Where is China business going… Certainly not India

by Nitish Varshney

15-July-2019  |  19 mins read

Unnoticed! India gaining from Indonesia

Apparel Busienss

Whenever, wherever and whoever talks about the changing dynamics of the global apparel industry, wittingly or unwittingly mentions the fact that China is slowly, but surely moving away from apparel manufacturing, creating opportunity for other countries in the region to get the business. The Indian apparel industry is also constantly talking about why manufacturers in the country are unable to get a share of the China business, failing to pinpoint the real reasons. Team Apparel Resources takes a deeper look at the ground realities.

A lot has been said and written about China’s apparel ecosystem, be it its bulk production capacities, supportive policies, focused R&D, strength in fabric production, efficient labour, capabilities in technology and machine production… and in the last few years, in this discussion, has been added China’s increasing minimum wages, pollution issues, reducing focus on apparel and a growing retail market. More recently, the discussion has been revolving around the trade tension between China and the US.

In the meanwhile, facts show that China is exporting less apparels and more textiles to the world. As per the World Trade Statistical Review 2018 by the World Trade Organization (WTO), China’s market shares in global apparel exports fell from its peak – 38.8 per cent in 2014 to a record low of 34.9 per cent in 2017. On the other hand, it accounted for 37.1 per cent of global textile exports in 2017, which was a new record high.

It has been repeatedly said that if India gets even 1 or 2 per cent of China’s share, it will be huge growth for India. Apparel Resources’ data analysis (given further in detail) proves that China’s share didn’t come to India in any significant number and whatever has come is very little and in few specific categories that India is known for. As expected, Bangladesh and Vietnam are getting the ‘China advantage’ and it is not difficult to understand why.

Reviewing the trade data for the last two years, it is clear that China’s apparel export has gone down by less than 1 per cent in 2017 and 2018, while Bangladesh has noticed growth of around 2 per cent and 12.80 per cent in the same period. With regard to Vietnam, there was growth of 8.5 per cent and 24.33 per cent during the specified period (see Table 1). Industry watchers feel that the bulk and basic orders have been snatched by Dhaka while the niche, technical and value-added garments have gone to Vietnam. Interestingly, India’s export grew by 2.18 per cent in 2017 but nosedived to 9.46 per cent in 2018.

Table 1: Country-wise growth and decline in apparel exports from 2016-18 (Calendar year)

Country 2016 2017 2018
China 146.47 145.23 (0.84%↓) 144.97 ( 0.37%↓ )
Bangladesh 28.67 29.21 (1.84% ↑) 32.92 (12.80% ↑ )
Vietnam 22.42 24.33 (8.51% ↑) 30.25 (24.33% ↑)
India 16.96 17.33 ( 2.18% ↑) 15.69 ( 9.46% ↓)
Source: ITC, EPB (Bangladesh) and Ministry of Commerce and Industry (India); All figures in US $ Billion

Apart from the official data, there are many other factors that strengthen the fact that India has neither grabbed a significant share from China business nor is it likely to do so in the near future. India is focusing on its core strength – value addition, and even now buyers are looking to India for small and mid-size orders. “India has not been able to get any share from China’s business. The only reason is that we are not doing something different or very innovative, from last three decades; India is making the same blouses, dresses, etc. on similar fabrics. We are not using innovative fabrics and are not dealing in niche-like quality innerwear, winterwear…,” said Ashok Rajani, Ex Chairman, AEPC, with honesty.

Further, the kind of fabrics used by China, is still not being used by the Indian manufacturers. Neither has India developed huge capacities to focus on products of mass production (apart from product category like basic Tees). Over the years, Indian companies have not been able to reduce the costing or overall FOB, and in the last few years, internal issues like demonetisation and GST have been the major factors due to which Indian apparel exporters have not even focused on their regular business, forget about grabbing business moving out of China!

Few industry stakeholders, who were in Vietnam recently for a sourcing event, shared that there are huge orders with the Vietnamese companies and they are booked for many months. Their worry is not on how to get orders or to match the costing…, they are worried about how to complete these orders comfortably, as their expansion plans are yet not complete, though on full swing, but will take time. They have comparatively limited manpower too. On the other hand, order bookings of Indian apparel exporters have just picked up slightly in recent months.

The industry recognises the weakness and is scathing in its criticism. “I don’t see Indian factories getting business from Chinese’ share. This is mainly due to the strengthening of Bangladesh, Vietnam and even Ethiopia. Indian apparel exporters are also putting factories abroad, which shows that other international regions are becoming strong. With regard to product innovation…, we can’t get any major advantage, until and unless we don’t become competitive in MMF, especially with regard to synthetic yarn price. Again, our competing countries have advantage on this front. Whenever we have strategic meetings with our key clients, they say that their sourcing from India has increased but it is not coming from China’s share,” stated S. Alagesan, VP, Quality Assurance/Sustainability/CSR, Eastman Exports Global Clothing, Tirupur.

So where is the business coming from… Apparel Resources analysis shows that unnoticed by most people, India has been taking away business from Indonesia. A full report of the analysis follows…

India on its way to becoming the fourth top apparel exporter to US; set to surpass Indonesia by next month

Even as major manufacturing countries such as Vietnam, Bangladesh and minnows such as Ethiopia, Cambodia and Myanmar are fighting to grab the orders coming from China, India has subtly been taking away business from Indonesia, in the difficult and competitive US market. India and Indonesia are two major Asian apparel manufacturing hubs and hold great position in the US market. Indonesia has been holding fourth spot since long in top apparel exporters tally to US, while India has remained in the fifth position all through the time. However, the situation is taking a turn in India’s favour from last couple of years and in Jan.-Apr. ’19 period, India has almost narrowed the gap with Indonesia.

The latest US apparel import data released by OTEXA is on the lines of what Apparel Resources has been projecting for quite some months now. India exported apparels worth US $ 1,567.28 million to US in the mentioned period, staying just US $ 3.70 million behind Indonesia’s figure which stood at US $ 1,570.98 million. India tapped 10.76 per cent growth in the first four-month period of 2019, while Indonesia’s growth restricted to just 1.86 per cent on Y-o-Y basis.

It’s worth mentioning here that Indonesia earned US $ 4,474.96 million in 2018, a US $ 670.24 million more than what India had exported (US $ 3,804.72 million) to US in the same calendar year. Remarkably, India covered up this gap in just four months of 2019. (See Table 2 to observe how gap of exports by India and Indonesia is narrowing over the years).

Table 2: Exports to USA from India and Indonesia

Year Apparel exports from Indonesia to
USA (in US $ million)
Apparel exports from India to
USA (in US $ million)
Gap in Value (in US $ million)
2017 4,558.86 3,679.75 879.11
2018 4,474.96 3,804.72 670.24
2019 (Jan.-Apr. period) 1,570.98 1,567.27 3.70

Month-wise also, Indonesia fell drastically by 9.2 per cent in April ’19 to ship US $ 366.34 million worth of apparels to US as compared to US $ 403.53 million shipment value in April ’18. Whereas, India escalated its exports in April ’19 by 7.2 per cent to clock US $ 407.85 million as against US $ 380.38 million in the same month of the prior year.

During the cumulative period of Jan.-Apr. ’19, the total apparel import of US valued at US $ 26.45 billion and India’s share in this increased to 5.92 per cent in 2019 from 5.34 per cent in the corresponding period of the prior year. While, Indonesia’s share declined to 5.93 per cent as compared to 6.16 per cent in the same period of last year.

Talking in terms of unit prices, India shipped per unit of apparel to US at the value of US $ 3.57, while the same in case of Indonesia valued at US $ 3.60 which is significantly more seeing the tough global economic conditions in today’s time. This shift clearly tells that India has been able to grab the orders that were supposed to go to Indonesia; due to price offered by latter being high, it has become difficult for buyers to continue with Indonesia.

Moreover, it’s a fact that due to US China trade war, US buyers are moving to Vietnam as an alternative to China; however, Vietnam’s capacity is booked, so it can safely be said that fall in Indonesia’s apparel exports is not being skewed towards Vietnam. As far as Bangladesh is concerned, it’s more into basic garment manufacturing, while Indonesia’s strength lies in both basic and high-end garments. Hence, it is obvious that buyers won’t shift their orders from Indonesia to Bangladesh; India, the closest contestant of Indonesia, is making the most of this situation.

Product categories that are helping India grab orders from Indonesia…

If we see the top export product category (T-shirts) of Indonesia, the revenue it generated for the country in the review period (Jan.- Apr.,’19) was US $ 367.92 million which is down by 5.70 per cent from what it was (US $ 390.16 million) in the same period of the last year. Whereas, India did a remarkable job in T-shirts exports to US as it upped its shipment by 8.57 per cent to US $ 387.30 million from US $ 356.72 million a year earlier.

The second top product category from Indonesia to US is trousers but somehow the country fell by 3.93 per cent to clock US $ 363.88 million as against US $ 378.75 million in Jan.-Apr. ’19. On the other hand, India noted growth in this category as well though values were not as high as Indonesia. India tapped US $ 182.23 million in trousers’ exports to US, marking a significant 14.66 per cent surge on Y-o-Y basis and sending a clear message to Indonesia that if they are not able to offer better pricing to US buyers, India is ready to snatch the orders from them.

Kidswear is another category in which India totally dominated Indonesia in the said period. Kidswear was once said to be one of the rising categories from Indonesia, but over a period, the country has lost its edge in kidswear as signalled by data. India surged by 28.78 per cent to hit US $ 88.63 million figure in kidswear exports to US, while Indonesia drastically dropped by 29.36 per cent to US $ 26.53 million which only added woes to its already declining export industry and benefited India.

Why India is taking the advantage…

When talking to the industry, Team Apparel Resources realised that very few people are even aware that buyers have been placing orders in India instead of Indonesia. Most exporters and association heads were pleasantly surprised by the analysis, though they do know that Indonesia is facing some severe challenges in its garment manufacturing sector. The labour-intensive business is dependent on imported cotton price in USD, making it vulnerable to a weak rupee and economic tremors. Besides, annual increase in minimum wages in West Java and Jakarta regions has squeezed an already-tough margin for the manufacturers. Many garment units have responded by laying off workers and reducing the number of shifts.

Over the long term, Indonesia’s ability to boost manufacturing and create productive jobs for its swelling workforce will require a breakthrough vision and buyers are not going to wait for that. Another factor which is important in this whole scenario is the kind of interventions both technological and human that are there in knitwear manufacturing. Explaining the same, Raja M. Shanmugham, Chairman, Warsaw International, Tirupur and President, Tirupur Exporters’ Association (TEA) told Apparel Resources that it’s important to use technology as well as human skills in value-added garments and India has that strength, while Indonesia lacks this ability; it is battling with rising labour issues within its own industry. “India is traditional textile and garment hub having abundance both of raw material and manufacturing capacities. Whereas, Indonesia is a small country with a limited order booking capacity,” said Raja, adding that, “India’s rise against Indonesia can be attributed to the fact that India, especially the Tirupur area, has been continuously making efforts to enlarge production capacities, diversify product range apart from doing more value addition in garments; all in-house, and that’s something Indonesia can’t do.” Endorsing to what TEA President Raja opined, Amrutesh. K. Jaghuva, ED, Quality Knitwears, Tirupur added, “Labour problem is huge challenge with Indonesia. As far as my knowledge goes, in some areas there, labourers have to cross rivers to reach the place where they work. This is why sometimes they reach late and that hampers their productivity. So, labour turnover is something Indonesia is going through a lot, while India is able to tackle all these challenges and that’s why we have gained trust of buyers as far as value-added garments are concerned.”

Is the trend short term…? Data says NO!

It’s a popular belief in the industry that India goes through some lean phase every year for a certain period of time and factories look for more orders to fill capacities which is probably not a case with Indonesia. However, analysing the data, it can be said that India did quite well in the first four months of 2019 than during the same period of 2018 or even 2017. In Jan.-Apr. ’18 period, the gap between India and Indonesia was US $ 127.34 million that has been reduced to just US $ 3.70 million as said above. During May- Dec. ’18 period, Indonesia exported apparels to US worth US $ 2,932.60 million, while India could just earn US $ 2,389.70 million in this period.

If we talk about Jan.-Apr. ’17 period, Indonesia stood at US $ 1,587.30 million in its exports to US, staying ahead of India which hovered around US $ 1,375.74 million. Again, the next eight months favoured Indonesia in which the country shipped US $ 2,971.56 million worth of apparels, while India could just earn US $ 2,301 million in May-Dec. ’17 period. But if we closely observe, Indonesia declined in its exports value in May -Dec. ’18 as compared to the corresponding period last year. On the other hand, India gained on Y-o-Y basis.

Moreover, the order inflow to India in the first quarter of 2019 is far better than previous two years and the industry is expected to take this growth further. Raja substantiated: “From last six months or so, we are seeing a rise in our exports to the US market which is a positive sign and we are sure to continue with surging exports in rest of the year as well.”

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