Part I presented a list of areas of performance, ranking India against its 6 major competitors: Bangladesh, Cambodia, China, Indonesia, Turkey, Vietnam as measured by its customers and major competitor factories.
Among the most serious production related problems were the following:
Normally these would be operational problems, which can be solved by the factory.
- Increased productivity by more worker training, which will lead to
- Reduced Lead times
- Greater value for price
- Higher quality
- Greater reliability
- Decreased worker attrition by higher wages and greater benefits
- Better customer service by better education for managers and merchandisers, which will lead to
- Greater ease of doing business
However, there are exceptions where the problems are not operational but rather the result structural obstacles and/or systemic barriers. In these cases efforts on the part of management are equivalent to rearranging the deckchairs on the titanic.
I am not suggesting that more worker training, management education, higher wages, better working conditions and greater worker benefits are unimportant.
I am stating that based on our research, these deficiencies can be traced back to a limited number of structural obstacles and systemic barriers and that until these have been overcome, India’s garment industry will continue its secular decline regardless of any efforts on the part of factory management
Garment making is a low profit, high volume, 0 risk business. The factory may not show great per-unit profit, but provided it ships a decent garment on time, it is supposed to be paid.
A factory is also a closed-room operation. Too few orders will bankrupt the factory, but too many orders will also bankrupt the factory. To survive the factory requires business every month, and it must do so in a highly seasonal industry, governed by extreme peaks and troughs.
There is a peak for warm weather goods and an even greater peak for cold weather goods. If we look at the graphs for the major garment exporters for both the U.S. and the EU we see that almost every exporting country follows the same pattern for both the U.S. and the EU.
Among the world’s great garment exporting countries, there is but one exception: India, which for the most part is a one-season industry. At the time when the rest of the word is reaching their cold-weather garment peak, India is moving down to its trough. For an industry that requires constant business for its very survival, India faces an almost insurmountable obstacle.
 The graph lines are based on monthly average for the seven year period 2006 (the year after the quota phase-out) and 2012
India’s failure to operate on a two-season basis, places it in an untenable position. The rest of the world operates at peak production for nine months a year
India’s factories operate six and half month peak.
India’s single season structure is the fundamental cause of many of the industries serious problems.
a.Overhead per units rise, because the factory must pay for periods with little production;
b.Workers must be sent home during the long periods with little production, which in turn leads to additional problems;
i. Without job security, worker attrition rises;
ii. Job training becomes impossible, because of high attrition.
iii. Productivity remains the lowest of all major garment exporting countries
The industry cannot move to higher value added garments.
The underlying single-season obstacle is structural — industry wide and therefore outside of the control of the factory. However, the cause is systemic — the result of the paradigm in which the industry must operate and therefore out side of the control of the industry.
There is a clear and direct relationship between India’s concentration on spring merchandise and its textile imports. The local textile industry is concentrated in the cotton sector, producing fabrics most suitable for spring season production. Because of the scarcity of made-in-India heavier weight MMF and wool fabrics suitable for Fall/Winter/Holiday season, these materials would normally need to be imported. However, as we can see from the graph below, India´s percentage of the world´s total textile imports rank 6th among the seven major garment-exporting countries.
The graph also shows that Greater China (China+Hong Kong+Macao) accounts for 10.2% of total world textile imports marginally lower than the 28 EU countries at 10.6%.
High import duties are a serious obstacle to fabric imports.
 With regard to total value of textile imports, Cambodia ranks 7th. However, this is due to the smaller size of the Cambodian garment export industry. If we compare textile imports relative to garment exports, we see a different picture. Cambodia’s shows textile imports at 60.3% of garment exports (see Chart 27 above), while India shows textile imports at 23.3%.
At the same non-tariff barriers, such as bureaucratic delays, unreasonable penalties for error in import documents, inability to recover import duties for materials consumed for exported garments, and the length of time required to receive even this partial recovery all play major role in the systemic barrier.
High tariffs and non-tariff barriers are obvious and important causes of the garment industry’s failure to import fabric. However, there is yet another cause, which while not obvious is at least equally important.
Captive Customer Syndrome
India’s local textile industry’s ability to takeover the local market has a created a monopoly, which in turn has allowed serious deficiencies common to all monopolies such as, lack of capital investment, extended lead times and late deliveries, and a take-it-or-leave-it attitude.
At the same time textile mills have moved away from providing finished goods towards greige goods, leaving the garment factories to purchase unfinished goods, which in turn they must give to a converter to dye (or print) and finish. The quality of these converters is at best indifferent and more often poor and unreliable. Poor quality and late delivery have become endemic, leaving the garment factory in an invidious position. Since the garment factory has already paid for the greige fabric, they are forced to accept shoddy late material, with the result that their customers label their India based suppliers as unreliable for both quality and delivery.
What has happened in India is not unique. In other countries the local textile industry was initially created so that garment exporters could avoid the added costs of importing material, which in turn would render their products less competitive on the international market. Regrettably in the next stage, the local textile industry then becomes increasingly powerful and rapacious. It convinces government to increase import tariff rates and introduce additional non-tariff barriers, making local garment manufacturers captives to sourcing only from local suppliers.
Unless the textile situation can be improved, allowing India’s garment sector the ability to source fabrics from the rest of the world, India will not be able to produce Fall/Holiday merchandise. Without producing Fall/Holiday merchandise, India’s garment factories cannot provide year round production to its customers and jobs for its workers, with the result that in the course of the next five years we can expect India’s garment industry to show substantial market share decline.
 Because Government policy is to suspend exports of raw cotton when global prices rise, the local textile industry has become simultaneously a monopoly to its customers and a monopsony to its suppliers, with everybody — cotton growers, garment makers, and Government — subsidizing the textile industry. There may be a possibility that situation may be unique in economic world history. It certainly is a very special case.
As we have seen in the previous article, garment export market share declines of 50% or more are not unusual particularly among the top ten suppliers counties. It has happened elsewhere, we have no reason to assume that India will be the exception
Customers do not normally consider structural or systemic issues. To the customer, all problems are operational. To the customer the factory supplier is held directly responsible.
However, customers’ complaints about long lead times, poor quality, difficulty of doing business, and unreliability can all be traced back to two fundamental impediments:
- India’s structural obstacle: The one season industry
- India’s systemic barrier: The inability to import fabric
No one is suggesting that India’s factory management should not be held accountable for the industries problems. In a sense, management’s efforts to meet customers’ needs will first begin after fabric import restrictions have been lifted.
Remedial action to reverse, low productivity, high worker attrition, poor customer service, long lead times, low value for price, poor quality, difficulty of doing business, and unreliability will require an new industry strategy.
The problem is that given the structural obstacles and systemic barriers, no industry-based strategy can succeed until, material import restrictions have been lifted and the India’s garment export industry is permitted to operate on a level playing field.
The situation in 2013 has much in common with 2006.
- In both instances India’s global garment market share showed increases (although 2013 increase were less than those in 2006)
- In both instances the causes were external to the India’s garment industry
- 2006 was the result of the quota phase out
- 2013 was the result of customers pulling out of Bangladesh
- In both instance customers were aware of the problems facing India’s garment export industry
The great difference is that the 2006 market share increase was the result of careful — albeit incorrect — considerations on the part of the customers, while the 2013 increase was the result of customer panic. The 2006 increases could not be sustained in the long run; and without action to remove the impediments facing the industry, the 2013 increases will more than likely prove to be unsustainable in the short run.