1. MAN MADE FIBER INDUSTRY: SPINING ITS FORTUNE An Inside View PRESENTED BYUNDER SUPERVISION OF ADITYA SINGHPROF. J K SHARMA ROLL NO. 04 MBA (FINANCE)

2. Introduction The chemical compounds from which man-made fibers are produced are known as polymers, a class of compounds characterized by long, chain like molecules of great size and molecular weightpolymers Man-made fiber are those fibers whose chemical composition, structure, and properties are significantly modified during the manufacturing process into a huge number of consumer and industrial products, including garments such as shirts, scarves, and hosiery; home furnishings such as upholstery, carpets, and drapes; and industrial parts such as tire cord, flame-proof linings, and drive belts.

3. Types of Man - Made Fibers Sourced by: (www.fibre2fashion.com)

4. Scope of the Industry Offers direct employment to over 35 million in the country. India is the second producer but India will lead in all. According to the Ministry of Man made fibers, the sector contributes about 14% to industrial production 4% to the country's gross domestic product (GDP) and 17% to the country's export earnings. The share of man made fibers in total exports was 13.08% during April–July 2011, as per the Ministry of Man made fibers. It is estimated that India would increase its man made fiber and apparel share in the world trade to 8% from the current level of 4.5% and reach US$80 billion by 2020. During 2010-2011, Indian man made fibers industry was pegged at US$72 billion, 69% of which services domestic demand Sourced by: Ministry of Textiles, GOI (texmin.nic.in)

5. Production scenario in India India is the second largest producer of fibre in the world and the major fiber produced is cotton. Other fibers produced in India include silk, jute, wool, and man-made fibers. 60% of the Indian man made fiber Industry is cotton based. – In December 2011, the domestic cotton price was up by 56% as compared to the December 2010 prices. – The causes behind high cotton price are due to the floods in Pakistan and China. India projected a high production of man made fiber (325 lacs bales for 2010 -11). – There has been increase in India's share of global man made fiber trading to seven percent in five year. The rising prices are the major concern of the domestic producers of the country. Sourced by: Ministry of Textiles, GOI (texmin.nic.in)

6. ISSUES Excise duty discrimination Lack of global competitiveness Limited number of players Levy of anti-dumping duties Lack of indigenous production of specialized MMF High customs duty High debt servicing cost

7. The Indian Picture India is the second largest producer of man- made fibers in the world (World Fiber Report 2010), with production of 4.20 billion kg of man-made fibers in FY10 – CHANGING FIBRE COMPOSITION – POLYESTER ACCOUNTS FOR LARGEST SHARE IN MMF – EXCESS CAPACITIES – RAW MATERIALS AVAILABILITY – PRICE MOVEMENT OF MMF

8. Some important statistics of MMF Industry Major producer countries of MMF (2007) FibreCountry PFYChina, India, Taiwan, South Korea, Indonesia PSFChina, India, USA, Pakistan, South Korea NylonChina, USA, Taiwan, South Korea, Germany VSFChina, Indonesia, India, Taiwan, Thailand ASFChina, Turkey, Japan, Germany, Taiwan VFYChina, India, Japan, USA, Czech Republic AcetateUSA, Japan, Spain Sourced by: (www.yarnsandfibers.com)

9. The Value Chain The Indian Textile Industry is highly fragmented, with the possible exception of spinning, and is spread over the entire country Strength lies in the manufacture of medium-quality and high fashion ready-made apparel with value added work (like embroidery) produced in small lots for niche segments of the domestic and export markets Ready made garments contribute the bulk of the textile exports (approx 45%), followed by fabrics, made-ups and yarn

10. The Strategic Intent of MMF Industry The main strategy adopted by the Ministry so far towards achieving the above objectives was to formulate and implement appropriate development schemes under the Annual Plan and Five Year Plan framework and also to formulate suitable policies for the growth and development of the textile sector OUTCOME GOALS – Build a strong and vibrant textile industry which is technologically advanced and internationally competitive. – Incentivize investment in technological up gradation and modernization through schemes such as TUFS with enhanced plan allocations – Generate large scale employment and to improve the availability of skilled man-power for the entire gamut of the textile industry and to enhance the welfare of artisans, handloom weavers and textile workers. Encourage faster development of the textile sector. Encourage vertical integration and value addition in the industry. Scale up plan allocations for Welfare Schemes.

11. Strategic Intent continued….. Enhance India’s share of global market for textiles. Achieving faster growth in textile exports. Enhancing the export growth rate from the present-level of 6-10% to 15-20% in the next five years. To make employment intensive subsectors such as handlooms, handicrafts, sericulture and wool more vibrant, rewarding for all the stakeholders, rich in quality and design and to preserve India’s rich cultural heritage in those activities. Enhance the textile sector’s contribution to India’s GDP, employment and foreign exchange earnings. Overall development of the textile industry at a faster rate than before is expected to increase its share in GDP, contribution to employment and export earnings

12. Growth Drivers Competitive Advantage Changing consumer behavior Increasing purchasing power New product development Reduced import duties

13. Strengths ABUNDANT RAW MATERIAL AVAILIBILITY Allows the industry to reduce costs and lead times India is one of the largest producers LOW COST SKILLED LABOUR Provides a competitive advantage for the industry Hourly wage comparison India – 0.69 England – 14.24 Italy – 15 Japan – 26 Spain – 8 GROWING DOMESTIC MARKET Low per capita consumption of textiles so lots of scope for growth. Global average-6.8 U.S – 20 Japan – 12 India – 2.8 It is extremely sensitive to fashion trends

14. Weaknesses FRAGMENTED INDUSTRY – Reduces the ability to expand as few sectors influence the whole industry. – In fabric, large section of the industry is in the power loom and handloom sector – Power loom sector- 63% – Handloom sector -19% – Mill sector -14% – Hosiery sector- 11% HISTORICAL REGULATIONS – Absence of a viable exit option for industry players. – Certain sectors are reserved for SSI’s like garmenting and knitting. LOWER COST COMPETITIVENESS – Labor force have a low productivity – Interest rates and tax rates are high – Labor problems TECHNOLOGY OBSOLOSENCE – Investments in modern technology is low – Degree of modernization – World – 30.2% – India – 4% – Europe – 77% – Pakistan – 70% – America - 60%

15. Opportunities Global textile industry is likely to grow from US$ 309 billion to US$ 856 billion by 2014 Market share of India now is only 4%, so huge scope of expansion is present Indian companies need to increase focus on new products Increase usage of CAD and Trends forecasting to improve efficiency INCREASED COMPETITION Increase in competition due to entry of lower priced imports, who have a better brand name. ECOLOGICAL AND SOCIAL AWARENESS Issues such as polluting dyes, child labor, unhealthy Working conditions are in the firing line of the industry Standards like SA 8000 are being implemented in the industry, resulting in increased pressure on the industry. Threat

16. Porter’s Five Forces MMF Industry Availability of substitutes (low) E retailing Catalogue Selling Bargaining power of buyers (moderate) Organzd Retail Shop Styles Competitive rivalry(moderate) Few players Regional & local players Bargaining power of suppliers (low) Bulk orders Backward Integration Threats from new entrants (low) Huge Invstmt Tech. Know How

17. Political Aspects The political scenario of the industry is quite stagnant but do pursue a continuous series of actions to uplift the sector and betterment of it – Industrial houses have demanded east UP to be declared a tax free zone to make it an attractive destination for the industries. – The international man made fiber and apparel fair scheduled to take place from November 22 to 25 in the city is expected to provide domestic companies a global platform as buyers from 58 countries have confirmed their visit to the event. – The fair 'Vastra - 2012' supported by Union ministry of man made fiber and to be organized by RIICO and FICCIFICCI – Several proposals like reduction in excise duty on yarns, widening of man made fiber upgradation fund, slashing of customs duty on import of machinery and a special package for the powerloom sector

18. Legal Framework Ministry of textiles, GOI Ministry of Man made fibers, Government of India, handles the various regulatory authority for this manmade fiber industry Labor laws of Indian T&C industry Anomalies in Taxes and Duties LTA replaced by the Multi Fiber Agreement (MFA) in 1974 – enabled developed nations, mainly the USA, European Union and Canada to restrict imports from developing countries through a system of quotas Zero-for-Zero Tariff offered to India – Looking to opportunities in the vast Indian market, both EU and USA have offered India zero –for zero tariffs – Since labour costs in both USA & EU are higher than in India and since freight/insurance costs will add further to the landed value in India for their garments

19. Impact to Environment Air pollution – Boilers Ovens Storage tanks – Diffusive: Solvent-based Wastewater treatment Warehouses Spills Water pollution Solid waste pollution

20. Social Analysis employing about 38 million people. If employment in allied sectors like ginning, agriculture, pressing, cotton trade, jute, etc. are added then the total employment is estimated at 93 million net foreign exchange earnings in this sector are one of the highest Continuous change in trends Retailing opportunities Investment in R&D

21. Technological Synchronization The weakest links in the entire chain are the power looms and the processing houses Development of textile-specific software for India, Computer-Aided Textile Designing, aiding IT integration Usage of EPS (Electronic Point of Sale) software Adoption and adaptation of state-of-the-art information technology in enterprise resource planning so as to pre-empt non-tariff barriers which curtail markets for the Indian textile industry Average of 11% growth in technical textiles is expected during the period from 2005-2015

22. 2011-2012 Budget Measures Rs 30 billion funding to NABARD to provide support to financially unviable handloom weavers with huge debt burdens. Optional tax levy at 10% made mandatory on branded garments and made ups. Surcharge on domestic companies reduced to 5% from 7.5%. Basic customs duty on nylon yarn and nylon fibre reduced from 10% to 7.5%. Lower rate of central excise duty increased from 4% to 5%. Rate of Minimum Alternative Tax (MAT) proposed to be increased from 18% to 18.5% of book profits.

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