Textile Industry in India and Vietnam - Report 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 political factors, in addition other factors are; emerging globalization, competitive market conditions, labor factors, and government policies. In this case, the paper has defined the Indian and Vietnamese textile industry’s macro-economic environment through a PESTLE analysis. Up to the point where the Indian economy was liberalized, the textile industry in the country was essentially unorganized. However, the industry has now risen to being the second biggest textile industry in the world, only trailing China. It accounts for 38% of total exports in the country, which makes it a major industry in the country (Singleton, 2007: p22). 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: p21). Therefore, these factors have been discussed, same as issues that affect these factors in the textile industry. Analysis of Macro environment in India & Vietnam Political Environment Business enterprise management, as well as that of their policies, is influenced considerably political systems in existence. Because of India’s democracy, stability of political policies is an issue. Production reservation imposed, on small companies, to aid smaller companies led to fragmentation, distorting the industry’s competitiveness (Roy, 2010: p2175). This sector, however, has now been de-reserved with big corporations now investing more capital in the establishment of bigger facilities and expansion of those in existence. Foreign investment, initially, was excluded from production of clothing and apparel, which has, however, now been eliminated gradually. This has been done through decreased capital equipment import duties that have given foreign investors a chance and incentive to set up in India (Roy, 2010: p2175). Vietnam, on the other hand, is a communist state with one political party. The country’s industrial sectors, therefore, have less autonomy and more government control, especially for those entering the market. However, Vietnam because of this has additional political stability compared to India. It is advisable to form mutual relationships with the government, as well as negotiate terms that are favorable to them when investing in the sector (Nash, 2007: p45). The country’s relationship with the United States and its allies has improved since the 70s, which has allowed for them to access wider market share. Domestic political policy has showed positive signs with more awareness towards policy mistakes like the nationalization of all industries that was relaxed in the 90s. Economic Environment Economic factors include employment generation, capital formation, development of infrastructure, natural resource exploitation, mobilization of resources, national income, per capita income, and industrial development in relation to how they influence India’s textile industry. The industry provides a fundamental necessity to most people, which at every processing stage have had a huge addition of value. It accounts for approximately 14% of India’s industrial input with Indian fabric being in demand due to its many textures, earth colors, and ethnic dimension (Roy, 2010: p2176). If one is ready to be innovative, it has potential since it accounts for 30% of India’s exports. It is the largest employer in the economy, and it generated 12 million new jobs in 2011, on top of additional employment potential in the industrial and agricultural sectors, especially in the cotton sector. Exports from the industry topped $50 billion in 2011 with $25 billion exported to the US (Roy, 2010: p2177). Japan, Bangladesh, Canada, Russia, Italy, France, Germany, the UK, and UAE constitute additional important markets. The economy of Vietnam, in 2011, grew at a faster rate than global GDP with expectations that this will remain so. Open climate of investment and increased liberalization of the service sector has given huge potential for foreign investors in Vietnam. While Vietnam has attained significant growth, coupled with economic reforms, they still face challenges like currency devaluation and inflation. This is a developing country with a GDP of $2,942 per capita (Nash, 2007: p49). In order for foreign investors to cater for the larger demographics, they would need to utilize price leadership instead of differentiation strategy. In this case, they would sell basic and cheaper textiles instead of novelty textile products. Sociological Environment Policy makers and managers cannot afford to avoid social variables like knowledge, education, and beliefs and norms common in the rural areas, in India. Textile industry in India is cotton based and is mainly to be found growing in rural areas. Therefore, the textile industry in India has to be mindful of its social responsibility in these areas (Goswami, 2010: p2497). In the Indian sub continent, social stratification, for instance, has a principle obligation in everyday life. This will have a significant effect on how companies will enter the sector in the rural areas. In the 90s, most foreign managers and those from urban areas did not think of these cultural differences between the rural and urban areas, which; however, they were forced to reconsider as farmers preferred to deal with those who they felt as one of them (Goswami, 2010: p2497). For foreign investors accessing the Vietnamese market, language barriers are bound to be a factor. The country is also predominantly Buddhist, which has an influence on cultural values such as dressing. Thus, it would be important for investors to offer products that adhere to these local values, as well as culture. Population age structure is also in a positive state of change with a 0.12% increase in the working age population in 2011 (Nash, 2007: p61). Worker proportions in the agricultural industry dropped by 1.7% with a corresponding increase of 0.7% in the industry and service sectors (Nash, 2007: p61). This has given the country a boost in industrialization, especially with regards to the labor force. Technological Environment This is one of the most vital factors in the textile industry. It is for this reason that the government assigned increased importance to technology and its transfer, especially via its FERA and MRTP regulations, industrial licensing policies, and industrial policy resolutions (Goswami, 2010: p2498). Major problems afflicting the textile industry under these factors include inadequate training facilities, fragmented garment industry, a processing sector that is technologically backward and fragmented, weaving and processing structural weaknesses, and an inadequate capacity of the manufacturing industry’s domestic textile industry. The Indian government has taken various progressive measures such as the introduction of TMC, technology upgrade funds, the National Institute of Fashion Technology, 100% foreign direct investment, Apparel Design and Training Centers and others for strengthening and upgrading of India’s textile sector (Goswami, 2010: p2498). Vietnam is rapidly developing in terms of technology. Infrastructural building became a key pillar in 2011 under the Economic and Social Development Strategic Plan (Nash, 2007: p74). This strategy is meant to improve the country’s inter-connectivity and will reduce transportation costs in the country, which should benefit foreign investors. The plan will also work towards narrowing the technological and scientific gap between them and the entire world. This is being implemented by prioritizing the enhancement of competence among workers and managers, as well as encouraging training course organization in partnership with foreign partners. This should be an advantage to foreign investors willing to enter the textiles industry (Nash, 2007: p74). It is expected that this will sharpen the focus on innovation and patent purchases, especially in the textile industry. Legal Environment Various laws relating to foreign exchange regulation, monopoly control, industrial disputes, factory administration, and industrial licensing are part of the legal environment affecting the Indian textile industry. The industry has suffered under unfavorable labor laws that do not favor the trades since companies do not have an ideal policy to “hire and fire” (Goswami, 2010: p2500). There is no trade membership, which is restrictive on tapping of potential markets. There is also lack of economies of scale generation as the government has charged higher interest rates, power rates, and indirect taxes. Barriers to attaining supply chain links have also been caused by an uneven supply base, creating inconsistent, unreliable, and uncontrollable performance. The 90s era brought with it liberalization that led to many previous constraints on the sector being relaxed. This included removal of the Statement of Industrial Policy, as well as the Textile Regulation and Development Order in the early 90s via licensing removal (Goswami, 2010: p2500). The Vietnamese constitution, promulgated in 1992, reiterates social construction and the state’s popular nature. However, it took to economic renewal via building multi-ownership and multi-sector market economies along the same social orientation as before integrated with international economic integration and open door policy (Nash, 2007: p77). However, it is vital for all foreign investors to know that the final authority lies with the “Politburo”, which acts, to a point, to limit Vietnam’s progress towards joining the globalization stream. This is especially so as far as laws on land ownership and human rights are concerned. For this reason, it would be prudent for a foreign investor to familiarize with the laws of the land. 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: p1200). 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: p1200). 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: p1200). 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: p162). 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: p163). 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. Market profile of Textile Industry In order to sustain the growth, it is essential that the industries produce high quality goods at a reasonable price. The industry needs to modernize continuously machinery, which means that the industry needs to play an integral role in the growth of textile exports in India. Textile prices have been analyzed to be increasingly competitive globally as developing countries continue to enter the textile trade (Bhandari & Maiti, 2009: p73). In order for India to maintain market share, they need to buy low cost and modern textile machinery that can produce garments and textiles of high quality at competitive prices for export. Used machinery permits India to use low cost new technology. In India, there are around 1,200 large and medium scale textile mills with 20% in Coimbatore. It also has 34 million cotton spindles that manufacture cotton yarn that accounts for 70% of its textile exports, on top of almost 80% of textile yarn coming from coarser yarns (Bhandari & Maiti, 2009: p73). According to VITAS, Vietnam’s garment and textile exports totaled over $1.7 billion in 2011 with $6 billion going towards the US, which represented an increase of 22% from 2010 (Nash, 2007: p178). Garment and textile exports to the EU increased by 15% with exports to Japan increasing by 20% to $1.2 billion. Vietnam, in 2010, was the second biggest exporter of textiles and garments to the US, the third largest exporter to the EU and Japan, as well as being the world’s fifth largest exporter. The textile and garment industry in Vietnam currently holds 2.5% of the worldwide market share (Nash, 2007: p179). 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: p77). 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: p78). 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: p189). Weaving machinery, on the other hand, was worth more that $2.5 million in comparison to 2010’s $62,000. Conclusion In conclusion, any organization and industry that wants to retain market share in the Indian textile industry needs to be socially responsible, adhere to regulations and rules, as well as maintain low environmental pollution. However, Vietnam has more relaxed social responsibility requirements. Growth rate in India is dependent on the textile industry, which is a self reliant and independent industry. However, the Indian government instituted strong labor laws that affected the industry significantly. In India, the market is shifting gradually towards ready-made and branded garments with increased opportunities in the domestic and foreign market. Therefore, the Indian government needs to be instituting measures like the upgrading fund for national technology, as well as removal of differential schemes of taxation that are discriminatory against bigger units. The government has also allowed textile units to operate, as well as build, captive power plants that are meant to ease power problems. The textile industry has formed a vital part of the economy with silk and cotton production being the highest globally. 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 Indias 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