This Indian Town Wants To Beat China In Apparel Export

It faces tough competition from not just China, though

01/09/2016 3:17 PM IST | Updated 01/09/2016 3:41 PM IST
Mukesh Gupta / Reuters

Indian clothes maker T.R. Vijaya Kumar thinks it's time for his country to take on Bangladesh, Vietnam and even China for leadership in the global apparel industry.

He's a second-generation manufacturer, who's transformed his small family undershirt business in southern India into an apparel exporter of 1,700 employees and aims to double its sales by 2020. When it comes to his hometown of Tiruppur, which is often referred to as the knitwear capital of India, his ambitions are even greater: tripling exports and adding 500,000 jobs in the process.

"The next China will be Tiruppur," Kumar said one August evening from the offices of his company, CBC Fashions Pvt., as he showcased a hard-cover action plan for the city that he and other manufacturers sponsored. "The cost of production has gone up in China, they are phasing out textile. Opportunities will go to other countries, so we are to grasp it."

The trouble is that other Asian nations are way ahead. India's $17 billion exports of apparel were about half as much as Bangladesh's last year and its 3.7 percent global market share lagged behind Vietnam's 5.1 percent. Closing the gap is crucial: Apparel is a labor-intensive industry, which has historically helped developing economies transition out of agriculture. The Indian economy needs to generate 80 million new jobs by 2025 to keep up with its fast growing young population.

Prime Minister Narendra Modi's biggest failure so far has been an inability to boost employment, according to a recent poll ahead of as many as seven state elections in 2017.

His government recently announced a nearly $1 billion package for textile and garment makers, including subsidies for hiring, tax refunds and relaxation of overtime rules with a goal to create 10 million jobs and boost exports by $30 billion in the next three years. ICRA Ltd., the local unit of Moody's Investors Service, called the target challenging as demand slows in importing countries.

"The window of opportunity is narrowing and India needs to act fast if it is to regain competitiveness and market share in apparels," Arvind Subramanian, the Finance Ministry's chief economic adviser and Rashmi Verma, the Textiles Secretary, wrote in a June op-ed explaining the measures.

Adding to the challenge, the textile industry suffered a reputation blow last month, when Target Corp. terminated $90 million of business with Welspun India Ltd. for labeling cheaper bedsheets as premium Egyptian cotton.

Automation Threat

A key weakness of the sector is worker productivity, which is almost three times lower than in China. That's in part because Indian apparel manufacturers tend to be unregistered and smaller than in competing countries, limiting the use of modern production technologies and the capacity to take on large orders, according to a study to be published next year by the Asian Economic Policy Review, a biannual journal from the Japan Center for Economic Research.

That gap could widen as foreign garment and textile producers continue to embrace automation. "India needs to start climbing the ladder fast to take advantage of its young population," said Russell Green, an international economics fellow at Rice University's Baker Institute for Public Policy in Texas. "Automation is making the ladder shorter and shorter over time."

About 78 percent of Indian companies employ less than 50 workers, compared with 15 percent in China, according to Subramanian. That also means a lot of them remain below the threshold of government taxes and regulation, known by economists as the "informal" economy. A World Bank report released this year showed that Bangladesh had 15 times more garment workers formally employed than in the informal sector, while India has about seven times more informal garment workers than formal.

Among them is Venkatachalam Babu, a small business owner who pays workers by the piece. In a workshop attached to his home, his staff of 12, including two family members, cut and stitch children's underwear and pants from leftover fabric he buys from exporters.

While foreign markets are out of reach, Babu can bank on a fast-expanding domestic market that smaller rivals don't have. Once an employee himself, he started his company 20 years ago with four workers. He'll register it, he said, when the headcount crosses 20 people.

"We want to grow big," he said as his mother sat cross-legged on the floor sorting pieces, surrounded by bags of fabric. "A problem is labor shortage."

Off Season

As surprising as it may sound in a country of more than 1.2 billion people, Babu's complaint was echoed by all four manufacturers interviewed by Bloomberg in Tiruppur, a district of 2.5 million people where the housing capacity hasn't kept up with a growing migrant population. Kumar's action plan calls the shortage of skilled labor "the single major threat to the growth of textile industry," and recommends building 100,000 houses and dormitories for 300,000 people.

There's more holding India back. A focus on cotton garments limits its access to the winter clothes market, while buyers perceive the country as slower and less reliable than China or Vietnam, according to the World Bank report. In neighboring Bangladesh, where garments account for 80 percent of overseas shipments, the monthly minimum wage is about 30 percent lower than India's $105, and exporters don't pay duties to the European Union.

"With the duty preference for Bangladesh, it becomes very difficult for Indian companies to compete," despite India's large cotton production, said Anil Gupta, an analyst with ICRA. The industry "is surviving on government incentives," that help businesses stay profitable and continue hiring, he said.

Overall goods exports grew 3.2 percent in the three months through June, showing signs of a rebound after contracting for five quarters, the government said Wednesday.

Still, India's not as committed to its garment makers as Bangladesh is, said M. Arul Saravanan, chief marketing officer at SCM Garments Pvt. in Tiruppur, which has 15,000 employees and counts French giant sports retailer Decathlon SA among its clients. Signing trade agreements and stabilizing cotton prices would go a long way to spur investment, he said.

Tiruppur exporters have also joined forces to lower costs by educating companies on "lean" production management techniques and training factory staff to raise output. The government is partly funding the programs.

Kumar said the push was inspired by Modi, who during a 2013 campaign stop told the manufacturers to make proposals to expand, rather than just list concerns. Now the group hopes to take its action plan to the capital, 1,500 miles north, and have Modi mobilize all ministers at once.

"To compete, we have to bring new startups in India, we have to reduce our costs of operation," Kumar said. "That's why we are asking our Prime Minister to have a meeting in Delhi -- like Tiruppur clusters, we have to make more clusters in India."

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