India's leading apparel firms will increase their exports now that quotas have been phased-out. But in order to reach the government export target of US$25 billion by 2010, they will need to build new capabilities in design and marketing, as well as develop a collaborative mind-set so that synergies can be built and sustained. Dr Anuradha Balaram looks at building capability in the Indian apparel export sector.

Over the last five years, several studies have found that most Indian apparel firms are confident that business will boom after the phase-out of global quotas on textiles and clothing.

However, some experts suggest cautious optimism rather than euphoria as quota-free trade does not mean free trade - the industry will continue to face tariff and non-tariff barriers and competition in the coming years will be very tough for Indian firms.

The aim of this paper is three-fold. One, to project world demand for imported apparel (to get an idea of the size of the market) and to project India's market share in different categories of apparel in 2010; two, to identify the countries likely to provide future competition for the Indian apparel trade; and three, to see how apparel firms in India can best face the challenges of the quota-free regime.

It draws upon the findings of an extensive research study (Balaram, 2003) during which the views of 28 experts (see Footnote 1) helped provide insights into the challenges offered by the external business environment and the capabilities of the apparel firms to face these challenges.

The study involved a primary survey of 176 top (2) apparel firms in all the major textile clusters of India including Delhi, Mumbai, Bangalore, Chennai, Ludhiana and Tirupur.

Global demand for imported apparel in 2010
A few recent studies have made projections on global demand for apparel. A CII Accenture Study (2002) projected that world trade in apparel would be around US$360-400 billion in the year 2010 (3); KSA Technopak (1999) forecast US$560 billion in 2010 (4); and McKinsey (2001) has calculated that world imports of apparel would be around US$410 billion in 2010 (5).

All these studies have relied on data from the WTO Secretariat, which includes all clothing items including apparel made from fur and other non-textile materials.

This paper, however, reveals the estimates made by a study (Balaram, 2003) on the basis of more disaggregated data (category-wise) provided by UN Trade Statistics and includes only apparel made from textiles.

The apparel categories considered in this paper are 1: men's woven outerwear (SITC 842), 2: women's woven outerwear (SITC 843), 3: woven undergarments (SITC 844), 4: knitted outerwear (SITC 845), 5: knitted undergarments (SITC 846), and 6: other clothing accessories made of textiles (SITC 847).

To project global demand for apparel, the following steps have been followed:

a: The compound annual growth rate (CAGR) of the 6 different categories of apparel (SITC 842-847) for the period 1990 to 2000 (6) has been calculated.
b: Based on these CAGRs, projections were made at the same rate of growth for the year 2004 for each of these categories.
c: After the removal of quantitative restrictions 2004, from the period 2005 to 2010, certain simulations have been made based on the advice of the 28 experts consulted throughout the study. They were asked to indicate the rate at which they perceived each category would grow after 2005. On the basis of their comments, three scenarios were projected for world imports: pessimistic, realistic and optimistic. d: The most pessimistic scenario would be to project the demand for different categories of apparel up to 2010 at the same rate as given in (a). In this case the world demand for apparel would be US$368 billion, which is the sum of the individual projected values of the different categories (Table 1).
e: On consultation with the experts it was decided to estimate the value of demand in 2010 based on two sets of simulations: (i) at 2 per cent above the CAGR in each category observed for the period 1990-2000 (realistic scenario), and (ii) at 3 per cent above the CAGR in each category observed for the period 1990-2000 (optimistic scenario) (Table 1).

As may be observed from Table 1, world imports of apparel are expected to grow to the value of US$435 billion in an optimistic scenario when there is limited trade diversion and restricted use of non-tariff barriers.

Table 1: Projected world demand scenarios for
different apparel categories in 2010 (US$ bn)
Pessimistic Scenario1
Realistic Scenario2
Optimistic Scenario3
SITC 842
SITC 843
SITC 844
SITC 845
SITC 846
SITC 847
Total (SITC


  1. (5% for SITC 842, 843, 844 and 847; 7% for SITC 845; 10% for SITC 846)
  2. (7% for SITC 842, 843, 844 and 847; 9% for SITC 845; 12% for SITC 846)
  3. (8% for SITC 842, 843, 844 and 847; 10% for SITC 845; 13% for SITC 846)

In addition to projecting world demand for imported apparel, the study (Balaram, 2003) projected India's apparel export growth under three different scenarios (pessimistic, realistic optimistic) (7).

According to the calculations, in the realistic scenario India's apparel exports would be worth US$15.5 billion, which would amount to just 3.8 per cent of the global apparel trade basket in 2010 (Table 2).

At present, India caters for around 2 per cent of the world's garment trade. The Indian government has projected that India should achieve a target of US$25 billion by 2010.

In order to do this, Indian apparel exports will have to grow at over 16 per cent per annum from 2001 onwards (as compared to the 9 per cent CAGR achieved by overall Indian apparel exports for the period 1990-2000) (Table 2).

According to experts consulted during the study, it is quite unlikely that Indian apparel exports would rise to US$25 billion by 2010 without a significant change in the capabilities of Indian apparel firms.

Table 2: Projected market share for Indian exports
(category-wise) in 2010 (US$ bn)
World Imports(Realistic Scenario)
India's Exports(Realistic Scenario)
Projected Market Share (%)
SITC 842
SITC 843
SITC 844
SITC 845
SITC 846
SITC 847
TOTAL (842-847)

Major apparel exporting countries in 2010
As far as the main competition for Indian firms is concerned, this study has identified various countries with a revealed comparative advantage (RCA) (8) in different categories of apparel.

Among the high income countries, only Italy has an RCA in all categories of apparel. However, the apparel marketed by Italy cannot be compared with the products of newly industrialising countries in terms of either quality or price.

India will also face competition from low income countries like Bangladesh in some categories, but low income countries do not pose a threat to Indian firms keen to position their products in the medium to high price range in each category.

The main threat would be from countries like China, Turkey, Mexico, Thailand and Indonesia, whose firms have been dominant players in almost all the categories of apparel and who cater to the same price range (middle price segment) of the market.

A comparison of these countries on the basis of parameters such as labour costs, labour productivity, development of the textile industry, being part of a regional trade bloc, quality of the national environment, etc, was made and a score card was prepared to rank various countries on these parameters.

It was found that China was most likely to continue to be the dominant player in apparel exports in the future followed by Turkey, India, Mexico, Thailand and Indonesia in that order.

Suggestions to enhance Indian firms' competitiveness post-quotas
According to the literature on the new supply model for apparel, all firms will develop a core competence in any one aspect of the value chain - design, development, distribution or display.

Leading Indian apparel firms at present have a proven competence only in product development - once the specifications are received from abroad, the firms bank on their 'full package supply capability,' sourcing the raw material from trusted vendors, using relatively inexpensive but adequately skilled labour and producing the garments within tolerable limits of quality, environment and delivery standards.

The study found that the more profitable Indian apparel firms were the ones who designed at least 10-15 per cent of their production 'in-house' based on their understanding of market trends.

Further, firms operating on a larger scale (in terms of machines) tended to show more profitability than firms operating on a smaller scale. This means that in order to earn profits Indian firms must no longer be satisfied with incremental efficiency improvements but must improve their 'own-design' capability through developing a nexus between Indian designers and Indian apparel exporters. They should also increase their scale of operation through horizontal or vertical integration.

If developing a new product or design is beyond the financial and technical capability of a single firm, then firms should collaborate to see whether they can become world leaders in any select product line.

This study shows that even when firms are located in close proximity in an industrial estate, they do not undertake any joint action. Managers of firms must develop a collaborative mind-set and explore ways in which they can collaborate - joint procurement of inputs, joint investment in a design and testing department, joint product development, joint consumer research, joint marketing department, joint IT department etc could be explored, to reduce overheads.

In future successful firms will be part of a network of organisations where there is a cross-functional integration and co-operation of competencies, and collective learning in a supportive environment.

In order to ensure that adequately skilled labour continues to work in the apparel industry, innovative incentives should be provided for employees - otherwise the retention rate in the industry will continue to be low and the level of skill development will suffer.

Table 3: Relative importance of different categories
of apparel (1990-2000) (% share)
Share In World Import Basket
Share In India's Export Basket
SITC 842
SITC 843
SITC 844
SITC 845
SITC 846
SITC 847
Total Apparel
Note: Values may not total to 100 on account off rounding of figures.

The second largest category of world apparel imports was men's woven outerwear (SITC 842) but in India's export basket this category formed a very small part (4.9 per cent). This means that if Indian firms increase their capability to supply this category, they could find a large global market.

Similarly in the case of knitted outerwear, the share of this category in world imports was as high as 17.6 during the period under consideration while India's share of this item in the apparel export basket was only 11 cent.

Firms should consider diversifying into men's outerwear (SITC 842) and knitted outerwear (SITC 845), where the world market size is large but India's supply is insignificant (Table 3).

Quota phase-out will increase exports of the leading Indian firms, but in order to reach the government target of US$25 billion by 2010 apparel firms will have to significantly improve export growth by building new capabilities in design and marketing. Incremental capability improvement, as is being done at present, can at best increase exports to around US$16 billion.

The main competition for Indian firms is likely to come from China, Turkey, Mexico, Thailand and Indonesia. The managerial and marketing strategies of firms in these countries, along with their pricing strategies, are likely to have a significant impact on the exports of Indian firms, as most of the apparel exported from these countries is substitutable and not unique.

Firms will have to go in for new product development after studying the demand trends in the global market, and will have to pursue an aggressive marketing strategy if they want a significant and sustained increase in their export growth. A collaborative mind-set will have to be developed so that synergies can be built and sustained.

1: From various Apparel Associations, Textile Institutes, Chambers of Commerce and Government.
2: Based on their export turnover during 1998-2001.
3: This was projected by assuming a compound annual growth rate of 7-8 per cent.
4: They projected this on the assumption that world imports of clothing would grow at 10 per cent per annum after 2005.
5: The basis was that world trade in apparel would grow at 10 per cent per annum between 2000 and 2005 and at the rate of 4 per cent per year after that.
6: Disaggregated data was not available beyond 2000 at the time of undertaking the study.
7: The basis for these projections was made after detailed discussions with the 28 experts involved in the study.
8: RCA is an index which compares the share of exports of a particular product category in a country's total export basket with the share of world exports of that product category in the world's total export basket. This means the country having an RCA value greater than one in any product category has a comparative advantage in that product category amongst the world's exporters of that category.

Balaram, A, (2003) "Indian Apparel Export Firms: A Study of Challenges and Capabilities" PhD Thesis - Department of Management Studies, Indian Institute of Management, New Delhi

CII (2002) "Textile Industry: Road to Growth" Study presented to Ministry of Textiles, Government of India

KSA Technopak, (1999) "Changes in Textile and Apparel Trade: Is India prepared?"

McKinsey and Co,(2001) "India: The Growth Imperitive" Volume I