Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis-II - Question Paper

· Low cost skilled labour: When compared to developed nations like England and France, India is aggressively positioned on the labour cost front. In terms of hourly wages, Indian labour is as much as 20 times cheaper than its western counterparts.

· Presence across the textile value chain : Unlike countries like Bangladesh and Sri Lanka, India has end-to-end capabilities for manufacturing and processing yarn, fabrics and apparel. Garmenters are able to source their raw materials locally, reducing lead times. In addition, Indian firms have the ability to satisfy customer requirements across multiple product grades as well as small and large lot sizes.

Weakness

· Fragmented industry: The Indian textile sector is extremely fragmented with over 60% of the firms in the powerloom sector, the rest being spread over handloom and mill sector. Indian sellers obtain it difficult to meet the capacity requirements of their global buyers who usually prefer to source their requirements from not more than 3 vendors.

· Lower Cost Competitiveness: While the labour costs in India are competitive, the productivity is lower compared to other low-cost nations like China and Sri Lanka. Other costs such as power, taxes and interests are high, thus lowering India's cost competitiveness.

Opportunity

· Growing domestic market: The per capita consumption of textiles in India is 2.8 units, way beneath the global avg. of 6.8 units, indicating a significant potential for growth. A domestic market relatively sensitive to fashion fads has spurred the growth of the garment industry locally. An emerging local opportunity thus allows textile firms to mitigate risks and build competitiveness.

Threat

· Historical regulations: The sector is burdened by several historical regulations, which leave behind the legacy of a complex industry structure, as well as the absence of a viable exit choice for industry players.

· Technology obsolescence: A large portion of the processing capacity is absolute and while integrated textile mills exist, majority of the capacity lies in the powerloom sector.

In addition, competition from cheaper imports in the local market, ecological and social awareness resulting in increased pressure on the industry to follow international labour and environmental laws and regional alliances can play spoilsport. But these aside, there is no denying that several opportunities exist for the Indian textile sector. The opportunity lies in moving up the value chain, investing in design centers, and focusing on product development. Restructuring and streamlining of operations form a huge part of what textile companies need to do. While major players in the organized sector have undertaken modernization programmes, there is still a fairly long way to go in terms of adoption of info technology.

Earning:   Approval pending.