In my previous article, the global scenario of the textile industry and India’s position in the trade were discussed. This article serves an extension to the previous one and dwells into the entire value chain of the Textile Industry. By using the conglomerate Arvind Limited as a reference, I aim to give you an in-depth insight into the way this industry operates.
However, it is important to first understand which aspects of the Indian textile industry hold the most value in terms of global textile trade. India stands first in terms of jute production, second in cotton and silk production, fifth in man-made fibers production and eighth in wool production globally. This inherent strength in the availability of raw materials insulates the market from any supply-side shocks. Furthermore, India has the highest number of looms for weaving fabric and the second-highest number of spindles for spinning fibers into yarn. This shows that our biggest strength lies in churning the abundant availability of natural fibers into yarn and fabric. But as we move further down the value chain towards finished fabrics and garments, India’s position worsens. The diagram below demonstrates a typical value chain:
To further elaborate on the components of the value chain: while there is abundant availability of raw materials, the industry has been suffering from low productivity due to low farm yields, accentuated costs incurred in additional processes, outdated equipment and high defect rates in production. In contrast, the Spinning sector in India is completely organized and is globally competitive in terms of variety, process and production quantity. The Weaving/Knitting sector is again highly unorganized, with the organized sector contributing to less than 10% of the total production. This would be the weakest link in the supply chain suffering from problems such as high power tariffs and low investments in technology. The Processing sector is largely decentralized with low levels of automation, marked by independent processing units. This has led to inconsistency in production and lack of conformance to quality. Finally, the Apparel sector is largely fragmented with the majority of total units being small operations run by either proprietorship or partnership firms.
Despite all this, the industry continues to thrive. Access to a variety of raw materials and flexibility of the supply chain enables apparel manufacturers to mix and match various constituents and continuously develop new and innovative designs. Abundant and low price supply of raw materials combined with the availability of low-cost skilled labor provides a significant advantage to the Indian textile industry in terms of increased productivity at lower costs. Hence, Indian manufacturers are often the first choice for large retailers to outsource production.
It is important to note that this particular value chain is deemed ‘buyer-driven’ value chain because it is relatively easier for large retailers with an established brand name and efficient distribution channel to design the product and then outsource the production to manufacturers. Since the garment manufacturers do not have the brand or distribution channel to access the end markets directly, large retailers are able to dominate the value chain proving that in this industry, true strength lies in design and marketing rather than manufacturing and know-how.
Arvind Limited is a classic example of this scenario. The company predominantly manufactures denim fabric and garments among others for global brands such as Diesel, Armani Exchange, Hugo Boss, Lee, Wrangler, Jack & Jones, Zara, H&M, etc. Moreover, Arvind Ltd is the official licensee for brands such as Arrow, Gant, Nautica and US Polo Assn to manufacture and market the respective brands in India. The company also has Tommy Hilfiger and Calvin Klein in its extensive portfolio as joint venture partners. These three forms of retail have allowed the company to grow a lot more in comparison to just operating with its own brands, hence proving that the value chain is highly ‘buyer-driven’ where Arvind Ltd plays a great manufacturing partner to numerous global retailers (buyers).
The company now plans to aggressively move from the fabric side to the apparel side of the value chain in order to become a fully vertically integrated firm and one of the very few companies in India to do so. This move gives Arvind Ltd great leverage to work in all forms of retail formats as well as grow its owned brands. With the company’s control over each end-to-end process of the value chain, it is surely set to transform the textile and apparel industry.
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