The Textile Industry of India

International Business Environment

Saqib Shakil

1 5 6 0 0 4 7 9 9

Table of Contents

1 India and International Trade...................................................................................................3

1.1 Balance Of Payments........................................................................................................4

1.2 Foreign Direct Investments and Tariff Policies................................................................5

1.3 Trading Relationships and Top Exports/Imports of India................................................7

1.4 Non-Tariff Barriers...........................................................................................................8

2 Introduction to the Indian Textile Industry..............................................................................9

2.1 State of Global Textile Industry......................................................................................10

2.2 Demand Conditions.........................................................................................................11

2.3 Related and Supporting Industries..................................................................................13

2.4 Factor Conditions............................................................................................................15

2.5 Structure, Strategy and Rivalry in Indian Textile Industry.............................................16

2.6 Government policies.......................................................................................................19

3 Culture and Business Practices in India.................................................................................20

3.1 General Description of Country Culture and Cultural Do’s and Don’ts.........................20

3.2 Culture Specific Business Practices, Protocol and Communications.............................21

3.3 Negotiating Style and Tactics.........................................................................................23

3.4 Cultural difference between India and USA...................................................................24

4 Conclusion..............................................................................................................................24

Exhibit 1: Global Retail Development Index - Country Attractiveness........................................26

Exhibit 2: 2013 Global Retail Development Index.......................................................................27

Exhibit 3: Most Prominent FDIs in Indian Textile Sector.............................................................28

Exhibit 4: Trading Agreements of India........................................................................................29

Exhibit 5: Top Exports and Imports of India.................................................................................30

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Exhibit 6: Ease of Doing Business in India...................................................................................31

Exhibit 7: Input Cost Ranking of India among Close Competitors...............................................32

Exhibit 8: Government Institutions to Support the Textile Industry in India................................33

Exhibit 9: Hofstede Cultural Analysis of India.............................................................................34

References......................................................................................................................................35

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1 India and International Trade

India is a country inhabited by 1.2 billion people, with the five largest cities accounting for over

70 million of this population. With nearly 65% of the population in the 18-64 years age bracket,

India boasts a healthy middle class of over 200 million consumers and a GDP of over $4.4

trillion (4th in the world) growing at almost 7% annually since 1997 (CIA, 2014). All this

translates into a consumer culture that is growing rapidly within the country, especially in the

large urban centers. India is currently considered as most suitable place for international

expansion despite the political and bureaucratic hassle. It is the 2nd largest economy among the

emerging nations and promises high prospects of growth and earning potential in all areas of

business (Ahya & Sheth, 2006). Indian retail sector is worth $435 billion, with low organized

retail penetration of 7%. (AT Kearney, 2011)

India is a resource rich country with not only natural resources but also intellectual and

technological resources. Major resources include petroleum products, precious stones,

machinery, iron and steel, chemicals, vehicles, agri-produce and apparel. These resources

coupled with low cost labor provide valuable resourcing opportunities for retail chains whose

primary sales come from the fast moving consumer goods such as cooking oil, apparel, and

products of daily consumption (Bhandari & Tandon, 2002; CIA, 2014). The current report by

A.T. Kearney projects the size of retail sector to be $535 billion by 2013 with only 10% coming

from organized retail. Also India is one of the major countries under observation for retail

development, as shown in Exhibit-1 (AT Kearney, 2011).

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1.1 Balance Of Payments

In the past couple of years, especially since the economic recession of 2008, the industrial sector

of India has shown resilience to the external economic shocks. However, the balance of

payments has been constantly under the stress as the exports have declined without significant

reduction in the imports. This has resulted in increased trade and current account deficits that

have been marginally absorbed by capital account surplus but the nature of portfolio capital has

resulted in greater Rupee volatility and financial fragility as the official reserves depict wide

changes in its value from year-to-year as shown in figure-1 (Reserve Bank of India, 2014). This

increasing exposure to global macroeconomic conditions can also be attributed to the increasing

integration of Indian in the international trade which is reflected in both current and capital

account transactions. This integration can also be judged from a fact that the net exports of the

country have increased from 14% of GDP in 1991 to 43% of the GDP in 2012 and the gross

current account and capital account has increased from 30% in 1991 to more than 100% in 2012

(Reserve Bank of India, 2014).

Year ending on March of 2013 2012 2011 2010 2009 2008Current Account, net (87,843.24)$ (78,179.86)$ (45,958.07)$ (38,411.00)$ (29,817.00)$ (17,034.00)$ Capital Account, net (293.84)$ (60.90)$ 40.48$ 53,602.00$ 9,146.00$ 107,993.00$ Offi cial Reserves, net (3,825.97)$ 12,831.15$ (13,050.35)$ (13,441.00)$ 20,080.00$ (92,164.00)$ Errors and Omissions, net 2,688.37$ (2,432.00)$ (2,996.00)$ (1,745.60)$ 591.00$ 1,205.00$

(US$ million)

Figure 1: India's Balance of Payments.

While the globalization of Indian economy has resulted in economic growth in the country, it has

also made the country more prone to external shocks and a review of domestic macroeconomic

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environment may be necessary to rebalance the risks and rewards of operating an international

market.

1.2 Foreign Direct Investments and Tariff Policies

Historically, India failed to attract FDI because of fledgling infrastructure, but this scenario is

changing with Indian government investing heavily in transportation and energy. The projects

for developing energy sector are worth $167 billion and for developing rails, roads, and ports

these projects are worth $170 billion (DIPP, 2010). Such advancements in infrastructure will

greatly help the foreign investors to setup their transportation and logistics to procure resources

from rural, agricultural and mining centers of India. Also the energy need of these foreign

investors will also be fulfilled through the current investment in Civil Nuclear Technology, by

Govt. of India which expects to have 20,000 MWe nuclear capacities on line by 2020 and 63,000

MWe by 2032. By 2050 India aims to provide 25% of total electricity through nuclear plants

(World Nuclear Organization, 2012).

Despite the recent retail reforms, corruption is hindering the FDI in retail sector. FDI has

dropped by 28% from March 2010 – March 2011 and predictions of economic growth have been

revised from 9% earlier in 2011 to 7.5% by Nov (The Economist, 2011). The situation worsened

as the global economic meltdown hit the Indian economy with a lag as the GDP growth in 2013

was revised down to 5% from 10 year average of 7.8% (AT Kearney, 2013). The retail spending

slowdown and India fell by nine sports on retail development index to 14 th place from its

previous low ranking of 6th place in 2002 (see Exhibit-2). Besides low consumer spending a

number of other such factors as high operating costs, low bargaining power with local suppliers,

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low profitability, increased real estate cost and lack of retail space slowed down the aggressive

FDI growth in India. The impact of recent economic recession and the slowing pace of foreign

direct investment can be seen in figure-2 that depicts the declining levels of FDI and portfolio

inflows and outflows over last five years (Reserve Bank of India, 2014).

Year ending on March of 2013 2012 2011 2010 2009 2008Direct Investment in India 26,953.14 32,952.40 25,883.74 31,682.00 34,992.20 34,728.08 Direct Investment by India (7,133.79) (10,891.73) (16,523.84) (11,953.00) (17,494.65) (18,835.24) Portfolio Invesment in India 27,582.36 17,409.21 31,471.10 32,376.00 (13,853.19) 27,270.43 Portfolio Invesment by India (878.32) (239.22) (1,178.53) 20.00 (177.10) 162.77

Foreign Direct Investment (US$ million)

Figure 2: Inflows, Outflows, and Stock

However, in 2012 when the retail sector in India achieved an important milestone in the form of

higher percent FDI in single brand retail for the first time in several Western retailers, especially

those in apparel beauty industry, took advantage of this opportunity and these include such

global names as Brooks Brothers, Kenneth Cole, Sephora, Armani, Roberto Cavalli and

Christian Louboutin, IKEA, Starbucks, and Dunkin Donuts. This development also encouraged

global retail chains as Carrefour, Metro, and Bharti-Walmart to increase their presence outside

major metro areas because of increasing land prices. This development portrays an encouraging

picture for FDI in India, especially for textile industry, as the entrance of global retail chains will

drastically increase and improve the demand for high-quality local cotton and textile output. FDI

is also encouraged by the fact that the Indian rupee is freely convertible on current account and

the profits earned by foreign investors are fully repatriable.

For textile industry Indian government claims to have the most generous and transparent policies

for FDI amongst BRIC countries as 100% FDI is allowed in the textile industry through

automatic route. Such policies have resulted in spurt of FDI in Indian textile sector that has

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attracted $855 million between April 2000 and May 2013 (IBEF, 2013). The list of most

prominent foreign direct investments in Indian textile industry is shown in Exhibit-3 (Ministry

of Textiles India, 2012):

Although India has liberalized its economy its tariffs continue to remain high as compared to

other emerging countries and it retains the right to protect the local industries when required. On

one hand such policies show India as an aggressive globalizer and on the other hand as the

protectionist economy. The agricultural tariffs average between 30 to 40% and anti-dumping

measures are commonly used against foreign companies (World Bank, 2014). Nevertheless,

because of negative impact of such protectionist policies on consumers, the government has

shifted its focus from protecting producers to benefiting consumers by enhancing trade

relationships with neighboring countries as discussed in the following section. To become more

globally integrated, India is promoting global trade regime both products and services and is

playing an important role in the current round of WTO’s Doha negotiations.

1.3 Trading Relationships and Top Exports/Imports of India

Since the trade liberalization in 1991, India views regional trade agreements as vital building

blocks to greater economic and trade integration with the rest of the world and hence it engages

in a number of regional and bilateral trade agreements, especially with its neighboring countries

and the emerging markets (World Bank, 2014). Most popular trade agreements include:

South Asia Free Trade Area (SAFTA)

Association of Southeast Asian Nations (ASEAN)

Asia-Pacific Trade Agreement (APTA)

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BIMSTEC ( Bay of Bengal Initiative for Multi-Sectoral Technical and Economic

Cooperation)

India-Mercosur Preferential Trade Agreement (PTA)

An extensive list of trading relationship of India is shown in Exhibit-4 and It is apparent from

such a large number of trading agreements that over past two decades India has been striving to

become increasingly integrated into the global economic environment and with these trading

agreements India has been aiming at eliminating the trade barriers, promoting cross border

transactions, adopting free-market economics, encouraging foreign direct investment, increasing

transparency in trading relationships, and ultimately providing local manufacturing and service

powerhouses to expand their business horizons beyond the home borders. It is important to

understand that the areas of cooperation under these trade agreements involve such sectors as

agriculture, transportation and infrastructure, manufacturing (automotive, petrochemicals,

textiles, engineering goods, jewelry, food processing), education and technology, and intellectual

property rights, and this clearly shows the strategic direction of the government and the private

sector that are looking forward to long-term economic growth of the country (see Exhibit-5).

1.4 Non-Tariff Barriers

Although India has liberalized its trade regime and has lowered the barriers to trade in order to

pursue economic progress and greater integration with the global economy, its trade policies and

overall regulatory environment remains comparatively restrictive as can be seen in Exhibit-6

highlighting the ease of doing business in India as compared to the other emerging markets

(World Bank Group, 2014). India imposes a number of non-tariff barriers in the form of import

licensing, certification products, testing, quantitative restrictions, and bureaucratic customs

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procedures. India is now ranked 134th among 189 nations and in South Asia is only better than

Bhutan and Afghanistan that are ranked at 141 in 164 respectively, and in BRIC countries it is

far behind rest of the economies.

2 Introduction to the Indian Textile Industry

The Indian textile industry is one the largest and oldest sectors in the country and among the

most important in the economy in terms of output, investment and employment. The sector

employs nearly 35 million people and after agriculture, is the second‐highest employer in the

country. For the purpose of this report all the cotton related products such as textiles, garments

and accessories will be categorized as textiles. The importance of textile industry can be

understood from the fact that it is one of the top five exporting commodities of the country,

accounting for almost 10% of its annual exports in 2012 as shown in figure-3, and it contributes

about 14% to industrial production and 4% to the country’s gross domestic product (GDP) (The

Guardian, 2012).

Abundant raw materials, healthy foreign direct investments (FDI) and willingness of the

government to invest in textile industry ensures a bright future for India’s textile sector, which is

expected to reach US$ 220 billion by 2020, according to estimates by Alok Industries (2010).

With government support and improving economic outlook, India has the capacity to improve its

textile and apparel share in the world trade from the current 4.5% to 8% and reach $80 billion by

2020. The high growth of Indian textile exports is also probable due to increased sourcing shift

from developed countries to Asia and India’s strengths as a suitable alternative to China for

global buyers (Alok Industries, 2010). The signs of increasing market share are already apparent

as the garment exports from India grew by 19% in the period July 2012–July 2013 to reach US$ Page 9 of 39

1.27 billion, on the back of increasing demand in developed economies such as the US (AEPC,

2013).

Petroleum products26%

Gems & Jewellery22%

Pharma Products11%

Garments, Textiles, Yarn and Fabrics10%

Transport Equipments10%

Ma-chinery & In-stru-

ments6%

Manu-factures of Met-

als5%

Elec-tronic Goods

4%

Rubber, Glass & Products3%

Cotton Yarn & Fabrics3%

Commodity-wise contribution to Exports in 2012

Figure 3 - Commodity-wise Top-10 Indian Exports

2.1 State of Global Textile Industry

The textile and garment industry globally is recovering from the economic recession of 2008-09,

and is expected to reach $1 trillion by 2020 from the current $510 billion status (Alok Industries,

2010). The growth in trade is driven by increased outsourcing of western / developed countries

towards lower cost countries in Asia. According to chairman of Confederation of Indian Textile

Industry (CITI, 2014) “the global markets are showing signs of a gradual recovery and there has

been a growth momentum in sourcing of textiles and clothing by major importing countries like

USA, EU, Japan and China. India has a significant competitive advantage at present because of

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increasing cost of production in China and concerns on wages and workers’ security in

Bangladesh as these two countries are the direct competitors of India in textile and garment

manufacturing and export.” However, the Indian textile industry recognizes that the only way to

capitalize this opportunity is through aggressive efforts on product innovation and market

development (CITI, 2004).

2.2 Demand Conditions

The local demand conditions for textile products in India are sophisticated and are important in

shaping the innovation and investments of the textile industry towards growing customer needs

and wants. The demand conditions in India are characterized by swelling middle class with

increasing disposable income, young population, and strong market segmentation due to

demographic and geographic diversity across the nation that constantly pushes the textile

industry towards developing improved textile products. The demand for Indian textile output

comes from three major segments - household segment, commercial segment, and export

segment. The household segment constitutes the largest consumer of Indian textile output with

about 60% share, followed by commercial consumption of 21% and the export of 19% of the

output (Ministry of Textiles India, 2012).

Since India is the home to the second largest population in the world with over 330 million

households, its demand for textiles and garments has been growing at an increasing rate because

of high proportion of young and working population with increasing disposable income that

clearly demarcates the Indian consumers into four categories of rich, middle class, aspiring and

poor (Bijapurkar, 2008). Although, the segment of rich consumers that constitute 1.71% of all

households represent an increasing demand for haute-couture, luxury apparel, and high-end

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foreign brands, the real driver of textile demand comes from Indian middle class that represents

almost 34% of Indian households, which is also projected to increase tenfold by 2025 (Biswas,

2006; BSCAA, 2009).

According to the recent estimates the disposable income of Indian middle class ranges between

$4,000-$21,000 per year and is projected to increase, thereby making it a huge potential market

for Western brands because of the increasing convergence of fashion preferences among youth

around the globe (BSCAA, 2009; Srivastava, 2008). This convergence in demand preferences is

closely related to the increased exposure of Indian population to the Western lifestyle through

mass media and foreign travel that has also introduced a variable of ‘value’ in the textile buying

process, which was previously dominated by high price orientation of the consumers (Bhardwaj

et al., 2005; Srivastava, 2008). The middle-class consumers, especially the young ones, have

been demanding high-quality product with modern design and a popular brand name that has

triggered a number of foreign direct investments in textile manufacturing and retail sector in

India by known Western brands as discussed previously. Moreover, this shift has also forced the

previously export oriented textile manufacturers in India, which were producing textile products

for such international brands as Tommy Hilfiger, Levis, Lee, Wrangler, Espirit, Reebok, Nike

and Adidas; to launch high-quality local brands to cater to the needs of local consumers (Batra

and Niehm, 2009).

Besides the demand for Western apparel and textile, traditionally the local demand for these

goods has been influenced by ethnicity, gender, and geographic location. Clothing and textile

products have traditionally been the symbol of social status and such outfits as shalwar kameez

and sari has been widely used by Indian consumers who tend to dress moderately in their

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personal and professional lives. However, because of increasing proliferation of mass media,

including both local and international channels, the textile and apparel sector in India has been

facing high innovation that has given rise to a large number of textile boutiques that not only use

local textile output but also import specialty fabrics from other countries. Thus the demand

conditions for textile industry in India have been highly favorable to contribute to a competitive

advantage of the country over its rivals such as Bangladesh, Pakistan, Turkey, Vietnam, Mexico

and Indonesia.

2.3 Related and Supporting Industries

In order to support the textile and garment industry the production of high quality thread and

cloth are vital and are achieved through the processes of spinning and weaving that are carried

out on spindles and looms respectively. Fortunately, India accounts for 22% of the world’s

installed capacity of spindles and is one of the largest exporters of yarn in international market. It

also has second highest spindleage in the world after China. Additionally, Indian textile has the

highest loomage (including handlooms) in the world and contributes about 61% to the world

loomage and these two processes convert natural and man-made fibers into cloth, which is later

bleached and used in textile and apparel manufacture (Ministry of Textiles India, 2012).

Traditionally, the textile industry in India has not been vertically integrated and the processes of

spinning and weaving have been carried out by different companies than those which produce

finished textiles and garments. So, the investments in spinning and weaving have followed the

growth in the total textile output and during the last ten years capacity addition has increased at a

CAGR of 6.46% for man-made filament yarn, 4.48% for man-made fibers, 4.4% for rotors,

2.97% for power looms, and 2.11% for spindles. However, there was no significant growth in

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capacity addition in respect of looms in organised sector; rather it faced a huge decline of 8.67%

(Ministry of Textiles India, 2012). Furthermore, there was a decline in the number of handlooms

units, composite mills and exclusive weaving mills, which does not paint a very positive picture

for supporting the increasing demand of Indian textiles in the coming years with the signs of

global economic recovery.

Moreover, the textile industry is also an ideal consumer of IT infrastructure in order to develop,

monitor, and control its production and logistics and to reduce cost of production to compete

with its biggest rival, China. Fortunately, today India is considered as one of the global leaders in

IT as it has developed its IT sector in last few years and most of the known firms around the

world (such as IBM, Microsoft and Google) are outsourcing their technology needs to India. IT

investment is a major part of textile industry, so presence of such industry will not only result in

easy deployment of IT infrastructure but also a low cost maintenance of ERP systems used by

large textile firms to manage their complicated supply chains from demand forecasting to

sourcing to final delivery of goods. Also literacy, especially English language proficiency is high

among Indian youth providing educated local managerial resource that gives India a big

advantage over other developing nations (GOI, 2007; World Bank, 2004).

While the availability of technology is a favorable condition, the use of IT in the textile

manufacturing is still relatively low as the recent survey by NMCC (2010) has pointed out that

only 29% of textile and garment manufacturers use information communication technologies at

various levels of their operations. However, IT utilization is high in high-tech manufacturing and

organized textile sector that frequently coordinates with foreign buyers in the form of exports

and strategic alliances. On one hand it can be seen that the supporting IT industry in India is

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well-developed and advanced in nature, but the utilization of this industry is not widespread

among textile manufacturing. Nonetheless, the greater integration of Indian textile industry in

international trade is resulting in a shift in this scenario, which is encouraging and important for

Indian textile manufacturers to reduce their cost of production and coordination in the coming

years in order to remain viable suppliers to large foreign textile retailers.

2.4 Factor Conditions

India has the advantage of abundant resources of raw materials as it is one of the largest

producers of cotton yarn in the world and there are good resources of fibers such as polyester,

silk, viscose, etc. The country is also home to a wide range of cotton fiber and has a rapidly

developing man-made synthetic fiber industry. The most significant evolution in the Indian

textile industry has been the advent of man-made fibers (MMF) and India’s innovative range of

MMF textiles finds presence in almost all the countries across the globe. MMF production

recorded an increase of 7% in the month of August 2013 and grew by 4% during April–August

2013 (AEPC, 2013). Due to strong cotton output, the total cloth production grew by 6% during

August 2013 and by 3% during April–August 2013 (AEPC, 2013). Furthermore, India has the

largest amount of land under cotton cultivation and it is the 3rd largest producer of cotton in the

world after China and U.S. Cotton is a key raw material in the textile and garment industry

besides polyester and it accounts for nearly 30% of the fabric cost and 13% of the garment cost

(NMCC, 2010) and fortunately India has an abundant supply of locally grown long staple cotton,

which is a source of cost-based advantage in the home textile and apparel sectors.

India has abundant high-quality and low cost labor force with 50% of its population less than 25

years of age, which makes it the world’s youngest nation and an attractive destination for

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manufacturing, especially human intensive textile and garment manufacturing (BSCAA, 2009).

Although the low-cost of labor provides the basic impetus to invest in India, the skill of the labor

force is also an important criterion to make long-term investment decisions in India.

Traditionally, Indian labor has long been known for their skills in textile and garment

craftsmanship, expensive garments and embroidered apparel. These skills create favorable factor

conditions for the textile industry to flourish in India. However, this factor of production is often

criticized for lower productivity as the majority of textile and garment mills are family run

businesses that are highly fragmented with little or no emphasis on increasing per-person

productivity (Bheda et al., 2003),. Therefore, the foreign investors planning to start textile and

apparel operations in India may need to invest in human resource training in order to meet the

firm’s quality and quantity requirements.

Lastly, the survey conducted by NMCC(2010) reveals that more than 80% of textile

manufacturers are not satisfied with the quality of physical infrastructure (such as power

generation, rail, seaport, airport and road system) and it is a major cause of concern along with

the government interface with the business sector that is marked by bureaucratic red tape. The

deplorable conditions of infrastructure are a known hindrance for foreigners and local

manufacturers to expand in Indian textile market. However, recently the Government of India is

attempting to resolve the infrastructure problems by allowing private sector companies to invest

in highway development and railway mass transit projects (Halepete and Iyer, 2008).

2.5 Structure, Strategy and Rivalry in Indian Textile Industry

Although the Indian textile industry has some big companies that constitute its organized sector

and often engage in strategic alliances and export-based contracts with popular Western brand

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names, the national competitiveness of Indian textile industry is limited by its fragmented

structure and obsolete technology. The most known names in Indian textile industry include

Wardhman textiles, Arvind Mills, Bombay Dyeing, Raymonds, Grasim Industries, Reliance

Textiles, Fabindia, JCT Limited, Lakshmi Mills, and Mysore Silk Factory. The textile weaving

sector is highly fragmented leading to lack of organization and an inability to achieve economies

of scale (Ministry of Textiles India, 2012). So, the Indian government is consistently striving to

increase its share of export markets in order to achieve minimum efficient scale to incur the

lowest production costs in textile industry. Unfortunately, the textile industry in India comprises

mostly of small-scale, non-integrated spinning, weaving, finishing, and apparel-making

enterprises. Such a structure arose due to the policies on tax, labor and other regulations that

favored small-scale, labor-intensive enterprises, while discriminating against large-scale, capital-

intensive operations.

However, the encouraging news is that the textile industry in India is arranged in geographical

clusters, thereby resulting in greater transfer of knowledge, processes, human capital and

technology among the manufacturers that has helped this industry so far to compete effectively

in the global market. There are more than 70 textiles and clothing clusters in India comprising

about 80% of total production. Bhiwandi and Malegaon are the two largest power loom clusters.

The major readymade garments clusters are located in Delhi, Mumbai, Gurgaon, Nagpur,

Madurai and Salem and the state of Maharashtra has10 textile clusters (NMCC, 2010).

Structurally, the organized factory sector mainly consists of large-scale enterprises and it will not

be wrong to consider the organized factory sector as a representative of the entire textile and

garments sector in India.

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Considering the strategy of the textile sector in India, the most popular mode of increasing

profitability and attaining the profit growth is via expanding in international markets through

‘textile exports’. Almost every major manufacturer of textiles and garments engages in export

contracts with major US and European retailers such as Walmart, Target, JCPenney, Carrefour,

Otto, Tesco, Asda, Marks & Spencer, Sainsbury’s, Haggar Clothing, Kellwood, Little Label,

Boules Trading Company, Castle, Alster International, Quest Apparel Inc. etc. and as a result the

India's exports of textiles and clothing are currently valued at $65 billion and are 11% of the total

exports by the country (Ministry of Textiles India, 2012). The major textile manufacturers in

India not only compete with international suppliers but they also compete with each other

vigorously in order to gain exclusive supplier contracts with aforementioned global retailers. On

one hand such a rivalry contributes to the overall improvement in the manufacturing process and

the lowering of costs of production but on the other hand it also limits the potential of

cooperation among the textile manufacturers, which rarely form a strategic alliance among

themselves in order to complete collectively for an export contract against suppliers from other

countries (Batra and Niehm, 2009).

Besides profit growth, profitability through aggressive cost reduction is another major strategy

followed by Indian textile manufacturers as the standard costs of production is the major factor

in determining international competitiveness of Indian textile industry. The most prominent cost

categories for textiles include cost of land, labor, power, ocean transportation, taxation,

inventories and capital investments. Since textile raw material (e.g. cotton and polyester) is a

commodity that is traded in international markets, the efforts to minimize costs have traditionally

focused on increasing labor productivity, improving labor working hours, minimizing overtime

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payments to labor, reducing power costs and cutting down transportation costs. Indian textile

industry constantly faces strong competition from Pakistan, Bangladesh, and China and

according to most recent figures the Indian textile industry is not ranking well against its

competition as shown in Exhibit-7 (Ministry of Textiles India, 2012).

2.6 Government policies

The role of government is vital in developing a competitive advantage in an industry and

unfortunately the Indian government has long been criticized for its lethargic bureaucratic

system, but over last five years it has been making efforts to act as a catalyst in attracting foreign

investments as it has recently allowed 100% FDI in retail and textile manufacturing. With

respect to the textile industry the Indian government has been consistently relaxing its trade

policies, attempting to develop transparent taxation system and is investing in infrastructure to

allow for industry expansion as discussed previously. The Indian government has been engaged

in setting up a world-class integrated textile parks, developing of clusters of powerlooms ,

investing in textile workers skill development, and encouraging research in textile design and

fashion through such institutes as National Institute of Fashion Technology (NIFT) and Sardar

Vallabhai Patel International Institute of Textile Management.

The government of India is planning to reform its taxation system that has previously favored the

organized industrial sector due to multiple points of taxation and inconsistent taxation policies

between states and federal government (e.g. octroi and VAT) (Dimri, 2009). Such complications

have deterred the development of optimal supply chain management required by industrialized

manufacturing and has increased the cost of doing business in India. Furthermore, the

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government is assisting the textile industry in developing localized manufacturing parts to

facilitate small and medium industries to compete in the global market. This scheme was

introduced in 2005 and so far 40 industrialized parts have been developed with state-of-the-art

facilities (Ministry of Textiles India, 2012). Furthermore, the government has set up the

Technology Upgradation Fund (TUF) in 1999 in order to promote Indian textile manufacturers to

improve the quality of their manufacturing facilities, avoid the technological obsolescence, and

to minimize the cost of production in order to compete with global suppliers of textile (Ministry

of Textiles India, 2012). Lastly, to improve the overall competitiveness of textile manufacturing

in India and to show a genuine commitment of the country to compete in global markets the

government has setup a number of institutions/committees to support the textile industry in India

(see Exhibit-8).

3 Culture and Business Practices in India

3.1 General Description of Country Culture and Cultural Do’s and Don’ts

For international corporations and foreign executives the experience of doing business in India

for the first time can be bewildering due to drastic cultural differences from Western countries,

bureaucracy and a dizzying size of population despite the fact that a number of business

executives in India are graduates from top Western universities and are fluent in English.

Culturally, India is a very diverse country characterized by multiple religions, languages, caste

systems, disparities in the distribution of wealth and the prevalence of both communist and

capitalist ideologies in various parts of the country (Worldguide.EU, 2014). An interaction in

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Indian culture starts with ‘namaste’ greeting that shows respect towards the other person,

although the handshake among men, with right hand, at the time of meeting or leaving is also a

common norm, but a handshake with Indian women is not an acceptable norm unless such a

greeting is initiated by woman (Consulate General of India, 2014).

Unlike Western cultures, public display of affection is inappropriate and it is wise to allow for an

arm’s length distance while speaking to another person. Women should dress modestly and it is

uncommon for men to wear shorts in public spaces and it is also unwise to point the bottom of

feet or shoes at anyone as it is considered an insult. Selection of footwear is not restricted and

one can choose between sandals or shoes depending upon the complete attire. Lastly, in public

transportation people are free to sit together as women and men, but one should not presume to

sit next to a person of the opposite gender, unless you or they are elderly (Consulate General of

India, 2014).

3.2 Culture Specific Business Practices, Protocol and Communications

Business practices in India are different than those in Western countries. For instance, if a

documented timeline of a process is 10 days then realistically it will not take exactly 10 days to

complete the work because of bureaucratic hurdles and unannounced expectations of grease

money or personal playoffs (CNN, 2012). So, it is important for a foreign company to identify a

reliable local partner that can better handle the local cultural dynamics. Furthermore, it is

important to understand that decision-making in Indian organizations is strongly influenced by

top management and owners, so, in order to get things done quickly it is important to access

these decision-makers.

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Moreover, foreign executives often face problems in getting the work done because of lack of

appreciation for highly relationship-based application of Indian businessmen (Worldguide.EU,

2014). Since US is much more transaction-oriented society, where the discussion rotates around

the transaction at hand, the same approach is not a smart way to proceed in Indian business

environment where development of personal relationship and trust is given preference over

business transactions. Thus, it is important to find right people to gain access to important

business networks that can help a foreign investor to establish successful operations in India.

Business relationships are commonly developed through dining and entertainment activities,

where spouses are often invited and rather than directly plunging into business discussions, it is

wise to inquire about counterpart’s family, interest, and hobbies (CNN, 2012).

Furthermore, the business protocol dictates to present the business cards (written in English) at

the time of first introduction and customers should be treated as guests and should be presented

with tea or coffee. The orientation of time is volatile and it is not uncommon that Indian

counterparts may show up late for the meeting or even reschedule the meeting at some future

time (CNN, 2012). Also, India is a difficult place to do business, but particularly tough for

women as it is a male-dominated society. Western women may be accepted, but must establish

their position and title immediately to warrant acceptance. Lastly, the religious sensitivity is

important as Muslim businessmen do not drink alcohol and Hindu businessmen don’t consume

beef or other meat product and these limitations should be taken into account while selecting a

dining venue for business meetings.

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3.3 Negotiating Style and Tactics

Indian businessmen are characterized as complex and highly imaginative negotiators that are

often aggressive and collectivist in their negotiations. Indian businessmen often hold high

aspirations for their businesses and tend to make business plans on the fly, so, the discussion may

not always be restricted towards the agenda of current meeting but it may also include plans for

future growth and cooperation (Kumar, 2005). A consequence of such negotiations tactic is the

need for more information by Indian businessmen and customers, which results in lengthy

negotiations process and hard bargaining to squeeze out as much benefit as possible.

Furthermore, business relationships are not of utmost importance in the beginning of

negotiations, however once the deal is done the emphasis on interpersonal relationships tend to

increase during the operational stage of the venture (Kumar, 2005).

Relationship building during the operational stage is important in order to align the expectations

of both the parties and it is important in building the trust necessary for negotiations regarding

long-term partnership. This becomes even more important due to the fact that contractual

obligations do not hold the same sanctity in India as they do so in America due to lack of

adequate legal and political environment, judicial delays and nationalistic concerns (Kumar,

2005). So, in order to succeed in negotiations with Indian businessmen it is advisable to foreign

executives to be ready to make personal and business concessions, be patient but firm during

negotiations, remain flexible and avoid aggressive stance, and expect the negotiated agreement

not to be implemented in a timely fashion and 100% according to the specifications.

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3.4 Cultural difference between India and USA

A complete comparison of India and USA on Hofstede’s (2014) five cultural dimensions is

presented in Exhibit-9 and it can be seen that India differs markedly from US culture on the

dimensions of power distance, individuality and long-term orientation. Traditionally, high power

distance is prevalent in Indian culture which depicts that the top management or the owner of the

organization is the primary decision-making unit in an organization and the superiors in the

organization are generally non-accessible to the people down in the organizational hierarchy.

Unlike USA, the interaction between subordinates and supervisors is formal and the

communication and feedback often takes place in a top-down and directive manner.

Additionally, India is a collectivist society, where high importance is given to loyalty, trust and

sense of belonging to a larger social framework. Unlike USA, the management style is often

paternalistic nature in India and hiring and promotion decisions are based on the personal

relationships between high-level managers and their reporting subordinates (Hofstede, 2014).

Lastly, unlike USA, India is a long-term oriented and pragmatic culture that usually forgives lack

of punctuality and human control on destination. So, as discussed previously it is important for

foreign investors to understand that time and contractual obligations in India are volatile and are

often subject to change that can often prove to be frustrating for foreign investors.

4 Conclusion

In conclusion, it can be said that overall India’s textile industry is competitive in nature owing to

the favorable factor conditions and supporting government policies. However, the fragmented

structure of textile spinning and weaving sectors is a major hurdle in profitability growth through

Page 24 of 39

cost reduction and increase in labor productivity. To tackle this issue it is advisable to the

organized textile sector in India to vertically integrate their operations to reap maximum cost

advantages through control over processed raw material (yarn and weaved cloth) as stringent

cost control will be vital to attract export contracts and compete against Chinese textile base.

Furthermore, the traditional mode of entry in international market has been through exports with

significant investment in local production base, it is advisable to major Indian textile

manufacturers to take advantage of location economies by setting up manufacturing plants in low

cost countries known for textile production, such as Cambodia, Vietnam, China and Brazil. This

will not only minimize their sole reliance on Indian economy, but will also provide them direct

access to international markets and consumers and that can enable these manufacturers to capture

a larger portion of textile value chain including product design, which is currently done by

Western retailers.

Lastly, the government policies are supportive towards FDI in textiles and the trade liberalization

has provided valuable opportunities to foreign textile manufacturers to invest in India, but the

government should strive to increase the ease of doing business in India.

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Exhibit 1: Global Retail Development Index - Country Attractiveness

Page 26 of 39

Exhibit 2: 2013 Global Retail Development Index

Page 27 of 39

Exhibit 3: Most Prominent FDIs in Indian Textile Sector

1. Plans by Tommy Hilfiger to open 500 retail stores in India over next five years.

2. Canclini Tessile’s joint venture with Tirupur-based Emperor Textiles to stitch shirts in

India and to set up a separate manufacturing plant to produce Italian fabric for Indian

consumers.

3. The announcement by US-based Trident Group to develop an integrated textile complex

for yarn production in Budni, Madhya Pradesh (MP) and the initial estimate for this

investment values up to $654 million as a new manufacturing plant will engage in the

production of towels, home textiles, and value added yarns.

4. Strategic alliance between DuPont and Arvind to manufacture and market DuPont

Nomex® brand fiber based Flame Resistant (FR) fabrics and Industrial apparels in India.

5. 51:49 JV between Italian luxury brand Canali and Genesis Luxury Fashion to market

Italian fashion apparels in India as Canali pledges to invest $1.39 million in India.

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Exhibit 4: Trading Agreements of India

According to the Business Portal of India (2014), the country has struck a number of bilateral

trade agreements as:

1. India and Singapore Comprehensive Economic Cooperation Agreement (CECA)

2. India-Sri Lanka Free Trade Agreement (ISFTA)

3. India-Chile Preferential Trade Agreement (PTA)

4. India-Afghanistan Preferential Trade Agreement (PTA)

5. India-Bhutan Trade Agreement, India-Nepal Trade Treaty

6. Framework Agreement For Establishing Free Trade Between India And Thailand

7. Free Trade Agreement (FTA) Between India And Gulf Cooperation Council (GCC)

8. India- Japan Trade Agreement

9. Joint Study Group Between India And Korea

10. Trade Agreement Between India And Bangladesh

11. Comprehensive Economic Cooperation And Partnership Agreement (CECPA) Between

India And Mauritius

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Exhibit 5: Top Exports and Imports of India

Petro

leum pr

oduc

ts

Gems &

Jewell

ery

Pharm

a Pro

ducts

Garmen

ts, T

extil

es, Y

arn an

d Fab

rics

Transp

ort E

quip

ments

Mac

hine

ry &

Instr

umen

ts

Man

ufac

tures

of M

etals

Electro

nic G

oods

Rubbe

r, Glas

s & Pr

oduc

ts

Cotto

n Yarn

& Fa

brics

5647

24 21 2114 10 9 7 7

Top Export Items (US$ bn)

Petro

leum C

rude

Gold &

Silv

er

Electro

nic G

oods

Pearl

s & Pr

ecio

us St

ones

Non-el

ectri

cal m

achi

nery

Organ

ic & In

orga

nic C

hemica

ls

Coal, C

oke &

briq

uette

s

Transp

ort E

quip

ment

Meta

llifer

rous

Ores

& Pr

oduc

ts

Iron &

Stee

l

155

62

33 31 3019 17 14 13 12

Top Import Items of India (US$ bn)

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Page 31 of 39

Exhibit 6: Ease of Doing Business in India

Ease o

f Doi

ng B

usin

ess R

ank 

Start

ing a

Bus

ines

s

Dealin

g with

Con

struc

tion P

ermits

Gettin

g Elec

tricit

y

Regist

ering

Prop

erty

Gettin

g Cred

it

Prot

ectin

g Inv

esto

rs

Payi

ng T

axes

Tradin

g Acro

ss Bor

ders

Enfor

cing C

ontra

cts

Resol

ving

Inso

lven

cy0

40

80

120

160

200

BRIC Nation Comparison (lower the better)

Russia Brazil China India

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Exhibit 7: Input Cost Ranking of India among Close Competitors

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Exhibit 8: Government Institutions to Support the Textile Industry in India

1. National Textile Corporation Limited (NTC)

2. National Jute Manufactures Corporation Limited (NJMC)

3. Handicrafts & Handlooms Exports Corporation Of India Ltd.(HHEC)

4. Jute Corporation Of India Ltd., Kolkata (JCI)

5. The British India Corporation Limited (BIC)

6. National Handloom Development Corporation (NHDC)

7. Central Cottage Industries Corporation of India Ltd. New Delhi (CCIC)

8. The Cotton Corporation of India Ltd., Navi Mumbai. (CCI)

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Exhibit 9: Hofstede Cultural Analysis of India

Power Distance Individuality Masculinity Uncetainty Avoidance

Long-term orientation

77

4856

40

61

40

91

62

46

29

India USA

Power Distance India scores high on this dimension indicating an appreciation for hierarchy and a Top – Down Structure in society and Organizations. Communication is top down and directive in its style and often feedback which is negative is never offered up the ladder.

Individualism India is a collectivist society with a high preference for belonging to a larger social framework. This means strong team orientation, group work and group incentives for motivation.

Masculinity India is considered a masculine society where the focus is on success and achievements, validated by material gains. Work is the center of one’s life and visible symbols of success in the work place are very important.

Uncertainty Avoidance

In India there is acceptance of imperfection; nothing has to be perfect nor has to go exactly as planned. India is traditionally a patient country where tolerance for the unexpected is high; even welcomed as a break from monotony.

Long Term Orientation

The Indians score 61, making it a long term, pragmatic culture. Societies that have a high score on Long Term Orientation, typically forgive lack of punctuality, a changing game-plan based on changing reality and a general comfort with discovering the fated path.

Page 35 of 39

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