Textile Industry in India & Vietnam - Essay Example

? Textile Industry in India & Vietnam TEXTILE INDUSTRY IN INDIA & VIETNAM Introduction All industries or organizations in the world are influenced by factors such as environmental, legal, technical, social, economic, and/or political factors. In addition to these factors one must necessarily consider the impacts that factors such as emerging markets, globalization, competitive environment, and labor issues impact upon the viability and health of an industry and/or entity/organization. For purposes of this particular analysis, the author will consider the nations of India and Vietnam with respect to the textile industries that are represented in both nations and seek to come to a broad and overarching understanding of the means by which these systems could engage to maximize competitiveness within the industry. In this case, the paper has defined the Indian and Vietnamese textile industry’s macro-economic environment through a an economic analysis in order to illuminate the key factors that can be utilized to maximize the efficiency and competitiveness of the industry. Up to the point where the Indian economy was liberalized, the textile industry in the country was essentially disorganized. However, the industry has now risen to being the second biggest textile industry in the world; second only to China. In this way, textiles account for 38% of total exports in the country; therefore making textiles an industry of extreme importance upon which a great deal of India’s economic strength relies upon (Singleton, 2007, p. 22). Comparatively, the textile industry in Vietnam is one of its largest industries; as well as a key economic contributor. Textile exports from Vietnam, despite the economic difficulties facing the country, have continued to improve with present goals aimed at becoming the third largest textile exporter after China and India. The factors discussed in this paper affecting the Indian and Vietnamese textile industries such as political factors are vital since lack of stability would adversely affect it. Because the economies of Vietnam and India are dependent largely on the manufacture and export of textiles, which accounts for 29% and 27% of foreign exchange respectively, social and economic factors are also important as factors of influence (Nash, 2007, p. 21). Analysis of Macro environment in India & Vietnam Firstly, with respect to the GDP of these systems, the researcher can readily note that Vietnam represented a 2011 GDP of approximately 129 billion USD whereas India represented a GDP for the same period of approximately 1.85 trillion USD. Although the overall size of the Indian economy dwarfs that of Vietnam, this cannot be understood in and of itself as a defining factor or differential between the two. Ultimately, the extreme differential in GDP can be understood as a function of the overall population differential that is extant between the two nations. Whereas India represents a population of well over 1.24 billion, Vietnam only boasts of a total population of around 88 million individuals. As a function of this differential, is it easy for the researcher to understand why the overall GDP differential is as expansive as it has been represented in the figures displayed. Comparatively, Vietnam has experienced a rapid rise in per capita income over the past decade. Whereas just a few brief years ago Vietnam struggled with massive amounts of poverty with many of its citizens earning less than 150 dollars per year, the rapid rise in the growth of Vietnam’s middle class and a high level of industrialization and trade has meant that the average per capita income has risen to nearly 1,130 per year by 2010. This rapid rise in the average per capita income in Vietnam can be attributed to a host of factors; however, for purposes of this analysis, it would not be unreasonable to assert that the rapid growth in the textile industry in Vietnam has been one of the main contributing factors to spurring economic growth and benefitting the overall quality of life for many of the citizens of the nation. Whereas one might be tempted to state the textile industry offers few prospects or benefits and ultimately harms an economy, Vietnam serves as proof positive that this level of development, although engendering many drawbacks, can help to raise the standard of living for the affected populace. Similarly, with regards to the Indian GDP, this is also a figure that has experienced surprising growth within the past several years; albeit nowhere near the level which has been represented in Vietnam. As such, the Indian per capita income level as of 2010 is 1,219 dollars per annum. Although this is nominally better than Vietnam, it represents a slower growth potential and is not expected to rise as rapidly within the next decade; partly due to the fact that India’s population is very large that any rapid gains in per capita income would provide an destabilizing influence upon the means by which the economic development would establish itself among such a broad population base of shareholders (Goswami, 2010). Further, the Indian economy’s inflation rate has hovered between 6-10 percent over the past 10 years. This stands in stark contrast to the wildly vacillating level of inflation that has been exhibited within Vietnam during the same period. Although it is not the point of this particular analysis to elaborate upon all of the factors that have driven the Vietnamese inflation rate to such wild fluctuations over the past ten years, one of the largest and most omnipresent determinants has been the increased integration that the Vietnamese economy has experienced as a result of further trade and development. Whereas India’s economy has developed at a steady pace, Vietnam has experienced rapid levels of growth that have forced the central bank and regulatory mechanisms of the economy to allow a level of exchange and flotation with regards to the currency; thereby having strong impacts upon the extent and level of inflation that has occurred within the past 10 years. A further extremely important level of macroeconomic indicators with relation to these two nations is the level of unemployment that is exhibited within each. For Vietnam, this figure is estimated to be approximately 3.5% whereas in India it is closer to 9.8%.1 Once again, the differential that exists between the two can be understood not as a function of overall development but as a function of the sheer size of India’s population as compared with that of Vietnam and overall level of education. Similarly, the two nations are also comparable with regards to the CPI that they have exhibited over the past few decades. Figure 1.0 illustrates the CPI that India has represented. Although fluctuations have occurred, as can be expected, the CPI has remained relatively constant as a function of the average over the years. However, with regards to the CPI as it exists in Vietnam, there are no outside sources that can confirm the levels that the Vietnamese government states. As a function of the level to which the Communist Party controls prices and seeks to peg the currency to a stable rate, it is the claim of the claim of the Communist Party of Vietnam that CPI has remained nearly constant with only few tenths of a percent growth from year to year. However, it is the belief of this author that such figures are not believable due to the fact that no other nation on earth can boast such a level of independence from economic indicators as what Vietnam is claiming (Roy, 2010). With regards to overall productivity, the Indian economy has experienced great strides within the past several decades and is knocking on the door and closing the gap of Chinese dominance in the Asia-Pacific region. For instance, whereas China boasts a GDP per person employed rate of nearly 8.5, India has increased its performance level to approximately 4.6. Although this narrows the gap between the two, it still denotes the high level of development that remains to be effected on the Indian economy as it continues to strive to provide a more productive exemplification of its workforce. Conversely, with relation to Vietnam, India still lags slightly behind as Vietnam expresses a labor productivity rate of nearly 6.2. Moreover, seeking to draw an inference regarding overall level of competitiveness with regards to labor costs in Vietnam and India, the results of the analysis have concluded that the differential is so slight that the ultimate determination of trade and markets as well as overall proximity to the consumer are the key determinants rather than per unit labor costs (Bhandari & Pradip, 2009). Furthermore, another macro-economic indicator that this analysis will consider is the fact that India’s economy over the past five years has exhibited a negative trade balance that has fluctuated between -700 to -800 billion USD. Comparatively, Vietnam’s trade balance is much smaller but also in the negative; approximately -87 billion USD per year. Although these figures may be surprising due to the fact that these economies are supposedly establishing themselves within the global market and experiencing a sizeable amount of success, the negative trade balances are naturally born out of the need to modernize and rapidly invest in the means of production that allow them to be competitive in the first place. Similarly, FDI has been analyzed and has been determined to equate to 10.46 billion USD for Vietnam in 2012 and 47 billion USD for India during the same period (Singleton, 2007). A final similarity between the two nations is the fact that they are both members of ASEAN and integrate together with one another both in terms of their economic strengths, reliance on trade with one another, and specialization in the means of post industrial production that they both engage in. Textile Industry Analysis in India & Vietnam India textile industries can be classified broadly into unorganized and organized. Prior to the 90s, the industry was relatively small and unorganized with real potential for growth. The opening of the economy in the 90s led to stunning improvements in the industry. The Indian economy is, today, dependent largely on textiles. The industry contributes approximately 14% of India’s total industrial production. In addition, the industry contributes around 3% of India’s GDP with the numbers increasing steadily (Mazumda, 2011, p. 1200). It also involves approximately 35 million workers in direct employment, accounting for generation of 21% of India’s employment figures. The textile industry also accounted for approximately 38% of total exports with the exports forecasted to reach $45 billion by 2015 (Mazumda, 2011 p. 1200). In 2007, which was the latest year data available in completion, textile machinery was at an estimated $900 million. At that point, the market was projected to increase at a mean nominal rate of 6% in the following five years (Mazumda, 2011 p. 1200). Vietnam’s textile industry is mainly run through the state owned VINATEX, which is also the largest exporter of textiles and garments. The company employs some two and a half million employees in some 120 sub-companies. The revenues in the company had increased by some 26% in 2010 to approximately $1.5 billion with turnover from exports increasing to $2.1 billion, an increase of 23% (Nash, 2007 p. 162). Net profits also increased by 23% to $45 million as, VINATEX accounted for approximately 18.75% of the country’s total garments and exports in 2011. VINATEX reported, in the first half of 2012, revenues of $941 million, which was an increase of 33% compared to 2011 with a corresponding 32% gain in revenues from 2011 to $1.23 billion (Nash, 2007 p.163). The government, in 2012, made VINATEX its model of growth and relocated production bases, developed manpower, improved the working conditions of employees, technology renewal, and increased added value of products. Textile Machinery Industry Status Approximately 120 companies are involved in complete textile machinery manufacture. Receipts for this industry in 2007 were approximately $700 million with the industry employing 300,000 workers both indirectly and directly (Bhandari & Maiti, 2009 p. 77). Demand for this machinery comes from cotton textile end users, as well as those from wool units and manmade fibers textile factors. Major problems that afflict this industry are high quality of equipment that is imported, foreign country competition resulting from decreased import duties on machinery, demand constraints, high finance costs, high component and raw material costs, and inadequate engineering and design capabilities. This industry saw a nominal growth of between 7 and 8% in 2007 (Bhandari & Maiti, 2009 p. 78). Vietnam’s investment in machinery has gone hand in hand with an increase in production. German exports to Vietnam of textile accessories and machinery went up by over 110% to a total of over $33 million. In early 2011, figures for machinery for weaving and spinning showed a significant increase from 2010with spinner exports to Vietnam reaching $5 million compared to 2010’s value of $2 million (Nash, 2007 p. 189). Weaving machinery, on the other hand, was worth more that $2.5 million in comparison to 2010’s $62,000. Conclusion and Growth Recommendation With regards to the recommendations for growth that must be integrated with as a result of the preceding information that has been related, there are a number of issues that must be integrated with. First and foremost, both India and Vietnam most work on their political and economic system in order to streamline them and seek to reduce the overall level of corruption that is extant within both. Whereas neither of these countries fall into the top 10 most corrupt nations in the world, they are represented near the lower end on the corruption scale and therefore necessarily scare off many would-be investors; further stifling the extent to which the economic systems could hope to integrate change and develop to a further degree. Secondly, as a result of the changes to the political system and a broad and overarching anti-corruption campaign, it should be the express intent of the government and shareholders to work to enhance the level of FDI that is exhibited in both economies. Although the FDI which has been listed is impressive, it does not eve begin to scratch the surface of the large potential that exists within each country. The case of Vietnam is slightly different from that of India due to the fact that in order to further growth the industry it is necessary for the government or relax it’s control over the sector and allow a free market of sorts to develop; however, as a function of the communist composition of the system, it is doubtful if this will occur anytime in the near future. Thirdly, in order for the economies to continue to develop at the rate they have, they both need to bear in mind that the industrialization that they are both undergoing is not aimed at increasing textile production as such; rather, the ultimate aim should be to develop this sector as a means of lifting the domestic economies and providing a stable footing towards more advanced manufacturing and skill dependent jobs that they can leverage to better the system as a whole. References Bhandari, Anup. & Maiti, Pradip., 2009. Efficiency of Indian Manufacturing Firms: Textile Industry as a Case Study. International Journal of Business and Economics, 71-88. Goswami, Omkar., 2010. Sickness and Growth of India's Textile Industry: Analysis and Policy Options. Economic and Political Weekly , 2496-2501. Mazumda, Dipak., 2011. Import-substituting industrialization and protection of the small-scale: The Indian experience in the textile industry. World Development , 1197–1213. Nash, Allen., 2010. Investment opportunities in the Vietnamese textile industry Murdoch Murdoch university, cop. Roy, Tirthankar., 2010. Economic Reforms and Textile Industry in India. Economic and Political Weekly , 2173-2182. Singleton, John., 2007. The World Textile Industry. London: Routledge. Read More