The India Problem: Part II Understanding the root cause

We have established that India’s garment industry operates on a single-season basis.

From the chart below we can see the magnitude of the problem.

2020 was not a good year for the global garment industry.  Global garment exports fell by 11% compared with 2019. However, some declines were less than 13%, while others were greater.

As we can see from the data, the better exporters, China, EU, Bangladesh, Vietnam, Turkey, Myanmar, Pakistan, and Cambodia all showed increased market share, while Bangladesh, India, Indonesia, and Morocco showed decreased market share.  Of the 10 largest garment exporters, India with a decline of 25% was the worst hit.  Clearly this is a country with problems.   

I take the position that the failure to import fabric is the fundamental cause of India’s garment industry decline. However, in today’s world prudent professionals should not anyone’s opinion at face value.  This includes me. We must ask for hard evidence.

Consider the chart below, where we compare fabric imports with garment exports. We can say the higher the percent fabric imports compared with garment exports, the more dependent the industry on foreign made fabric, and more importantly the easier for factories to import fabric.  At the top of the list, we have Vietnam, Indonesia, Cambodia, and Morocco.  At the bottom we have China, India and Pakistan. 

There are of course exceptions.  For example, with 2.4%, China is at the very bottom, even though China is possibly the world’s easiest country to import fabric. Here is the logic: China is home to the world’s largest garment industry. As a result, garment customers are free either to use local fabric or if what the customer needs is unavailable locally, they are free to import fabric. For many years, China’s garment export market measured in units was approximately 40%. They were the world’s dominant garment exporter.  Not only did retailers and brands export Chinese fabric to factories in other countries, these same retailers and brands would import fabric from other countries to factories in China. In 2017 China’s unit market share began a steep decline.  The first to go, were garments made by imported fabric.    

India and Pakistan both follow the normal trend. Their failure to import fabrics has handicapped their garment export industries. India is home to one of the great textile industries, which unfortunately is concentrated in the cotton-fabric sector. As a result, India’s garment industry has access to fabrics suited to the warm weather season but cannot obtain local fabric to meet importer’s needs for the cold weather seasons. 

This explains not only why India’s garment exports decline from April-November every year.  It also explains why India’s cut-and-sew knit garment sector does better:  cotton T-shirts and other cut-and-sew knit garments are a 12 month a year business     

To get a better picture a single fabric group:  Woven wool.

This is clearly a cold weather fashion material.  As of 2020 India’s import global market share stood at 0.9%. While is true that, Bangladesh. Myanmar, Pakistan, and Cambodia also had minimal wool fabric imports, for the most part these commodity garment exporters.  Only India stands out as a fashion garment industry. 

 

All of which brings us to the root cause of India’s failure to develop a viable fashion garment industry. India has the talent and the skills to be a major global supplier of fashion garments.  Indeed India has everything they need, except access to the fabric. 

INDIA’S MONTHLY EXPORT CONUNDRUM: PART III – The solution

India’s garment export industry faces serious challenges:

• Six months each year, exports decline each month. (Part I)
• While the local textile industry produces a wide range of light weight fabric, particularly cotton suitable for Spring/Summer season, it produces little or no heavy weight fabric required for the more important Autumn/Winter season, thus requiring imported fabric. The decline is based on the industry’s failure to import the necessary fabric. (Part II)
• Finding a viable solution (Part III)

Both the problem and the solution lie with Government. Government industrial policies are supposed to create a level playing field whereby all industries are treated equally. Unfortunately, with regard to India’s garment industry, this has not been the case. Government favors textiles over garments. The result is a serious loss of market share both in the domestic and export markets.

India’s domestic garment market: in 2011 the Government of India entered into a free trade agreement whereby they granted Bangladesh duty free access to India’s home market. Up to 2010, India was not a major garment importer. Garment imports in 2010 totaled $176 million. Everything changed with the new free trade agreement. From 2010 through 2019 India’s garment imports grew by 668%. Cheap garment Imports from Bangladesh grew by 2485%. India’s garment industry was no longer able to compete in their own market. After a decade, government finally phased out the policy, but the damage remains.

India’s export garment market: As we have seen previously, India’s garment industry has been unable to import fabric. This has led to what we call the CAPTIVE CUSTOMER SYNDROME, whereby local garment factories’ choices have for the most part been limited: either buy locally made fabric or do without. The result has not just been severely limited choice but also higher prices. Captive Customer Syndrome is not unique to India. It first appeared in the United States. There was a time when the U.S. was both the world’s largest garment maker and exporter. Today, with 95% of all U.S. garment retail sales derived from imports, there is virtually no U.S. garment industry. What happened in the U.S. may well be India’s garment industry’s future. Contrast this with China and the EU, the world’s largest garment exporters, where importing fabric is easy and unrestricted.

Given the fact that garment making is India’s second largest employer, it is up to government to do something. The solution is to create a level playing field. Just as for a decade, government allowed duty free access for garments, government should now allow a decade of duty free access for fabric.

This will not only revive India’s garment industry; it will lead to tremendous growth. Indeed, it will allow India to bring its potential to reality. India has the talent and the skillsets to become Asia’s largest fashion garment exporter.

This should not cause difficulties to India’s fabric export industry. India is the world’s fourth largest fabric exporter. In almost every case, made-in-India fabric exports have succeeded despite the fact that importers of Indian fabric pay duty. Under the circumstances India’s fabric industry will be able to compete locally in a duty-free market.

Final Comment:

This has been a very difficult first problem, requiring deep knowledge of the global industry together with access to international institutions with their sophisticated databases.

The new problem - Garment Markdowns - is different. All that you need is practical knowledge and some serious thinking.

We are moving into a new era, where the decision-making process will no longer be limited to those at the top and where career advancement will be based more on problem-solving ability. These puzzles/problems are a means to develop the skillsets you will need for your professional future.