This is the first article in a series describing an ongoing project. It is the hope of the author that industry leaders in other countries and consultants can better understand the problems relating to relating to strategic industrial change on a national level
India’s garment export industry, while not of primary importance in terms of dollar value, contributing on 4.7% of total exports, is probably the greatest source of current and future industrial employment. The best estimate is that 12mn persons are employed both directly and indirectly in garment production. Allowing for family members and other dependents 50-mn Indian citizen rely on garment making for their survival.
2012 brought a 10.2% decline in India’s garment export market share to EU and the U.S.
In October 2012 Third Horizon (THL) was retained by the Apparel Export Promotion Council (AEPC) to carry out a benchmark study to determine the causes of that decline and to provide the outline of a strategy to reverse that decline.
To carry out this task THL teams carried out the following work:
- Research of relevant macroeconomic, demographic, social data for the seven major garment exporting countries as targeted by AEPC — Bangladesh, Cambodia, China, India, Indonesia, Turkey and Vietnam.
- Interviews with factory managers and owners in each of the seven major garment-exporting countries to compare their work with factories in India, to determine areas where India held an advantage or suffered a disadvantage (146 interviews).
- Interviews with senior sourcing executives at major brand importers and retailers, to ask their candid opinions about advantages and obstacles working in India (30 interviews).
- Interviews with management at both India based and transnational garment factories to examine the role of Government in the industry (22 interviews).
- Analysis of 8 product groups totaling 49 garment products, to illustrate areas where the industry enjoyed advantages that allow for further market expansion as well as those areas where current conditions presented obstacles to further development. This last section is most important because it is a practical study, which Indian garment-factory owners and professionals can relate to their own individual companies.
Patterns of Failure
The garment industry is different. Other national industries develop over long periods of time and, once developed, they remain profitable for even longer periods of time. Should those industries eventually fail, the period of decline is also very long indeed.
National garment industries follow a here-today-gone-tomorrow pattern, where often decline is so rapid that the stakeholders themselves remain unaware they have a problem until their industry has reached a state of collapse. The garment world is littered with the carcasses of former leading national garment industries. In this world, size is no guarantee of survival.
If we go back to the year 2000 we an see that of ten largest garment suppliers to the EU, 4 have declined by 47%-60%
The U.S. shows a more marked decline with 6 of the top ten declining by 55%-93%.
Industries fail for many reasons but the pattern of failure will invariably include the following elements:
- Living in denial;
- Mistaken belief that local stakeholders understand underlying causes of problem;
- Equally mistaken belief that local stakeholders can solve problem:
Of these living in denial is by far the most important. All of us — most particularly those of us working in the garment industry — operate in a state of ignorance. However, only those living in a state of denial will fight to maintain that ignorance.
From the point of view of India’s garment industry leaders, it would have been all too easy to look at the data and to conclude, “There is no problem. From India’s EU market share 2000-2012 rose by 18.8% and U.S. market share rose by 26.9%. 2012 was clearly a one-off blip, clearly the result of global downturn. 2013 is already showing increasing market share.”
When we look at the long-term trend we see a different picture:
The good news is that India’s government and industry leaders have opted for the real world and have rejected residing in La-La Land. This is India’s greatest asset. Only by accepting the need for change, does change become possible
The roots of the problem go back eight years. 2005 and the quota phase-out brought renewed interest in India’s garment export industry. Customers expected that once free from quota restriction, the Indian industry, which previously had not developed to meet their needs, would evolve to the point where it could compete effectively with China. Industry sourcing professionals looked to India as the new China. Customers rushed to open buying offices in virtually all of India’s major garment production centers. Exports from India to both the U.S. and the EU grew geometrically.
In the event, customers’ expectations were not realized. In fact the opposite occurred. During the past eight years, the global garment industry has undergone a substantial transformation while India’s industry has stagnated. 2009 marked a turning point where customers began seriously looking for alternatives to Indian production and, as a result, imports from India declined at an accelerating rate each successive year.
To survive, India must compete effectively with the other first-tier garment exporting countries.
To do so, both industry and government must take some difficult steps:
- Understand and accept the underlying causes of slide.
- Regain lost credibility by providing total transparency showing everyone the problems that have brought India’s garment industry to its present state
- Enroll all the players into working collectively to create a solution
This will not be an easy task. The benchmark study has brought the problems and obstacles into the light:
The Benchmark Study:
This is what the customers told us:
If you want to know why your customers are taking their orders elsewhere, the first and perhaps most important step is to ask the customers. We interviewed 30 customers; a good representation of the most important EU and US based brand importers and retailers.
We selected some factors that determine senior management sourcing decisions and asked senior sourcing executives to rate our 7 target countries as follows:
High = 4 points: I am very impressed. I would be inclined to move to this country because of their high level performance in this area
Medium = 2 points: I am satisfied. I would be inclined to remain in this country because of their acceptable level performance in this area
Low = -2 points: I am not satisfied. I would be inclined to leave this country because of their unacceptable level performance in this area
The Good News: Product Development. India has one of the region’s highest level performance:
The ability to produce fashion goods should not be minimized. Anyone can produce commodities, such as cotton T-shirts, cotton trousers, cotton shirts and underwear. Because anyone can produce these items, there is no bottom price. Few can produce fashion because few have the ability to participate in the all important product development process. India has this pre-production ability.
The bad news: In all other areas, India has the region’s lowest level performance:
This is what the factories in the six other target countries told us:
The good news
The bad news
Our research brought to light one other important trend:
In almost every Asian country, Garment exporting capacity is diminishing. Customers in the major garment importing countries are as yet unaware of this tend, because they are only now coming out of the recession when demand for imports were also declining.
There are three main factors leading to diminishing export capacity.
1. Local demand for garments is increasing, with the result that factories are moving from export to production for local consumption. This trend is no longer limited to the more developed countries in the region, such as China, Indonesia, Thailand. Even less developed countries such as Cambodia are turning to the local markwt
2. Garment workers are migrating to other industries. The garment industry is the fist stage of industrial development. We take uneducated (often illiterate) people involved in subsistence farming and teach to work in an industrial environment. However, as the economy develops our workers are drawn to new industries such as electronics where wages higher and which have greater status. For example, Vietnam, which with a 10% market share is the second largest garment supplier to the U.S. market now exports more electronic goods than garments
3. Changing demographics in China is reducing the labor pool available to their garment exporting industry. With a median age of 35.6 years China no longer has an increasing labor force. We must expect this situation to continue for at least the next 20 years.
India has an important potential future role in the future garment industry.
- With an enormous population of which 70% are living in rural areas, in penury as subsistence farmers, India has an enormous untapped pool of workers.
- With its almost unique ability for product development, India is an ideal location for higher value-added fashion garment production.
India has the people and the talent to develop the most difficult fashion products. As of this moment they just cannot produce the goods.
What are the steps necessary to effect necessary change?
What are the obstacles and barriers that inhibit change?
How do we overcome the obstacles and barriers?