Biz Wiz

Apparel Abundance

India is the ninth largest economy in the world after USA, China, Japan, Germany, UK, France, Brazil and Italy, and its GDP stands at $2.1 trillion, which accounts for 2.65 per cent of world economy. Critical economic factors like oil prices, foreign investments, government intent for reforms etc have tilted in favor of the economy and India’s real GDP growth is expected at an annual growth rate of over seven per cent for next five years. The Indian economy contributing to its GDP is divided into three sectors; agriculture (17 per cent), Industry (18 per cent) and Service (65 per cent).

The global textiles and apparel value chain features the USA, EU-28 and Japan being major consuming countries and most of the production occurring in developing and least developed countries due to their low labor costs. The global apparel market was estimated at $1,350 billion in 2014 and expected to grow at CAGR of 4.6 per cent between 2014 and 2019. Europe and USA were the biggest apparel markets with sizes of $425 billion and $305 billion respectively in 2014 with menswear and womenswear being 83 per cent and kidswear (17 per cent), though the kids market is expected to grow faster (CAGR of 5.6 per cent) than the overall apparel market (CAGR 4.6 per cent) between 2014 and 2019.

Imports of apparel are expected to grow faster than textiles (like fibres, yarn, fabrics and made-ups) owing to the increasing consolidation of textiles and apparel production activities in the same countries. The projected CAGR for apparel imports is 6 per cent for period between 2014 and 2019, while imports of textiles are expected to grow at CAGR of 4 per cent in the same period.

Economically-developed counties remain major consumption centres for apparel owing to higher per capita income and higher disposable income. Though in recent years emerging countries like China, Brazil and India have started demonstrating promising consumption potential, developed countries will still contribute the major share to the apparel market owing to their higher per capita consumption. Apparel production, which is a labor-intensive industry, has shifted away from developed countries to developing and least-developed countries due to the latter’s cost-competitiveness in manufacturing. In 2014, the EU-29, USA and Japan together accounted for 70 per cent of the world’s total imports of apparel (according to UN Comtrade). Within EU-28, Germany, UK, France, Spain and Italy were the top importers of apparel.

Post Multi-Fibre Agreement (MFA) regime, China has emerged as a winner with a share of 36.6 per cent in global apparel exports in 2014, while Bangladesh (CAGR 18 per cent) and Vietnam ((20.4 per cent CAGR) registered impressive growth due to availability of low-cost labor market and duty-free access to Europe market. India, with exports of $ 16.5 billion, accounted for 3.5 per cent of global apparel exports in 2014 and CAGR growth of 7.9 per cent between 2009 and 2014.

However, China has started losing apparel manufacturing competitiveness in the global market due to its increasing labour and energy cost. Bangladesh and Vietnam lack integrated value chains and depend on imports for raw material and intermediary products, especially for cotton-based apparel manufacturing which is predominantly used in infant and toddler apparel. Bangladesh also faces sporadic issues of social unrest, violation of safe working norms which are expected to affect its future growth in apparel exports.

India has the advantage of an abundant supply of cotton (second largest producer of cotton), government support for apparel manufacturing and strong reputation of meeting stringent quality, environmental and social norms of international buyers. India has the capability to meet design and product development requirements of western market, which make the country a sourcing destination of choice for buyers and buying offices that prefer to outsource designs from suppliers. 

Apparel exports of major producing countries like China, Bangladesh, Vietnam, India, Turkey, in the last decade, have grown at a faster rate – compared to growth of overall global apparel exports – and these countries have managed to acquire export orders at the expense of other countries that are no longer attractive for apparel manufacturing.

The global kidswear market was $228 billion in 2014, out of which around 20 per cent was from infant and toddler apparel (till three years) and 80 per cent from other children’s apparel (four to 14 years). While the market has grown at CAGR of 4.8 per cent between 2009 to 2014 owing to improving global economic outlook, the growth rate is expected to increase to CAGR of 5.6 per cent between 2014 and 2019 to reach $300 billion in 2019. 

Increasing brand awareness for children wear products, growing desire to pay a premium for better quality with higher safety elements etc., are acting as key growth drivers for the kidswear market in developed countries. Additionally, rising media exposure, increasing disposable income of the parents, rising peer pressure, growing fashion and brand consciousness among children are also driving the growth of kidswear market. The USA is the largest market for kidswear with market size of $58.3 billion, followed by China ($44.4 billion), while European countries like Germany, UK, France and Italy are leading countries in per child spending on apparel. Growth of children wear market in developing countries like China, India, Russia, Brazil etc has been higher with CAGR in the range of 8 per cent to 12 per cent between 2009 and 2014, owing to their low base.

The estimated value of global children wear imports has increased at CAGR of 6 per cent from $58 billion in 2009 to $78 billion in 2014, and it is expected that imports will grow at a CAGR of 7 per cent to reach a value of $ 110 billion in 2019. Growing kidswear market in major importing countries owing to improving economic outlook and continuing shift of kidswear manufacturing to countries with low manufacturing cost will contribute to the increase in growth rate from 6 per cent to 7 per cent.

China remains leading exporter of kidswear with global share of 36.1 per cent, Bangladesh (6.5 per cent), India (4.2 per cent), besides Vietnam, Italy, Hong Kong, Turkey and Indonesia being the other key sourcing destinations. Knit kidswear exports of China and India have increased at CAGR of six per cent and seven per cent respectively between 2009 and 2014. However, Bangladesh and Vietnam have managed to demonstrate CAGR of 10 per cent and nine per cent in the same period. On the other hand, major exporters Turkey, Indonesia, Sri Lanka and Thailand have witnessed negative growth rates in exports of knits kidswear from 2009 to 2014. But India has distinct advantages in kidswear exports. Cotton is the most used fibre in kidswear, especially infant and toddler wear. India is the second-largest producer of cotton after China and India’s cotton spinning, weaving and knitting sub-sector add to the strength of the country as a manufacturer and exporter of kidswear. At a time when major brands and retailers are exploring sourcing destinations beyond China, India emerges as an obvious choice for sourcing cotton-based kidswear. India commands a premium in unit value realisation in exports market which is reflected in per unit cost of infant and toddler apparel exported by India compared to other countries.

International brands and retailers are redefining sourcing norms: the international brands and retailers are increasingly focusing on brand-building, marketing and merchandising, while outsourcing product development, designing and actual activities to their manufacturers. The bigger brands and retailers have been shifting from imports through agents and importers to own managed sourcing offices in China, Hong Kong, Singapore, India, Bangladesh and other Asian countries.

Access to cotton base is a critical factor for infant and toddler apparel: China and India have the advantage of being the largest cotton producers globally, and Bangladesh and Vietnam import cotton yarn and fabric for their apparel exports which increases lead time of these countries. Kidswear manufacturers also ensure that their fabric, chemical and accessories (buttons, zippers etc) suppliers adhere to the stringent norms.

Brands and retailers prefer working with manufacturers with proven track record. Consequently, manufacturers who have robust in-house quality control norms, in-house quality audit systems and testing facilities are emerging as preferred sourcing partners of these brands and retailers.

The kidswear market of Europe stood at $ 66.4 billion in 2014, demonstrating a CAGR of 1.4 per cent from 2009 to 2014. It is expected that Europe’s market will grow at a CAGR of 2.1 per cent between 2014 to 2019. Within Europe, Germany is the single largest market for kidswear followed by UK, France, Italy, Spain and Sweden. Owing to better economic outlook and higher birth rates, the share of Germany and the UK in Europe’s kidswear market is expected to increase further. The kidswear market of Europe is expected to grow at CAGR of 2.1 per cent for the next five years. 

Besides China, South Asian and South-East Asian countries have emerged as key competitors to India in apparel exports. China, undoubtedly, has emerged as the top player in apparel production and exports, and has the largest share in the global exports. However, with increasing shift of production to low wage countries and increasing labor and energy cost of China, it is expected that manufacturing will shift towards other Asian countries including India. Besides China, Bangladesh, Vietnam, Indonesia, Pakistan and Turkey are key competing countries of India in apparel exports.

Though most of the international buyers, brands and retailers have been sourcing large volumes of their apparel from China, increasing labor cost in China has forced them to explore sourcing destinations beyond China. This has started creating opportunities for other Asian apparel-exporting countries like India, Turkey, Pakistan, Bangladesh, Vietnam etc. India is well poised to tap this opportunity, owing to its established reputation as a sourcing country to all the major international players of repute. Conversion of textiles into apparel within India will increase exports value of the country as value-added products fetch a higher exports value realisation.

India has several advantages in producing and exporting kidswear products. Some of the key strengths that provide India a competitive edge on the global platform include: presence of integrated cotton value chain in India as preferred raw material in kidswear, especially in infant and toddler apparel; India is the second-largest cotton producer after China; access to skilled manpower (for manufacturing of apparel with high fashion elements and other complexities) at competitive wage rates compared to other major cotton producing countries like China, Turkey etc; availability of entrepreneurial and managerial talent in the country who have managed to set-up world class factories to attract leading importers, brands and retailers of the world; ability to execute orders that require high degree of product safety compliance and strict quality control measure, many other low cost apparel producing countries fail in adhering to norms in this aspect; favorable Government policies for apparel exports including duty draw back facility, interest subvention option, support for technology upgradation and skill development etc; increasing Government focus on converting raw material and intermediate goods to apparel to gain higher exports value realisation; India has the advantage of being a sourcing location for design based, value added fashion range. Product development and design capabilities are expected to drive apparel manufacturing and export from India; technology adoption of Indian manufacturers is higher compared to other low cost manufacturing countries. This provides an advantage in manufacturing of apparels that involve intricate design elements and require higher precision levels; trust of international importers, buyers and retailers of Indian manufacturers when it comes to adhering to lead times and terms of trade. 

The key growth drivers for India include: China’s increasing manufacturing costs forcing brands and retailers to look elsewhere; presence of local sourcing offices of global brands/retailers in India; ability of India to adhere to compliance norms in comparison to other low-cost countries like Bangladesh, Pakistan etc.; presence of design-driven manufacturers having offices in Europe, USA; increasing government focus on converting raw material and intermediate products within India and to export final products which provide higher value realisation; integrated cotton supply chain.

The Government of India provides several production and exports-related incentives to promote apparel manufacturing and exports of India: Revised restructure technology upgradation fund scheme;  besides schemes for: Integrated Textile Parks; Incubation in apparel Manufacturing; Textile Industry Workers Accomodation; Integrated Skill development Scheme; Merchandise Exports from India Scheme; Interest Subvention Scheme under FTP. 
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