International Business

Assignment I

Business Policy Report

Submitted by Prasanna Soundappan G (10MBA1051)

Loyal Group provides a broad range of products and services to textile and apparel Markets, It is an ISO 9002 2000 accredited, Loyal Group exports products to Israel, Egypt, Turkey, USA, EU Countries, United kingdom, Japan, Thailand, South Korea, Dubai, Sri Lanka, Bangladesh, Brazil, Argentina, Columbia, Mexico, Taiwan, Vietnam, Iran, Israel, China and Indonesia. The organisation is committed to philanthropy & socio environmental development activities. Loyal group provide the range of products and services to textile and apparel industries for about seven decades. Loyal group has made several benchmarks in exports. Loyal group has three composite mill, one dye house, one spinning mill, four garment manufacturing units, one trading and retailing company and a joint venture trading company in Italy. Loyal group has strict code of ethics in business operations. It make an annual turnover of Rs.10 billion (US$ 225 million), of which Rs.8 billion (US$ 180 million) revenue is generated by exports. Loyal group has The Trading House Status awarded by govt. of India for its excellence n continual improvement is exports. With the strong commitment to quality and customer satisfaction, the organisations vision encompasses the folln:

To be one of the most admired textile companies which follows and supports sustainable environmental friendly processes right from cotton cultivation to Product distribution; practices high level of integrity and fairness in dealing with all the stake holders. To remain focused on developing Speciality and Technical products for safety and functional wear.

Mission of the organisation:

Is to become the most admired group by all stakeholders i.e., Customers, Employees, Share holders and Society at large. To pursue world- class standards in People, Products, Processes and Performance. To seek quantum growth to lead in the International and domestic market and enhance international presence by encouraging Innovation and Nurturing Intellectual Processing.

To be always conscious of the path to ensure highest ethical and moral compliance even as the organisation remains totally focused on the goals.

Production Facilities of Loyal Group: Spinning Twisting and Gassing Weaving Garments The Loyal Group manufacture premium quality of yarn in different diameters namely the different varieties of yarn produced by them are compact yarn, melange yarn, dyed polyester blended yarn, kermal blended yarn, carbon yarn and fancy yarn. All these yarns are widely used in textiles, sewing, knitting, weaving, embroidery etc., They specialize in offering superior quality woven fabric which is of types namely Grey woven, plain sheeting or poplin, drill or broken free, sateen or satin, stripe satin, oxford or chambray, rip stop, corduroy, dobby designs and yarn dyed.

Loyal group has a good experience in producing knitted and woven garments. It produces 1,500,000 pieces of woven garments and 2,000,000 pieces of knitted garments. Loyal group markets about two million pieces of Work-wears through its joint operations with Italian company, Gruppo and Loyal SPA. The products are: Long coat Overall with zip Pant Shirt Bib pant Jacket Coat Loyal has an division for home textiles, core business of this unit is designing and lining bed linen, bathing items and upholstery like flat fitted pillows, sharns, duvets, comfort shells with and without down proof, bed skirts, shower curtains and sofa covers. Loyal Group strongly believes that the organic way of the cotton cultivation and Eco-friendly way of converting the raw materials into finished products is the only sustainable way. Loyal Group is certified by "control union world group" (formerly known as SKAL International) to support organic products under GOTS. All the plants such as spinning, weaving, knitting, dyeing, finishing and garmenting are GOTS certified for processing organic cotton.

Loyal textile mills ltd has four spinning mills located at Kovilpatti, Sattur ,Arasanur and Naidupet(AP). It comprised of highly advanced technology machines which are fully automatic. Spinning mill located at Kovilpatty has five spinning blocks, i.e. five units. Production per day in unit 1 is 6000 kgs. Production per day in unit 2 is 5000 kgs. Production per day in unit 3 is 3500 kgs. Production per day in unit 4 is 2000 kgs, and its OE unit produces 12,000 kgs per day. Loyals twisting unit is located at Sattur. The unit located at Naidupet produces 10,000 kgs of spinned yarn.

Joint ventures:
Loyal group exports about 2.5 million pieces of apparel via its German and Italian joint venture companies namely. M/s. Gruppo P&P Loyal SPA and Schaefer Loyal. Through this Loyal exports Works-wear. 100% Cotton Regular Styles Polyester Cotton Regular styles High Visibility Reflective tapes Anti-entangling Garments Flame Retardant Finishes Electro conductive T-Shirts All the protective clothing manufactured by Loyal have EN (CE) certification.

Loyals Export Market:

Oriented towards achieving desired results, Loyal Group works with a highly professional approach, while maintaining ethical business practices. The Group manages a synergy with its clients for mutual growth. At present, Loyal Group exports textile and apparel products to the discerning markets all across the globe Garments are exported to Europe, Switzerland, Middle East, USA, UK and South Korea. Finished fabrics are exported to UK, Sri Lanka, Dubai, Europe, USA and Bangladesh. Home Textiles are exported to USA, UK, European and Japan. Grey Fabrics are exported to USA, Europe, Hong Kong, South Korea, Israel, UK, Bangladesh, Turkey, Egypt and Sri Lanka. Yarn is exported to Europe, Japan, Hong Kong, Korea, Australia, Spain, Egypt, Israel, Turkey, Thailand, Taiwan, Bangladesh, Mexico, Vietnam, Iran, China, South Africa and Indonesia.

Problems faced by Loyal Group in exporting:

Price fluctuation in Raw materials Fluctuations in exchange rate Transportation cost Exercise duty and value added tax Enforcement of law Unfavourable Annual budget Low supply of raw materials Others

Price fluctuation in raw materials:

Due to the fluctuation in price of raw materials like cotton, steel and fuel i.e. oil, Textile mills in the Coimbatore region have hiked yarn prices by Rs 15 per kg, The popular Shankar-6 cotton which is their major raw material has jumped 10.7% since February 7, but yarn rates for the widely-used 40s count have moved by only 5.7%. Prices of Shankar-6 have spurted 50% since September 2010 to Rs 58,500 per candy (356 kg) but rates of the 40s count, which were keeping pace with the cotton prices initially, have increased 39.5% to Rs 275 per kg on February 23. Yarn accounts for nearly 60% of the costs for garment makers, and it is difficult to operate if prices are increased frequently. Every 100 kg of cotton, 75 kg of combed yarn and 85 kg of carded yarn can be produced. For every Rs 1000 (per candy) increase in cotton prices, hence by increasing the yarn rates by Rs 4 per kg there will be a balance. The company is unable to fix a particular price of a product. So the company is unable to quote the fixed price instead they inform the buyer, there may be a 10 percent increase in cost due to direct and indirect price fluctuations. This includes the issues like increase in the cost of labour. As discussed with the executive manager of Loyal Group, he mentioned about the recent price hike in cotton made the price of yarn high so there was some problems with making quotations to buyer. Hence this is one of the major problems in making export orders.

Fluctuations in Foreign Exchange rate:

The order quotation is made as per the buyers money say in US$. The price is quoted by valuing the current exchange rate of US$ with rupee. The exchange rate fluctuates daily. If the value of money appreciates its a bad time for exporters. Because the payment received from buyer may be as per quotation but the appreciation of rupee makes a loss. As discussed with

executive manager, Loyal Groups, he said that The Textile Ministry and the Ministry of Commerce are discussing with the Ministry of Finance the issue of capital subsidy of 10 per cent to 20 per cent for the exporters.

Transportation cost:
Transportation cost plays a major role in exporting. It also acts as a bench mark in fixing the target. For example the time given by the buyer to finish and receive the goods is say six months, if the company is about to send the goods by ship then they should despatch the goods at least a month before so the time to work on the order gets reduced so they should urge on the work this may lead to quality defect. If the time taken to work on order exceeds, as per contract law, a penalty has to be paid to the buyer. If the penalty is lower than the air fare to transport the goods Loyal Groups sends the goods by air so that the name of company is not spoiled. If the air fare exceeds the penalty, Loyal Group manages to send the goods by ship.

Exercise duty and Value added tax:

Due to sudden increase in exercise duty and introduction of value added tax. It leads to rise in price of goods, so there was cancellation of orders due to price hike. The executive manager Loyal Group says Introduction of 5% VAT on the readymade garments manufactured in the state for the growth of the business. We are facing a tough time following heavy inflow of readymade garments from China, Taiwan, Thailand and Indonesia in the state where the industry in readymade textiles is on a rather advanced stage

Unfavourable annual budget:

Last budget, the government had increased VAT on readymade garments from 4 to 14% wherein rate of VAT in Rajasthan for readymade garments was the highest in the entire country that resulted in escalated cost of local

products within the state as compared to same product sold in other states. Later, however, with the traders protesting, the government reduced it to 5% which was still higher than the other states that have 4% VAT except Delhi, UP and Punjab that have 5% VAT on readymade garments. Hence even a unfavourable annual budget too have a great effect over the exporters in India.

Low supply of raw materials:

The supply of raw materials has a great effect on price of goods. Agriculture is now reduced compared to early days since the supply of cotton is low the demand raises, this scenario leads to rise in price of cotton hence it creates a price hike which affect the export orders.

OTHERS:
The other factors which lead to cancellation of export orders are eco friendly certificates, no child labour involved certificates; proper disposal of dying wastes through treatment plants certificates issued by governments would be demanded by the buyer before the export order is confirmed. It is not provided on demand it will lead to cancellation of order.

Conclusion:
These are the problems faced by Loyal Textiles Group in exporting its finished good to foreign countries.