Chinese slack, local orders spur apparel cos

The total investment required in the textile industry in India is $68 billion by 2020. Of this, $14 billion would be in the garments and made-ups segment alone, says a report by Technopak Advisors.

While that is a massive number, companies and analysts are both beginning to bet on India’s domestic demand for apparel - as also China’s winding down of capacities.

“The domestic market is where the demand is,” said Manish Mandhana, joint managing director, Mandhana Industries, which makes clothes for global brands such as Giorgio Armani, French Connection UK and Tommy Hilfiger.

“Demand has revived in the textile and garment sector after languishing for some years and is expected to sustain,” he told Bloomberg last week.

Consumption of apparel and home textiles rose 66% from $24 billion in 2005 to $40 billion in 2010, according to Technopak data.

Mandhana told DNA he will triple garment-making capacity this year by investing Rs300 crore because the apparel retailing industry is growing around 40% annually.

Rajendra Hinduja of Gokaldas Exports concurs. “The market in India looks better than the exports market,” he said.
The domestic apparel market totted up revenues of Rs170,900 crore in 2010, estimates Technopak, adding the industry size could touch Rs9,90,000 crore by 2020.

Gokaldas would therefore increase exposure locally, the ‘mentor’ of the company said.

Globally, China dominates with more than 30% share in the $500 billion market, while India has around 2% or about $10-11 billion.

But China is slowly defocusing from the textile industry, and tilting towards sophisticated industries. Also, the country is not as attractive as it was in terms of labour arbitrage, say some, because of higher wages and raw material costs.

This opens an opportunity window where India can be a good fit.

“India is capable of offering an integrated value chain solution for players shifting from China, which would be difficult for those in Bangladesh and Vietnam,” said Arvind Singhal, chairman Technopak.

Officials said the global market that can open up due to the Chinese slowdown could be anywhere in the range of 3-15%, depending on various factors.

“It would be difficult to pin down a number. A lot would depend on what steps the the apparel makers in India take and how the government supports them in policy terms,” said Sudhir Dhingra, chairman and managing director of Orient Craft Ltd, the Delhi-based exporter which makes apparel for Ralph Lauren, among others.

But the biggest competition will be from Bangladesh and Vietnam.

“India cannot compete with Bangladesh on labour costs. That country is very focused on generating maximum employment, which, in turn, translates to very low labour costs,” said Dhingra. “Apparel makers in India will have to explore remote rural areas in order to keep their labour costs in check,” he said.

Not surprisingly, Bangladesh exports more apparel than India.

Another red flag being raised is about Chinese players pitching tent in Bangladesh and other countries.

“While exports from China have reduced, the Chinese are still setting up factories in Bangladesh and other countries,” points out Gokaldas’ Hinduja.