Textile margins seen under pressure, post-quota regime

The Indian textile sector will see its margins under pressure after the phasing out of the multi-fibre agreement (MFA) by 2004-end in addition to the loss of assured markets, according to a KSA Technopak study. KSA Technopak is a premier management consulting firm specialising in textile, apparel and retail.

From January 1, 2005, 49 per cent of the global textile and apparel trade will be free of quota restrictions. In addition to the loss of assured global markets, the domestic textile and apparel firms will also find their margins under pressure since almost all the categories that are expected to go off quota, have witnessed a 10-20 per cent fall in sourcing prices in the past one year.

Therefore, the entire supply chain needs to re-invent itself to remove hidden cost elements and become really competitive, a KSA Technopak study said. The KSA Technopak study defines textile and apparel as a buyer-driven value chain.

Though the chain spans across fibre supply, yarn manufacturing, fabric weaving, processing, apparel making, aggregators and retailers, the clout is in the hands of the front end completely.

The maximum value add in the supply chain happens at the retail stage (almost 50 per cent) and marketers and merchandisers, therefore, play a pivotal role.

"The maximum value addition happens at the retail level. By removing inefficiencies in the supply chain at all the levels, partners can create and preserve value in supply chain," Arvind Singhal, chairman, KSA Technopak, said.

Business processes, including planning, sampling, administration and other overheads account for 35 per cent of the costs at the retail stage.

Collaboration among members of the value chain facilitates business process optimisation that can make value chain more efficient. The key elements of collaboration identified by the study are production capacity dedicated to buyer, transparent cost accounting system, collaborative product development, standardised processes and control, optimise logistics and routing.

It is estimated that the opportunity to increase earnings for retailer through information sharing could be as high as 45 per cent, the KSA Technopak study said.

Technology has become a major facilitator in information sharing throughout the supply chain. It is estimated that the opportunity to increase earnings for the retailer could be as high as 45 per cent. This benefit could then be passed down the chain.

Despite a steady 5 per cent growth, the $360 billion global textile and apparel market is highly fickle characterised by short lifecycle, unpredictable demand, whimsical consumers and multiple trading partners, difficulties of cross-border trade and stagnating economy.

So while trade grows, the industry is under serious price pressure.