Description
analysis of textile industry in India from microeconomics perspective.It covers industry performance, impact of recession, pricing, costing etc
Micro Economics Analysis of Textile Industry
Introduction:
Indian textile industry contributes about 14 percent to industrial production, 4 percent to the country’s GDP and 16.63 percent to export earnings, as per a market report released in March’09. Looking at textiles production & growth year wise, there has been an about constant growth Year-on-Year except the last year because of the financial crisis.
From the global perspective, India’s overall market share was 5.7 percent in April’09, which was an all time high. Post quota (FY05 – FY09) India has witnessed the third highest growth in apparel exports to the US after Indonesia and Vietnam, while China lags behind.
Market size potential for the industry
Impact of Recession on Textile Industry The Textile industry is in urgent need of resuscitation, the job loss estimates due to recession is about 1.2 million. About half of the total production in India is exported to countries like United States, Japan and European Union. As a result of severe economic crunch in these countries, exports observed a decline over 2008. The industry witnessed a decline in exports of about 5.31% in April – February 2008-09. Govt. Policies for Textile Industry: Vision of National Textile Policy declared in 2000, was to produce cloth of good quality at acceptable prices, contribute to the provision of sustainable employment and economic growth of the nation and to compete with confidence for an increasing share of the global market. Target of government is to achieve textile and apparel exports to US $50 billion by 2010 of which the share of garments will be US $25 billion. To achieve the goal, thrust Areas are as follows:•
Technological Up gradation
• Productivity Enhancement • Quality Consciousness
•
Strengthening of raw material base
• Product Diversification • Increase in exports and innovative marketing strategies • Financing arrangements • Maximising employment opportunities • Integrated Human Resource Development Sectoral Initiatives • Improve production, productivity, availability & quality of cotton, and stabilise prices. • Encourage full fibre flexibility between cotton and man-made fibres and consumption of specialized man-made fibres/yarns.
•
Improve production of all silk varieties, achieving international standards.
• Increase availability of quality wool, encourage R&D and private breeding farms to increase productivity. • Develop high yielding seeds to improve productivity of Jute, technology to get better quality. • Revive and modernise spinning and weaving sectors. • Technology up gradation and modernisation of Power loom industry, Welfare schemes for ensuring a healthy and safe working environment for the workers. • Review of the Policy of SSI Reservation for knitting
•
Promote joint ventures and strategic alliances with leading world manufacturers; set up strong domestic retail chains to ensure easy availability of branded Indian products.
According to Press Information Bureau Government of India on December 07, 2008, government announced measures for stimulating the economy. For Textiles an additional allocation of Rs.1400 crore will be made to clear the
entire backlog in TUF Scheme. All items of handicrafts will be included under 'Vishesh Kri’. There were some more policies/schemes launched by government. Export-Import Policy provides a variety of export-related assistance to firms engaged in the manufacture and trade of textile products. This policy includes fiscal and other trade & investment incentives contained in various programs. Guidelines of the revised Textile Centres Infrastructure Development Scheme (TCUDS): Under the Scheme funds are given to Government or associated agencies for development of infrastructure directly benefiting the textile units. Scheme for Integrated Textile Parks (SITP): To provide the industry with world-class infrastructure facilities for setting up their textile units. Pricing Policies of Firms The pricing policies generally change for each foreign and domestic market. Research results show that a big percentage of exports are made to E.U. and U.S.A. Export of textile and readymade clothing done by U.S.A. is highly price elastic. The price elasticity of exports to E.U. is very low which means that the firms should be careful to export high quality goods and to keep up with the latest fashion for the E.U. market. The pricing policy for domestic market is affected by large scaled firms. Small and medium enterprises produce products suitable for all income levels. These enterprises determine their price according to demand in the market. Pricing Factors: • Determine primary and secondary market segments
• •
Assess product's availability and close substitutes Survey market for competitive and similar products
• Examine market pricing and economics
•
Calculate internal cost structure and understand how pricing interacts with offering
• Test different price points if possible
•
Monitor market and your competition continually to reassess pricing
The pricing policy of firms is relative to size of firm. A firm with a large clientele faces a more severe reputation backlash if it reneges. This ensures that the firm effectively commits to its offers, leading to a unique equilibrium without delay, where the firm extracts the whole of the surplus. Reputation effects for smaller firms are much less intense. Consequently, the equilibria is not unique and involves reneging possibilities and delays. Barriers to Entry The primary barriers to entry are: • Superior Technology • Skilled & Unskilled labour • Distribution Network • Access to global customers
• •
Capital expenditures required to supply in large retail distribution chains Short product life cycle, can be easily imitated.
• Lack of Trade Membership, which restrict to tap other potential market. • Higher Indirect Taxes, Power and Interest Rates. • Infrastructural Bottlenecks and Efficiency such as, Transaction Time at Ports and transportation Time. • Unfavourable labour Laws. Entry barriers are both in organized and unorganized sector. In organized sector, we have to compete with large players and hence cannot attain economies of scale. Due to the fragmented market of India, even in the unorganized we are at a cost disadvantage. Government policies at present favour organized sector, hence small scale players face an entry barrier. Cost Analysis of Textile Industry
Indian Textile industry is losing its competitive cost advantage. The basic cost of production has increased over the years due to the following •
Despite being the second largest producer of cotton and doubling production over the past 5 years the relative gap in cost of cotton in India has reduced compared to competing countries. The Minimum Support Price of Cotton has increased over 40% over the past few years. Indian Textile Industry depends on European Countries for advance machinery. However appreciation of Euro (Over 20%) and high interest rates have made capital expensive. Higher wage rates in absolute terms in comparison with other developing countries, whereas in terms of productivity our wage rates are higher than all major textile nations like China, Indonesia, Thailand, and Vietnam. Restriction on Labour flexibility is making it difficult to adjust workloads to meet seasonal demands. Our cost of Power is 10-12% per unit as compared to 5-7% in other nations. Interrupted supply leads to higher cost.
•
•
•
• India does not enjoy preferential access for any product nor does it enjoy any proximity advantage. Further India is opening up its markets to low and competitive nations like China, Pakistan and Sri –Lanka to meet the obligations of the SAARC summit. Consumer Behaviour Textile Industry is a seasonal industry, Consumer decision is influenced due to seasonal fluctuations, cultural, social, personal and psychological factors. Factors Affecting Consumer Behaviour • Cultural Factors Cultural trends have tended to redefine the usage pattern of many products, ranging from consumer products to status-symbol products. Cultural norms are exceedingly influenced by religious doctrines, having considerable implications on the behavioural aspects of consumers. • Social Factors
The Social setup has undergone a transformation and has evoked changes in consumers regarding volume or frequency of consumption, product pattern, information search and exposure. • Personal Factors There is a interplay between the personal factors of consumers such as age, occupation, economic situation, lifestyle and personality and their behaviour. For e.g. an educated consumer is more likely to make a more informed choice with regards to consuming and using products or services. • Life Cycle Stage The growing elderly segment on consumer demands the industry to cater to their needs with much greater details than before. • Occupation As a consumer moves from a particular occupation (e.g. farming) to a new occupation (e.g. BPO) he tends to get exposed to media and other avenues of information, which there by influence his consumption decisions. • Economic Situation On a Macro level an improvement in economic situation would lead to an increase in demand for products where as on a micro level improvement in economic situation would lead to increase in demand for a particular brand. Thus it is wise for a firm to consider the economic trends while determining the level of production. • Other Factors The other factors are Life style, Personality and Psychological Factors such as motivation, perception, attitude and learning.
References:
•http://www.mgutheses.org/page/?q=T 1010&search=&page=&rad=
•http://texmin.nic.in/policy_2000.htm •http://txcindia.com/html/TEXTILE POLICY 170506.pdf •http://www.citiindia.com/images/PDF/Statements on Textiles %20Production%20and%20Growth(2).pdf •http://www.citiindia.com/pdf/VISIONSTATEMENT.pdf •http://www.equitymaster.com/research-it/sector-info/textiles/ •http://www.fibre2fashion.com/indust...textile-industry/indian-textile-industry1.asp •http://www.businessplans.org/Green/Green04.html
doc_842494584.doc
analysis of textile industry in India from microeconomics perspective.It covers industry performance, impact of recession, pricing, costing etc
Micro Economics Analysis of Textile Industry
Introduction:
Indian textile industry contributes about 14 percent to industrial production, 4 percent to the country’s GDP and 16.63 percent to export earnings, as per a market report released in March’09. Looking at textiles production & growth year wise, there has been an about constant growth Year-on-Year except the last year because of the financial crisis.
From the global perspective, India’s overall market share was 5.7 percent in April’09, which was an all time high. Post quota (FY05 – FY09) India has witnessed the third highest growth in apparel exports to the US after Indonesia and Vietnam, while China lags behind.
Market size potential for the industry
Impact of Recession on Textile Industry The Textile industry is in urgent need of resuscitation, the job loss estimates due to recession is about 1.2 million. About half of the total production in India is exported to countries like United States, Japan and European Union. As a result of severe economic crunch in these countries, exports observed a decline over 2008. The industry witnessed a decline in exports of about 5.31% in April – February 2008-09. Govt. Policies for Textile Industry: Vision of National Textile Policy declared in 2000, was to produce cloth of good quality at acceptable prices, contribute to the provision of sustainable employment and economic growth of the nation and to compete with confidence for an increasing share of the global market. Target of government is to achieve textile and apparel exports to US $50 billion by 2010 of which the share of garments will be US $25 billion. To achieve the goal, thrust Areas are as follows:•
Technological Up gradation
• Productivity Enhancement • Quality Consciousness
•
Strengthening of raw material base
• Product Diversification • Increase in exports and innovative marketing strategies • Financing arrangements • Maximising employment opportunities • Integrated Human Resource Development Sectoral Initiatives • Improve production, productivity, availability & quality of cotton, and stabilise prices. • Encourage full fibre flexibility between cotton and man-made fibres and consumption of specialized man-made fibres/yarns.
•
Improve production of all silk varieties, achieving international standards.
• Increase availability of quality wool, encourage R&D and private breeding farms to increase productivity. • Develop high yielding seeds to improve productivity of Jute, technology to get better quality. • Revive and modernise spinning and weaving sectors. • Technology up gradation and modernisation of Power loom industry, Welfare schemes for ensuring a healthy and safe working environment for the workers. • Review of the Policy of SSI Reservation for knitting
•
Promote joint ventures and strategic alliances with leading world manufacturers; set up strong domestic retail chains to ensure easy availability of branded Indian products.
According to Press Information Bureau Government of India on December 07, 2008, government announced measures for stimulating the economy. For Textiles an additional allocation of Rs.1400 crore will be made to clear the
entire backlog in TUF Scheme. All items of handicrafts will be included under 'Vishesh Kri’. There were some more policies/schemes launched by government. Export-Import Policy provides a variety of export-related assistance to firms engaged in the manufacture and trade of textile products. This policy includes fiscal and other trade & investment incentives contained in various programs. Guidelines of the revised Textile Centres Infrastructure Development Scheme (TCUDS): Under the Scheme funds are given to Government or associated agencies for development of infrastructure directly benefiting the textile units. Scheme for Integrated Textile Parks (SITP): To provide the industry with world-class infrastructure facilities for setting up their textile units. Pricing Policies of Firms The pricing policies generally change for each foreign and domestic market. Research results show that a big percentage of exports are made to E.U. and U.S.A. Export of textile and readymade clothing done by U.S.A. is highly price elastic. The price elasticity of exports to E.U. is very low which means that the firms should be careful to export high quality goods and to keep up with the latest fashion for the E.U. market. The pricing policy for domestic market is affected by large scaled firms. Small and medium enterprises produce products suitable for all income levels. These enterprises determine their price according to demand in the market. Pricing Factors: • Determine primary and secondary market segments
• •
Assess product's availability and close substitutes Survey market for competitive and similar products
• Examine market pricing and economics
•
Calculate internal cost structure and understand how pricing interacts with offering
• Test different price points if possible
•
Monitor market and your competition continually to reassess pricing
The pricing policy of firms is relative to size of firm. A firm with a large clientele faces a more severe reputation backlash if it reneges. This ensures that the firm effectively commits to its offers, leading to a unique equilibrium without delay, where the firm extracts the whole of the surplus. Reputation effects for smaller firms are much less intense. Consequently, the equilibria is not unique and involves reneging possibilities and delays. Barriers to Entry The primary barriers to entry are: • Superior Technology • Skilled & Unskilled labour • Distribution Network • Access to global customers
• •
Capital expenditures required to supply in large retail distribution chains Short product life cycle, can be easily imitated.
• Lack of Trade Membership, which restrict to tap other potential market. • Higher Indirect Taxes, Power and Interest Rates. • Infrastructural Bottlenecks and Efficiency such as, Transaction Time at Ports and transportation Time. • Unfavourable labour Laws. Entry barriers are both in organized and unorganized sector. In organized sector, we have to compete with large players and hence cannot attain economies of scale. Due to the fragmented market of India, even in the unorganized we are at a cost disadvantage. Government policies at present favour organized sector, hence small scale players face an entry barrier. Cost Analysis of Textile Industry
Indian Textile industry is losing its competitive cost advantage. The basic cost of production has increased over the years due to the following •
Despite being the second largest producer of cotton and doubling production over the past 5 years the relative gap in cost of cotton in India has reduced compared to competing countries. The Minimum Support Price of Cotton has increased over 40% over the past few years. Indian Textile Industry depends on European Countries for advance machinery. However appreciation of Euro (Over 20%) and high interest rates have made capital expensive. Higher wage rates in absolute terms in comparison with other developing countries, whereas in terms of productivity our wage rates are higher than all major textile nations like China, Indonesia, Thailand, and Vietnam. Restriction on Labour flexibility is making it difficult to adjust workloads to meet seasonal demands. Our cost of Power is 10-12% per unit as compared to 5-7% in other nations. Interrupted supply leads to higher cost.
•
•
•
• India does not enjoy preferential access for any product nor does it enjoy any proximity advantage. Further India is opening up its markets to low and competitive nations like China, Pakistan and Sri –Lanka to meet the obligations of the SAARC summit. Consumer Behaviour Textile Industry is a seasonal industry, Consumer decision is influenced due to seasonal fluctuations, cultural, social, personal and psychological factors. Factors Affecting Consumer Behaviour • Cultural Factors Cultural trends have tended to redefine the usage pattern of many products, ranging from consumer products to status-symbol products. Cultural norms are exceedingly influenced by religious doctrines, having considerable implications on the behavioural aspects of consumers. • Social Factors
The Social setup has undergone a transformation and has evoked changes in consumers regarding volume or frequency of consumption, product pattern, information search and exposure. • Personal Factors There is a interplay between the personal factors of consumers such as age, occupation, economic situation, lifestyle and personality and their behaviour. For e.g. an educated consumer is more likely to make a more informed choice with regards to consuming and using products or services. • Life Cycle Stage The growing elderly segment on consumer demands the industry to cater to their needs with much greater details than before. • Occupation As a consumer moves from a particular occupation (e.g. farming) to a new occupation (e.g. BPO) he tends to get exposed to media and other avenues of information, which there by influence his consumption decisions. • Economic Situation On a Macro level an improvement in economic situation would lead to an increase in demand for products where as on a micro level improvement in economic situation would lead to increase in demand for a particular brand. Thus it is wise for a firm to consider the economic trends while determining the level of production. • Other Factors The other factors are Life style, Personality and Psychological Factors such as motivation, perception, attitude and learning.
References:
•http://www.mgutheses.org/page/?q=T 1010&search=&page=&rad=
•http://texmin.nic.in/policy_2000.htm •http://txcindia.com/html/TEXTILE POLICY 170506.pdf •http://www.citiindia.com/images/PDF/Statements on Textiles %20Production%20and%20Growth(2).pdf •http://www.citiindia.com/pdf/VISIONSTATEMENT.pdf •http://www.equitymaster.com/research-it/sector-info/textiles/ •http://www.fibre2fashion.com/indust...textile-industry/indian-textile-industry1.asp •http://www.businessplans.org/Green/Green04.html
doc_842494584.doc