Analysis of competiveness of Indian Textile Industry with its neighboring countries

Under the guidance of :Mr. Gautam Bansal

Presented by: Manpreet Cheema

MBA-IB

Introduction About the Company

• Envision Exports Pvt. Ltd. is in operation since 1994, with its head office in Ludhiana (India) and an associate office in Bangladesh.

• The company is engaged in Textile Sourcing Business of Fibers, Yarns, and garments

Mission:

• To assimilate knowledge, • To develop capabilities, • & to manage collective enterprise to profitably

tap global commercial advantages.

Business

• The business is basically a servicing and sourcing solution for textile needs, meeting the demands and requirements of the customers from all over the world.

Services

• To give complete yarns & fabrics sourcing for all varieties, adding to customer’s convenience.

• To provide weekly/ fortnightly market information .

• To provide complete sampling support to all of their customers.

• They have a dedicated desk for shipment follow - ups. Customers are updated through SMS, E-Mailing & can track shipments with a personal username & password over their website

Markets

The company is only a middleman firm, taking products from their Suppliers here at Ludhiana and supplying their products to their precious customers worldwide.

STRENGTHS

Envision exports is having the qualified and trained staff.Strong reputation with its clientsQuick delivery of assignments with excellent quality

OPPORTUNITIES

Liberal trade with other countries can increase the scope of trade.Textile sector is growing day by day , ever changing ,so demand of textile products increases.

WEAKNESS

Envision export is a small company.The company deals with only yarn segment of the textile industry.

THREATS

Big companies may start their own trading houses.Changing government policies may pose a challenge to the company

SWOT Analysis

Envision Business Growth in the Past ten Years:

Customers

The company has a regular base of customers in Korea, China, Egypt, Singapore and Bangladesh. All their prestigious customers are working for Top end final buyers like HNM(Hennes & Mauritz), Zara, New Look, GAP, J.C. Penny, Tesco etc.

Major suppliers Yarn suppliers

• Abhishek Industries Ltd.., India

• Aarti International Ltd.., India

• Garg Acrylic, India• GTN Industries, India etc

Fabrics & Garments suppliers

• Anowara knitting Ltd., Bangladesh

• Fakir apparels Ltd., Bangladesh• Metro knitting Ltd., Bangladesh• Northern corporation,

Bangladesh• Tung Hai Sweaters, Ltd..,

Bangladesh• Starlight Sweaters, Bangladesh

Organization chart

DEPARTMENTS:

Managerial departmentMr. Kanwal Khurana: He is the director and heads the overall organization. He administers the organization and sees the overall functions.

Marketing DepartmentMr. Jitin Sethi. His main focus is how to develop a new market. He coordinates the working of various suppliers and focus on creating new customers. He keeps an eye on all the happenings around the market

Shipment Department: Shally Kapoor: She handles all the suppliers’ offers. She

focuses on various contracts of the company and manages the existing customers of the company

Post Shipment: Mr. Shubham Sharma: - He handles all the commercial

executions, post contracts. He also takes care of all the procedures related to LC mainly on its follow up and various commissions.

Mr. Vibhanshu Bhasin: He deals with all the logistic

functions and takes care of all the shipment.

Technical Department:Mr. Rishab Ahuja: He takes care of all activities related to inspections. He handles all the complaints related to quality. Accounts:Mr. Shambhu Gupta handles the activities related to accounts and takes care of banking, accounting and taxation. He keeps all the accounts of the company and maintains office security and insurance.

Balwinder Kaur: She handles all the office administration and cost control systems. She deals with all liaison work and relation support services.

Financial Statement Analysis

Ratio Analysis is one of the most powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of an enterprise

Current Ratio= Current Assets/ Current Liabilities

Particulars 2007-2008 in Lacs 2008-2009in Lacs

Current Assets 3.77 40.60

Current Liabilities 5.58 35.65

Current Ratio 0.67 1.14

Firm’s ability to pay its current liabilities out of its current assets.

Since current ratio is less than 2 i.e. it is 0.67 in 2007, so it is not ideal for the concern, difficulty may be experienced in the payment of current liabilities and day to day operations may suffer.

Operating Leverage Ratio: Contribution/EBIT

Particulars 2007-2008 in Lacs 2008-2009 in Lacs

Contribution(Sales

-Variable Cost)

1.67 10.41

EBIT 1.60 5.75

Operating

Leverage Ratio

1.04 1.81

firm’s ability to bear its operating expenses in the short run. Lower the ratio, better it is

Operating Cash Flow Ratio:-= Net cash flow from operating activities/Current Liabilities

Particulars 2007-2008 in

Lacs

2008-2009 in

Lacs

Net Cash Flow from Operating

Activities

3.09 43.76

Current Liabilities 5.58 35.65

Operating Cash Flow Ratio 0.55 1.22

the cash availability from operating activities towards meeting the current liabilities and obligations.

Not adequate. Company just has incorporated on 04th Jan, 2008 and funded by large amount of loan to which includes in current liabilities and having a major hold on company assets

Net Profit Ratio:- Net Profit after Tax/Net Sales*100

Particulars 2007-2008 in Lacs 2008-2009 in Lacs

Net Profit After Tax 1.36 3.15

Net Sales 3.09 43.76

Net Profit Ratio 44% 7.19%

Higher the ratio, better it is because it gives the idea of improved efficiency of the concern.

Shows the efficiency of the management in every activity of the concern

Financial Leverage:- = EBIT/EBT

Particulars 2007-2008 in Lacs 2008-2009 in Lacs

EBIT 1.60 5.75

EBT 1.60 5.75

Financial

Leverage

1 1

When a firm procures debt capital to finance its needs, it is said to have a financial leverage

Good. If the rate of return on investment of a firm is higher than the cost of debt capital, it is said to have a favorable financial leverage, otherwise it has a unfavorable financial leverage

INTRODUCTION TO

INDIAN TEXTILE INDUSTRY

Indian Textile Industry

One of the largest and oldest sectors in the country

The industry contributes 4% to the country’s GDP and 14% to the country’s industrial production.

Employs nearly 35 million people and after agriculture, is the second-highest employer in the country.

Contributed 12% to the foreign exchange earnings.

Value-wise share of various products in total T&C exports by India (2007-08)

Share of major export markets in total T&C exports by India (2007-08 Value-wise)

Competitive Assessment of Indian Textile industry vis-a-vis other countries

Labor cost India has higher labor cost as compared to Bangladesh, Vietnam and Sri Lanka.

Moreover, India has lower labor productivity as compared to other countries.

Labor productivity in China and India surged ahead of other nations in the Asian region between 2007-2009, expanding by 8.7 per cent and 4 per cent respectively.

Power cost and availability of power

•Manufacturing in India suffers from non availability of power.

•Captive power generation is the only alternative to sustain production.

Interest costPrime Lending Rate (PLR) is that rate of interest at which a bank lends to its best customers.

Corporate Tax

Corporate tax refers to a tax levied by various jurisdictions on the profits made by companies or associations.

Exim procedures

Documents preparation and Customs clearance take around 10-12 days for Indian companies.

Inland Transportation costs

•More than three times than that for Chinese companies.

•Inadequate road and rail infrastructure

Costs in US $

Productivity Comparison:

Productivity in China, Turkey and Brazil is over 1 tone / ha. In India it is only about 0.3 tones / ha

Supply chain in this industry: highly fragmented

Average delivery lead times: 45-60 days

International lead delivery times : 30-35 days.

Countries and their positive and negative aspects with regard to textiles

Key countries / regions

Key positives Key negatives

China Efficient, low cost, world’s largest textile

economy

Low value added status, lack of free trade

agreements with major T&C global markets.

India, Pakistan Vertically integrated, low cost

Lacks economies of scale and infrastructure

supportBangladesh Lower labor and

energing cost Shortage of skilled labor

Title: “Analysis of competiveness of Indian Textile Industry with its

neighboring countries”

Objectives of the study

to analyze the growth trends of Indian textile industry

to study the extent of modernization of Indian textile machinery

to study the various hindrances being faced by this sector

to study the extent of competition India is facing from its neighboring countries

RESEARCH METHODLOGY

A research methodology defines what the activity of research is, how to proceed, how to measure progress, and what constitutes success.

Research Design: Descriptive research

Sampling

Universe: Totality of items in any field of enquiry. All the companies who deal in export of textile products

Population: Total items about which information is desired. All the companies who deals in export of textile products in Ludhiana

Sample Unit: Any single spinning company in Ludhiana which is

into export business.

Sampling technique: Convenience of time and links

 Sample Size: 20 exporters

 Sample type: Area Sampling: Sample area of the study is Ludhiana

Source of Data

Primary: questionnaires and e-mails

Secondary : websites and journals.

Limitations of the study

• The study is limited to Ludhiana city due to time constraints.

• The Sample size has been restricted to 20.

• The analysis could have been made much more accurate, if the project be done in other cities also.

• The respondents were busy or for some other reasons, did not show much attention filing the questionnaire; hence the chances of biasness could be possible.

• Envision exports Pvt. Ltd is a trading firm, so some ratios can’t be calculated.

Data Analysis

and

Interpretation

Fig 4.1 Year of incorporation

10%

10%

15%

60%

5%

1960-19701970-19801980-19901990-20002000-2010

N=20

Fig 4.2 Title: The sales trend of your company

85%

5% 10% Growing

Constant

Fluctuating

Decreasing

N=20

Fig 4.3.1 Title: Indian textile industry progressive

No of respondents

%age of respondent’s

Strongly agree 13 65Agree 6 30Disagree 0 0Strongly disagree

0 0

Neither 1 5Total 20 100

N=20

Fig 4.3.2 Title: Indian textile industry aggressive

No. of respondents

%age of respondents

Strongly agree 11 55Agree 7 35

Disagree 0 0

Strongly disagree

0 0

Neither 2 10

Total 20 100

N=20

Fig 4.4 Title: Foresee the growth of Indian textile industry as compared to its neighbors

15%

80%

5%

Very strongStrongNeutralWeakVery weak

N=20

Fig 4.5 Title: Are you using any latest technology in your company? If yes please specify

95%

5%

YesNoNot replied

N=20

Fig:4.6 Title: Effect of using those technologies in your company

28%

38%

17%

17%

More productionBetter qualityLess wastageLabor efficiencyAny other

N=20

Fig:4.7 Title: Do you think technology adopted by Indian companies is competitive enough as compared to its neighbors

35%

65%

Yes NoCan’t say

N=20

Fig: 4.8 Title: Companies you are aware of

30%

29%

15%

23%

3%

lmwrieterkttmramellascalaostany other

N=20

Fig:4.9 Title: Rank the latest machinery provided by these companies according to your preferences to adopt them starting from 1

Rieter Lmw Kttm Trusezerner Ramella pietro & co

0

1

2

3

4

5

6

1

2

3

4

5

Rank

Company

Rank

N=20

Fig: 4.10 Title: Hindrances in exporting yarn to neighboring countries

45%

40%

10%

5%

YesNoNot yetNot replied

N=20

Fig: 4.11 Title: country which is giving a huge competition to Indian textile industry

95%

5%

ChinaUSAEUAny other

N=20

Fig: 4.12 Title: policies framed by Indian government are posing a challenge to your business

60%40%

Yes NoCan't say

N=20

Fig 4.13 Title: Effect of these policies on your business

60%

40%

yes nonot rep

N=20

Fig: 4.14 Title: Indian government is supportive enough to boost textile industry as compared to its neighbors

30%

70%

YesNoCan't say

N=20

Fig: 4.15.1 Title: strengths of Indian textile industry

22%

18%

25%

16%

20%

Low labour cost and availabilityCheap raw materialSkilld manpowerValue chainPotential domestic and in-ternational market

N=20

Fig: 4.15.2 Title: Weakness

7%31%

14%24%

24%

Fragmented industry

Infrastructural bottlenecks

Unfavourable labour laws

Higher indirest taxes,power and interest rates

Lack of technological de-velopment

N=20

Fig: 4.16 Title: factors affecting the competiveness of this sector

22%

22%

8%

47%

Government policies

Labour cot and availability

Raw material availability

Exports benefits

Any other

N=20

Fig: 4.17 Title: Indian textile industry is competitive enough to beat its competitors

25%

5%

70%

Yes

No

Not yet

N=20

Findings•The sales trend of most of the respondents is increasing.

•Most of the companies are using the latest technologies from big companies like LMW, Rieter etc. they are buying the technologies wherever it is available. But that is on the individual basis but in the whole Indian textile sector lags behind from many countries in technology improvement.

•There are many hindrances which Ludhiana exporters face while exporting to neighboring countries like banking problems, logistics, and port problems.

 •China is giving huge competition to Indian textile industry.

 •Respondents said they are being affected by changing government policies and that reduces the export competiveness of Indian textile products in the export market.

 •Most of the respondents said that the country is not yet competent to beat its competitors.

•Respondents said that strength of the Indian textile industry is skilled manpower and the weakness is lack of good infrastructure.

Conclusion

Expectations are high, prospects are bright, but capitalizing on the new emerging opportunities will be a challenge for textile companies. From the above study, it an be concluded that though Indian textile industry is competent enough yet it lacks in many faces like infrastructure, technology.

Suggestions•Imbibing global best practices

•Adopting rapidly changing technologies and efficient processes.

•Innovation

•The weak links in the Indian conventional industry such as weaving and finishing have to be strengthened

•Government should take steps to reduce the cost disadvantage of Indian T&C manufacturers.

•The logistics and supply chain management of Indian textile firms are relatively weak and needs improvement and efficiency.