Assignment of

OVERVIEW OF GLOBAL FASHION INDUSTRY

on
“TREND ANALYSIS OF GARMENT TRADE FROM
INDIA TO AMERICA AND THE EUROPEAN UNION -
BEFORE AND POST 2005.”

Submitted
By

Pragya Jain

Under the Supervision / Guidance

Of

Dr. Binaya Bhusan Jena

Submitted
To

Department Of Fashion Management Studies

National Institute Of Fashion Technology
Ministry Of Textiles, Government of India
CIT Campus, No 136/ 137, Ramchandrapur,
Jatni, Khurda, Bhubaneswar – 752050
Ph:0674-2492997, Fax:0674-2490992
Website: www.nift.ac.in
2010
 TREND ANALYSIS OF GARMENT TRADE FROM
INDIA TO THE EUROPEAN UNION AND AMERICA
- BEFORE AND POST 2005.

INTRODUCTION

The global fashion industry is one of the most important sectors of the economy in terms of
investment, revenue, trade and employment generation all over the world. The apparel
industry has short product life cycles, tremendous product variety, volatile and unpredictable
demand, long and inflexible supply processes. The industry has been in a transition over the
last 20 years. The industry can be broadly classified into five major components as textile
materials, textile plants, apparel plants, export chains, apparel manufacturers, retail stores and
customers. The largest manufacturers and exporters have been from the Asia pacific region
which include countries like China, Hong Kong, Philippines, Malaysia, Indonesia,
Bangladesh, Sri Lanka, Thailand and India. India ranks among the world’s leading apparel
exporters. It has an abundant domestic cotton supply, and cotton items account for about
three-quarters of its apparel exports. Indeed, 13 of the 14 major clothing types exported from
India to the EU are cotton products. The industry is characterized by a huge number of small-
scale enterprises with the ability to take on small customized orders, and the flexibility to
respond to quick changes. This structure stems from past Government policies aimed at
enhancing economic welfare and increasing employment.
With these objectives in mind, the Indian government reserved many products—including
woven and knitted apparel products—for exclusive production by small-scale units. However,
the policy has now been phased out and, encouraged by the elimination of the global quota
system at the end of 2004, the number of big players is growing.
The EU and the USA are the biggest destinations for Indian apparel exports, between them
taking 70%. The UAE has an 8% share but it is thought that most UAE imports are re-
exported. India is the third largest apparel exporter to the USA and the fifth largest supplier to
the EU.
TREND ANALYSIS OF GARMENT TRADE BEFORE 2005

Trade in India has not begun today. Since time immemorial, India has been providing the
world with textiles. The exports of garments, though actually began from the year 1980. In
the initial years, exports were routed mainly to the US. In those years, Indian exporters had
set up offices in the US and these were manned by their relatives who were either settled in
the US and had crossed the borders. Initial volume of exports was not large to attract the
attention of the US domestic industry. The pace of growth was also gradual until 1988, where
after, growth picked up fairly fast.
The US government, however, woke up to the challenge of Indian exports since 1983 when it
controlled imports from India of cotton shirts and trousers. This was later extended to cover
additional items of garments with the net spread wider to cover synthetic garments also.
The US was later joined by eight countries of West Europe (called EU) on a similar mission
to restrict imports from India. By 1988, exports of cotton and synthetic garments from India
were well and truly restricted by the EU and US. An agreement was entered into by the
Government of India with the governments of importing countries laying down basic levels,
annual increases with provisions for carry forward to the succeeding year of unutilized
quantities and bringing forward to the existing year, quantities from the succeeding year
depending upon demand and supply but only up to levels stipulated in the agreement. The
basic tenet was free and orderly flow of trade. The Government of India insisted that the
quotas will be monitored from India and not by the importing countries. This was accepted.
The distribution of quotas by the Government of India also left much to be desired with the
result that a thriving open market for quotas came into being. Traditional exporters found it
difficult to meet the needs of their overseas buyers. As a result, several satellite firms were set
up with the object of maximizing quota availability. Often exporters starved of quotas had to
reluctantly request their buyers to share the quota premium with prices being adjusted in
other categories where quotas were available. Where such adjustments were not possible,
their long-standing buyers would agree to share the premium but since this would result in a
cut in their profits, they were in the look out for suppliers where such sharing was not called
for. In either case, India stood to lose by either an artificial depression in prices of its products
or by an outright loss of the buyer to other supplying countries.
Alarmed at this turn of events, the Government of India encouraged garment exporters to
divert their attention to markets that did not restrict garments exports from India. This helped
to take the heat away from quota countries. This had a salutary effect on exports of Indian
garments particularly after 1990, when exports of unrestricted items to quota countries as
well as exports of garments to non-quota countries outpaced those of restricted items to quota
countries. By the year 2000, exports of restricted items to quota countries fell to almost 45
per cent of total volume of garment exports from a level of around 60 per cent earlier.
The high growth for quota categories in 1984-89 was due to an increasing number of
categories coming under the quota regime as well as due to more countries restricting exports
of Indian garments.

TREND ANALYSIS OF GARMENT EXPORTS POST MFA

(2005)
The abolition of the quota system paved way for better and higher export levels as the
limitations that were imposed on exporters due to the quota system were removed.

With quotas out of the way, there were less occurrences between export orders and quotas.
Quota premiums disappeared it was stipulated that it would will make Indian garments
competitive overseas. It enabled Indian exporters to service their overseas buyers better for
an all-round development of export trade. Quotas had resulted in setting up of satellite offices
of Indian exporters. India had already entered into free trade agreements with countries in the
ASEAN and SAARC regions. Major overseas buyers in Europe and USA were looking
forward to outsourcing their requirements for which they looked upon India and China as
major suppliers, in view of low labor costs in these countries and large volumes available.
India had an advantage over China in this regard since India is adept at offering small lots in a
large number of designs whereas China specializes in bulk supply. International garment
trade is 80 per cent on fashions and 20 per cent on supplies in bulk, which gave India an edge
over China. The re imposition of quotas on China, the biggest apparel exporter ($55 billion),
by the US, a few European countries and South Africa is believed to be the single largest
reason for this development. The quotas, imposed in 2005, remained in effect till 2008.

During 2003-04, Indian apparel exports stood at $4.6 billion. In 2004-05, it increased to $5.8
billion. It rose to a high of $8.4 billion during 2005-06 following the predisposition of quotas
on China. Indian apparel exports had proved to be disappointing in these years. The
deterioration stemmed partly from weaker overall demand in the two main markets for Indian
apparel exporters, the USA and the EU, and partly from the appreciation of the rupee. In
2003-04 experts predicted that India, along with China, would do well from the global
elimination of quotas at the end of 2004. Sales to the US market did indeed soar by 34% in
2005 but this was followed by a disappointing 7.1% increase in 2006 and a 0.5% fall in 2007.
By contrast, China achieved growth rates of 70%, 22% and 23% respectively. In the EU,
India’s success continued into 2006 with a 16% growth rate. But this came after a 27% rise in
2005 and was followed by a minimal 0.8% increase in 2007. Again China did much better
than India through most of this period, having achieved growth rates of 44% in 2005, 11% in
2006 and 14% in 2007. In the first four months of 2008, India’s fortunes revived. While US
apparel imports as a whole were down by 3.7%, those from India picked up. Furthermore,
India did better than its chief competitor, China, whose sales fell by 6.8%. India’s
competitiveness has improved since 2007 thanks to a reversal of the rupee’s appreciation
against the dollar. Nonetheless, China has continued to make massive gains—and new
competitors such as Vietnam have appeared.

Companies have been adopting various strategies to cope with the new business climate.
Celebrity Fashions, Orient Craft, Royal Classic Group, SP Apparels and Texport Syndicate
have placed more emphasis on India’s fast growing domestic apparel market—where there is
scope for achieving higher margins by saving on transportation costs and customs duties,
where quality requirements are lower and where it is easier to do business. Gokaldas Exports,
India’s largest apparel exporter, has responded to the US slowdown by placing more
emphasis on Europe, as well as increasing its sales in India. For the future, India may be
forced to focus on a narrower range of products where it is more competitive. Data for 2007
suggested that such products include: men’s and boys’ cotton knitted shirts; men’s and boys’
cotton trousers; women’s and girls’ cotton trousers; and cotton underwear. However, such a
focus could force the Indian government to downgrade its ambitious expansion plans for the
apparel sector.

APPAREL EXPORTS FROM INDIA

2003-04 $ 4.6 billion

2004-05 $ 5.8 billion

2005-06 $ 8.4 billion

 2006-07 $ 9.5 billion

TREND ANALYSIS-THE PRESENT AND THE FUTURE

Apparel exports from India have risen exponentially in the last few years, and are expected to
touch the $10 billion mark by the end of the current fiscal, up from $8.4 billion in the last
financial year.
At present, the Indian apparel and textile sector is struggling to survive because of increasing
costs of raw material, poor off take of yarns coupled with the poor realization from yarn
dealers and a sharp rise in interest rate and, the worse, the rising value of the Indian rupee. As
the industry is aiming an export turnover of $50 billion by 2011, amounting to more than US$
100 billion including that for domestic consumption, it is imperative that the country
leverages its underlying advantages and builds capabilities to place itself as a complete
solution provider rather than only a manufacturer.
The increasing value of Indian rupee is hitting exporters, with India's textile exports to USA
taking a plunge in value terms even though volumes have soared during the period Jan-Apr
2007. During the period April-Jan 2007, exports of apparel and textile products to US
declined by 0.43% in value terms though export volumes increased by 7.49% as compared to
the corresponding period in the earlier year. Thus
the textile exporting community of the country is looking to reduce dependency on the US
market and is focusing towards the European market for attaining further growth and to fight
currency pressure. This is because of the fact that even though the rupee strengthens itself to
Rs. 39.54 against the dollar, the Euro-rupee equation is comparatively at a higher exchange
price of Rs. 56.
According to the Apparel Export Promotion Council, the future of apparel exports is bright.
"In the last few years, we made rapid strides. We expect apparel exports to grow at a healthy
rate of 12 percent year-on-year. Next financial year, we expect the exports to be in excess of
$10 billion," says AEPC secretary general K K Jalan.
"Indian apparel exporters have three years to explore inaccessible markets and establish their
presence. We may not catch up with China but this is the best chance for us to increase our
footprints. Most of the apparel exporters have responded well," says Rajendra J Hinduja,
executive director (finance), Gokaldas Exports, the largest apparel exporter from India.
"Indian apparel is considered value for money. The confidence the international brands have
in Indian exporters is very high. That has enhanced the brand value," says Nitin Mandhana,
chairman and managing director, Indus Fila. "International brand GAP now sources nearly 30
percent of its apparel goods from India. That is a very encouraging sign."

The year 2009 was no doubt a difficult year for Indian garment exporters and many faced
downturn in business as importing countries cut down on inventories. While those working
with the US were most severely hit, those having operations in Europe were better placed. On
a whole year analysis, Indian apparel export to the 27-nation economic zone saw an increase
of nearly 6% in value and 1.07% in quantities. The only other country under analysis which
saw growth was Bangladesh with 8.58% growth in value though volumes declined (-) 11.97%

Apparel Imports to the US started the year with an increase in quantities of 2.14% clearly
showing that volumes are on the rise as inventories touch rock bottom. However, the imports
strongly fell in US dollar terms by (-) 7.89 after prices significantly declined from the same
month in 2009. The trend sets the pace for imports for 2010 and exporters can expect sharper
prices than last year. It will be a real test for suppliers as they will have to work on their
productivities to export at the desired prices.

GOVERNMENT POLICIES TO INCREASE EXPORTS

While many exporters are in talks with European buyers to increase revenues from the
European market, keeping long-term interests in mind, they are also hoping to ramp up
domestic operations, improve production and manufacturing efficiencies. For example, some
companies are trying to convince their existing clients in Europe to shift from paying in
dollars to Euros. Some companies are also pondering over market diversification with more
emphasis on Europe.

As per industry statistics, the European market cannot offer as much volumes as the
American market fetches. Secondly, there will always be a resistance to the incremental
prices, which exporters can enforce upon their foreign clients. Hence, targeting the
burgeoning domestic market, which has significant growth potential should be the long-term
strategy for the Indian textile sector. Besides this, while some bigger companies have
managed to plug losses by hedging, it is time for the smaller companies too, to look at this
option, as the textile industry has had to grapple with issues such as job cuts and profit losses
this year.
Exporters, industry and business chambers hailed the new initiatives and sops worth Rs. 1052
crore announced in the annual supplement of the Foreign Trade Policy (FTP) stating that
these steps would help India achieve the export target of $200 billion this fiscal.
In order to give immediate relief, a bonus incentive (over and above the present benefits) of 2
per cent has been announced by Commerce and Industry Ministry. The focus of the changes
has been on continuity of the existing schemes, support to labor-intensive sectors such as
leather, handicrafts, handlooms, tea, certain engineering products, textiles, silk carpets,
marine, toys and sports goods, and reduction of transaction cost and time by simplifying
procedures and streamlining decision-making.
Eminent personalities agree that global recovery was still fragile and uncertain and therefore
Government should constantly review the situation with a view to fine tuning its policies to
address the emerging concerns.

INDIAN EXPORTS OF TEXTILES AND APPARELS-FACTS

AND FIGURES

1. Exports increased from US$ 14 million (2004-05) to US$ 17 million (2005-06) –

21.77 % increase.
2. With continuing growth, the total exports has increased to – US$ 19.62 billion
(2006-07).
3. Current share in world export of textiles – 3.5 - 4 %.
4. Current share in world clothing export – 3 %.
5. Major export market – Europe (22% share in textiles & 43% share in apparel).
6. Single largest buyer – US ( 10% share in textiles and 32.65 share in apparel).
7. Other major export markets include - UAE, Saudi Arabia, Canada, Bangladesh,
China, Turkey and Japan.
8. Largest export segment – Readymade Garments (45% share in textile exports and
8.25 share in India's total exports).
9. Readymade garments exports: India's apparel exports declined for the third
successive month in July, showing a 22.5 per cent annual drop in contrast to
 recovery in the country's overall exports which went up by 13.2 per cent in the
same month.

10. The garments exports fell to USD 816 million in July on lesser demand from the
US and European markets, according to the Apparel Export Promotion Council
(AEPC).

11. The US and EU account for about 80 per cent of the country's total apparel
exports, which aggregated to USD 10.64 billion in 2009-10.
12. During April-July 2010-11, apparel exports declined by annual eight per cent to
USD 3.46 billion.

13. During April-July, overseas shipments aggregated at USD 68.63 billion, up 30.1
per cent over the same period last year.

14. To reduce the dependence on traditional markets like the US and Europe, apparel
exporters are exploring new markets in Japan, West Asia, Africa and Australia.

15. While the government announced extension of the incentives under the Market
Linked Focus Product Scheme (MLFPS) to EU till March 31, 2011, the industry
wanted that the relief be also provided for the shipments to the US as well.

16. The garments sector has benefited significantly with the termination of Multi-
Fiber Arrangement (MFA )in January 2005.

INDIA’S SHARE IN US TEXTILE AND CLOTHING MARKET

15

10

Before 200 2005 2005 onwar

INDIA’S SHARE IN EUROPEAN UNION TEXTILE AND
CLOTHING MARKET

10

before 2005 2005 on

PRODUCT WISE EXPORT SHARE

2005-06
Commodities
(Million US$)
Readymade Garments 6038.69
Cotton Textiles 3290.31
Man-made Textiles 1948.72
Wool & Woolen Textiles 66.57
Silk Textile 406.82
Total 11751.11
Add handicraft, Coir & Coir
Manufacturers and Jute
Total 13065.24

CONCLUSION

It is evident that the Indian export market in the field of textiles and clothing is a crucial part
of India’s economy. The garment trade has been prevalent since a long time and has faced
depressions and increases in the amount of trade carried out. The removal of the MFA proved
to be a beneficial act for exporting countries like India. The trend analysis shows that India is
not doing very well in the global market as it faces stiff competition from other Asian
countries, mainly china. India has to adopt newer strategies and bring out incentives to bring
the export trade to a commendable level in the global scenario. The government and the
exporters are working hard towards achieving this aim of increasing exports to greater levels
and bring India into the forefront in the exports of garments and textiles, to the largest buyers,
the countries of the European Union and America.

With globalization around the corner, it is high time the domestic sector of the industry takes
keen interest in exports. This is for the very survival of this sector. If the long-term measures
are implemented by the industry and by the government, the garment industry is poised for
much further expansion resulting in sill higher trade
and employment.

REFERENCES

JOURNALS:
1. “Business and market analysis for the global textile and apparel industries”, Journal of
Textile Outlook International, Vol. no. 138, November-December 2008.
2. WEBSITES:
http://www.aepc.ac.in
http://www.scribd.com