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A Study of Competitivenessof the Garment Export Sectors of India
and China: Revealed ComparativeAdvantage (RCA) Analysis
Lalit Mohan Kathuria*
The textiles and garment sector is one of India's significant economic sectors, contributinga significant share in the country's industrial output and export earnings!^ Also, thislabor-intensive sector provides employment to more tlian 30 million people. Many studiespredict tliat India and China will gain a significant share of the world textiles and clothingtrade due to the availability of cheap labor and other factor resources. This paper analyzesthe comparative advantage of India and China for the garment sector, in the export trade.It uses Balassa's (1965) Index of Revealed Comparative Advantage (RCA) for analyzingthe export data. Also, this paper highlights the shift in the comparative advantage for Indiaand China between 1995 and 2003. Further, it points out certain constraints restricting thegrowth of export share of India in the world market, offering suggestions for policy makers toboost the export share in world garment trade.
INTRODUCTIONThe Indian garment industry is vital to theeconomy of the country. It is the largestemployer after agriculture, providingmeans of livelihood to over 34 lakh peopledirectly. In addition, the industry providesemployment to several workers in ancillaryindustries like manufacturing of yarns,fabrics, accessories and processing.This industry contributes 6% to the GDPof the country and earns 12% of valuableforeign exchange for the country.The garment industry consumes almost40% of the total fabric production of the
country. A large segment of the garmentsector comprises a vast domestic market,while another significant segment catersto the export market. Apparel constitutesapproximately 45% of the country's totaltextiles exports (India in Business, 2007;and WTO, 2007). '
In the world garment export trade,India exported garments worth $6.46 bnin 2003, comprising 2.9% of the worldgarment export trade, whereas China'sgarment exports reached a total value ot$52.06 bn in 2003, up by 47.7(o from 1994(Singh and Kathuria, 2006). China isexpected to become an undisputed leader
Associate Professor, Department of Business Manai;ement, Punjab Agricultural University,Email: [email protected]
Punjab, inJia.
A STUDY OF COMPKTrnVENHSS OF THE GARMENT EXPORT SECIORS OF INDIA AND CHINA:REVEALED COMPARATIVE ADVANTAGE (RCA) ANALYSIS .
on the basis of market share. Further,China's (excluding Hong Kong) share inworld garment export trade increased to30,6% in 2006, when compared to India'sexport share of 3,3% in 2006 (WTO, 2007),Though India registered a 26% annualgrowth in 2005 as compared to 20% forChina in 2005, India could not sustain thisgrowth rate and slipped to 10% in 2006, ascompared to China's annual growth rateof 29% in 2006, This is shown in Table 1,
particular time frame. This limit variedfor different countries and products.
From January 1, 2005, the MFA has,now, been teplaced by the Agreement onTextiles and Clothing (ATC), FromJanuary 1, 2005, the world trade in textilesand garments has become totally free(without quotas) to be integrated into theWorld Trade Organization (WTO)regime. The dismantling of the quotaregime presents both an oppottunity as well
^ Table 1Countries
China
India
(Excluding
: Share of
Hong Kong)
India and China inShare in World
2000
18,2
3,1
WorldExports
2006
30,6
3,3
Garrnent Trade, 2006Annual Percentage Change
2005
20
26Source: World Trade Oiganization, Inteinationd Trade Smiistics, 2007.
200629
10
Despite the fact that the garmentindustry of India is contributing 12% to thetotal exports, the share of India in the worldgarment export trade is hovering around3% in the last decade. Threat from Chinais taking terrifying proportions in the lightof the Multi-Fibre Arrangement (MFA)phase-out. This paper attempts to analyzethe structure of comparative advantage forIndia and China for 1995 and 2003 withthe help of Balassa's (1965) Index,
Till January 1, 2005, foreign trade inthe garment industry was conducted onthe basis of MFA, Under MFA, quotas forimporting garments were fixed for variouscountries with a view to protect thedomestic textiles and garments industry.Under the MFA system, garmentexporting countties were assigned amaximum quantity that could beexported to these countries during a
as a threat. It is an opportunity as theexport markets will not be restrictedanymore; it is a threat due to the lack ofguarantee of quotas. In the light of theMFA phase-out, it has become importantto understand the true competitiveness ofthe Indian garments export sector, in orderto assess the situation in the post-MFAphase-out scenario.
Though garment exports have witnessedhigh gtowth rates in the last decade ascompared to the other commodity exportsfrom India, the latter's performance, whencompared to many competing countries, hasnot been much encouraging, China,Bangladesh, Pakistan and Vietnam haveregistered higher growth rates as comparedto India, In the pos't-MFA phase-outscenario, China's exports have surged wayahead of India, Table 1 highlights the shareot China and India in the world gamients
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SOLITH ASIAN JOURNAL OF MANAGEMENT
trade in 2000 and 2006. Tbe table alsoreveals tbat tbougb tbe annualpercentage cbange in garment exportsfrom India was 26% in 2005, it decreasedsignificantly to 10% in 2006, wbereasCbina registered 20% and 29% annualgrowtbs in 2005 and 2006, respectively.
Tbougb many studies predict tbatCbina and India will be tbe frontrunnersin tbe post-MEA pbase-out era, tbe gapbetween tbe growtb rates of tbese twocountries is widening at a faster pace.India may face tougb competition fromlow-cost countries seeking to expand tbeirmarket sbares. Tbis paper attempts atanalyzing tbe competitiveness of India andCbina's exports on tbe basis of RevealedComparative Advantage (RCA) analysis,using Balassa's RCA Index.
Tbere are different metbods to measureexport competitiveness. Tbese includeRevealed Comparative Advantage (RCA),Market Sbare, Unit Value Realization, andLabor Productivity Indices (Prasad andAsbok, 1997). In tbis study, an attempt basbeen made to analyze tbe competitivenessof tbe garment sectors of India and Cbinawitb tbe help of RCA analysis. RCA Indicesbave been calculated and compared forgarment products falling under the'knitted' (HS 6101 to HS 6117) and tbe'not knitted' category (HS 6201 to HS 6217),for India and Cbina, from 1995 to 2003.
OBJECTIVES OF THE STUDYTbe objectives of tbe study are: To bigbligbt tbe products baving
comparative advantage on tbe basisof RCA Indices;
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To atialyze tbe structural cbange incomparative advantage for India andCbina', from 1995 to 2003; and
To bigbligbt tbe constraints restrictingtbe growtb of export sbare of India intbe world garment trade.
REVIEW OE THE EXISTINLITERATUREMany studies bave been conducted usingtbe RCA tecbnique. Tbese studiesattempted to analyze tbe exportcompetitiveness of different products fordifferent countries.
Hanif and Sabina (2008) constructedBalassa's RCA Index for tbe textile sectorof Pakistan. Using tbe ratio of creditextended to tbe textile sector to tbe totalnon-government credit of tbe bankingsystem Textile Credit Sbare (TTCS), asproxy for external finance, tbey estimatedlong-run relationsbips and ErrorCorrection Mecbanisms (ECMs) betweenRCA Index and TCS, wbile controllingotber determinants of tbe internationaltrade competitiveness of tbe textile sectorof Pakistan. Tbe results of tbe studysuggested tbat recourse to externalfinance bas a strong positive inipact ontbe country's textile sector competitiveness,botb in tbe sbort and tbe long run, evenwbile controlling traditional determinantsof competitiveness.
Tbornbill (1988) outlined tbe resultsof an empirical study of tbe repealedcomparative advantage of Irish exportsof manufactures during tbe period1969-1982. Tbe concept of comparativeadvantage is central to tbe t'beory of
No. 4
A STUDY OF COMPETITIVENESS OF THE GARMENT EXPORT SECTORS OF INDIA AND CHINA:REVEALED COMPARATIVE ADVANTAGE (RCA) ANALYSIS
international trade. This study involved themeasurement of the evolution over time ofthe RCA, of the different sub-sectorswhich constitute the Irish manufacturingindustry.
Prasad and Ashok (1997) conducted adetailed analysis of India's competitivenessin garment export in the different foreignmarkets, making use of harmonized systemdata. This study examined India'scompetitiveness vis-a vis its competitors,particularly China and Hong Kong, andsuggested various strategies for India in theMFA phase-out and post MFA phase-outperiods. Further, this study pointed out thatin the post MFA phase-out period, India'sexport growth in the garment sector wouldlargely depend on its technological capacityand the capacity to market its products in arelatively more free trade environment.
Drawing on international trade andindustrial organization theories, Bhavaniand Suresh (2001) identified variablesaffecting (a) the export decision function,i.e., to export or sell in domestic market,and (b) the export performance function,i.e., the share of exports in output. Thesefunctions were estimated for garment andapparel producing units in Delhi.The form of business organization,reflecting access to capital, turned out tobe a key determinant in both functions.The estimated marginal impact ofidentified variables (scale and share ofsales expenses), on the probability ofexporting in an estimated Probit model,declines sharply when moving from singleproprietorship to partnership, and on tolimited companies. Empirical resultssuggested two policy changes to boost
export performance. First, given theimportance of scale for exports, theexisting policy of reserving garments andapparel for exclusive production insmall-scale units needs to be scrapped.Simultaneously, it also advocated the needto amend current labor legislationapplicable to large-scale factory units, asit introduces labor market inflexibility,and hence, serves as an impediment tothe expansion of existing units and to theentry of new units.
Utkulu and Seymen (2004) analyzedthe competitiveness and pattern of tradeflows/trade specialization from Turkey tothe European Union (EU), on sectorallevels, for the period 1990-2003. This studyused the RCA measures in addition to theBalassa Index, and pointed out thatTurkey has RCA in vegetables and fruits,sugar, sugar preparations and honey,tobacco, oil seeds, rubber manufactures,textiles yarn, fabrics and related products,clothing and related accessories.
Batra and Zeba (2005) investigated RCAfor India and China, using Balassa's Index,for export data up to two digit levels (FiSclassification). They also measuredcomparative advantage using factor intensitymeasures up to three digit levels (StandardInternational Trade Classification, SITC).This study pointed out that the pattern ofcomparative advantage varies at differentlevels of commodity disaggregation. In caseof India, no other sector except cotton, thatranks among the top ten, according to thevalue of RCA Index, retains its comparativeadvantage at the disaggregated level. BothIndia and China enjoy maximum advantage
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SOUTH ASIAN JOURNAL OF MANAGEMENT
in the category of manufactured products,mainly followed by agriculture and alliedproducts. India has greater advantage inagriculture and allied products, whereasChina has greater advantage inmanufactured products.
Leung and Cai (2004) appraised twoapproaches commonly used in theeconomics literature for comparativeadvantage assessmentthe DomesticResource Costs (DRC) approach and theRCA approach. Several aquaculture-related empirical applications of the DRCand RCA approaches were reviewed.Einally, the respective merits and problemsof these two complementary approachesand how they could be used to providepolicy guidance, were outlined.
Balasubramanyam and Yingqi (2005)compared the export performance of thetextiles and clothing industries in Indiaand China using the RCA and thesimilarity indices. The results indicatedthat China had a much higher share inworld exports of both textiles and clothing,while India had a comparative advantagein women's clothing and men's shirts.They further pointed out that, with theabolition of the' MEA, China is likely togain at the expense of India, in most itemsof exports of clothing, even in categorieswhere India has a higher market sharethan China. India would have to improveits competitive strengths in the exportmarkets vis--vis China, especially so inhigh value design-oriented products, inthe EU and the US markets.
Abidin and Loke (2008) opined that thecompetitiveness of Malaysian nianufactured
Volume 15
exports can be improved by examining thepattem of RCA. They further highlightedthat within the non-resource-basedmanufactured exports, Malaysia still has acomparative advantage for electrical andelectronic ' goods and machinery(its largest export item), even though ithas been on a decline. Malaysia's exportstrength has also gradually shifted fromnon-resource-based to resource-basedmanufactured exports. The RCAestimates also suggested that trade
Iower orliberalization must not onlyeliminate tariffs on final products, but alsoreduce import duties, if exports were toincrease their competitiveness!
Li (2008) examined the connectionbetween' international trade and ForeignDirect Investment (EDI) by assessing somesalient features of China and EU's marketstructures and their current patterns of theRCA, and how their two-way investmentsare related to the changes in thecomparative advantage and trade betweenChina and EU. They pointed out that theELI firms venturing in China played animpiutant role in the changing patterns ofChina's comparative advantage ,^ and thatan increasing similarity of trade structureand decreasing complementarity of theChinese and EU economies limit theabsorptive capacity of each other'sproducts, which further challenges China'sentrepreneurs to a high commitment ofdirect investment into EU.
Yeats (1990) conducted severalempirical tests for developing countries'exports of manufactured products, partlyto identify factors that ofte.n lead tcjdifferences between the Beln Balassa's
48 No. 4
A STUDY OF COMPETITIVENHSS OF THH GARMENT EXPORT SK( :T(.)RS O INDIA AND CHINA:) COMPARATIVE ADVANTA(i (R(:A) ANALYSIS
RCA Index and the indices associatedwith the National Bureau of EconomicResearch (NBER). f h e resultshighlighted that products in whichdeveloping countries have achieved RCAare highly concentrated in a broad group oflabor-intensive products; for other items,their RCA Indices are generally below unity..Within the labor-intensive group, however,developing countries failed to develop RCAfor about half of the items. A regressionmodel suggested that in the labor-intensivegroup, RCA falls as the required increasefor natural resources, for physical capital,and for human capitalincluding higherper capita wages, and more professional ortechnical personnel.
Havrila and Gunawardana (2003)analyzed Australia's comparative advantageand competitiveness in the Textile andClothing (TAC) industries, using Balassa'sRCA Index and VoUrath's measures ofcompetitiveness. The analysis based onBalassa's Indices pointed out that Australiahad a strong comparative disadvantage intextiles and clothing as aggregate commoditygroups, but there is comparative advantagein sub-categories of special textile prducts,floor coverage, tapestry, and ftir clothing. Theanalysis based on VoUrath's Indices shows thatAustralia is not competitive in the worldmarket with respect to aggregate commoditygroups of textiles and clothing. The Grubel-Loyd Index of intra-industry trade wascalculated for seven categories of textiles andtwo categories of clothing.
Review of the existing literature showsthat these studies fail to point out specificgarment products where India has
comparative advantage. Eor example,Batra and Zeba (2005) analyzed the RCAfor the garment export sector usingBalassa's Index, up to two digits, i.e., HS61 and HS 62. The present study analyzesthe pattern of comparative advantage upto four digits, i.e., for products under HS6101 to HS 6117 and HS 6201 to HS 6217for India and China, thus highlighting thespecific products having RCA tags underthe 'knitted' and 'not knitted' categories.This paper attempts to identify productshaving comparative advantage so thatgarment exporters and policy makers canpursue the export promotion policiesaggressively in order to garner highershare in these products having RCA.
RESEARCH METHODOLOGYIn this paper, Balassa's (1965) measure ofrelative export performance by countryand industry/commodity, is defined as acountry's share of world exports of acommodity, divided by its share of totalworld exports. The index for country 'i'and commodity 'f is calculated as follows:
RCA= QipCJ/Q(/XJ... Balassa's Indexwhere
X. = '''country's export of con"unodityj;X ^.= world exports of commodity j ;X, = total exports of country /; and
X = total world exports.
The index can be calculated either fora specific market or for the whole world,and is measured using post-trade data.RCA Indices have been calculated forvarious product categories (under the
Volume 15 49 No. 4
SOUTH ASIAN JOURNAL OF MANAGEMENT
harmonized system) of Indian garmentexports, and compared with the RCAIndices of China, If RCA is greater thanone, it means that the country has acomparative advantage; similarly, if RCAis less than one, it means that the countryhas a comparative disadvantage.
For calculation of RCA, the export datahas been taken from UN Comtrade, anelectronic database of United Nationsand WTO, These databases containdetailed information on India's trade aswell as world trade,
RESULTS AND DISCUSSIONThis study analyzes the RCA at the 4-digitlevel of HS classification of garmentexports for India and China for the period1995-2003, The analysis reveals theproducts in which India and China arehaving RCA in garment exports,structural changes during the differentyears, i,e,, 1995 and 2003, and thecompetition between India and China ingarment exports, RCA Index has beencalculated with export data for India andChina, and the export data has beentaken from UN Comtrade,
RCA FOR INDIA AND CHINA(1995)In the year 1995, India had comparativeadvantage in 23 out of 34 products at4'digit level in HS code 61 and 62, takencollectively. Considered separately, Indiahad comparative advantage in 12 productsin HS code 61 (apparel and clothingaccessories, knitted or crocheted), out o17, at 4-digit level, and 11 products inHS code 62 (apparel and clothing
Volume 15
accessories, not knitted or crocheted),out of 17, Percentage-wise, India enjoyedcomparative advantage in approximately68% of the total exports in FIS code 61and 62 collectively, in 1995, Men's orboys' shirts, knitted or crocheted(6105) enjoyed maximum comparativeadvantage, whereas under HS code 62,women's or girls' blouses, skirts and shirt-blouse^s (6206) had the maximumcomparative advantage.
In 1995, China had comparativeadvantage in all the 34 products underHS code 61 and 62, taken collectively.Under HS code 61, gloves, mittens andmitts, ' knitted or crocheted (6116)enjoyed maximum comparative advantage,whereas under HS code 62, handkerchiefs(6213) j held the maximum comparativeadvantage,
RCA FOR INDIA AND CHINA(2003)In the year 2003, India held comparativeadvantage in 25 products out of 34, underHS code 61- and 62, measuredcollectively. Under HS code 61, Indiaheld comparative advantage in 13produc|ts out of 17, whereas under HScode, I India enjoyed comparativeadvantage in 12 products out of 17, at4-digit level. Men's or boys' overcoats, carcoats, jcapes, cloaks, anoraks, wind-cheatejs, wind-jackets and similararticles, knitted or crocheted (6101)enjoyed the maximum^advantage in HScode 61, while shawls, scarves, mufflers,mantillas, veils and similar articles (6214)had maximum comparative advantage inHS co|de 62, Measured collectively.
50 No, 4
A STUDY OF COMPETITIVENESS OF THE GARMENT EXPORT SECTORS OF INDIA AND CHINA:REVEALED COMPARATIVE ADVANTAGE (RCA) ANALYSIS
India bad comparative advantage inapproximately 74% of tbe total garmentexports. Cbina, in 2003, bad comparativeadvantage in 32 products out of 34, takencollectively under HS code 61 and 62. InHS code 61, men's or boys' suits, ensembles,jackets, blazers, trousers, bibs and brace ^overalls, breecbes and sborts (otber tbanswimwear), knitted or crocbeted (6103)held tbe maximum advantage, wbereasunder HS code 62, bandkercbiefs (6213)retained tbe maximum comparativeadvantage. Tbe analysis reveals tbat in1995, as well as in 2003, Cbina badcomparative advantage in more number ofproducts, as compared to India, tbougb tbenumber of products for wbicb India enjoyedtbe comparative advantage bad increasedfrom 23 products to 25, between 1995 and2003; for Cbina, tbis number decreased from34 products to 32, between 1995 and 2003.
In 1995, under HS 61, India badbighest comparative advantage in men'sor boys' sbirts, knitted or crocbeted (6105)and RCA Index for tbis product was20.33, followed by women's or girls'overcoats, car coats, capes, cloaks,anoraks and similar articles, knitted orcrocbeted (6102), baving a RCA Indexof 4.76. Under HS 62, women's or girls'blouses, skirts and sbirt-blouses (6206)enjoyed tbe maximum comparative
advantage witb RCA Index of 16.36, ,followed by sbawls, scarves, mufflers,mantillas, veils and similar articles (6214),baving RCA Index of 15.35. In 2003, underHS 61, men's or boys' overcoats, car coats,capes, cloaks, anoraks, wind-cbeaters,wind-jackets and similar articles, knittedor crocbeted (6101), bad tbe maximumadvantage witb RCA Index of 13.68,followed by men's or boys' sbirts, knitted orcrocbeted (6105) witb RCA Index of 12.42.Under HS 62, sbawls, scarves, mufflers,mantillas, veils and similar articles (6214)topped tbe list witb RCA Index of 20.56,followed by women's or girls' blouses, skirtsand sbirt-blouses (6206) witb RCA Indexofl4.19.
Tables 2 to 7 provide informationregarding tbe number of products anddetailed description of products in wbicbIndia and Cbina are baving comparativeadvantage under HS 61 and HS 62.
India gained advantage in more numberof products in 2003 wben compared to1995. In 2003, India bad comparativeadvantage in 6101,6105,6107,6109,6106,6111 and 6102. Tbe number of productswbere India bad advantage was two in1995, wbicb increased to seven in 2003,wbereas China lost its comparativeadvantage in some of tbe products in 2003
Table
HS Code61
62
2: Total Number of Products for Whicb IndiaProduct Description
Apparel and Clothing Accessories, Knittedor Crocheted
Apparel and Clothing Accessories, Not Knittedor Crocheted
Source: UN Comtrade data, Author's Calculations.
Holds Advantage1995
12
11
2003
13
12
Volume 15 51 Nl.4
SOUTH ASIAN JOURNAL OF MANAGEMENT
Table 3: Total Number of Products for Which China Holds AdvantageHS Gode Product Description 1995 2003
61 Apparel and Clothing Accessories, Knittedor Crocheted 15
62 Apparel and Clothing Accessories, Not Knittedor Crocheted 17
Source: UN Comlrade data, Author's Cdculiitions.
Table 4: Comparison of RCA for India and China (1995) HS 61Apparel andClothing Accessories, Knitted or Crocheted :
HS Code Product Description
hidia'sAdvantage(No. ofProducts: 02)
6105 Men's or boys' shirts, knitted or crocheted6106 Women's or girls', blouses, skirts and shirt-blouses, knitted r croclieted6102 Women's or girls' overcoats, car coats, capes, cloaks, anorak;s (including
ski-jackets, wind-cheaters, wind-jackets) and similar articles, knittedor crocheted, other than those under heading 6104
6107 Men's or boys' underpants, briefs, night-shirts, pyjamas,' bathrobes,dressing gowns and similar articles, knitted or crocheted
6103
6108
Men's or boys' suits, ensembles, jackets, blazers, trousers, biBs and braceoveralls, breeches and shorts (other than swimwear), knitted r crochetedWomen's or girls' slips, petticoat's, briefs, panties, night-dressb, pyjamas,negligees, bathrobes, dressing gowns, and similar articles; knitted orcrocheted
61116104
Babies' gamients and clothing accessories, knitted or crocheted
China'sAdvantage(No. ofProducts.- 15)
Women's or girls' suits, enseriibles, jackets, blazers, dresses, shirts,,dividend skirts trousers, bibs and brace overalls, breeches'and shorts(other than swimwear), knitted or crocheted i
6109-shirts, singlets and other vests, knitted or crocheted
6117 Other made-up clothing accessories, knitted or crocheted; knitted orcrocheted parts of gamients or of clothing accessories I
6114 Other gamients, knitted or crocheted6110 Jerseys, pullovers, cardigans, waistcoats and similar articles! knitted or
crocheted I6116 Gloves, mittens and mitts, knitted or crocheted6112 Track suits, ski suits and swimwear, knitted or crocheted6101 Men's or boys' overcoats, car coats, capes, cloaks, anoraks (including
ski-jackets), wind-cheaters, wind-jackets and similar articles, knittedor crocheted, other than those under heading 6103
6113 Garments, made up of knitted or crocheted fabrics under headings5903,5906 or 590? I
6115- Panty hose, tights, stockings, socks and other hosiery,includingstockings for varicose s-eins and footwear without applied soles, knittedor crocheted
Source: UN Comtrade data, Autlxnr's Calculations.
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A STUDY OF COMPETITIVENESS OF THE GARMENT EXPORT SECTORS OF INDIA AND CHINA:REVEALED COMPARATIVE ADVANTAGE (RCA) ANALYSIS
Table 5: Comparison of RCA for India and China (2003) HS 61Apparel andClothing Accessories, Knitted or Crocheted
India'sAdvantage
(No. ofProducts: 07)
China'sAdvantage
(No. ofProducts: 10)
HS Code
6101
6105
6107
6109
6106
' 6111
6102
6108
6103
6104
6117
6112
6114
Product Description
Men's or boys' overcoats, car coats, capes, cloaks, anoraks (includingski-jackets), wind-cheaters, wind-jackets and similar articles, knittedor crocheted, other than those under heading 6103
Men's or boys' shirts, knitted or crocheted
Men's or boys' underpants, briefs, night-shirts, pyjamas, bathrobes,dressing gowns and similar articles, knitted or crocheted
T-shirts, singlets and other vests, knitted or crocheted
Women's or girls' blouses, skirts and shirt-blouses, knitted or crocheted
Babies garments and clothing accessories, knitted or crocheted
Women's or girls' overcoats, car-coats, capes, cloaks, anoraks (includingski-jackets, wind-cheaters, wind-jackets) and similar articles, knittedor crocheted, other than those under heading 6104
Women's or girls' slips, petticoats, briefs, panties, night-dresses, pyjamas,negligees, bathrobes, dressing gowns and similar articles, knitted orcrocheted
Men's or boys' suits, ensembles, jackets, blazers, trousers, bibs andbrace overalls, breeches and shorts (otlier than swimwear), knitted orcrocheted
Women's or girls' suits, ensembles, jackets, blazers, dresses, shirts,dividend skirts trousers, bib and brace overalls, breeches and shorts(other than swimwear), knitted or crochetedOther made up clothing accessories, knitted or crocheted; knitted orcrocheted parts of garments or of clothing accessories
Track suits, ski suits and swimwear, knitted or crocheted
Other garments, knitted or crocheted
Source: UN Comlrade data. Auihor's Cdailations.
Table 6: Comparison of RCA for India and China (1995) HS 62Apparel andClotbing Accessories, Not Knitted or Crocheted
India'sAdvantage
(No. ofProducts: 04)
HS Code
6206
6214
6205
6204
Product Description
Women's or girls' blouses, skirts and shirt-blouses
Shawls, scarves, mufflers, mantillas, veils and the like
Men's or boys' shirts
Women's or girls' suits, jacket, dress, skirt, etc., woven
Volume 15 53 No. 4
SOUTH ASIAN JOURNAL OF MANAGEMENT
Table 6: Comparison of RCA for India and China (1995) HS 62~Apparel andClothing Accessories, Not Knitted or Crocheted
HS Code Product Description(...contd
6213 Handkerchiefs
6208 Women's or girls' singlets and other vests, slips, petticoats, briefs, panties,nightdresses, pyjamas, negligees, bathrobes, dressing gowns'and similararticles
6207 Men's or boys' singlets and other vests, underpants, briefs, nightshirts,pyjamas, bathrobes, dressing gowns and similar articles |
6209 Babies' garments and clothing;accessories
6211 Track suits, ski-suits and swimwear; other garments
6203China's Advantage
(No. ofProducts: 13)
Men's or boys' suits, ensembles, jackets, blazers, trousers, bibis and braceoveralls, breeches and shorts (other than swimwear) 6210Garments, made up of fabrics under headings 5602, 5603, 5903 5906or 5907 :
6216 Gloves, mittens and mitts
6201 Men's or boys' overcoats, car coats, capes, cloaks, anoraks (includingski-jackets), wind-cheaters, wind-jackets and similar articles, otherthan those under heading 6203
6202 Women's or girls' overcoats, car coats, capes, cloaks, anoraks (includingski.jackets), wind-cheaters, wind-jackets and similar articles, otherthan those under heading 6204 - j
6212 Brassieres, girdles, corsets, braces, suspenders, garters and sim|ilar articlesand parts thereof, whether or not knitted or crocheted
6217 Other made up clothing accessories; parts of garments or f clothingaccessories, other than those under heading 6212
6215 Ties, bow ties and cravats
Source: UN Comtrade data, Author's Calculations.
Table 7: Conaparison of RCA for India and China (2003) HS 62Apparel andClothing Accessories, Not Knitted or Crocheted
HS Code Product Descriptionhidia'sAdvantage
(No. ofProducts: 05)
6214 Shawls, scarves, mufflers, mantillas, veils and the like
6206 Women's or girls' blouses, skirts and shirt-blouses.
6205 Men's or boys' shirts
6208 Women's girls' singlets and other vests, slips, petticoats, briefs, panties,nightdresses, pyjamas, negligees, bathrobes, dressing gowns and similararticles
6209 Babies' garments and clothing accessories
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A STUDY OF COMPETITIVENESS OF THE (3ARMENT EXPORT SECTORS OF INDIA AND CHINA;REVEALED COMPARATIVE ADVANTAGE (RCA) ANALYSIS
Table 7: Comparison of RCA for India and China (2003) HS 62Apparel andClothing Accessories, Not-Knitted or Crocheted (,..contd)
China'sAdvantage
(No, ofProducts: 12)
HS Code
6207
6213
6204
6203
6216
6201
6202
6210
6215
6212
6217
Product Description
Men's or boys' singlets and other vests, underpants, briefs, nightshirts,pyjamas, bathrobes, dressing gowns and similar articlesHandkerchiefs
Women's or girls' suits, jacket, dress, skirt, e tc , wovenMen's or boys' suits, ensembles, jackets, blazers, trousers, bibs and braceoveralls, breeches and shorts (other than swimwear) 6211 Track suits,ski-suits and swimwear; other garments
Gloves, mittens and mitts
Men's or boys' overcoats, car coats, capes, cloaks, anoraks (includingski-jackets), wind-cheaters, wind-jackets and similar articles, otherthan those under heading 6203
Women's or girls' overcoats, car coats, capes, cloaks, anoraks (includingski-jackets), wind-cheaters, wind-jackets and similar articles, otherthan those under heading 6204
Garments, made up of fabrics under headings 5602, 5603, 5903, 5906or 5907
Ties, bow ties and cravats
Brassieres, girdles, corsets, braces, suspenders, garters and similar articlesand parts thereof, whether or not knitted or crocheted
Other made up clothing accessories; parts of garments or of clothingaccessories, other than those of heading 6212
Source: UN Comlrade data, Auilxor's Calculalions.
as compared to 1995, The number ofproducts, in case of China, decreasedfrom 15 to 10,
Whereas for HS 62, India had notbeen able to increase much of its sharein garment exports on the basis ofcomparative advantage in 2003, ascompared to 1995, In 1995, India hadcomparative advantage in four products,while in 2003, tbis situation improvedmarginally as India bad comparativeadvantage in five products.
CHANGES IN RCA (1995-2003)Furtber, Spearman Rank CorrelationCoefficient (SRC) bad been calculatedfor analyzing tbe cbanges over tbe period1995-2003 for India and Cbina, In tbepresent study, a bigb rank correlationcoefficient means tbat tbe ranking of tbecountry's products on tbe basis ofcomparative advantage bas not cbangedmucb over tbe selected time period, wbilea low correlation coefficient means tbeopposite.
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Si,)UTH ASIAN JOURNAL OF MANACiBMJ-NJ
Table 8 indicates tbat SRC for India is0.67 .and 0.92 for HS 61 and HS 62respectively, indicating a little cbange intbe rankings on comparative advantage,over tbe period 1995-2003. Similarly,Table 9 indicates no major cbange intbe rankings for Cbina over tbe period1995-2003, as SRCs for HS 61 and HS 62are 0.60 and 0.72 respectively.
products in comparison to woven products,as India' bad been able to increase itscomparative advantage in seven productsfrom two, for tbe HS 61 category. TbougbIndia bad comparative advantage in 13products! in tbe 'knitted' category and 12products !in tbe 'not knitted' category, wbencompared to Cbina, India bad corriparativeadvantage in lesser number of products.
Table 8: Spearman Rank Correlation Coefficient ! (SRC) for India (199HS Code
61
62
Product Description
Apparel and Clothing Accessories, Knittedor Crocheted
Apparel and Clothing Accessories, Not Knittedor CrochetedO.92
5-2003)SRC1
Table 9: Spearman Rank Correlation Coefficient (SRC) for Cbina (19HS Code
61
62
Product Description
Apparel and Clothing Accessories, Knittedor Crocheted
Apparel and Clothing Accessories, Not Knittedor Crocheted
0.67
5-2003)SRC
Table 10: Spearman Rank Correlation Coefficients (SRCs) for India arHS Code
61
62
Product Description 1
Apparel and Clothing Accessories, Knittedor Crocheted
Apparel and Clothing Accessories, Not Knittedor Crocheted |
1995
0.08
0.10
0.60
0.72
d Cbina2003
(-) 0.14
(-) 0.03Table 10 reveals tbat SRCs for India
and Cbina for tbe year 1995 and 2003,in respect of HS 61, are 0.08 and -0.14.Similarly, SRCs for HS 62 are 0.10 and-0.03. Tbe low coefficients imply tbatIndia and Cbina were competing witheacb otber for various products in tbeworld garment export trade.
Tbe paper bigbligbts tbat India hadbigber comparative advantage in knitted
Under tbe HS 62 category, India' bad beenable to. improve marginally, on tbebasis of 'comparative advantage, wbereasCbina bad comparative advantage in 12products in 2003. Not mucb structural cbangewas noticed for India and Cbina for tbe period1995-203. Tbe analysis, furtber, r;veals tbatIndia and Cbina bad been competing forgarment exports at tbe world level and tbatIndia bad captured comparative advantage
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A STUDY OF COMPETITIVENESS OF THE GARMENT EXPORT SECTOR.S OF INIMA AND CHINA: /REVEALED CX^MPARATIVE ADVANTA(5E (RCA) ANALYSIS ,'
from Cliina in some of the products in 2003,when compared to 1995.
INDIA'S RCA AND EXPORTSHAREThe analysis reveals that for HS 6101products, India had a much higher RCAof .13.68 in 2003, hut its share in thecountry's total clothing exports was only1.13% in 2O3. Similarlyr for HS 6102,though the RCA Index was 4.23, its sharein the coimtry's total clothing exports wasonly 0.41%. Similarly, for HS 6208, theRCA Index increased from 5.74 in 1995to 9.26 in 2003, hut its share in India'stotal garment exports increased only from1.99% to 2.63%. Also, for 6209, the RCAIndex increased from 4.92 to 7.28, but theshare of this in India's total garment exportmanaged to move up only to 1.49% in 2003
from 0.72% in 1995. Similar is the casewith product category 6214, where theRCA Index moved up to 20.56 in 2003from 15.35, hut its share in the country'stotal garment export increased from 3.36%in 1995 to 3.95% in 2003. Also, theanalysis reveals that more than 75% of thetotal garment export share of India wasconcentrated in 15-16 items of total 34(Tables 11 and 12).CONSTRAINTS AND POLICYIMPLICATIONSIndia has not heen able to garner highershare in world clothing exports due toseveral constraints, whereas China haspursued its export promotion policiesaggressively. The structure of the clothingindustry in India is a major constraint.Majority of the firms in India's clothing sector
Table 11: RCA and Export ShareIndia 61 (1995 and 2003)
ProductCode
6101610261036104610561066107610861096111611261146117
1995
RCA Index
.584.763.582.08
20.333.844.142.782.062.560.41,1.821.34
Share of EachItem in India'sTotal Clothing
Exports
0.020.151.011.76
10.641.871.131.75 3.170.740.110.380.15
2003
RCA Index
13.684.233.02
2.2312.42 .5.558.234.256.644.831.251.091.34
Share of EachItem in India'sTotal Clothing
Exports
1.130.411.652.516.693.802.943.62
15.682.070.410.340.35
Source: UN Comtrade dala. Author's Calculations.
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SOUTH ASIAN JOURNAL OF MANAGEMENT
Table 12: RCA and Export ShareIndia 62 (1995 and 2003)
ProductCode
6201
6203
6204
6205
6206
6207
6208
6209
6211
6213
6214
6216
1995
RCA Index
0.43
1.25
6.07
14.58
16.36
4.92
5.74
4.92
1.35
6.04
15.35
0.86
Share of EachItem in India'sTotal Clothing
Exports'
0.32
3.91
21.53
20.48
18.04
0.77
1.99
0.72
1.05
0.18
3.36
0.05
2003
RCA Index
1.35
1.96
3.41
9.85
14.19
4.99
9.26
7.28
1.48
4.91
20.56
1.48
SharItemTota
E
e of Eachin India'sClothing
xports
0.91
: 6.16
14.96
11.67
13.68
0.73
2.63
1.49
1.22
0.09
3.95
0.08
Source: UN Comltade data. AuOwr's Calculaiicns.
are small firms. Also, Indian exportersoperate on small scale in order to avoid thelabor regulations. Due to tbesmall-scale operations, manufacturer-exporters are not able to gain tbe advantageof economies-of-scaie (USITC, 2004).Tbough India bas some advantage in tbeform of lower labor cost, as compared toCbina, tbis labor cost advantage iscounterbalanced by tbe increasing cost ofpower, fuel and interest payments.Tbe montbly wage of a manufacturing"worker in Cbina is $110.80, wbile it is only$23.80 in India. (Kalisb, 2006, cited inQuresbi and Wan, 2008). Pakistan bas lowerlabor cost tban India (Rangarajan, 2005).Otber factors like better infrastructure,flexible labor markets and favorable
investment environment bave pjlayed a keyrole in tbe growtb of export sbai^ e of Cbina(Abya et al, 2004, cited in Quresbi andWan, 2008).
Also, tbe sbare of direc^t labor inproduction cost bad come dowii from 30%in conventional production lines to 3% intbe new automated lines (Business Line,2002). Otber important constraints in tbegrowtb of India's clotbing export werebigber transaction costs, bureaucraticbardies, low labor productivity, slow rate oftecbnology upgradation and poorinfrastructure. Cbina bad more tban 10%cost advantage wbile exporting clotbingitems to tbe US. India's delivery time(transit time only) to tbe US is!24 days, ascompared to 12-15 days for Cbina (Winters
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A STUDY OF COMPETITIVENESS OF THE GARMENT EXPORT SECTORS OF INDIA AND CHINA:REVEALED COMPARATIVE ADVANTAGE (RC) ANALYSIS
and Mehta, 2003). Technological level ingarment manufacturing is relatively low inIndia. A World Bank study in 1998 foundthat average investment per machine in agarment manufacturing unit was just $250as compared to $ 1,500 in China and $ 1,260in Thailand. Due to the low level oftechnology, a Hong Kong manufacturermakes 20.6 blouses per day per machinewhile the Indian average is just 10.2(Business World, 2003). Another importantpoint highlighted hy Ramaswamy andGereffi (2000) is that Indian garment exportsare predominantly cotton fibre-hased, andalso, garment exports are concentrated inonly a few items. Also, the US and EU aretwo major markets for Indian garmentexporters. The US alone accounts forapproximately 29% of India's total gamientexports in 2007-2008 (Ministry ofCommerce, 2007-2008).
Cost reduction across the value chain,through strategic collaboration betweenall the links in the value chaincottongrowers, yarn manufacturers, fabricmanufacturers, fabric processors, garmentsmanufacturers, garment processors,accessories' suppliers and buyersshouldbe the objective ofthe garment exporters.Asian countries can form a formidablesupply chain for gaining severaladvantages like setting up of garmentfactories at cheaper locations, importingyarn and fabrics based on each country'sstrengths, product mix diversification,marketing of value-added garments, andinfluencing policy making through jointcooperation. High cost of power, poor railand road system, and lack of adequatefacilities at the portall increase thetransaction costs of the garment
exporters. The Government of Indiashould take immediate steps to improvethe existing infrastructure. There is anurgent need of technological upgradationon the part of garment exporters.Investment in manufacturing facilities andmodernization will be the key factors forsuccess in the post MFA phase-outscenario. Indian exporters have topromote export of garments in the globalmarket through increased productdifferentiation and improved quality anddesign. A large share of our total garmentexports is concentrated in the US, EU andCanadian markets. The need is not onlyto broaden the product portfolio witheconomies of scale, but also to intensifyefforts to enter newer markets of Braziland Peru in South America, Russia, WestIndies, and Northern European countrieslike Norway, Sweden, Switzerland andEinland, in a big way. Garment exportersneed to diversify into other markets likeAustralia, New Zealand, South Africa,Japan and Middle East countries.Exporters need to reduce the productdevelopment cycle time by using variousinformation technology tools (Kathuriaand Raghbir, 2005). It will not be easy forIndian exporters when its garmentindustry is pitched against the best. In theera of open markets, many small-scaleunits may be wiped out. A quota-freemarket may throw up both a challengeand an opportunity for Indian garmentexports. In a quota-free internationalmarket, some countries will have tovacate some of their shares because of highand increasing production costs, andIndia would need to quickly cash in onthese emerging opportunities.
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ASIAN JOURNAL OF MANA(EMENT'
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4, Balasubrmanyam V N and YingqiWei (2005), "Textiles and ClotbingExports from India and Cbina:A Comparative Analysis", Joumal ofChinese Economic and Business Studies,Vol, 3, No, 1, pp, 23-37,
5, Batra A and Zeba Kban (2005),"Revealed Comparative Advantage:An Analysis for India and Cbina",Working Paper No, 168, IndianCouncil of Researcb in InternationalEconomic Relations (ICRIER), NewDelbi,
6, Bbavani T A and Suresb TendulkarD (2001), "Determinants of Firm-Level Export Performance: A CaseStudy of Indian Textile Carments andApparel Industry", Joumal oflntematioiuilTrade .and Economic Development,Vol, 10, No, ,l,pp, 65-92,
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Business Line (2002), "Labour CostsEroding India's Edge in Textile SectorStudy!", July 29,BusinLs World (2003), "Knock, Knock... Wbo's Ready", April 28,
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"Textile Sector Competitiveness:A CaseStudy ofJBakistnu^Su/i.AsiauEconomic Journal, Vol, 9, No. 1,pp.141-158.
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Volume 15 No. 4
SOUTH ASIAN JOURNAL OF MANAGEMENT
APPENDIX
Table 1 : HS Code and Product DescriptionApparel and ClothingAccessories, Knitted or Crocheted (61)
SI. No. HS Code Product Description
6101 Men's or boys' overcoats, car coats, capes, cloaks, anoraks .(includingski-jackets), wind-cheaters, wind-jackets and similar articles,.knitted orcrocheted, other than those under heading 6103
2, 6102 Women's or girls' overcoats, car coats, capes, cloaks, anoraks (includingski-jackets, wind-cheaters, wind-jackets) and similar articles,crocheted, other than those under heading 6104
knitted or
6103 Men's or boys' suits, ensembles, jackets, blazers, trousers, bibs and braceoveralls, breeches and shorts (other than swimwear), knitted orcrocheted
6104 Women's or girls' suits, ensembles, jackets, blazers, dresses, shirts, dividendskirts trousers, bibs and brace overalls, breeches and shorts (ther thanswimwear), knitted or crocheted
5, 6105 Men's or boys' shirts, knitted or crocheted6106 Women's or girls' blouses, skirts and shirt-blouses, knitted or crocheted
6107 Men's or boys' underpants, briefs, night-shirts, p>'jamas, bathrobes, dressinggowns and similar articles, knitted or crocheted
6108 Women's or girls' slips, petticoats, briefs, panties, night-dresses, pyjamas,negligees, bathrobes, dressing gowns and similar articles, k'l'tted orcrocheted
9, 6109 T-shirts, singlets and other vests, knitted or crocheted
10, 6110 Jersey's, pullovers, cardigans, waistcoats and similar articles, knitted orcrocheted
11, 6111 Babies' garments and clothing accessories, knitted or crocheted
12, 6112 Track suits, ski suits and swimwear, knitted or crocheted
13, 6113 Garments, made up of knitted or crocheted fabrics under headings59,03,59,06 or 59,07, ' '
14, 6114 Other garments, knitted or crocheted
15, 6115 Panty hose, tights, stockings, socks and other hosiery, including stockingsfor varicose veins and footwear without applied soles, knitted orcrocheted
16, 6116 Gioves, mittens and mitts, knitted or crocheted
17, 6117 Other made up clothing accessories, knitted or crocheted; knitted orcrocheted parts of garments or of clothing accessories i
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A STUDY OF COMPETITIVENESS OF THE GARMENT EXPORT SEOTORS OF INDIA AND CHINA:REVEALED COMPARATIVE ADVANTAGE (RCA) ANALYSIS
Table 2: HS Code and Product DescriptionApparel and Clothing Accessories,Not Knitted or Crocheted (61)
SI. No.
1.
2.
3.
4..5.6.
7.
8.
9.
10.
11.
12.
13.
14.15.16.
17.
HS .Code
6201
6202
6203
6204
6205
6206
6207
6208
6209
6210
6211
6212
6213
6214
6215
6216
6217
Product Description
Men's or boys' overcoats, car coats, capes, cloaks, anoraks (includingski-jackets), wind-cheaters, wind-jackets and similar articles, other thanthose under heading 6203
Women's or girls' overcoats, car coats, capes, cloaks, anoraks (includingski-jackets), wind-cheaters, wind-jackets and similar articles, other thanthose under heading 6204
Men's or boys' suits, ensembles, jackets, blazers, trousers, bibs and braceoveralls, breeches and shorts (other than swimwear)Women's or girls' suits, jacket, dress,.skirt, etc., wovenMen's or boys' shirts
Women's or girls' blouses, skirts and shirt-blouses
Men's or boys' singlets and other vests, underpants, briefs, nightshirts,pyjamas, bathrobes, dressing gowns and similar articlesWomen's or girls' singlets and other vests, slips, petticoats, briefs, panties,nightdresses, pyjamas, negligees, bathrobes, dressing gowns and similararticles
Babies' garments and clothing accessories
Garments, made up of fabrics under headings 5602, 5603, 5903, 5906 or5907
Track suits, ski-suits and swimwear; other garments
Brassieres, girdles, corsets, braces, suspenders, garters and similar articlesand parts thereof, whether or not knitted or crocheted
Handkerchiefs
Shawls, scarves, mufflers, mantillas, veils and the like
Ties, bow ties and cravats
Gloves, mittens and mitts
Other made up clothing accessories; parts of garments or of clothingaccessories, other than those under heading 6212'
Volume ]5 7 No. 4