Global Sourcing: Overview of India and it’s Role in the Textile Industry

This paper was written for CRS 463: Global Sourcing. The goal was to research the India’s capability for producing women’s cotton underwear for Victorias Secret.

History
Few countries in the world have such an ancient and diverse culture as India’s. Spanning over 5000 years and dating back to 3000 BC, India’s culture has been enriched by successive waves of migration which over time have been absorbed into the Indian way of life. India has been invaded from the Iranian Plateau, Central Asia, Arabia, Afghanistan and the West. Such migration and invasion has led to great physical, religious, and racial variety. This variety is as expansive as its linguistic diversity. Underneath this linguistic diversity lies the continuity of Indian civilization and social structure from the very earliest times until the present day. Excavations in Punjab and Gujarat reveal that the Indus Valley civilization was a highly developed urban civilization. In fact the two cities of Herappa and Mohenjodaro, situated on two sides of the river Ravi, are known to have been built on a similar plan. But that only meant a new wave of urbanization was taking place along the Ganes around 1500 BC (About India: Market Background, 2004).

India is unique for their possession of underlying unity and homogeneity of culture and outlook, despite the various diversities and differences that make up the Indian culture. This unity is a basic fact while the differences are superficial. The Indian people have absorbed these influences and the result is a great racial and cultural fusion. With this, there are currently sixteen or seventeen official languages, with Hindu being the most widely spoken. The culture’s diversity also brings a variety of religions. Eighty-three percent of the just less than one billion strong population is Hindu, yet India still has the largest Muslim population in the world with more than 120 million followers. India also is home to Christians, Sikhs, Jains, Buddhists and Parsees (Background-Geographical, Historical, and Cultural, 2006).

Geographic Data
Geographic data is important for discussion in order to understand the different terrains of a country, make sure there is an adequate amount of accessible coastline, and to know what countries India boarders. India is the seventh largest country in the world in terms of size, with a total landmass of 3,287,590 sq km. It is located in South Asia with a land boundary of 14,107km. India neighbors Pakistan, China, Bangladesh, Burma, Nepal and Bhutan. The coastline is 7,000km, which stretches across the Arabian Sea and Bay of Bengal in the Indian Ocean. The coastline of India is dotted with 11 major ports which are managed by the Port Trust of India under Central Government jurisdiction and 139 minor operable ports under the jurisdiction of the respective State Governments. The major ports are located at Calcutta/Haldia, Mumbai, Jawaharlal Nehru Port at Nhava Sheva, Chennai, Cochin, Vishakhapatnam, Kandla, Mormugao, Paradip, New Mangalore, and Tuticorin (Shukla, 2006).
The Indian climate varies from tropical to temperate. India has a multiplicity of climates and terrains across its regions. They range from snow-peaked Himalayas in the north, desert in the west, thick rain forests in the north-east, flat green pastures in the Gangetic planes, and plateaus in south and central India. October to March marks the winter season. During this time, the temperature can go as low as 2-3oC in the Northern mountains of India. However, in most other parts of the country, it is normally a comfortable 15-25oC. Indian summers, which are from April to June, can be very hot, with the temperature reaching 50oC in many locations (Shukla, 2006). This means that even though India is a very large country, which boarders many countries and has a multiplicity of terrains, shipping any containers would be very accessible due to the abundance of available ports.

Population and Age Breakdown
Knowing the population and age break down is important because it determines if there is an adequate workforce and if that workforce is young. The population of India is more than 1 billion, which makes it the second most populous country in the world, after China. Virtually all major world religions and ethnic strains can be found in India. However, a majority of Indians come from the Indo-Aryan race, 72%, followed by Dravidians, 25% (Shukla, 2006).

Contrary to its image, India is a surprisingly young country, with a median age of 24. Around 40% of its population falls in the rage of 20-44 years. Compared to the older generation, this younger generation is more confident, has more liberal and consumerist values, and is more ambitious (Shukla, 2006). This is very important to Victoria’s Secret because with such a populous country there is defiantly a vast workforce. The median age of 24 is also important because it means that a majority of the work force will be young and able to work more quickly and efficiently. This young workforce is also very ambitious which means that they will want to work hard and continue to learn new things to move forward.

Religion
Understanding the breakdown of religion is important because different religions can have different holidays and it is important to understand the diversity of religions in a country. 82% of Indians are Hindu. Hinduism, however, is far from a homogeneous religion; it consists of a multiplicity of creeds and faiths, which are further divided among many castes, sects and subsets. The caste system in Hindu society is hierarchical in nature, and has a deep influence on the behavior and lives of people (Shukla, Madhukar).
The other major religions, represented in Indian society, are Muslims, 12%, Christians, 3%, Sikhs, 2%, Buddhists, Jains and Parsis. In addition, more than 300 local tribes constitute 8% of the Indian population (Shukla, 2006).
Since different religions are concentrated in different parts of the country, the cultural values and norms also widely differ. For instance, Muslims are a majority in Kashmir, Sikhs are concentrated in Punjab, and there is larger proportion of Christians in certain states of North-Eastern India, and so on (Shukla, 2006).
Given the large size of the population, even small proportional representation is actually quite large in real numbers. For instance, though only 12% of the total, India has the third or fourth largest Muslim population in the world [depending on the source]. Similarly, though representing less than a percent, there are 5 million Buddhists in India.
Though India has a secular political structure, religion plays an important role in the personal lives of people, and often influences relationships and business dealings (Shukla, 2006).

India is a very diverse country regarding religion. With so many different religions they all need to be understood and respected. This, however, does not seem to present any problem to Victoria’s Secret. Indians seem to all live together, despite religion, and cooperate very well. The vast array of religions does not seem to present any problems. It is just important that Victoria’s Secret take in to consideration the array of religions, understand them, and be respectful of them.

Ethnic/Racial Heritage
It is important to understand the heritage of a country to understand what is important to the countries people and what traditions they may have. The quite recent change in the country’s demographics has had implications for changes in cultural values. There is a wide urban-rural divide in India. Indian society is primarily agrarian. More than 70% of India’s population lives in villages, and subsists on agriculture. However, the contribution of agriculture is only 23%. India has one of the largest populations of technically qualified manpower, comprising around 15 million doctors, engineers and scientists. On the other hand, the literacy rate in the country is just over 50% (Shukla, 2006). This is important to Victoria’s Secret because Indians traditionally live in villages and work in agriculture. However, due to recent changes there are more people moving to different types of work. This means that there is now a larger workforce available for manufacturing work.

Language
Language is extremely important to understand when trying to conduct any type of business. It is important to know if you will be able to communicate well with the people you are working with. India has a large linguistic diversity. It has 18 constitutionally recognized major languages, in addition to around 1,600 other languages and dialects. There is no single language which is spoken by all Indians. According to the constitution, Hindi is the official national language. However, less than 40% of people in India can speak or understand Hindi. English is the co-official language, since it is spoken by most of the educated Indian class, and is the common language used in business situations (Shukla, 2006). This is important to Victoria’s Secret because it affects the communication process. It is very good to know that English is the co-official language and it is the most common language used in business situations. This means that Victoria’s Secret should be able to communicate well with the people it employees in India. This is important in communicating design styles, completion dates, and shipping information, along with other things.

Relationship with the United States
In the 90’s India and the United States were the strongest democratic countries in the world that shared common interest as opposed to their past. The two countries had form a strong relationship within trade and business. But it wasn’t until the attacks of September 11th that president Bush completely transformed the India-United States bilateral ties together. In late November 2001, shortly after the attacks, President Bush met Prime Minister of India, and both leaders expressed a strong interest in transforming their relationship. India contributed significant information regarding the Al-Qaeda and other terrorist groups in Pakistan and Afghanistan. Both countries have a mutual understanding and goal on ending the War on Terrorism. The final milestone in the Indo-US relationship was on January 2004, when the United States and India signed the Next Step in Strategic Partnering (NSSP) which finalized their partnership and ensures further progress. (US Department of State, 2006).

The end of the Cold war and the September 11th attacks has dramatically changed relations between the United States and India. By the mid 1990’s the United States became India’s largest trading partner and a major source of US investment. More than one million Indians live in America, and more and more Indian students seek education in America. Though the India United States relationship is fairly young, both countries have great respect for each other and their culture. The United States recognizes that India has developed into an emerging market economy and a rising world power. Both democratic societies share a common interest in political freedom, fight against terrorism, and tradition. India-United States newly strong relations is predicted to develop into a long lasting partnership (Foreign Relations of India, 2006).

Economic Conditions
India is the fifth largest economy in the world (ranking above France, Italy, the United Kingdom, and Russia) and has the third largest GDP in the entire continent of Asia. It is also the second largest among emerging nations. (These indicators are based on purchasing power parity.) India is also one of the few markets in the world that offers high prospects for growth and earning potential in practically all areas of business. Despite the practically unlimited possibilities in India for overseas businesses, the world’s most populous democracy has, until fairly recently, failed to get the kind of enthusiastic attention generated by other emerging economies such as China. (Government of India, 2006)

In India’s economy today, officials and economists make an important distinction between the formal and informal sectors of the economy. The informal, or unorganized, economy is largely rural and encompasses farming, fishing, forestry, and cottage industries. It also includes petty vendors and some small-scale mechanized industry in both rural and urban areas. The bulk of the population is employed in the informal economy, which contributes more than 50 percent of GDP. The formal economy consists of large units in the modern sector for which statistical data are relatively good. The modern sector includes large-scale manufacturing and mining, major financial and commercial businesses, and such public-sector enterprises as railroads, telecommunications, utilities, and government itself. (Library of Congress, 1995)

Growth

The rate of economic growth improved in the 1980s. From 1980 to 1989, the economy grew at an annual rate of 5.5 percent, or 3.3 percent on a per capita basis. Industry grew at an annual rate of 6.6 percent and agriculture at a rate of 3.6 percent. A high rate of investment was a major factor in improved economic growth. Investment went from about 19 percent of GDP in the early 1970s to nearly 25 percent in the early 1980s. India, however, required a higher rate of investment to attain comparable economic growth than did most other low-income developing countries, indicating a lower rate of return on investments. Part of the adverse Indian experience was explained by investment in large, long-gestating, capital-intensive projects, such as electric power, irrigation, and infrastructure. However, delayed completions, cost overruns, and under-use of capacity were contributing factors. (CIA Factbook, 2006)

India’s primary sector, including agriculture, forestry, fishing, mining, and quarrying, accounted for 32.8 percent of GDP in 1991. In 1991, the contribution to GDP of industry, including manufacturing, construction, and utilities, was 27.4 percent; services, including trade, transportation, communications, real estate and finance, and public- and private-sector services, contributed 39.8 percent. The steady increase in the proportion of services in the national economy reflects increased market-determined processes, such as the spread of rural banking, and government activities, such as defense spending. (CIA Factbook, 2006)

The balance of payments crisis of 1990 and subsequent policy changes led to a temporary decline in the GDP growth rate, which fell from 6.9 percent in 1989 to 4.9 percent in 1990 to 1.1 percent in 1991. In March 1995, the estimated growth rate for 1994 was 5.3 percent. Inflation peaked at 17 percent in 1991, fell to 9.5 percent in 1993, and then accelerated again, reaching 11 percent in late 1994. This increase was attributed to a sharp increase in prices and a shortfall in such critical sectors as sugar, cotton, and oilseeds. Many analysts agree that the poor suffer most from the increased inflation rate and reduced growth rate. (CIA Factbook, 2006)

In specific regards to textiles contributing to the growth of India’s economy, it is also a major factor. India is the world’s largest producer of yarns and fabrics and its products range from apparel to home textiles. The overall growth of India’s economy is a positive aspect for the United States and Victoria’s Secret. The fact that India has a large and skilled labor force, that is relatively inexpensive, is the key factor that would make India a great candidate to outsource to for cotton underwear.

Textiles
The textile industry is one of the earliest to come into existence in India, it accounts for 14% of the total Industrial production, contributes to nearly 30% of the total exports and is the second largest employment generator after agriculture. Textile Industry is providing one of the most basic needs of people and the holds importance; maintaining sustained growth for improving quality of life. It has a unique position as a self-reliant industry, from the production of raw materials to the delivery of finished products, with substantial value-addition at each stage of processing; it is a major contribution to the country’s economy. Its vast potential for creation of employment opportunities in the agricultural, industrial, organized and decentralized sectors & rural and urban areas, particularly for women. (Economy Watch, 2006)

Currency and Exchange Rates
The Indian currency is called the Indian Rupee (INR) and the coins are called paise. One Rupee consists of 100 paise. Notes in India are issued in the denomination of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called bank notes, as they are issued by the Reserve Bank of India (Reserve Bank). The printing of notes in the denominations of Re.1 and Rs.2 has been. However, such notes issued earlier are still in circulation. The printing of notes in the denomination of Rs.5 had also been discontinued; however, it has been decided to reintroduce these notes so as to meet the gap between the demand and supply of coins in this denomination. Coins in India are available in denominations of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees and five rupees. Coins up to 50 paise are called ‘small coins’ and coins of Rupee one and above are called ‘Rupee Coins’.
1 Indian Rupee = 0.022066628 United States Dollar
United States Dollar = 45.8914 Rupee

Today, the rupee is trading at Rs. 46 to the dollar, and instead of being the strongest currency it is the weakest, and its fair value is closer to Rs. 44 than Rs. 48. (Reserve Bank of India) Compared to the United States, India has a very weak dollar.

Child Labor
While the Government of India reports about 20 million children laborers, other non-governmental organizations estimate the number to be closer to 50 million. Most prevalent in the northern part of India, the use of child labor has become an accepted practice, and is viewed by the local population as necessary to overcome the extreme poverty in the region. The situation of the children at the factories is desperate. Most work around 12 hours a day, with only small breaks for meals. The children that are working in factories work for very small wages, which is spent to feed themselves. Because of the fact that India is still a developing country, the working conditions of these factories are very poor. Children have a very small workplace, which consists of them sitting on the floor in unsanitary conditions.

Recognition of this issue has occurred, and there have been certain laws that have been passed hoping to correct aspects of the problem. The Child Labor (Prohibition & Regulation) Act, 1986 of India prohibits the employment of children below the age of 14 in factories, mines and in other forms of hazardous employment, and regulates the working conditions of children in other employment. India announced a National Policy of Child Labor as early as 1987, and was probably the first among countries to the developing have such a progressive policy. Through a notification dated May 26, 1993, the working conditions of children have been regulated in all employment not prohibited under the Child Labor (Prohibition and Regulation) Act. (Tucker, 1997) The United States should not let this issue completely steer them away from India, but make them more aware of the surroundings in the workplace. The United States should understand that India is aware of this problem and trying to find the best possible solution to overcome it. If India is chosen as a location to outsource, the facility chosen must be further investigated in detail to make sure the working conditions are sufficient and do not employ children that do not meet the age requirements of the Indian law.

Role in Textile and Apparel Industry
It is important to analyze India’s role in the world’s textile and apparel trade before making the sourcing decision. The study will first analyze India’s apparel product categories that are typically exported and who their apparel trade partners are; which will give an overview of India’s rank in the world’s textile and apparel trade. Finally the study will have an in depth outlook of India’s experience in trading women’s cotton underwear and to whom their partners are. This is important for Victoria’s Secret to understand to what experience India has with trading women’s cotton underwear.

India imports less than three percent of textile and apparel related commodities from other countries around the world. Their wide range of apparel manufacturing and production facilities provides domestic consumption, eliminating imports from other countries. In 2004, India’s apparel imports were a total of $10 in trade value. India’s top import partners of apparel are China, Nepal, Malaysia, and China-Hong Kong. The apparel products that are imported are generally from countries they do not export to (United Nations Statistical Division 2006).

India exports more apparel and clothing accessories than imports them. Although only 4.6% of their exported commodities are apparel, they have provided a significant role in the sourcing and distribution of goods in the textile and apparel industry worldwide. In 2004, India exported a trade value of $2.4 billion worth of apparel and clothing. India was ranked the 9th leading exporter in the world in the apparel and textile industry with China at number one and the United States at number eight (United Nations Statistical Division, 2006).

Figure 2, gives the amount of apparel and related products exported to their top partners. India’s number one exporter in apparel is the United States. 22% of apparel was imported to the United States at a trade value of $543,6 million in 2004. The second largest export partner of apparel with India is the United Kingdom. India exported 10.5% to the United Kingdom at trade value of $259.2 million in 2004. Germany, United Arab Emirates, and France are also top export partners with India (United Nations Statistical Division 2006).

These findings show that India’s trade experience with apparel related products could be a good match for Victoria’s Secret. India’s ninth rank in the world shows that the country is a major contributor in the world’s apparel trade. India already exports apparel products to US companies, being that the United States is India’s number one apparel trading partner. Based on this information, India has the ability and experience to trade apparel to Victoria’s Secret.
India was ranked the top 15th in the world, in top exporters of women’s cotton underwear. In 2004, India exported a trade value of $31.3 million of women’s and girl cotton panties and briefs. India’s exported goods of women’s and girl’s cotton panties and briefs accounted for 13% of India’s exported apparel commodities. Based on figure 3, India’s number one export partner in this category is the United Kingdom at 29.9%. India’s second export partner is the United States at 14%. (United Nations Statistical Division 2006).

Based on these findings, only 5.7% of apparel exports to the United States are cotton underwear. It also shows that India is exporting more cotton underwear to the United Kingdom companies that to the United States by a significant amount. The insignificant of cotton underwear exported to the US could hinder Victoria’s Secret outsourcing from India. There are fourteen other countries that export more cotton underwear than India. US companies are outsourcing this product from countries with more experience. Therefore, based on these statistics, Victoria’s Secret may be better off outsourcing from a country with more experience in women’s cotton underwear.

Trade Specifications
When importing from another country there many trade specifications to consider. One is estimating certain quotas, tariffs, or special agreements with the US. Second is estimating duty and quota fill rates based on cotton underwear.
The Export Import Policy of 2000 granted eight special economic zones (SEZ) in India at Chennai, Cochin, Kandla, Kolkata, Mumbai, Noida, Surat, and Vishakapat nam. These zones guarantee exporters 100% foreign-equity rights and duty-free tariffs, and no customs procedures. These ports are considered foreign territory solely to benefit foreign trade operations (U.S. & Foreign Commerical Services).

India’s airport system is increasing improving the speed and availability of international and domestic flights that have improved the effectiveness of imports and exports within and out of the country. The Airport Authority of India manages 126 airports which include 11 international airports and 89 domestic airports. India has invested future revenue to purchase more aircrafts that hold more cargo and to improve the ground handling sector. Some of the major airports used for commercial trade in India include; Mumbai Airport, Delhi Airport, Chennai Airport, and the Kolkata Airport (U.S. & Foreign Commerical Services).

There are a variety of freight forwarders available in India that can transfer goods to the United States. A1 international, Swen Agencies PVT Limited, and Ultra Cargo Limited are all references of freight forwarders in India. Ultra Cargo International is one of the most used companies by many international countries. They specialize in exporting and importing goods to India and various countries. This company has both Air and Sea forwarding (U.S. & Foreign Commerical Services).

Victoria’s Secret could benefit from some of India’s services. Knowing that all legal documentation before going into customs can help pick up the speed in getting their products shipped out, can be very helpful. The company could also take advantage of India’s free trade zones, and save the cost of some expenses on tariffs. The availability of international freight forwarders located in India, can help ship Victoria’s Secret’s products off much quicker (Economist Intelligence Unit, 2006).

Customs duties are levied in specific rate; which is at the rate the length is prescribed, ad-valorem; which is the duty levied on the value of the item, or both are levied together. Most of textile and apparel related product tariffs are ad-valorem. Ad valorem duty rates are levied on the cost, insurance, and freight value of imports. India also levies import duties on many textile and apparel products in Rupies per square meter, kilogram, or piece. Indian Customs charges whichever calculation results in a higher duty. The duty rate of women’s and girls cotton underwear is 15% or 25 rupies per square meter per piece (office of Textile and Apparel 2006). (graph III).

Cotton Production in India
Acreage under cotton crop is largely influenced by several factors related to climate (Agro-Products, 2006). This allows India to have the largest area under cotton cultivation in the world, covering about 9 million hectares of cultivated land, which constitutes about 27% of the total area under cotton in the world. With this said, India produces 12% of the total cotton yarn produced in the world and its share is next to China only (Ministry of Textiles, 2002). This makes India among the top exporters of cotton yarn. In fact, India is the third largest producer of cotton in the world, accounting for 15 percent of the world’s cotton crop (Parkes, 2006).

The Indian Textile Industry
The Indian textile industry is the second largest in the world (China being the first largest), with textile and garment exports accounting for 39% of India’s total exports (Parkes, 2006). With this the textile industry in India currently adds about 14% to the industrial production and 4% to the gross domestic product, or GDP (Agro-Products, 2006). The textile industry within India is made up of mostly small-scale, nonintegrated spinning, weaving, cloth finishing, and apparel enterprises. Some, mostly larger, firms operate in the organized sector where firms must comply with numerous government labor and tax regulations. Most firms, however, operate in the small-scale unorganized sector where regulations are less stringent and more easily evaded. Understanding the way in which the textile industry in India is organized will aid Victoria’s Secret in getting the most out of outsourcing to India. The structure of India’s Textile Industry is comprised of four main parts:
• Composite Mills. Only 276 composite mills are now operating in India, most owned by the public sector and many deemed “financially sick”. Therefore, they now only account for about 3% of output in India’s textile sector. These mills tend to be relatively large-scale and integrate spinning, weaving, and sometimes fabric finishing.
• Spinning. Spinning involves the process of converting cotton (and other fibers) into yarn to then be used for weaving and knitting. Due to deregulation, spinning is the most consolidated and technically efficient sector in India’s textile industry. Yet, average plant size remains small.
• Weaving and Knitting. This sector involves the converting of cotton and other yarns into woven or knitted fabrics. India’s weaving and knitting sector remains extremely fragmented, small-scale, and labor-intensive. This sector consists of around 4 million handlooms. A typical handloom unit is a family run business consisting of 2 to 6 manually operated looms. India also has numerous powerlooms and a small number of looms in the composite mills. Modern shuttleless looms account for less than 6% of loom capacity.
• Fabric Finishing. Fabric finishing (or processing) includes dyeing, printing, and other cloth preparations prior to manufacturing of clothing is comprised of mainly independent, small-scale enterprises. There are around 2,300 processors operating in India. Fabric processing is the weakest link in India’s textile supply chain. With this, Victoria’s Secret may wish to have their women’s cotton panties outsourced to India through the weaving and knitting stages. After knitting is completed Victoria’s Secret may then have them sent to another country for the fabric finishing phase to ensure the best quality for their consumers (Shetty, 2006).
Figure 1: The Indian Textile Chain. Source: (Parkes, 2006).

The Indian Cotton Industry
The primary product of the textile industry is cotton yarn, which is almost entirely manufactured by the organized sector. The production of cotton, blended and 100% non-cotton spun yarn has constantly been increasing, due to increase in the spinning capacity (Ministry of Textiles, 2002). Cotton accounts for more than 75% of India’s annual fiber consumption in the spinning mills (Agro-Products, 2006). India exports about 25% of its total production of cotton yarn and commands predominant share of the global cotton yarn trade. Approximately 95% of the production of spun yarn comes from the spinning units of organized sector. India accounts for 12% of total cotton yarn produced in the world and its share is next to China only. With this, India is among the top exporters of cotton yarn. Therefore, in the eyes of Victoria’s Secret is a huge benefit (Ministry of Textiles, 2002).

SWOT Analysis: Strengths
The competitive strengths of India’s textile industry largely reflect its abundance of domestically grown cotton, low-cost skilled and abundant labor force, large and diversified textile infrastructure, and huge and growing domestic market. According to the US International Trade Commission, hourly labor costs in the Indian textile industry average less than 5% of those in the United States and most other industrialized countries, and are even significantly lower than those of the Asian newly industrialized countries of Hong Kong, Taiwan, Singapore, and South Korea. The Indian textile industry employs over 15 million people. Furthermore, the year, 1999, brought the Technology Upgradation Fund (TUF), which provides subsidized, medium and long-term loans to textile units for upgrading technology (including shuttleless looms) at interest rates that are 5% points lower than those normally charged by financial institutions (Shetty, 2006). India is also one of the few countries which has a presence across the entire value chain of the Textile and Apparel Industry (India told to aim higher). With a strong raw material base, skilled manpower, and low wage costs, among other advantages, this industry has immense potential in the globalized textile market. These advantages also bring great potential for Victoria’s Secret and their outsourcing efforts (The Indian Textile Industry, 2006).

SWOT Analysis: Weaknesses
With these strengths come numerous competitive weaknesses within India’s textile and apparel industry. The Indian textile industry lags considerably behind that of developed countries and most of Asia in production technology, and it lacks the capital to upgrade (although the Technology Upgradation Fund is helping with this lack of capital). With this comes low labor productivity and product quality largely, both of which are largely due to outdated technology. For example, the average worker in India produces 7 to 8 shirts per day, compared with 16 to 17 shirts for the Chinese counterpart. The low product quality is also a problem facing India’s textile sector. Two-thirds of the cotton growing area in India is ran fed, which has led to low productivity and wide fluctuations in annual production. With this, Indian cotton contains high levels of contamination of foreign matter (some of the highest in the world), contributing to the low levels of productivity and product quality in cotton ginning and in turn the textile industry. Poor cotton ginning leads to defective textile products (Shetty, 2006). In fact, the lack of availability of quality cotton has made many Indian buyers to opt for purchases of foreign cotton despite a plethora of domestic supplies (Agro-Products, 2006). If Victoria’s Secret outsourced their women’s cotton panties to India (and were to use the local and abundant Indian cotton) their final products could likely end up being of low quality. Victoria’s Secret may not want to take the chance of outsourcing their women’s cotton panties to India, including using the local cotton, or should Victoria’s Secret outsource the construction of their cotton panties to India, with cotton coming from a nation other than India in hopes of avoiding low quality panties. Other concerns within India’s textile and apparel industry include competition between different sectors within the industry, lack of coordination among links in the supply chain, lack of product specialization, a slow pace of modernization, a lack of research and development, inadequate worker training, and overdependence on cotton (Shetty, 2006).

SWOT Analysis: Opportunities

Yet with the weaknesses that India’s textile sector encompasses, the industry has many opportunities ahead. India has an efficient, export-oriented spinning industry with state-of-the-art technology and low conversion costs, which has enabled India to become the world’s largest exporter of cotton yarn (Shetty, 2006). Over 36% of investments in the Indian Textile Industry over the next six years will be in modernizing existing capacity and creating new capacity (Refer to Figure 2). In fact, India has become the largest importer of Swiss textile machines, surpassing Turkey and China (Strong demand from India) (Parkes, 2006). As India’s production abilities increase, retailers, brands, and importers can explore more sourcing opportunities to suit their business (Dutta, 2003). Also helping India’s textile presence globally, is the end of the quota regime in 2005 and limitations recently set by the U.S. over textile exports of China within the first half of 2006. With such promise of opportunities for India’s textile industry, leading retailers such as JCPenney, Tommy Hilfiger, and GAP have expressed interest in outsourcing from India (Klimko, 2006). Seeing that other large companies are looking to use India should give Victoria’s Secret confidence that they are also looking in the right direction for their sourcing needs.

SWOT Analysis: Threats
The ongoing globalization process also brings threats from India’s competitors (The Indian Textile Industry, 2006). India’s exports face serious competition from China, Bangladesh, Pakistan, and Sri Lanka. As India has high energy and capital cost, multiple taxation, and low productivity, textile and apparel products from India are less competitive than those of China and other developing countries within the international market. As stated in research published by the US International Trade Commission, “Indian textile leaders claim that the proliferation of free trade areas and regional free trade agreements will have an adverse impact on India’s global competitiveness and opportunities”. Also seen to be a major threat to India’s textile industry are the newly enacted U.S. legislation providing expanded trade benefits for the Caribbean Basin Economic Recovery Act and sub-Saharan African countries. These trade benefits could allow countries within the Carribean Basin and the sub-Saharan African countries to gain from business that India would have otherwise received if it was not for such trade allowances. (Shetty, 2006).