How can Indian Garment Exporters Succeed in the US, European Markets?
India is aspiring for 20% yearly growth in exports over the next decade. The US and the European markets consume 2 out every 5 garments produced and represent the biggest opportunity for Indian manufacturers. But these western markets are highly sophisticated and fast-paced.
Indian Manufacturers must develop a business strategy which can help stand out among the various developing nations that are also pitching to buyers to be their manufacturing partners. In this blog, we’ve shared a few key ideas that can help India’s garment industry succeed in the US, European Markets.
In 2025, global trade in the textile and apparel market will cross USD 1.2 trillion. China has nearly 40% share in global exports. However, in the past few years, the country is experiencing a downward trend in apparel exports and has vacated nearly ~ USD 30 billion worth of space in global trade.
Growth in global trade and the shrinking share of China in exports present a very lucrative opportunity for other countries with competitive manufacturing facilities. India can become one of the biggest gainers in the changing landscape of global apparel trade.
At Drip Capital, we’ve worked with a large number of Indian garment exporters and buyers based out of EU and US. In our experience, there are a few interventions, discussed below, that Indian manufacturers need to consider before they can become the preferred manufacturing destination for western brands.
Establish as a Fairtrade Destination
Everyone in the garment trade business is still haunted by 2013’s Rana Plaza tragedy in Dhaka. The incident exposed that, many ill and exploitative practices ran amok in the garment supply chain.
Consumers in the EU and USA have led the demands since the incident that brands take more responsibility of their supply chain and offer greater transparency — to ensure fair trade.
In fact, fair trade has become a global movement made up of a diverse network of brands, manufacturers, shoppers, and organizations that place people and planet alongside profits. Fair trade advocates expect that everyone in the value chain should earn enough to fulfill basic household needs, regardless of volatile market prices. Environment sustainability is also a very big concern and consumers in the west want products that are made judiciously.
Indian manufacturers can stand out by positioning themselves as practitioners of Fairtrade. Environmental stewardship and labor-friendly working conditions can become India’s USP.
Investing in Process Improvement and R&D
If India is to achieve ~20% yearly growth in apparel exports, manufacturers have to, sooner than later, invest in skill training and process improvement to match global competitiveness. Yes, in the recent times there has been an increased focus on skill development. But these initiatives need to be scaled vigorously.
If the Indian garment industry remains at same productivity levels, they would need ~ 35 million more workers to fulfill the new demand, which is nearly impossible. The objective should be to match the productivity levels of China in a few years — average output per hour and per machine output both in terms of quality and quantity.
Significant focus must also be given to process improvements, both within the manufacturing facilities and throughout the supply chain. India is yet to make its presence felt on the global stage with better products and processes. Without innovation and R&D this can not happen.
Improving the Product Mix
Most of the world’s’ major exporting countries play with two seasons — autumn/winter, spring/summer; winter exports often accounting for the lion’s share of the business. On the other hand, India almost completely relies on lightweight garments suitable for summers.
Indian policies make it difficult to import the fabric needed to produce winter garments. Locally, the textile industry is focused on cotton which leaves the exporters with no material to produce winter products. This policy to protect the demand for local cotton producers is perhaps doing more harm than good.
Another way to improve the product mix (revenue wise!), is to increase the share of finished garments in the total exports. Currently, about half of India’s exports are textiles, which means a loss of opportunity — to convert that textile into a final product, to add more value and to make more money.
Financial Planning for Accelerated Growth
Countries like China, Bangladesh have developed large production facilities whereas India has predominantly smaller units which lack economies of scale. This limits the capability of Indian manufacturers to take up the large orders, offer superior pricing and become globally competitive.
The limited growth of Indian garment manufacturers is largely due to the lack of equity capital for expansion. Typical venture capital isn’t available in this sector.
However, there are other financial tools that garment exporters can use to free up funds for expansion.
For example — Many Indian manufacturers, being small, offer generous credit periods to buyers — which really eats up a huge amount of working capital. Plus, it increases the risks due to currency fluctuations. New age Fin-tech startups, like ourselves at Drip Capital, offer factoring services to buy the invoices from exporters and pay up to 80% of invoice value upfront. Manufacturers can use these immediate payments of invoices to buy the raw material for the next order and cater to more customers every season.
Beyond looking at tools that can free up capital for growth investments, Indian manufacturers must also build three to five year business plans with clear financial projections. Often small business owners are caught up in “working in the business” and don’t find the time to “work on the business”. A well written, documented financial plan can be really handy, in such cases. And of course, the devil lies in the detail!
At Drip Capital we believe in the Indian Garment Manufacturers. There is great scope for growth and a huge opportunity to showcase among the world consumers the Indian brand of Manufacturing.
We think a bold approach towards, Marketing India as a Fair Trade Hub, Investing in R&D and Process Improvements, Enhancing the Product Mix and Prudent Financial Planning — can go a long way.
