprehensive Economic Partnership) (16 Countries)

China, Japan, South Korea, Australia, New Zealand , India, Brunei, Myanmar, Cambodia, Indonesia, Laos,
Malaysia, Philippines , Singapore, Thailand and Vietnam
GSP+ by EU to Pakistan
Huge disadvantage for India as need to face loss of 9.6 to 10%
22
EU-India FTA
• EU- India FTA being discussed for a long time.
• Major beneficiary is going to Textiles & Apparels sector.
• It will help Indian Textile Products become cost competitive w.r.t. other competing countries like
Pakistan, Bangladesh & Vietnam
Job Creation
Rise in Trade
Purchasing Power
Free Trade New Investment

Agreement
It is projected that once the FTA is signed, Indian Textiles & Apparels exports are set to increase by
US $ 5 Bn.
23
Various FTAs
• Vietnam is the only Garment
TPP Producing country.
• If TPP comes into force then
Canada TIPP
EU Vietnam will have a preferred
Vietnam Chile USA
access to US market.
India Mexico • China is likely to use this
Peru opportunity by migrating
textile industry to Vietnam
Australia
Japan
New Zealand
Brunei Malaysia
Malaysia
Singapore
Vietnam
AIFTA
RCEP TPP – Trans Pacific Agreement
Indonesia, China TIPP – Trans Atlantic Trade and
Philippines, India Investment Partnership
Thailand, Laos RCEP - Regional Comprehensive
Myanmar Economic Partnership
Cambodia AIFTA – ASEAN – India Free Trade
Area
India’s Position in Global Market
2nd 14.1%
Largest Employer in India. Employs Contribution to Industrial Production of
around 35 Mn workforce country.
4% 17%
Contribution to India’s GDP Contribution to Exports Earnings FY12-13
22% of World Highest # looms World’s # 1 World’s # 2 World’s # 1

Spindles in World Producer of Jute Producer of Silk Producer of Cotton
Capacity 25 25
India's Textile & Apparel Exports 2013-14 (%)
Others
6%
Made Ups
12%
Apparel
40%
Fibre
12%
Fabric
12%
Yarn
18%
Apparel constitutes about 40% of India’s textile exports, whereas Made Ups at 12%
Source: Office of Textile Commissioner
26
Individual Product Cost

Contribution of various factors in Product Cost
4% 4%
3% 1% 4%
1%
1%
1%
5%
6%
57%
3%
4%
7%
1%
Raw Material Labour Power Cost Water Cost Steam Cost

Dyes and Chemical Packing Material Stores & Spares Repair & Maintenance Capital Interest Rate
Depreciation Plant Overheads Marketing Expenses Corporate Expenses Other Cost
Key elements such as Raw material, Labour, Power , waster and Steam cost contributes
more than 74% of cost of the product.
Utility cost comparison
Comparison with Competitors in 2012
Parameters India Bangladesh Indonesia Egypt China Pakistan Turkey
Labour wages (US $ / month) 135 87 226 226 328 127 839
Power Rate (US cents / Kwh) 11.29 8.13 8.51 3.49 12.29 10.62 10.24
Raw Water Cost (US cents /

39.57 29.26 49.19 10.48 53.26 25.67 30.73
m3)
Steam (US cents / kg) 1.44 1.3 1.16 1.75 1.64 1.24 2.1
Capital Interest Rates (%) 8 13 9 11.5 5 to 6 7 10
Source: Texprocil Benchmarking Report

28
Utility cost comparison
Comparison with Competitors in 2012
Parameters India Bangladesh Indonesia Egypt China Pakistan Turkey
Labour wages (US $ / month) 135 ``

87 226 226 328 127 839
Power Rate (US cents / Kwh) 11.29 8.13 8.51 ``

3.49 12.29 10.62 10.24
Raw Water Cost (US cents /

m3)
39.57 29.26 49.19 10.48 53.26 ``
25.67 30.73
Steam (US cents / kg) 1.44 1.3 ``

1.16 1.75 1.64 1.24 2.1
Capital Interest Rates (%) 8 13 9 11.5 `` 6

5 to 7 10
As India is not competitive in utilities, need to concentrate on improvement of these areas through Skill
Development, Labour Reforms, Government support.
Source: Texprocil Benchmarking Report

29
Agenda
30
India’s Strategy
India need to build a strategy to capture maximum share in
consuming world i. e. US and Europe.
India needs to take cognizance of shifting global trade patterns
due to various FTAs
31
Adverse Factors
• Vanishing Export Incentives due to GST implementation and WTO
compliance.
• Higher cost of Finance because discontinuation of interest subvention
scheme.
• Continues to have low labour efficiency and productivity compared to China.
• Continues to be poor deficient so have no scope for low power rates.
32
SWOT Analysis – Indian Textiles Industry
STRENGTHS WEAKNESSES
• Abundant RM Supply • Low efficiency
• Low wages • Lower Productivity
• Large skilled/unskilled population • Lack of scale of economies
• Exchange rate
OPPORTUNITIES THREATS
• Free Trade Agreement with EU • Trans-Pacific Partnership

• Rising incomes, spending power in • Competition from Free Market Access
domestic market Countries
33
Opportunity for Cotton Made

Ups Business
34
Competitive Advantage
35
Ensured availability of
manpower
36
• Labour Reforms
• Skill Development
37
• Large Mega Parks

• Encourage large private
Integrated Manufacturing
unit by incentives
38
Exporters should hedge the

risk of rate fluctuation
39
• Exchange rate

40
EU-India FTA
• EU- India FTA has many resolved and unresolved

demands, those are listed as below:
Sr # Demand State
1 Textiles Resolved
2 Automobile Sector Unresolved
3 Financial Services Sector Unresolved
4 Legal Sector Unresolved
5 Whisky and Wines Almost Resolved
6 Accountancy Unresolved
7 Government Procurement Unresolved
8 ITES (EU wide Work Permit) Unresolved
Status of Data Secured
9 Unresolved
Nation
41
• Exchange rate

42
Strategy
• Availability of Raw Material and Manpower
Abundant raw material and large population definitely support the strategy to build large volume of
made ups from India.
• Labour reforms should be aggressively pursued and aggressive Skill Development programmes
should be launched
Continued low efficiency and low productivity of labour needs to be addressed through Labour
Reforms and Skill Development.
• Support Large Scale Operations
The Government should support large mega parks and private large integrated manufacturing units
for made ups manufacturing to maximise the scale of operation.
43
Strategy
• Setup Mega Textile Parks near Port Cities

Government should encourage to setup Mega Textile Parks and Large Integrated Textile
Manufacturing units near port cities to minimise the time for Inland transportation.
• FTA with EU – An Opportunity for Indian Textiles

The Government should freeze FTA with EU at earliest. This will give India advantage over
Pakistan.
• TPP (Trans Pacific Partnership)

India should join TPP to avoid isolation.
44
Strategy
• Encourage social and labour compliance to facilitate joining TPP

Indian exporters need to be social and labour compliant to get into TPP. Thus Government
should encourage exporters adhere to social and labour compliances by giving them incentives
• Launch of WTO compatible scheme

India should launch WTO compatible incentive schemes to restore the incentives
• Announcement of Interest Subvention Scheme
Interest subvention scheme for made ups and whole textile industry should be announced to
lower down the cost of finance.
45
Thank you !!
46

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Welspun Group | Textiles

Strategy for Increasing India’s Share in Global Exports of Made-ups

Significance of 2015 for Global Textile Industry

Emergence of Quota Free World – 1st January, 2005

It’s a decade of Quota Free World.

Consuming World and Producing World

Global Share of Textile & Made Ups Exports (Excluding Apparel)

Others Japan Others

Value of Exports - US$ 218 bn Value of Exports - US$ 338 bn

Global Textile Market

Source: UN Comtrade, CII Knowledge report and Wisedge Analysis

Steady Growth in Made Ups Global Trade

Global Made Ups Trade Trend

35.0 1.5 CAGR 2005-12

20.0 1.0 12.5 Furnishing 6%

Made Ups Exports Leadership - FY2012-13

China’s GDP Per Capita

1. Learning from China’s Strategy

2. Shifting International Trade Pattern

1. Learning from China’s Strategy

2. Shifting International Trade Pattern

Comparison of GDP Per Capita

China – 2005 to 2015

• Global Hub for manufacturing

Source: worldbank.org, www.wikipedia.org

China’s Game Plan

To build-on the strength of the large population, a low skill

industry to alleviate poverty and to build infrastructure for

future value added high-tech manufacturing.

• Artificially Undervalued Currency

 Location of parks near Coast Line

 Focus on Total Costs Superiority

 Compliance of Social and Labour Standards

• Strengthen Supply Chain

 Aggressive Skill Development Programme

Skill Development: The Chinese Model

School based Outside School System

Primary Education Pre-employment

Junior Secondary Vocational Junior Secondary

• Vocational Senior Secondary • Senior Skilled

General Higher • Junior vocational/specialised colleges

Number of Vocational Training Institutions and Trainees in 2006

Technical Schools 2,855 27,03,000

Employment Training Centres 3,289 79,72,000

Private/Civilian-run training centres/NGOs 21,425 1,90,50,000

Enterprise-sponsored training centres 22,000 3,00,00,000

Source: www.ccsenet.org, International Business Research, Vol.1- No.3, 2008

Sources of Educational Funds

Amount Sources of Fund for Education

A. Government Appropriation for Education 1467.01

D. Income from Teaching, Research and

Source: www.ccsenet.org, International Business Research, Vol.1- No.3, 2008

1. Learning from China’s Strategy

2. Shifting International Trade Pattern

Shifting International Trade Pattern

TPP (Trans Pacific Partnership) (12 Countries)

TPP covers product standards and …..

Enterprise policies, E-commerce, Govt. Procurement, Technical Barriers to trade,

transparency in Health care technologies and pharmaceuticals regulatory coherence.

Shifting International Trade Pattern

• TPP is likely to be “Yarn Forward” ROO (Rules of Origin Agreement).

• The Chinese Textile Industry is shifting base to Vietnam.