Status Report on World Textiles & Likely future trends

Presented to :Gherzi Eastern Ltd Mumbai

Prepared by :Madhav Mehta UTI Institute of Capital Markets

Table of Contents

Acknowledgements Executive Summary Objectives of the Study Terms of Reference Data Collection & Sources Assessment of Supply Side International Trade Data Analysis Assessment of Demand International Trade Historical Trends and future projections Evaluation of manufacturing costs Assessment of other business considerations Growth in capacities required to meet projected capacities and likely candidates Case: India Statement of Limitations

3 4 5 6 7 8-20 21-28 29-33 34-36 37-44 45-49 49-50 51-59 60

2

Acknowledgements

At the outset, I would thank Gherzi Eastern Ltd for providing me an opportunity to work with them. My special thanks to Mr. Durga Prasad for acting as a conduit to this opportunity with Gherzi Eastern Ltd as also for his valuable guidance & insights. I have extreme gratitude for Mr. V.N.Karvir who has been all through with me in this project, shared his experiences, provided utmost necessary and valuable guidance to me. Without, his assistance and guidance this report & its contents would not have taken shape in the manner in which it is prepared, analyzed and presented. I would also like to thank my friend and batch mate Mr. Amol Agrawal for making known to me some important data sources and for being a good listener all times to my approaches and ideas. Last but not the least I thank all Gherzi staff for the support & infrastructure. With warm regards, Madhav Mehta

3

Executive Summary

An effort is made to assess the current status of world textile industry and predict likely future trends. This is done by • Making an historical assessment by having regard to time series data. • Production capacities, over the years and how they have grown and which regions have benefited from growing international trade in textiles and clothing. • Forecasting demand on a logical basis • Assessing the demand supply gap • Analysis of cost and other business considerations for select countries • Identify major players to be and the new emerging players Demand Outlook :Over the years production has grown at a rate of 2.5-3% historically (1960’s – 2000’s). World demand in the next five years is likely to be in the range of (2.9 – 3.5)%, higher than the historical averages. The share of high income developed countries (US, EU. Japan) in world consumption is 46.5% currently which is likely to go down to 42%, the reason being the increasing demand from highly populous economically growing Asian economies (India, China). Principal findings are: • Share of natural fibers to man made fibers is likely to reduce further and follow the historical trend. Natural fibres have historically grown at the rate of (1-1.5)%, with demand expected to grow at a much higher rate and the share of natural fibres as on today being only 40%, apart from marginal growth in natural fibre all growth is likely to come from manmade fibres. • Brazil and Turkey are likely to be the new emerging players in the textiles and clothing international trade. • Quotas by restricting market supply have also kept the export prices artificially high. There is bound to be a price war in post quota regime. Thus, leading to a case of survival of the fittest. • With safeguards being imposed on China in the immediate by EU, and US other developed nations like India would benefit, but once these safeguards are benefits are likely to be curtailed. • Textiles & Clothing Trade/Consumption ratio has over the years exhibited a constant rise from 0.75 to 1.1, the growth is likely to continue in future post GATT, for the obvious reason of cost advantage of developing countries in a labour intensive industry. World trade is likely to grow at a CAGR of (6.510)% to ($650-$800) billions.

4

Objectives of the Study

•

To assess the current state of industry and predict future direction of global textile and clothing industry post GATT period. o To estimate likely global demand of textiles and clothing in the next five years. o To estimate future growth of global trade in textiles and clothing. o Key drivers of trade and likely emerging major players.

5

Terms of Reference

With defined set of objectives the terms of reference that have been developed are stated below: • Assessment of Supply Side o Major producing countries o Their existing capacities o Their relative shares in international trade o New emerging players International trade data time series analysis o To assess past trends and reasons thereof o Check dependencies of country on textile and clothing trade. Assessment of demand Side o World demand assessment for next five years o Likely share of cotton & man-made fibres o Major markets o New emerging markets International trade historical trends and future projections. Evaluate the manufacturing costs of chosen products with chosen countries covering all cost parameters relating to spinning, weaving & processing. Assessment of other considerations affecting competitiveness of the chosen countries apart from manufacturing costs. Analyze and comment on the current state of affairs in international textiles and the likely future course.

•

•

• •

•

•

6

Data Collection & Sources

Data Collection – All data has been collected from secondary sources. Data Sources • Data on supply side has been compiled from the Compendium of International Textile Statistics, 2005, ITMF Country Statements (2002-2005) & data from websites of various industry associations, multilateral agencies and government organizations like the USDA/Ministry of Textiles. Data on demand side was per se not available and an effort has been made to estimate the same based on limited data available with regard to per capita fibre consumption from Textile Out look International and the Compendium of International textiles. For estimation thereof data from world development indicators as also relevant websites of governments & multilateral agencies were referred to. All data pertaining to international trade has been obtained from World Trade Organization web site. Data for manufacturing costs has been obtained from ITMF (International Production Cost Comparison, 2003) Data for evaluating other considerations affecting competitiveness has been obtained from World Development Indicators (2005,2004,2003), The World Competitiveness Report 2003-04 published by World Economic Forum. Besides, this have read through various reports by World Bank, IMF and WTO.

•

•

•

•

•

Choice/Limitations of data analyzed Data of Cellulosics is not being analyzed on materiality considerations and since, it is expected that the existing share of Cellulosics in world fibres is likely to remain constant or go down from the present 7%. Similarly data for other fibres i.e wool & silk is not being analyzed for the same reason. I have not considered data for made ups and apparels to analyze because of absence of data and difficulty in conversion to a standard norm without much benefits in terms of analysis to be able to meet our objectives. Further, all international trade data is taken for the WTO (world trade organization), which is available in value terms with two bifurcations i.e. textiles and clothing. Cost data for few important countries like Pakistan, Sri Lanka was not available to be analyzed.

7

Assessment of Supply Side

World Fibre production in year ended 2003 (last reported) is 53,740 (000 tonnes). The break up of which in percentage terms of various fibres is elicited by the chart below. Fibres (2003)

Natural Fibres (40-41%)
Cotton (93-94%)

Manmade Fibres (60-59%)

Wool (5-6%)

Silk/other (0-1%)

Synthetics (93%)

Cellulosics (7%)

Polymide (13-14%)

Polyester (75-76%)

Acrylic (9-10%)

Others (1-2%)

Share of natural fibres in world fibres has declined from (52-54% ) in 1981-82 to (4041%) in 2003-04.
Share of Natural Fibres to total production
60% 50% 40% 30% 20% 10% 0%

8

Table - 1 World Fibre production Natural Fibres - Cotton - Wool - Silk Man-made fibres - Cellulosics - Synthetics CAGR (1981-2003) 2.68 1.62 1.85 (1.03) 2.34 3.60 (1.5) 4.45 CAGR (2000-2003) 2.16 1.26 1.47 (1.98) 3.05 2.80 0.52 2.99

Source : Calculated with reference to data from Compendium of International Textiles In the next five years it is expected that with the share of natural fibres would not increase in total fibres, this is on account of the following factors :- With limitations on the amount of land, which can be under cotton cultivation, though the same has over the years increased at a CAGR (02-05) of 2.95%. Also yields across countries (except India) seem too unlikely to increase drastically, unless there is some technological break through which cannot be anticipated or predicted. In natural fibre we concentrate on cotton since, the relative shares of the other two i.e wool and silk are too low (this is despite silk having registered a CAGR growth of 3% from 2000 to 2003 ). World cotton production is highly concentrated in a few countries with 8 countries accounting for more than 85% of world production. Of them the top five accounting for 75% of world production. Total area under cultivation in the world is 33,771 hectares as of cotton year 2005-06. The world raw cotton production is expected to be 22,691 (000 tonnes) for the same period. World wide the yield measured in terms of tonnes per hectare has shown constant improvement with it increasing from 0.65 to 0.68. The improvement essentially coming in from India & other small producers whose yields have historically been far lower than the world average. Table : 2 CAGR (02-05)Area under cultivation World - China - United States - India - Pakistan - Brazil - Uzbekistan - Turkey - Australia 2.94 7.08 (0.85) 2.00 2.63 14.20 (0.37) (0.21) 12.18 CAGR (02-05) Production 4.13 5.95 0.35 6.42 2.30 13.86 (0.82) 0.19 10.86 (%)Change of share in world production (02-05) ------4.02 (3.68) (0.91) (0.30) 10.93 (3.22) (3.06) 8.98

9

Area under cultivation V/s Production
7000 6000 5000 4000 3000 2000 1000 0
U SA a di In an st ki Pa l zi ra B U an st ki e zb y ke ur T lia ra st Au

10000

9000

8000

7000

6000

5000

Area (in hectares)

4000

2000

1000

0

M a( in h C

d) an nl ai

Countries 03-04 04-05 05-06 02-03 03-04 04-05 05-06

02-03

Production (000 tonnes)

3000

10

Table : 3
World Cotton Supply, Use & Trade (in million tonnes) 2000/01 - 2003/04 (Season beginning August 1) 2000-01 2001-02 2002-03 2003-04 Production World 19.21 21.35 19.08 20.55 China, Peoples Republic 4.39 5.28 4.89 4.82 United States 3.72 4.39 3.72 3.95 India 2.36 2.66 2.29 2.98 Pakistan 1.77 1.79 1.69 1.68 Brazil 0.93 0.76 0.84 1.30 Turkey 0.78 0.86 0.90 0.89 Uzbekistan 0.95 1.06 0.99 0.89 Others 4.31 4.55 3.76 4.05 Use World China India Pakistan United States Turkey Brazil Indonesia Others Imports World China Turkey Indonesia Pakistan Thailand Bangladesh Russia Federation Others Exports World United States Uzbekistan Australia Greece Brazil Burkina India Others

2004-05e 25.15 6.27 5.03 4.11 2.05 1.03 0.80 1.21 4.65

19.93 5.08 2.93 1.75 1.92 1.12 0.91 0.53 5.70

20.39 5.68 2.87 1.84 1.66 1.33 0.82 0.50 5.70

21.26 6.46 2.88 2.03 1.57 1.36 0.78 0.49 5.68

21.21 6.92 2.92 2.08 1.35 1.34 0.85 0.46 5.29

23.49 8.32 3.24 2.32 1.41 1.51 0.91 0.49 5.28

5.67 0.05 0.38 0.57 0.10 0.34 0.22 0.36 3.65

6.37 0.10 0.64 0.51 0.22 0.41 0.26 0.39 3.85

6.51 0.68 0.49 0.48 0.18 0.42 0.35 0.36 3.56

7.33 1.91 0.51 0.46 0.40 0.36 0.33 0.32 3.03

7.11 1.38 0.74 0.52 0.30 0.49 0.37 0.31 3.00

5.71 1.46 0.75 0.84 0.31 0.07 0.11 0.02 2.15

6.27 2.38 0.76 0.68 0.22 0.15 0.14 0.01 1.94

6.56 2.57 0.74 0.57 0.25 0.11 0.16 0.01 2.15

7.17 2.97 0.67 0.47 0.26 0.21 0.21 0.14 2.24

7.56 3.12 0.85 0.43 0.25 0.34 0.21 0.17 2.19

Source : USDA Figures for 2004-05 are estimations

11

Observations (Table 1,2 &3) (The observations/hypothesis will be corroborated by having regard to production capacities data, yarn/fabric production data and international trade data) • Brazil & Australia have very high yields more than 1 tonne per hectare compared to world average of 0.68. This has been the reason why the area under cotton cultivation has increased significantly. - Area under cotton cultivation has increased in Brazil from 750 hectares in 02-03 to 1400 hectares in 04-05. - Area under cultivation has increased in Australia from 221 hectares in 02-03 to 350 hectares in 04-05. Both these countries however have been exporting the excess produced by them. Brazil exports 33% of its production & Australia exports nearly 70% of its production. 25% of the world’s area under cultivation is in India but India contributes only 12-13% of world cotton production. This is because of abysmally low yields. Though there has been considerable improvement in last three years. The yields are nowhere near world standards. As against the world average yield of 0.68 tonnes per hectare The yield in India is 0.36-0.39 tonnes per hectare. Pakistan is importing cotton since the last few years indicating that it has facilities to process the same. China is the largest importer of raw cotton, this is despite it being the largest cotton grower & US is the largest cotton exporter. China has fairly good cotton yield close to 1 tonne per hectare. Both the acreage & production have increased at a CAGR of 7.08% and 5.95% over the period 02-03 to 05-06, as against the world CAGR growth of 2.94% and 4.13% respectively for the same period. Possible emerging players (will be reviewed later in this report) • Turkey imports cotton close to 60-70% of its usage. The area under cultivation though more or less the same. The yields are one of the highest. Share in world cotton production in presently 4%. Uzbekistan exports close to 60-70% of its cotton production, indicating that it does not have facilities to process the same. Its share in world production is 4.35%.

•

•

•

•

12

The textiles value chain is a shown in the diagram below : Fibre Production Spinning Weaving/ Knitting Processing Garment Manufacturing

Product
RawMaterial Multi fibre

Yarn

Fabric

Garments & Made ups

Yarn and Fabric Table :4
World Years 2000 19,494 2001 20,048 2002 20,769 2003 21,888 Pakist Indone Mexic o China USA India an Brazil Turkey sia Italy Korea Cotton Yarn Production (In 000 tonnes) 6,576 1,906 2,290 1,707 7,609 1,521 2,216 1,734 8,500 1,384 2,189 1,870 9,836 1,241 2,091 1,956 778 698 562 636 644 657 1,005 417 1,040 425 1,129 413 1,128 398 1,109 394 1,106 401 406 381 392 382 362 334 217 213 198 182 158 146 288 298 301 280 262 255

2004 22,266 10,318 1,128 2,248 2,040 2005 22,742 10,973 1,052 2,147 2,106 CAGR Years 2000 11,102 2001 11,047 2002 11,595 2003 11,495 2004 11,691 2005 11,872 CAGR 1.12 2,477 2,437 2,892 3,181 3,424 3,594 2.60 8.91 (9.43) (1.07)

3.57 (2.78)

1.61 (0.67) (3.20) (6.43) (1.99)

Cotton Fabric Production (In 000 tonnes) 915 1,767 1,344 771 1,761 1,502 646 1,748 1,746 581 1,653 1,687 529 1,704 1,811 492 1,711 1,884 730 663 711 641 657 681 480 401 488 408 534 397 531 382 524 379 522 385 291 273 280 274 260 239 170 174 171 161 134 126 33 34 35 32 30 30

6.40 (9.80) (0.54)

5.79 (1.15)

1.40 (0.66) (3.21) (4.87) (2.00)

Data for 2003-04 is provisional, 2004-05 is estimated and that of 2005-06 is projected Source: Office of Textile Commissioner

13

Table : 5 Pakist Indone Mexic Thaila India an Japan nd Brazil Turkey sia o Korea Synthetic Fibres (In 000 tonnes) 631 398 118 311 402 348 699 355 886 666 420 128 342 421 355 709 413 856 652 445 120 301 440 321 673 419 755 666 497 124 339 428 288 641 436 744 715 496 129 390 432 251 573 447 737 1.93 4.64 1.46 (6.32) (3.91) 4.73 (3.62)

World China USA Years 1999 2000 2001 2002 2003 CAGR Years 1999 2000 2001 2002 2003 CAGR 10,825 11,448 11,324 11,991 12,571 2,163 2,612 2,985 3,591 4,208 1,528 1,545 1,344 1,377 1,295

3.04 14.23 (3.26) 2.53 4.52

13,660 14,771 15,053 16,081 16,927

3,072 3,547 4,338 5,259 6,234

Synthetic Yarn (In 000 tonnes) 1,642 863 80 175 303 636 223 1,604 903 84 183 402 722 232 1,343 913 84 168 369 751 215 1,428 1,093 85 170 389 705 222 1,398 1,077 83 185 377 711 207 1.10 4.49

601 599 567 488 458

339 357 365 416 425

1,706 1,803 1,717 1,712 1,681

4.38 15.20 (3.16) 4.55 0.79

2.26 (1.54) (5.29)

4.63 (0.30)

Source : Office of Textiles Commissioner

The above data tables include top producing countries, also including those which may be pertinent to make note of in view of the data for raw cotton already analyzed so as to carry further our notings in order to be able to take a call on them. The data for synthetics for the years 2004 is not available since, the publications are expected to be released in the coming months. Also estimations or projections are not available. As already mentioned earlier under the heading data collection, analysis are limited my analysis to synthetics. Under the head synthetics analysis are limited to polyester, since it comprises 75% of synthetics, and exclude others on materiality and time cost benefit tradeoff.

14

Table 6
Production of Polyester Filament yarn Major Countries/Regions Country/Region China Taiwan Korea (South) India U.S.A Turkey Japan Mexico Other Asia Western Europe Other America Middle East, Africa & Oceania Eastern Europe Total 1999 2000 2743 3172 1584 1632 1406 1484 782 832 724 684 258 344 387 383 157 165 1194 1324 552 486 161 178 157 167 90 101 10195 10952 ( in '000 tonne) 2001 3892 1584 1437 847 531 308 364 150 1371 453 175 152 107 11371 2002 4755 1603 1423 957 553 325 323 157 1392 434 167 150 97 12336 2003 5642 1555 1400 1002 519 312 295 152 1460 400 184 147 99 13167 CAGR 15.52 (0.37) (0.09) 5.08 (6.44) 3.87 (5.28) (0.65) 4.10 (6.24) 2.71 (1.31) 1.92 5.25

Production of Polyester Staple Fibre Major Countries/Regions Country/Region China Taiwan U.S.A India South Korea Japan Canada & Mexico Other Asia Western Europe (incd Turkey) Middle East, Africa & Oceania 1999 1696 939 1012 552 741 278 235 1211 551 160 2000 2069 938 1041 566 731 282 221 1295 591 154

( in '000 tonne) 2001 2396 838 925 561 674 264 188 1395 542 162 2002 2941 890 930 563 603 241 156 1375 596 173 2003 3491 878 855 602 601 233 120 1385 579 176 CAGR 15.53 (1.33) (3.32) 1.75 (4.10) (3.47) (12.58) 2.72 1.00 1.92

South America (Argentina, Brazil, Chile, Colombia, Uruguay, Venezuela) Eastern Europe Total

161 165 148 149 7684 8202

154 142 8241

149 142 8759

150 144 9214

(1.41) (0.55) 3.70

Source: Compendium of International Statistics, 2005

15

Observations • World Synthetic yarn production is increasing at a much faster rate than cotton yarn production. Though the data may not be exactly comparable but this conclusion is quite obvious. China is growing almost 5 times a rate than world production. The losers being all developed countries. (USA, Italy, Japan). China comprises of close to 48% of world cotton yarn production, more than 1/3rd of world cotton fabric production and synthetic production. India has barely been able to maintain its share in absolute terms in world production (its relative share is falling). Though India is a major player in the world market in cotton yarn because of low costs of production, (being the lowest cost producer of cotton yarn, as will be evident in the pages to come). Since, cotton yarn which comprises bulk of India’s exports, the marginal negative CAGR of cotton yarn production is indicative that domestic cotton usage in India is reducing. USA has been the biggest loser in terms of production declines. But, their consumption is increasing, which is supported by low cost imports from developing countries, particularly China. It is noteworthy that though Brazilian raw cotton production has increased almost 1.5 times in the last few years. The cotton yarn and fabric production CAGR (00-05) has been negative. This indicates that production facilities are either insufficient to process cotton or that capacities are idle since, processing raw cotton is not viable in view of cheaper imports available. In polyester as can be predicted based on data for synthetics, China is growing at thrice the rate world is growing. This is at the cost of all developed countries who have had negative CAGR for the reported data. India has barely managed to grow at the world rate in fact; it is lagging the world rate of growth.

•

•

•

•

•

Production Capacities All data for production capacities is taken from ITMF Country Statements. These were made available on request by ITMF, Zurich. Also, useful reference was made to Compendium of International Textiles published by the Office of Textiles Commissioner. There are may gaps in the data since, figures were not available, also data for China are was not available though 1999-03 shipments data is available which I have used for making inferences.

16

Spinning Capacities Table 7
Country Argentina Australia Austria Belgium Brazil Czech Republic Egypt France Germany Greece Hungary India Italy Japan Korea, Rep Nigeria Pakistan Portugal Russia South Africa Spain Switzerland Taiwan, R.O.C Turkey U.S.A 242,383 38,865,000 39,445,000 1,958,872 3,724,000 4,691,000 2,268,968 9,168,667 1,226,000 15,014,500 16,360,330 649,000 1,420,870 250,000 3,354,684 7,539,500 8,684,000 230,050 39,662,660 41,907,675 1,925,780 3,246,000 4,086,000 2,179,988 9,315,002 1,205,000 14,630,800 15,974,800 500,000 1,381,216 250,000 2,916,825 7,706,000 7,345,000 195,594 40,120,450 41,479,690 1,880,660 2,995,000 3,742,000 2,050,438 9,463,310 1,176,000 13,121,000 14,445,000 500,000 1,359,589 601,430 2,831,769 7,985,470 5,829,000 166,614 41,107,765 42,131,765 1,814,050 2,804,000 3,379,000 1,899,508 9,893,190 1,133,808 13,085,000 14,305,560 508,300 1,269,033 218,000 2,284,404 8,513,660 5,422,000 6,983,000 889,544 1,188,331 2,645,000 662,314 766,500 7,002,000 780,990 1,068,152 2,790,000 642,214 755,300 6,660,000 768,260 1,053,392 2,775,000 592,227 722,500 5,969,650 712,989 918,047 2,365,000 518,065 557,100 6,074,650 644,388 810,689 2,360,000 375,749 511,000 779,500 124,340 39,461,600 38,056,808 1,717,130 2,471,000 2,962,000 1,759,012 925,000 10,009,580 1,095,739 12,347,000 13,459,000 339,380 1,080,344 209,000 2,181,642 8,964,000 4,487,000 6,162,650 517,501 679,747 2,370,000 320,000 430,400 779,500 106,712 39,976,073 38,494,598 1,695,485 2,247,000 2,696,000 1,649,572 835,000 10,496,963 1,041,100 465,170 881,329 161,000 2,084,800 9,200,000 4,447,000 1999 1,555,000 103,500 269,012 195,750 2000 1,625,000 95,000 284,500 196,636 Ring Spindles 2001 2002 1,625,000 1,625,000 95,000 282,000 172,064 287,000 172,324 2003 1,640,000 271,000 134,444 2004 1,700,000 271,524 111,228

First line - short staple Second line - long staple 1 rotor is taken as equivalent to 5 spindles Source: ITMF Country Statements 2001,2002,2003,2004 & 2005

17

Weaving Capacities : Table 8
Country 1999 Argentina Australia Austria Brazil 37,884 Czech Republic Egypt France Germany Hungary India Italy Japan Korea, Rep Pakistan Portugal Russia South Africa 2,930 Spain Switzerland Taiwan, R.O.C Turkey U.S.A 55,361 First line - short staple 52,361 42,808 39,472 34,139 26,000 Second line - long staple 6,987 961 21,341 44,212 16,000 22,000 24,000 25,000 27,800 32,300 33,500 43,682 2,640 6,749 961 2,640 6,691 895 15,243 43,147 2,700 6,489 805 13,982 39,373 1,700 5,670 5,394 750 13,922 36,028 740 12,897 34,388 7,367 9,283 2,600 5,541 4,460 749 7,955 7,955 12,065 23,670 56,720 2,469 15,000 9,700 106,200 122,530 38,600 7,270 9,131 2,600 4,988 4,100 737 7,486 11,657 11,915 18,840 48,520 2,194 15,000 9,620 100,200 116,530 40,500 6,940 8,700 3,900 4,722 750 419 7,629 11,843 11,745 17,680 45,920 1,810 18,000 9,328 96,000 110,020 38,850 6,461 8,231 3,800 4,232 950 397 8,400 13,459 11,540 16,380 42,240 1,500 21,500 9,021 87,000 99,400 39,390 5,819 7,130 3,600 3,695 900 365 9,210 13,121 11,065 15,220 40,080 1,362 21,500 9,290 9,050 85,000 97,200 40,590 5,584 6,984 3,500 3,300 550 274 9,631 14,058 10,420 14,420 37,990 1,224 25,000 4,700 950 1,165 4,800 850 1,180 1,200 1,200 Shuttle less looms 2000 2001 4,900 2002 4,900 2003 5,300 2004 5,500

Source: ITMF Country Statements 2001,2002,2003,2004 & 2005

18

Machinery Shipments Data (in numbers) Table 9
Total Machinery Shipments of Selected Countries (numbers) Investors China India Pakistan Bangladesh USA Turkey Korea Germany Taiwan Japan France UK World India's Share (%) 1999 81583 698335 20507 19685 18855 94417 23019 2000 2001 2002 2003 CAGR 132.65 1247282 1206361 1297414 5560670 944247 896715 807766 958061 6.53 98.78 428385 478062 500120 636526 155165 162996 293606 84477 436915 221697 203462 109399 164475 28054 465546 61448 331643 18407 705524 25057 75.92 (0.48) 49.52 1.71 (50.46) (29.82) 28.31 (29.85) (27.69) 37.05

19165 31825 16087 8118 572 56348 55335 12678 31677 9590 2956 28113 8991 9098 10282 6175 13894 7430 5311 1049 2089 1396 908 1540 413 1903538 4802679 4852461 4707058 9204879 36.69 19.66 18.48 17.88 10

Category–wise Shipments in 2003 (Numbers) Destinations Spinning Weaving Texturing Knitting Total China 5281424 65010 168168 46068 5560670 India 936024 1068 19986 983 958061 Pakistan 634440 1543 543 636526 Bangladesh USA Turkey Korea Germany Taiwan Japan France UK World India's Share (%) 273508 17548 690212 20112 607 0 4556 710 407 435 701 340 66 84191 0.01 792 480 5808 1128 56736 379 4948 3107 331643 18407 705524 25057

1700 8544 624 288 8743858 0.11

7200 540

230554 0.09

165 572 255 9590 497 10282 85 1049 59 413 146276 9204879 0.01 0.1

Source: Confederation of Indian Textile Industry

19

Observations: (Table 7,8 & 9) • Chinese shipments data clearly indicate that production is shifting not only from the developed countries but, it is also eating into the share of other developing countries. Shipments are increasing at a CAGR of 135% indicating a virtual sweep in production being witnessed currently. Brazil’s spinning capacity over the years has recorded a drop. This is in line with the drop in cotton yarn manufacturing. However, it has recorded an increase in weaving capacities (shuttle less looms) @ 1% over 99-04, though a sharp decline in shuttle looms. This strengthens the premise that Brazil could be emerging as a new player, since, it has high cotton yield, the area under cotton cultivation has doubled in the last few years & as we will go through cost and macro economic data we will check whether this holds true. The shipments data & capacities data indicate that Pakistan is building up capacities as also Bangladesh. India has barely managed to keep up its capacities; Pakistan’s shipments have increased at a CAGR of 49%. This could indicate that it might be a fast emerging player. Pakistan is a small player in synthetic fibre and yarn production (share in world production in 2003 being 3.9% and 2%) this is indicative from yarn/fabric production data, Pakistan is however a dominant player in cotton textiles (share of world cotton yarn and fabric production being 9.3% & 15.5% respectively). Off late Pakistan is importing cotton to meet its raw material needs, which has already been indicated earlier. We shall look at international trade data in the following pages before making conclusions in this respect.

•

•

20

International Trade data Analysis

World textiles trade has over the last 25 years (1980-04) has increased at a CAGR of 4.73% & world-clothing trade has increased at a CAGR of 5.51% for the same period. Share of textiles and clothing in world trade has constantly been in the range of 55.5% over the last 5 years. Snapshot view (in constant USD billions) Table: 9 1980 World merchandise trade 2,034 (CAGR % – 5 years) World textiles trade (exports) 55 World Clothing Trade (exports) 41 World total (textiles + clothing) 96 (as % of world merchandise 4.70% trade) China 15 (in %) 16% Non-China (exports) 81 (in %) 84%

1984 1,956 54 45 99 5.02% 22 22% 77 78%

1989 3,098 96 97 193 6.24% 47 24% 99 76%

1994 4,326 132 141 273 6.30% 83 30% 190 70%

1999 5,712 146 185 331 5.79% 92 28% 239 72%

2004 9,153 195 258 453 4.95% 147 33% 306 67%

The above table clearly indicates the China is grabbing the share in world textiles and clothing trade. Time series data at constant US $ form statistical database of World Trade Organization was downloaded and have analyzed the same by breaking up the data into periods of 5 years beginning 1980, this is done for major importers and exporters (i.e collectively comprising at least 80% of world exports/imports). The table below indicates the CAGR at which the world and major exporters and importers have performed during various periods. How the data table is prepared and compiled: • Raw data of exports and imports data for all countries for the years 1980-2004 was downloaded, since data prior to 1980 and beyond 2004 was not available. Regional groups like the EU (all 25 countries) and Hong Kong China, Taipei, which is now part of China, were grouped right from 1980 till date so as to enhance data comparability. For this re-exports were eliminated. In case of EU, it was not possible in the absence of data to eliminate intra EU trade. Any broad estimation in percentage terms would only distort results, than otherwise. This therefore needs to be borne in mind when reviewing EU data.

•

•

21

•

Data was then sorted in the ascending order starting from the highest to the lowest exporters/importers. The top countries comprising at least 80% of trade were then taken up for analysis. This was done for clothing as well as for textiles; thereafter both were consolidated in order to arrive at a world scenario.
CAGR 1990-94 1995-99 7.09 3.96

•

Table: - 10 1980-84 World Textile & Clothing Exports Major Exporters EU (25) - includes intra EU China, Hongkong, Taipei excludes reexports United States Korea Japan India Pakistan Turkey Mexico Indonesia Canada Thailand Switzerland Australia Russian Federation Major Importers EU (25) - includes intra EU China, Hongkong, Taipei excludes reexports United States Mexico Japan Canada Turkey Korea Switzerland Russia Thailand Australia India Indonesia Pakistan (6.34) 1985-89 13.91

2000-04 5.17

1980-04 4.92

(2.77) 7.80 (7.31) 6.65 1.76 0.27 4.89 36.82 28.06 1.21 9.83 (2.67) (1.86) (2.09)

11.35 16.59 14.63 15.68 1.53 14.30 17.45 12.57 27.80 9.82 26.97 8.64 5.06 16.98

5.13 12.04 13.15 2.47 3.84 14.24 15.22 10.72 23.64 16.75 13.53 1.15 21.91 10.77

2.12 1.91 7.80 0.17 (0.85) 6.34 1.87 8.08 30.74 3.81 14.39 (3.05) (3.60) 3.16 (0.82)

5.85 6.96 (2.73) (4.31) 0.50 1.62 6.51 11.54 (3.38) (1.59) 0.67 3.15 6.28 (0.07) 6.47

4.21 9.52 5.01 4.14 1.30 7.88 9.35 15.56 20.56 17.20 8.97 10.14 1.68 4.81 7.54

(4.02) 7.89 12.01 4.01 7.47 8.08 7.88 (2.13) 1.31 10.38 2.46 4.80 (9.99) (8.30)

14.31 19.81 9.25 27.77 9.34 15.26 24.01 12.52 8.47 28.79 8.25 11.14 32.26 7.27

5.62 14.22 6.24 8.92 3.68 30.81 16.02 3.61 (17.76) 11.58 5.12 9.19 17.92 (14.33)

3.55 0.81 8.63 16.35 0.51 6.00 13.06 (1.37) (1.19) 11.98 0.27 2.97 9.46 (5.56) 8.45

6.16 1.80 3.01 (2.34) 2.06 3.62 15.09 5.62 5.84 17.30 2.62 5.19 (9.27) 19.06

5.16 9.61 8.72 14.97 8.95 6.36 17.82 11.29 3.36 2.12 10.19 4.64 5.26 1.90

22

Textiles trade gainers/(losers) – Net Exports-Imports

30

25

20

EU(25) China, Hongkong, Taipei United States Japan Korea India Turkey Mexico Canada Thailand Indonesia Pakistan Brazil 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Australia Switzerland Russian Federation

15

10

5

0

1

2

3

4

5

-5

-10

-15

The X-axis indicates years beginning 1980 to 2004 and the Y-axis indicate in value terms (constant US billions) the net exports / (imports)

23

Clothing trade gainers/(losers) – Net Exports-Imports

80

60 EU (25) China United states Korea Japan Turkey Mexico India Pakistan 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Indonesia Australia Thailand Russian Federation Norway Saudi Arabia Canada Switzerland Singapore

40

20

0

1

2

3

4

-20

-40

-60

-80

The X-axis indicates years beginning 1980 to 2004 and the Y-axis indicate in value terms (constant US billions) the net exports / (imports)

24

Please note that in order to ensure that the graphs are useful. Intra EU exports have been presumed to be 40% of their total trade. This assumption may be erroneous but, if would serve our purpose better to analyze the rest of the data on comparability count. From a combined reading of the above two charts as also the table 10, we make the following observations: • All the developed countries are net importers of clothing and textiles and share of China in world trade of clothing and a textile is more than 65%. The increase has been a sustained increase over entire time series data analyzed. Not only has China captured the increasing import demand from developing countries but, is also eating into the shares of others exporting countries. The CAGR data shows that Mexico & Turkey are growing at a much faster rate than anyone else. But, in their case the base is too low and even with this growth they together comprise 5.51% of world textiles and clothing trade. Their share have on a relative basis reduced since, it was 6.25% in year 2000. Pakistan has been one of the fastest gainers in the textiles trade, it has grown at a CAGR (80-04) of 9.35% second only to China in textiles trade. India though has grown at a CAGR of 7.68% from 1980-04. It has marginally outperformed world growth during the same period, i.e. 6.42%. In the last 5 years India’s trade is growing at a CAGR (00-04) of 1.62% as compared to the world growing at a CAGR (00-04) of 5.17%. Its share in world trade of textiles and clothing has declined from 3.5% in year 2000 to 2.9% in year 2004.

•

•

•

We now take a look at the dependency of various exporting countries on trade in textiles & clothing. This would help us throw light on the countries where the government is likely to grant vital assistance to keep the industry maintain if not increase it’s share. Also, it would indicate vulnerability of the country to any changes in global textiles and clothing scenario. Countries especially developing countries who have a disproportionate share of their exports in textiles and clothing may see increased government support and incentives in order to maintain its competitiveness. Also, these economies would be heavily dependent on developed countries as more than 75% of world imports are to developed countries which comprise a miniscule share of their imports, but a lion’s share so far as the developing economy exports are concerned. This in essence is likely to result in cutthroat price competition and increased risk to their economies from externalities.

25

Share of (textiles & clothing) trade in country’s merchandise trade Table 11
Country Name China United States Korea India Pakistan Indonesia Thailand Bangladesh Mexico Brazil Canada Philippines Russian Federation Ukraine Switzerland South Africa Turkey Tunisia Vietnam Bahrain Bulgaria Cambodia Colombia Coasta Rica Croatia Czech Republic Dominican Republic Egypt El Salvador FYR Macedonia Honduras Israel Jordan Mauritius Morocco Sri Lanka Peru Uruguay 1990 27.2% 2.1% 21.4% 26.2% 65.6% 11.2% 16.2% 59.0% 3.1% 0.9% 23.0% 5.2% 36.8% 35.1% 7.6% 8.8% 5.4% 8.3% 2.2% 17.2% 8.6% 45.5% 23.7% 46.3% 15.3% 24.8% 5.6% 4.0% 57.5% 20.7% 50.6% 6.7% 10.5% 3.8% 1.5% 40.0% 45.4% 1995 25.6% 2.3% 13.9% 26.8% 73.2% 13.3% 12.3% 64.3% 5.0% 2.6% 1.2% 15.4% 0.8% 2000 2001 21.0% 20.1% 2.5% 1.7% 10.2% 10.3% 27.0% 28.1% 74.1% 72.0% 12.5% 13.7% 8.2% 8.4% 66.8% 86.9% 6.7% 6.4% 2.1% 1.6% 1.5% 7.1% 8.2% 0.8% 0.5% 3.8% 4.9% 2.8% 2.5% 1.5% 197.9% 36.7% 33.7% 40.7% 42.4% 14.7% 5.4% 17.0% 17.9% 70.7% 73.8% 6.1% 6.9% 7.3% 7.1% 12.6% 12.3% 6.1% 50.0% 12.1% 59.6% 26.9% 35.2% 3.8% 8.4% 66.1% 34.0% 56.3% 9.0% 7.3% 50.9% 12.8% 62.7% 42.7% 4.0% 14.9% 62.9% 34.9% 53.9% 8.7% 6.5% 2002 19.0% 2.5% 8.7% 24.8% 70.9% 12.0% 7.5% 75.4% 6.2% 2.4% 1.7% 7.9% 0.4% 3.7% 2.6% 1.8% 35.6% 42.8% 2003 18.0% 3.3% 7.5% 23.4% 71.4% 11.5% 7.2% 68.9% 5.7% 1.9% 1.5% 8.3% 0.5% 4.2% 2.6% 1.6% 32.6% 43.1% 17.6% 4.4% 23.1% 76.5% 6.8% 5.6% 11.5% 4.9% 51.4% 8.3% 64.9% 33.4% 39.3% 3.4% 23.3% 53.8% 34.0% 53.2% 8.6% 5.1% 2004 16.0% 2.0% 5.5% 24.0% 68.4% 10.6% 6.9% 59.3% 5.0% 1.8% 1.3% 6.4% 0.7% 2.8% 2.5% 1.3% 27.9% 37.0% 15.5% 3.3% 20.8% 71.7% 6.9% 4.9% 9.4%

21.7% 83.3% 6.1% 8.1% 12.1% 5.3% 50.9% 12.8% 63.8% 30.7% 38.3% 3.8% 13.9% 58.0% 32.1% 53.1% 8.2% 4.9%

36.0% 20.4% 38.1% 8.4% 6.2% 3.8% 54.9% 21.7% 34.7% 10.5% 14.0%

39.3% 7.6% 65.5% 32.0% 36.6% 3.2% 26.8% 51.0% 32.4% 50.7% 8.2% 4.4%

26

Observations • As developing countries export textiles and clothing to developed countries. What is of a concern from the dependencies table (i.e. country’ textile & clothing trade as % of its total merchandise trade) is that Pakistan, Bangladesh, Sir Lanka all being low income countries, because of it low labour costs have turned to being exporters and key manufacturing destinations, which makes them highly vulnerable to externalities. Share of Turkey in merchandise exports has increased from 2.97% in year 2000 to 3.88% in year 2004. Though turkey imports bulk of cotton, there has been a steady increase in the production capacities in Turkey.

•

Table: - 12 Turkey / World Spindles (Turkey) CAGR growth Shuttless looms (Turkey) CAGR growth Spindles (non China) CAGR growth Shuttle less looms (non-China) CAGR growth

2000 77.06 lakhs (2000-2004) 24,000 (2000-2004) 1108.82 lakhs (2000-2004) 4.13 lakhs (2000-2004)

2004 92.00 lakhs 3.61% 33,500 6.90% 1007.36 lakhs (2.03%) 2.55 lakhs (9.20)

The above table 12 makes it abundantly clear in the absence of data about production capacities of China that world production of yarn and fabric is increasing at a CAGR (2000-2004) of 2.5-3% the capacities should ideally have grown at more or less the same rate. But, this has not been the case so far as non-Chinese players. This implicitly means that China is growing at a much faster rate that others and at the cost of others. This is corroborated by the sky rise of China in international textile trade. Turkey has managed to show positive growth and is also not lagging world yarn and fabric production growth. This shows that not only has it survived the Chinese onslaught and but also that it has increased its share in international trade though not at a phenomenal pace. To add to this Turkey textile and clothing trade comprise 27% (in year 2004) of the economy’s total merchandise trade, this was about 37% in year 2000. This shows less than average dependence among developing countries like Pakistan (68%), Sri Lanka (51%), Bangladesh (60%). Pakistan’s share in international trade of textiles and clothing has increased from 1.90% to 2.02%. The increase has been far too modest but it’s share in world production especially cotton textiles is growing. Cotton yarn & fabric production has increased at a CAGR of 3.57% and 5.79% for the period 2000-05, as against the world growth of 2.6% and 1.12% respectively. Also, it share in world production of cotton yarn has gone up from 8.7% (2000) to 9.2% (2005) and in cotton fabric production it has gone up from 12% to 16%. A snapshot of production capacities vis a vis world (non –China) production capacities below reveals more.

27

Table :- 13 Pakistan / World Spindles (Pakistan) CAGR growth Shuttless looms (Pakistan) CAGR growth Spindles (non China) CAGR growth Shuttle less looms (non-China) CAGR growth 2000 93.15 lakhs (2000-2004) 15,000 (2000-2004) 1108.82 lakhs (2000-2004) 4.13 lakhs (2000-2004) 2004 104.96 lakhs 2.42% 25,000 10.76% 1007.36 lakhs (2.03%) 2.55 lakhs (9.20)

The above table shows the great inroads which Pakistan has been making in fabric production as is evident from the increasing weaving capacities and the rising share in world cotton fabric production. Pakistan’s textile & clothing imports has, over the years 00-04 grown at a CAGR of 18.98%. Prior to this in none of the five-year blocks has there been a positive CAGR growth apart from year 1985-89. Pakistan off late has been an importer of raw cotton. All this combined leads us to a vital inference that Pakistan is becoming a fast emerging new player in the area of fabric production.

28

Assessment of demand

No direct figures of fibre consumption are reported anywhere, probably because of the difficulty in measurement. An attempt therefore has been made to project world fibre consumption in the next five years based on a simple logical model by analyzing historical data and using some macro projections for the next five years. The manner in which I have done it is as follows: Demand = f (population growth + welfare/snob factor) y + E E= error term, f=function of The above equation gives a reasonable approximation of the likely demand to be. World demand is assessed by the following methodology: • Countries are grouped as follows: o Developed Countries (USA, European Union, Japan) o India o China o Other developing countries (rest of the world) Developed countries are the highest consumers, with the average consumption per capita being 5 times that of developing countries like India. They comprise bulk of textile demand today and therefore are considered separately. India and China are considered separately since, they together comprise more than 36% of world population and, both the economies are to grow at a much faster rate than the world. • Consumption for the year 2004 is quantified and the consumption likely to be in 2010 based on projections is compared and a five-year CAGR is arrived at for various scenarios. Consumption for the year 2004 • Current population for the year 2004 (last available) for these regions are multiplied by their per capita consumptions. This would give us their respective fibre consumptions. • The fibre consumption is thereafter divided into technical textiles and clothing demand. This is based on actual data available. It is further bifurcated into natural fibres and manmade fibres. The bifurcation on an overall basis is 40% natural fibres and 60% manmade fibres for the year 2004. • The fibre data is thereafter converted in equivalent garment units; this is then converted to value terms. • Conversion to value terms is done by multiplication of the average prevailing price of fibres in international markets, times the average value addition prevalent in the value added chain. • This would generate a single figure in value terms of the demand in the respective regions as also for the world.

29

Consumption for the year 2010 (Projections) • Population projections for the year 2010 are obtained for the various regions and countries from government sources and United Nations website. • Range of per capita consumption growth for various countries is projected. Broadly, consumption can be looked at from two angles Clothing demand • Need based demand • Snob demand • Price Elasticity Technical textiles • % growth in user industries • Change in technology/substitution • Price Elasticity

In so far as technical textiles are concerned, projections for the same are available for from the Compendium of International textiles, also shares USA, Western Europe, Japan and China are available, the same are made use of. The thrust has been on forecasting clothing demand. • Based on the projections available for technical textiles and projected per capita clothing consumption as arrived at above, total fibre consumption to be in 2010 is arrived at. • Data is the bifurcated into natural and man-made fibres. Natural fibres have over the years grown at the rate of 1.5% approximately over the last many years. The assumption is made that this marginal growth would continue over the next five years and the balance will be filled in by man-made fibres. • The fibre data is thereafter converted in equivalent garment units; this is then converted to value terms. • Conversion to value terms is done by multiplication of the average prevailing price of fibres in international markets, times the average value addition prevalent in the value added chain. • Through 2004 prices of cotton were for most months were lower than polyester making cotton more competitive. This is expected to reverse, based on historical price behavior as also the fact that since, bulk of the demand is to come from man made fibres. The prices for 2010 are therefore assumed to be higher for polyester than for cotton. • This would generate a single figure in value terms of the demand in the respective regions as also for the world. Per capita consumption growth projections Need based demand In order to find out whether using population growth as a variable to estimate demand growth is appropriate or not what is done is that cor-relation is found out between population and world per capita fibre consumption using 21 data points for each variable. The cor-relation is significant in that it is 0.97, suggesting very high correlation. Also, when a regression is run the R square (i.e. a measure of how much on explains the other) is 0.95, which is also highly significant. Therefore, population growth is used as an indicator in order to arrive at need based clothing demand i.e. arising purely on account of growth in population assuming all other factors affecting demand to be constant

30

Need Based Demand Population (in millions) Per capita Consumption Consumption CAGR 2004 2010 growth 2004 2010 consumption Developing Countries 877.30 898.95 29.27 25,679 26,312 0.41 China 1,296.50 1,380.50 5.39 6,988 7,441 1.05 India 1,079.70 1,166.41 5.39 5,820 6,287 1.30 Rest of the world 3,123.36 3,379.89 5.34 16,674 18,043 1.32 World Total 6,376.86 6,825.75 8.65 55,160 58,083 0.86

Welfare/Snob Demand

In order to assess demand on this count analysis of growth in per capita income growth (at PPP) alongside the growth in per capita fabric consumption is done.

In order to find out whether using per capita income (PPP) growth as a variable to estimate demand growth is appropriate or not what is done is that cor-relation is found out between PPP growth and world per capita fibre consumption using 8 data points (1997-2004) for each variable. The data points used are not for a longer time series on account of data availability constraints. It is to be noted that cor-relation between world PPP per capita income and world per capita fibre consumption is 0.97, which again is very high and therefore significant. Also, when a regression is run the R square (i.e. a measure of how much on explains the other) is 0.94, which is also highly significant.

An attempt is further made to study the per capita income (PPP) among various country groups in terms of their income levels with per capita fibre consumption levels. Groupings are made as follows; these have been done in the same manner as done by World Bank.

However, data for per capita consumption, which is available for the same period, has slightly different grouping pattern. Effort is made to match the same without any change to data or groupings.

31

The picture which emerges on comparison for the years 1997-2004 is as under : PPP per capita income (CAGR 97-04) 4.14% 8.38% Per capita fibre consumption (CAGR 97-04) 1.38% 2.01% PPP per capita income (CAGR 00-04) 3.57% 4.78% Per capita fibre consumption (CAGR 00-04) 1.17% 1.42%

World Eastern Europe, former USSR Industrial 3.92% Countries Developing Countries All 4.60% Africa 2.91% Asia 4.52% Middle East & 2.91% Europe Latin America 1.76% & Carribean

2.04%

2.44%

1.90%

1.31% 0.35% 1.59% 0.85% 1.17%

3.54% 2.18% 4.24% 2.18% 1.73%

1.06% 0.47% 1.03% 1.94% 1.33%

A dissection of the rates of growth for fibre consumption for all regions reveals that the growth rate for any of a block of two years has been more than 4%, and for a fiveyear period the growth rate has not been more than 3.06%, which was recorded between the period 1995-1999 for Asia region. In order to project demand growth on this account, we take a look the World Economic Outlook (next five years), so as to be able to project consumption growth, for this purpose references are made to World Bank reports, BRIC report by Goldman Sachs, Economic Outlook published by IMF. • Per capita income growth in industrial nations (US, Italy, UK, Germany, Japan, France) is likely to be in the range of (1-1.5%) as per consensus estimates. This is essentially likely to mimic their GDP growth. Per capita income growth in developing countries (India, China, Brazil, Russia) is likely to be in the range of (5.5 – 8.5%) as per consensus estimates.

•

Based on this world outlook, in consonance with historical analysis, a range of the possible growth in percentage terms is arrived at in the table below :Welfare demand Growth in Expected Need Based Welfare growth Consumption Growth expected growth expected (1 - 1.5%) (6 - 7%) (6 - 7%) (1 - 1.25%) 1-2% 3-4% 3-4% 1-1.5% 0.41 1.05 1.30 1.32 (0.6 - 1.4%) (2.95 - 3.95%) (2.95 - 3.95%) (0.14 - 0.63%)

Developing Countries China India Rest of the world

32

Results

Demand Projections Quantitative growth World Developed Countries China India Rest of the world

CAGR (in %) (2004-2010) Minimum 2.96 1.53 4.00 4.32 4.14 Maximum 3.53 2.15 4.70 5.30 4.42

If India/China clothing demand mimic per capita income growth 3.38 1.53 5.40 6.28 4.14 If India/China clothing demand mimic per capita income growth 4.24 2.29 7.24 7.48 4.85

CAGR (in %) (2004-2010) Value growth World Developed Countries China India Rest of the world Minimum 3.52 2.23 5.10 5.18 4.85 Maximum 4.47 3.30 6.21 6.37 5.00

Shares in world consumption (fibre demand) 2010 (in %) 2004 (in %) Minimum Developed Countries China India Rest of the world Total World 46.55% 13.99% 9.49% 29.97% 100.00% 42.80% 14.85% 10.27% 32.07% 100.00% Maximum 42.97% 14.96% 10.51% 31.56% 100.00% If India/China clothing demand mimic per capita income growth 41.78% 15.71% 11.20% 31.31% 100.00%

33

International Trade Historical trends and future projections

Time Series data from Statistical Database of WTO is analyzed. This time series analysis is done from 1980 onwards till 2004. Prior to 1980 and after 2004 data is not available freely.
World Trade (Time Series data) Comm. Merchandise Years Services Trade trade 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 CAGR (80-04) CAGR (80-84) CAGR (85-89) CAGR (90-94) CAGR (95-99) CAGR (00-04) RED 2,034 2,010 1,883 1,846 1,956 1,954 2,138 2,516 2,869 3,098 3,449 3,515 3,766 3,777 4,326 5,162 5,391 5,581 5,498 5,712 6,449 6,183 6,482 7,551 9,153 6.20 (0.78) 9.66 4.64 2.05 7.25 363 374 365 355 366 382 448 531 600 657 781 823 922 939 1,031 1,182 1,268 1,318 1,346 1,397 1,485 1,489 1,588 1,805 2,128 7.33 0.17 11.45 5.73 3.40 7.45 USD (at constant prices billions)

Textile trade Clothing as Tex+Clothing Merchandise Total Total Textiles Clothing as % of total % of total as % of total trade as % of tex+cloth trade trade Trade merchandise merchandise merchandise total trade trade trade trade trade 2,397 2,384 2,248 2,201 2,322 2,336 2,586 3,047 3,469 3,755 4,230 4,338 4,688 4,716 5,357 6,344 6,659 6,899 6,844 7,109 7,934 7,672 8,070 9,356 11,281 6.39 (0.63) 9.96 4.84 2.30 7.29 84.86 84.30 83.77 83.89 84.24 83.65 82.68 82.56 82.70 82.51 81.55 81.02 80.33 80.08 80.75 81.37 80.96 80.89 80.33 80.35 81.28 80.59 80.32 80.71 81.14 54.99 54.08 49.16 50.23 53.51 54.87 68.21 82.85 89.51 95.95 104.35 108.93 117.20 113.45 131.67 152.32 152.74 155.74 149.83 146.26 154.57 147.03 154.30 172.47 194.73 5.19 (0.54) 11.83 4.76 (0.81) 4.73 40.59 39.35 38.32 38.53 44.62 45.97 60.21 77.73 84.40 97.45 108.13 117.16 132.11 128.79 140.76 158.35 166.08 177.62 185.96 184.59 197.41 193.28 203.04 232.49 258.10 7.68 1.91 16.22 5.42 3.11 5.51 95.58 93.43 87.48 88.76 98.13 100.84 128.42 160.58 173.91 193.40 212.48 226.09 249.30 242.24 272.43 310.67 318.82 333.36 335.79 330.84 351.98 340.30 357.34 404.96 452.83 6.42 0.53 13.91 5.10 1.27 5.17 2.70 2.69 2.61 2.72 2.74 2.81 3.19 3.29 3.12 3.10 3.03 3.10 3.11 3.00 3.04 2.95 2.83 2.79 2.73 2.56 2.40 2.38 2.38 2.28 2.13 2.00 1.96 2.03 2.09 2.28 2.35 2.82 3.09 2.94 3.15 3.14 3.33 3.51 3.41 3.25 3.07 3.08 3.18 3.38 3.23 3.06 3.13 3.13 3.08 2.82 4.70 4.65 4.65 4.81 5.02 5.16 6.01 6.38 6.06 6.24 6.16 6.43 6.62 6.41 6.30 6.02 5.91 5.97 6.11 5.79 5.46 5.50 5.51 5.36 4.95

Indicates that there is gap in data

BLUE Indicates that direct data not available, but derived by adding up individual countries

34

Observations • World merchandise trade has been in the region of 80-85% throughout the entire time series data. • Share of textiles & clothing trade in world merchandise trade has been in the range of 4.5-5.5 percent with it going to 6-6.5% for a brief period in the 1990’s. • For the entire time series period, world-clothing trade is growing at a faster rate than world merchandise trade as also textiles trade. This is evidence of the noting made earlier that production is shifting from developed countries to developing countries. • However, for the last five years 00-04, clothing and textiles trade is growing at a lower rate than growth in merchandise trade.

Outlook 2010 :In order to be able to forecast international trade by 2010 (at current prices), we establish trade/consumption ratio trend for the last fifteen years (1991-2004). This period is chosen since, consumption data prior to that is available only with gaps.

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Tex + Clothing Total fibre Value Trade (in Trade/Demand consumption (billions) billions, at 2004 (000 tones) (2004 prices) prices) 283 212 0.75 38,089 284 226 0.80 38,265 290 249 0.86 39,083 292 242 0.83 39,337 302 272 0.90 40,641 304 311 1.02 41,000 316 319 1.01 42,550 337 333 0.99 45,356 45,718 339 336 0.99 47,269 351 331 0.94 368 352 0.96 49,625 49,802 370 340 0.92 52,142 387 357 0.92 53,513 397 405 1.02 55,160 410 453 1.11

The conversion from fibre consumption to value figure has been done on the same basis as has been used for forecasting demand. Key Observation: • There is a steady & sustained increase in the trade/demand ratio; this was well expected on account of production facilities shifting from developed countries to developing countries and production being concentrated in a few regions. The trade demand ratio has increased at a CAGR (1991-04) at 2.61% and in the last five years (2000-2004) at a CAGR of 2.97%.

35

Projections of international trade Since, we have linked trade to consumption over the years, we therefore make projections for all the three demand scenarios, which we have dealt with earlier. For each scenario we further make projections assuming three possibilities: • The trade/demand ratio remains the same. • The trade/demand ratio increases at the 15 year CAGR of 2.61% • The trade/demand ratio increases at the last 5 years CAGR of 2.97%
Year Total fibre Value Tex + Clothing consumption (billions) Trade (in billions, Trade/Demand CAGR (000 tones) (2004 prices) at 2004 prices) Scenario - I (Trade/Demand Ratio remains the same as in 2004) Minimum 65,729 504 559 1.11 3.59 Maximum 67,911 532 591 1.11 4.54 If India, China mimic per capita income growth 67,339 525 583 1.11 4.31 Scenario - II (Trade/Demand Ratio increases at CAGR (91-04)-2.67%) Minimum 65,729 504 653 1.30 6.29 Maximum 67,911 532 690 1.30 7.26 If India, China mimic per capita income growth 67,339 525 681 1.30 7.03 Scenario - III (Trade/Demand Ratio increases at CAGR (00-04) - 2.97%) Minimum 504 778 1.54 9.44 65,729 Maximum 67,911 532 822 1.54 10.45 If India, China mimic per capita income growth 67,339 525 811 1.54 10.21 Demand growth

2010

2010

2010

36

Evaluation of Manufacturing Costs & Other business considerations

Having assessed supply and demand as also international trade data next is to analyze cost data for few countries. This is done to be able to forecast based on cost & other business considerations as to which of the chosen countries are likely to dominate/emerge as vital growing players in the immediate future so as to meet the demand supply gap. The choice of the countries to be analyzed is based on sound logic apart from data availability. The rationale for the same is explained below: • Domestic raw material availability is a principal criterion, which according to us is important since, roughly 50% of the cost of production comprises of raw material costs. Countries are so chosen so as to be a fair representative of the regions to which they belong. Apart from Australia & African countries for which data was not available, all major regions are represented. Data for Pakistan & Sri Lanka was not available, this by far constitutes a major limitation to our study, however, Pakistan has off late been importing bulk of its raw material and Sri Lanka is inhibited by its low producing size. This explanation however, is not an adequate justification for their omission.

•

•

•

The countries chosen are Brazil, China, India, Italy, Korea, Turkey & USA. Data Sources • All cost data is available only for till the year 2003. Using this data means that we are assuming that the same is relevant till date, apart from some ominous changes which we shall later refer to. All the cost data has been procured from only once source i.e. ITMF Production Cost Comparisons. Here I would take the opportunity to thank ITMF for responding to my queries and making data available for analysis. Since, primary data in this respect was not sourced, using secondary data from a single source was considered appropriate in order to enhance comparability. Non-quantitative data for assessment of other business considerations has been sourced from The World Competitiveness Report 2003-04 & The World Development Indicators.

•

•

Cost Data is analyzed in the following grouping: (This presumes similar technology and homogeneous quality of output) Yarn manufacturing costs Fabric Manufacturing Costs • Woven Yarn • Woven fabric • Knitted Yarn • Knitted fabric • Textured Yarn • Textured fabric

37

Total Costs of Woven (Ring Yarn & O-E yarn) 2003 Cost Element Waste Brazil 0.19 7% 0.13 6% 0.06 2% 0.02 1% 0.11 4% 0.08 3% 0.11 4% 0.13 6% 0.84 32% 0.65 28% 1.31 50% 1.01 44% 1.3 50% 2.61 2.31 China 0.31 11% 0.22 9% 0.04 1% 0.01 0% 0.23 8% 0.17 7% 0.11 4% 0.13 5% 0.39 14% 0.3 12% 1.08 39% 0.83 33% 1.68 61% 2.76 2.51 India 0.17 7% 0.12 6% 0.05 2% 0.02 1% 0.3 12% 0.21 10% 0.11 4% 0.13 6% 0.57 23% 0.44 20% 1.2 49% 0.92 42% 1.25 51% 2.45 2.17

(in US $ per kg of yarn) Italy 0.23 6% 0.16 6% 0.85 24% 0.3 11% 0.37 10% 0.27 10% 0.12 3% 0.13 5% 0.6 17% 0.47 17% 2.17 60% 1.33 48% 1.42 40% 3.59 2.75 Korea 0.22 8% 0.16 7% 0.2 7% 0.07 3% 0.17 6% 0.12 5% 0.11 4% 0.13 6% 0.57 21% 0.46 20% 1.27 47% 0.94 40% 1.41 53% 2.68 2.35 Turkey 0.22 8% 0.16 6% 0.13 5% 0.04 2% 0.25 9% 0.18 7% 0.11 4% 0.13 5% 0.73 26% 0.56 23% 1.44 51% 1.07 43% 1.41 49% 2.85 2.48 USA 0.17 6% 0.13 6% 0.55 19% 0.19 8% 0.16 6% 0.11 5% 0.12 4% 0.14 6% 0.6 21% 0.47 20% 1.6 56% 1.04 45% 1.26 44% 2.86 2.3

Labour

Power

Auxillary Material

Capital

(depreciation & interest) Manufacturing Cost (A)

Raw Material (B) Total yarn costs (A+B) (per kg ring yarn) (per kg o-e ring yarn)

Index (Italy 100)-ring yarn 73 Index (Italy 100)-o-ering yarn 84

77 91

68 79

100 100

75 85

79 90

80 84

* Grey background indicates ring yarn

38

Notings :• India is the lowest cost yarn producer in the world supported by adequate raw material availability. As is evident the advantage is essentially in lower raw material costs, as compared to the other countries. Italy and USA though enjoy lower raw material cost as compared to India in percentage terms & similar in absolute terms, the disadvantage is essentially on account of extremely high labour costs. Raw material costs in China and Brazil account for 50% of the costs. This is because China imports bulk of the raw material form USA. With growing raw material production within China, this cost can reasonably be expected to come down making is very competitive internationally. (in US $ per yard of fabric) Korea 0.04 33% 0.02 33% 0.01 8% 0.008 13% 0.02 17% 0.007 11% 0.04 33% 0.02 33% 0.01 8% 0.006 10% 0.12 0.06 Turkey 0.02 17% 0.01 17% 0.02 17% 0.01 17% 0.01 8% 0.007 12% 0.05 42% 0.023 38% 0.02 17% 0.01 17% 0.12 0.06 USA 0.11 58% 0.055 57% 0.01 5% 0.007 7% 0.02 11% 0.007 7% 0.04 21% 0.022 23% 0.01 5% 0.005 5% 0.19 0.10

•

•

Manufacturing Costs of Ring Yarn/O-E yarn Knitting Cost Element Labour Brazil 0.01 7% 0.005 7% 0.01 7% 0.005 7% Auxillary Material 0.02 14% 0.01 14% 0.04 29% 0.02 29% 0.06 43% 0.03 43% 0.14 0.07 China India Italy 0.00 0.01 5 0.13 12% 4% 54% 0.00 0.005 3 0.065 13% 5% 55% 0.02 0.02 0.03 24% 17% 13% 0.01 0.01 5 0.017 25% 23% 14% 0.01 0.015 5 0.02 18% 13% 8% 0.00 0.005 6 0.008 13% 9% 7% 0.03 0.04 0.05 35% 33% 21% 0.015 0.02 0.022 38% 31% 18% 0.01 0.04 0.01 12% 33% 4% 0.005 0.02 0.007 13% 31% 6% 0.085 0.12 0.24 0.04 0.06 0.12

Power

Depreciation

Interest

Total manufacturing costs (per yard of yarn) (per yard of yarn)

39

Index (Italy 100)-ring yarn 58 Index (Italy 100)-o-ering yarn 59 * Grey background indicates ring yarn Notings :• •

35 34

50 54

100 100

50 51

50 50

79 81

Again, very high labour costs make USA and Italy non-competitive. China is the lowest cost producer. Followed by India and Korea, India is essentially dis-advantaged because of very high interest costs and Korea because of high labour costs. Indian knitting industry is highly fragmented and thereby pushing up the interest costs, which curtail the benefits, which it has in terms of the lowest labour costs.

Manufacturing Costs of Textured yarn weaving/knitting (in US $ per yard of yarn) - 2003 Cost Element Labour Brazil 0.03 8% 0.004 7% 0.03 8% 0.005 8% 0.07 19% 0.008 14% 0.12 32% 0.018 31% 0.12 32% 0.024 41% 0.37 0.06 China 0.02 5% 0.003 9% 0.06 16% 0.01 29% 0.06 16% 0.006 17% 0.2 54% 0.012 34% 0.03 8% 0.004 11% 0.37 0.04 India 0.03 8% 0.003 6% 0.08 21% 0.012 24% 0.08 21% 0.006 12% 0.11 28% 0.015 30% 0.09 23% 0.014 28% 0.39 Italy 0.29 34% 0.05 51% 0.28 33% 0.01 5 15% 0.07 8% 0.00 8 8% 0.15 18% 0.01 9 19% 0.06 7% 0.00 6 6% 0.85 Korea 0.1 26% 0.017 33% 0.05 13% 0.007 13% 0.08 21% 0.006 12% 0.12 31% 0.017 33% 0.04 10% 0.005 10% 0.39 Turkey 0.04 11% 0.009 17% 0.07 18% 0.01 19% 0.06 16% 0.007 13% 0.15 39% 0.019 36% 0.06 16% 0.008 15% 0.38 0.05 USA 0.22 31% 0.045 54% 0.24 34% 0.007 8% 0.06 8% 0.007 8% 0.15 21% 0.019 23% 0.04 6% 0.005 6% 0.71 0.08

Power

Auxillary Material

Depreciation

Interest

Total manufacturing costs (per yard of yarn) (per yard of yarn)

0.05 0.10 0.05

40

Index (Italy 100)-tex weaving 44 Index (Italy 100)-tex knitting 60 * Grey background indicates ring yarn Notings: • •

44 36

46 51

100 46 100 53

45 54

84 85

Again, very high labour costs make USA and Italy non-competitive. China is the lowest cost producer. Followed by India and Korea, India is essentially dis-advantaged because of very high interest costs and Korea because of high labour costs. Indian knitting industry is highly fragmented and thereby pushing up the interest costs, which curtail the benefits, which it has in terms of the lowest labour costs.

Total Costs of Woven Yarn - fabric 2003 (Ring Yarn & (in US $ per yard of fabric) O-E yarn) Cost Element Waste Brazil 0.033 5% 0.023 4% Labour 0.029 4% 0.023 4% Power 0.046 7% 0.041 7% Auxillary Material 0.057 9% 0.059 10% Capital 0.26 40% 0.227 China India Italy 0.03 0.054 0.03 9 8% 5% 4% 0.02 0.038 0.022 8 6% 4% 3% 0.37 0.022 0.034 8 3% 5% 34% 0.28 0.018 0.028 1 3% 5% 29% 0.14 0.089 0.112 6 13% 17% 13% 0.12 0.077 0.097 7 12% 16% 13% 0.08 0.055 0.074 4 8% 11% 8% 0.08 0.058 0.077 6 9% 13% 9% 0.20 0.178 0.195 5 26% 29% 19% 0.18 0.163 0.172 3 Korea 0.039 5% 0.028 4% 0.116 15% 0.093 13% 0.07 9% 0.062 9% 0.108 14% 0.111 16% 0.175 23% 0.156 Turkey 0.039 5% 0.028 4% 0.05 7% 0.036 5% 0.098 13% 0.086 13% 0.077 10% 0.08 12% 0.228 31% 0.199 USA 0.03 4% 0.022 3% 0.263 31% 0.201 27% 0.068 8% 0.06 8% 0.065 8% 0.068 9% 0.198 23% 0.175

41

(depreciation & interest) Manufacturing Cost (A)

38% 0.425 65% 0.373 62%

25%

28%

0.398 0.445 58% 67% 0.354 0.396 55% 64% 0.293 0.218 42% 33% 0.691 0.663

Raw Material (B) Total yarn costs (A+B) (per yard of fabric) (per yard of fabric)

0.227 35% 0.652

19% 0.85 2 77% 0.70 5 74% 0.24 8 23% 1.1

22% 0.508 67% 0.45 65% 0.246 33% 0.754

29% 0.492 67% 0.429 64% 0.246 33% 0.738

23% 0.624 74% 0.526 71% 0.22 26% 0.844

0.6

0.95 0.647 0.614 3 0.696

0.675

0.746

Index (Italy 100)-ring yarn 59 Index (Italy 100)-o-ering yarn 63 * Grey background indicates ring yarn Notings: -

63 68

60 64

100 69 100 73

67 71

77 78

India/China emerges as the lowest cost producer, but the differential amongst China, Brazil, Turkey and Korea is not much. It is therefore, so far as fabrics are concerned qualitative factors i.e. the ability to supply quality products in time, adhere to delivery schedules, the proximity to the markets & customer orientation etc are more relevant. Total Costs of Knitted Ring Yarn Fabric/Knitted O-E yarn (in US $ per yard of fabric) fabric - 2003 Cost Element Waste Brazil 0.077 6% 0.028 5% 0.034 3% 0.009 2% 0.053 4% 0.022 4% 0.067 6% 0.036 China 0.127 11% 0.046 8% 0.025 2% 0.007 1% 0.113 9% 0.046 8% 0.06 5% 0.033 India 0.07 6% 0.026 5% 0.027 2% 0.007 1% 0.144 13% 0.058 11% 0.061 5% 0.033 Italy 0.092 5% 0.034 5% 0.477 28% 0.127 18% 0.18 11% 0.073 10% 0.069 4% 0.036 Korea 0.091 7% 0.034 6% 0.126 10% 0.036 6% 0.081 7% 0.033 6% 0.063 5% 0.034 Turkey 0.091 7% 0.034 6% 0.072 6% 0.02 3% 0.12 9% 0.049 8% 0.063 5% 0.034 USA 0.071 5% 0.027 5% 0.335 25% 0.095 16% 0.077 6% 0.031 5% 0.067 5% 0.036

Labour

Power

Auxillary Material

42

Capital

(depreciation & interest) Manufacturing Cost (A)

Raw Material (B)

Total yarn costs (A+B) (per yard of fabric) (per yard of fabric)

6% 0.446 37% 0.187 34% 0.677 56% 0.282 51% 0.531 44% 0.275 49% 1.208 0.557

6% 0.198 16% 0.083 15% 0.523 43% 0.215 38% 0.686 57% 0.355 62% 1.209 0.57

6% 0.306 27% 0.129 25% 0.608 54% 0.253 49% 0.51 46% 0.264 51% 1.118

5% 0.308 18% 0.13 19% 1.126 66% 0.4 57% 0.58 34% 0.3 43% 1.706

6% 0.285 23% 0.123 22% 0.646 53% 0.26 47% 0.576 47% 0.298 53% 1.222

6% 0.364 28% 0.152 26% 0.71 55% 0.289 49% 0.576 45% 0.298 51% 1.286

6% 0.302 22% 0.127 22% 0.852 62% 0.316 54% 0.514 38% 0.266 46% 1.366 0.582

0.517 0.7

0.558 0.587

Index (Italy 100)-ring yarn 71 Index (Italy 100)-o-ering yarn 80 * Grey background indicates ring yarn Notings :-

71 81

66 74

100 100

72 80

75 84

80 83

India emerges as the lowest cost producer, but the differential amongst China, Brazil, Turkey and Korea is not such. It is therefore, so far as fabrics are concerned qualitative factors i.e. the ability to supply quality products in time, adhere to delivery schedules, the proximity to the markets & customer orientation etc are more relevant. Total Costs of Woven/Knitted Textured Yarn Fabric - 2003 Cost Element Packing Brazil 0.004 1% 0.003 1% 0.029 5% 0.006 3% 0.033 6% 0.008 4% 0.073 China 0.004 1% 0.003 2% 0.021 4% 0.005 4% 0.072 14% 0.018 13% 0.059 India 0.004 1% 0.003 1% 0.036 6% 0.004 2% 0.089 15% 0.022 11% 0.082 Italy 0.004 0% 0.003 1% 0.315 30% 0.068 26% 0.3 28% 0.028 11% 0.07 (in US $ per yard of fabric) Korea 0.004 1% 0.003 2% 0.112 20% 0.023 13% 0.055 10% 0.012 7% 0.079 Turkey 0.004 1% 0.003 1% 0.042 7% 0.013 5% 0.075 12% 0.017 7% 0.066 USA 0.004 0% 0.003 1% 0.231 25% 0.056 23% 0.247 27% 0.012 5% 0.064

Labour

Power

Auxiliary Material

43

Capital

(depreciation & interest) Manufacturing Cost (A)

Raw Material (B)

Total yarn costs (A+B) (per yard of fabric) (per yard of fabric)

13% 0.008 4% 0.266 49% 0.064 32% 0.405 74% 0.089 44% 0.143 26% 0.112 56% 0.548 0.201

12% 0.006 4% 0.246 49% 0.026 19% 0.402 79% 0.058 42% 0.104 21% 0.081 58% 0.506

14% 0.006 3% 0.216 37% 0.042 20% 0.427 72% 0.077 38% 0.164 28% 0.128 62% 0.591

7% 0.008 3% 0.227 21% 0.04 15% 0.916 86% 0.147 57% 0.145 14% 0.113 43% 1.061

14% 0.006 3% 0.179 32% 0.038 21% 0.429 78% 0.082 46% 0.122 22% 0.095 54% 0.551

10% 0.007 3% 0.237 37% 0.049 19% 0.424 67% 0.089 35% 0.212 33% 0.166 65% 0.636 0.255

7% 0.007 3% 0.21 23% 0.036 15% 0.756 82% 0.114 47% 0.164 18% 0.128 53% 0.92 0.242

0.139 0.205 0.26 0.177

Index (Italy 100)-woven tex fabric 52 Index (Italy 100)-knitted tex fabric 77

48 53

56 79

100 100

52 68

60 98

87 93

* Grey background indicates ring yarn

44

Assessment of other business considerations This is done by designing a set of parameters apart from cost on which to evaluate each of countries selected. Each parameter has a number of sub-parameters. The evaluation is done on a scale of 0-1 for each parameter sub-parameter. Parameters / Sub-parameters used for evaluation Business Climate • PPP growth • Real Exchange Rates • Subsides and tax credits • Buss costs of terrorism • Buss costs of crime & violence • Buss costs of organized crime • Buss costs of corruption • Burden of regulation • Extent of red tapism • Admin burden for start ups • Judicial Independence • Efficiency of legal framework Labour • Hiring and firing practices • Flexibility of wage determination • Co-op in labour-management • Pay and productivity Management • Reliance on prof management • Efficacy of corporate boards Domestic Competition • Intensity of local competition • Extent of local competitors • Extent of market dominance • Regional dis-parities • Focus of trade/prof associations Technology • Technological sophistication • Firm level technology absorption • FDI & technology transfer

Suppliers • Local Supplier quality • Nature of competitive advantage • Degree of customer orientation The process of evaluation •

For each of the sub-parameters (apart from certain sub-parameters e.g. PPP growth, real exchange rates) the countries were ranked on a scale of 1 to 7, in terms of the World Competitiveness Report. The score for each country being the mean score of the respondents surveyed. The standard deviation of the respondents was also recorded. Lower the deviation better. The scores were then divided by the standard deviation & the resultant figures were then ranked on a scale of 0-1 with 1 being the score of the country being best and the rest of the countries were then ranked relative to the best.

•

•

45

Assessment Qualitative (1-indicates best amongst the countries) Parameters Business Climate Labour Management Domestic Competition Technology Suppliers Results • Brazil China India 0.73 0.72 0.64 0.62 0.65 0.56 0.65 0.59 0.54 0.84 0.83 0.85 0.80 0.59 0.72 0.70 0.58 0.58 0.72 0.66 0.65 Italy Korea Turkey USA 0.71 0.74 0.61 0.86 0.58 0.59 0.64 1.00 0.55 0.60 0.41 1.00 0.76 0.87 0.69 0.87 0.65 0.90 0.59 0.74 0.88 0.95 0.61 0.89 0.69 0.78 0.59 0.89

Brazil emerges as a lead nation amongst developing countries in terms of qualitative assessment. India and China are more or less on similar rankings and ratings. USA is by far the best but the high labour costs in the country, which has shifted growth from that region to the developing nations in the area of textiles and clothing.

• •

Below tables indicate how the results for each of the parameters have been arrived at in terms of evaluation of sub parameters: Assessment of Business Climate (1-indicates best amongst the countries) Sub-parameters Brazil Pubic Trust in political system 0.73 PPP growth 0.20 Real Exchange Rates 1.00 Subsides & tax credits 0.75 Business Cost of Terrorism 0.71 Crime & Violence Data gap Organized Crime 1.00 Bureaucracy Business Costs of Corruption 0.93 Burden of Regulation 0.79 Extent of red tapism 1.00 Admin burden of start ups 0.50 Legal, Comm. & Reg Sys Judicial Independence 0.68 Efficiency of legal framework 0.50 Results China India Italy 0.95 0.59 0.76 0.14 0.08 0.70 0.41 0.50 0.56 0.84 0.82 0.81 Korea Turkey USA 0.78 0.70 1.00 0.51 0.19 1.00 0.65 0.49 0.44 1.00 0.66 0.84 0.81 1.00 0.65 0.89 0.54 0.55 1.00 0.82 0.64 0.58 0.82 0.84 0.86 1.00

0.88 0.81 0.70 0.78 1.00 0.68 0.84 0.80 0.74 0.51 0.81 0.56 0.96 1.00 0.74 0.63 0.95 0.82 0.64 0.64 0.90 0.73 0.70 0.56 0.76 0.97 0.72 0.72

0.52 0.85 0.64 0.72 0.58 0.46 0.50 0.67

0.48 1.00 0.40 1.00 0.61 0.86

0.73 0.72 0.64 0.71 0.74

46

Assessment of labour (1-indicates best amongst the countries)

Sub-parameters Brazil China India Italy Hiring and firing practices 0.69 0.69 0.51 0.78 Flexibility of wage determination 0.50 0.69 0.61 0.39 Co-operation in lab-emp relations 0.83 0.76 0.71 0.73 Pay & productivity 0.46 0.45 0.42 0.43 Results

Korea Turkey USA 0.67 0.68 1.00 0.62 0.62 1.00 0.59 0.76 1.00 0.49 0.48 1.00 0.64 1.00

0.62 0.65 0.56 0.58 0.59 Assessment of Management (1-indicates best amongst the countries)

Sub-parameters Brazil China India Italy Korea Turkey USA Reliance on professional mgmt 0.74 0.66 0.57 0.51 0.62 0.44 1.00 Efficacy of corporate boards 0.56 0.53 0.50 0.59 0.57 0.37 1.00 Results 0.65 0.59 0.54 0.55 0.60 0.41 1.00

Assessment of Domestic Competition (1-indicates best amongst the countries) Sub-parameters Intensity of local competition Extent of locally based competitors Extent of market dominance Reg disparities in buss envrnmt Focus of trade & prof associations Results Brazil China India Italy Korea Turkey USA 0.84 0.87 1.00 0.72 0.76 0.73 0.87 0.99 0.68 0.91 1.00 1.00 0.98 0.59 0.66 0.73 0.80 0.96 0.57 0.76 0.86 0.91 0.84 0.73 1.00 0.60 0.66 0.88 0.56 0.74 0.96 0.82 0.93 1.00 0.63

0.84 0.83 0.85 0.76 0.87 Assessment of Suppliers (1-indicates best amongst the countries)

0.69 0.87

Sub-parameters Brazil China India Italy Local Supplier quality 0.69 0.72 0.59 0.86 Nature of competitive advantage 0.60 0.49 0.53 1.00 Degree of customer orientation 0.80 0.54 0.62 0.77 Results

Korea Turkey USA 0.88 0.68 1.00 0.97 0.51 0.85 1.00 0.65 0.83 0.61 0.89

0.70 0.58 0.58 0.88 0.95

47

Assessment of Technology (1-indicates best amongst the countries) Sub-parameters Technological Sophistication Firm level tech absorption FDI and technology transfer Results Brazil China India Italy 0.59 0.59 0.63 0.56 0.80 0.54 0.82 0.62 1.00 0.63 0.72 0.77 0.80 Korea Turkey USA 1.00 0.58 0.87 1.00 0.69 0.75 0.71 0.51 0.59 0.59 0.74

0.59 0.72 0.65 0.90

The results of the qualitative assessment are subjective and they have been done by reference to international surveys and data available in The World Competitiveness Report 2003-04 and World Development Indicators published by the World Bank.

48

Growth in capacities required to meet projected demand & likely candidates

World Capacities - 2004 Brazil 6,163 2.57 China 73,996 30.81 India 41,000 17.07 Italy 1,695 0.71 Korea 1,650 0.69 Turkey 9,200 3.83 USA 4,447 1.85 World 240,164

Spindles - 2004 (000's) (1 rotor = 5 spindles) (in % terms, of world) (In absolute terms) Shuttle less looms (in % terms, of world) Shuttle looms

40590 222,986 4.72 25.95 12000 875,410

23689 2.76 213790

10420 1.21 1460-

1224 0.14

33500 3.90 30000

26000 3.03

859,339

1447 4,113,435

In view of the demand projections made for the three scenarios i.e. minimum demand, maximum demand and if India China demand mimics their per capita income growth. The table below calculates by simple extrapolation the growth in capacities required assuming similar stocking patterns & capacity utilization levels across the world.

Production Capacities Projected 2010 2004 Minimum Spindles -(000's) (1 rotor = 5 spindles) Shuttle less looms (In absolute terms) 240,164 288,759 Maximum 299,295 If India/China clothing demand mimic per capita income growth 296,534

859,339

1,033,220

1,070,919

1,061,038

Additions Required to existing 2004 production capacities Spindles -(000's) (1 rotor = 5 spindles) Shuttle less looms (In absolute terms) 48,595 59,131 56,370

-

173,881

211,580

201,699

Likely players to absorb growth From the cost analysis and other business consideration analysis, it is clear that developed countries have a distinct cost advantage over developing countries; the primary reason being labour costs since, textiles is a labour intensive industry. Case :- Brazil • Brazil has comparable costs with other developing nations like India, China, • Sound macro environment • Proximity to developed US market. 49

Growing area under cotton cultivation coupled with higher than average yields. • Increasing capacities. All the above factors led credence to the hypothesis that Brazil is likely to be a fast emerging player internationally. • Case : Turkey • Comparable cost with other developed nations • A not so bad macro business environment. • Increasing capacities and maintaining its share in world trade despite the Chinese onslaught. • Proximity to developed markets Also, shipments data indicate high number of them going to Turkey thereby indicating that it is a fast emerging player.

50

Case: India

It is difficult to find such a large-scale industry in the country that is so disorganized as the Indian textile industry" Arvind Singhal, Chairman, KSA Technopak, in 2004 FOR long, no one paid much attention to the Indian textile industry. Most companies were in the doldrums, mired in debt and struggling with over-capacity. Textile scrips were largely inactive and the removal of quotas seemed a distant possibility. But as the deadline for the phasing out of the Multi-Fiber Agreement drew nearer, the industry appears to have got a new lease of life with modernization, expansion and value chain concept brought into practice. It is major industry of India from exports, revenue and employment potential point of view, and for that matter, for most of countries. Overview of Indian textile Industry and export performance: India is replete with natural resources like cotton, jute and silk. Indian products were known for fine designing, embellishment and craft. Besides this the ancient Indian fabric designers and weavers were one of the best in the world (Reference: The Dhaka Muslin-one of finest and light weight weaving that could pass through a finger ring) Indian textile Industry is also largest employer (after agriculture) of workers directly and indirectly. Due to ethnic diversity and cultural multiplicity besides racial traces in India's hinterland, several designs and variety of costumes and apparels are used that enrich Indian textile garments design possibilities. Industry plays significant role by contribution of 4% of GDP and 20% to the Indian exports kitty. Indian textile Industry is completely self reliant in the entire value-chain from cotton crop to Hi-fashion garment making. India has around 40 Million Spindles (23% of world) and 0.5 million rotors (6% of world capacity). India has 1.8 Million Shuttle looms (45% of world capacity), 0.02 Million shuttle less looms (3% of world capacity) and 3.90 Million handlooms (85 % of world capacity). The Industry is highly fragmented except for spinning sub-sector and thus manually intensive. This is obvious from data of weaving sector mentioned above. Organized sector contributes to almost 100% of spinning but hardly 5 % of weaving of fabric. Cotton products are stronghold of India. As of March 2004 India had 1787 cotton/man made fiber textile mills including 1564 spinning mills (stand alone) and 223 Composite verticals. Many organized sector giants are actually conglomerates of medium sized mills, for example, Vardhman Group in Punjab. The Indian textile Industry had been plagued by obsolescence, labor problems, raw material vagaries and lack of modernization including that of spindles. The post fabric stage processing technology has also been lagging but is now coming up fast with infusion of textile processing technology. SSI firms perform the majority of weaving and processing operations. The level of weaving technology is of lower order and knitting units don't possess capacity to perform dyeing, processing and finishing to international standards. 51

The apparel sector has over 25000 domestic manufacturers, 48,000 fabricators and around 4000 manufacturers/exporters. Over 80% of these are small operations (less than 20 machines) and are proprietorship or partnership firms. In 2001, GOI denotified RMG products from SSI reservation list for obvious reasons. As stated before, cotton apparels constitute major part of India's apparel exports, although cotton appears to be out-thing in current global markets with share declining from 50% in 1982 to 38% in 2003. The export product mix of India is quite interesting with low and mid priced products and also high fashion items. India processed 2700 Million Kgs of cotton fiber at 3rd rank, over 2000 million Kgs of man made fiber at 5th rank in Global markets. After de-throttling of industry under new Textile policy of 1985 man made fiber industry has seen investments and scale economies coming up. Export Scenario: Textiles contributed 20% of India's exports to about US $ 12.5 Billion. The Quota Countries mainly USA, EU (25) and Canada constituted 70 % of total garment exports and 40% of India's textiles exports. In non-quota countries UAE is the largest market with 7% of textile exports and 10% of garment exports from India. Table1 India's Exports: in US $ Billions Year 2003-04 Countries/Region World Quota Countries EU USA Canada Source: DGCIS-Calcutta Export of Textiles 6.47 2.86 1.64 1.12 .098 Export garments 6.10 4.19 2.35 1.60 .239 of

In exports Cotton yarns, fabric, made ups etc made largest chunk with US$ 3.33 Billion or 26.5% in textiles category, and Ready Made garments (RMG)-cotton including accessories made largest chunk with 4.67 Billion US $ or 37.1 % of total exports. Whereas, manmade yarn and fabrics in textiles group and RMG–Man made fibers constituted second position in the two categories, respectively. Carpets and woolen garments are other items exported from India. In Global scenario Developed countries' exports declined from 52.2% share in 1990 to 37.8 % in 2002 and that of developing countries increased from 47.8% to 62.2 % in the same period

52

According to Dr Abdul Kalam the President of India, in a recent speech, the global competitiveness factors are cost, quality and timely deliveries. Indian textile Industry certainly does not measure up to these criteria. To enhance competitiveness both categories of factorsInternal-like productivity and technology adoption by individual units, and External –like fiscal policy measures, labor policies and infrastructure are important factors to improve in. Though India stands second to China in cotton yarn and fabrics, the productivity pf cotton as measured by yield/Hectare is lowest compared to Brazil, Turkey, China, Pakistan and USA with Turkey ranking highest followed by China and Brazil. Global trade in Textiles and clothing has moved from MFA (since 1974) to ATC (Agreement on Textile and Clothing) which has now been dismantled from 1st Jan 2005 thus gradually throwing open the Textile trade under new WTO regime, which will result in adverse effect on some countries and will benefit other countries like China and India, hopefully, as some of quota areas for USA imports like Caribbean Basin Initiative (CBI), North American Free Trade Area (NAFTA), African growth and Opportunity Act (AGOA) and ANDEAN countries will cease to get favorable treatment under earlier restrained quota regime. The US imports in restrained category has declined from 86.89% in 1990 to 69.38% in 2003 from these preferential countries while overall imports increased from 13.11 % to 30.19% from these countries. Pattern in EU Market: India's share in EU imports in textiles was 3.6% in 2003 and of clothing 3.0% in same year. Whereas major chunk of EU imports in both categories came from EU (15) themselves and C/E Europe, the leading exporter is clearly China with share of 5.3% in textiles and 12.2 % in clothing. Turkey and Romania are other stronger contenders to India in EU cake. Pakistan and Bangladesh are following, but Bangladesh, Sri Lanka and some African countries may loose out post ATC liquidation. Here lies opportunity for India. India has been leading supplier of cotton yarn to EU with 17.6% share in 2003 up from 8.4% figure in 1990. In fabrics woven from synthetic yarns China has moved up fast in EU markets from 0.5% in 1990 to 35% share in 2003. Pattern in US Market: In US Market India had share of 8.4% in textiles and only 3.2 % in Clothing in year 2003 as compared to 19.8% and 16.9 % respectively for China with EU, China, Canada and Mexico leading the scene in textiles imports in USA and Hong Kong and Vietnam joining the fray in clothing segment. It is worth noting that India has increased its share in US market in Cotton pile towels from 3.5% in 1990 to 19% in 2003 but unit price is US $ 1.82 only as compared to $ 2.98 for China. It is seen that in both EU and US markets Indian unit prices are lower than China except for fabrics woven from synthetic filament yarn and the women's skirts. In cotton skirts and women's dresses Indian price realization is sharply lower than Chinese. This points to need for

53

value addition. Another reason has been discrimination by EU and US with Indian exporters in past. Import trends in Canada Amongst the leading suppliers of textiles and clothing to Canada, USA had the highest share of over 31 percent (US $ 8.4 Bn), followed by China (21% - US $ 1.8 Bn) and EU (8% - US $ 0.6 Bn). India was ranked at fourth position and was ahead of other exporters like Mexico, Bangladesh and Turkey, with a market share of 5.2 percent (US $ 0.45 Bn). Implementation of ATC Developed countries treat textiles/clothing as sensitive items like agriculture and have been reluctant to bring down tariffs. In the pre Uruguay Round weighted average tariff for textile and clothing products was 15.5 % compared to 6.3% for all Industrial products taken together. While tariff on textiles and clothing is expected to be reduced by 22% by developed countries, the reduction for other industrial products is likely to be 46%. Besides tariff barrier the Developed counties try to put non-tariff barriers like labor standards, safety etc in various forms. In the earlier stages of integration under ATC these countries removed restrictions on low value items sparing major products for stage 4- integration (90% of quota items of USA, 80% of EU and over 70% of quota items in Canada). This fourth stage has come into effect with 1st January 2005(Source-Textile Outlook International, March –April 2004) The unilateral change in definition and classification of certain products by USA has been brought to the notice of Textile Monitoring Body (TMB) of WTO by India, on behalf of members of International Textiles and Clothing Bureau (ITCB) recently in July 2004.India pointed out that the move initiated by USA to include Made-up items with only 16% cotton content, in the category of cotton products, so as to extend stringent Rules of Origin established by USA for cotton imports, affected the prospects of exports of cotton made-ups by developing countries, like India. Safeguard measures are easier to implement than anti-dumping measures and China and India projected as major gainers post-MFA may be adversely affected by such moves. Cost of Production: Cost of production of textiles yarns and fabrics is much higher in India despite low labor rates. We should not forget that India will also loose this advantage over time in as much as ACs (EU-10) are likely to loose the same over a period of time in EU market access. Production cost of textured yarn is estimated to be US $ 2.06/kg in India, which is higher than that of China (US$ 1.40/kg) and Brazil ($ 1.90 /kg)

54

Similarly woven and knitted textured yarn production cost in India is higher than that of China, Brazil and South Korea. These costs include power cost that is higher in India besides low productivity, obsolescence and structural abnormalities. Hourly wage cost in textiles in select countries (US $): Switzerland USA Argentina Brazil Turkey Mexico Mauritius China India Pakistan 22.15 14.24 5.90 3.20 2.69 2.20 1.47 0.69 0.58 0.37

The message is clear-the labor productivity; power and other costs are higher in India. Percentage share of capital costs too was higher in India than china in both Ring and OE yarn and fabric production (India 20%-29% of total cost of production) as compared to China (12% to 26%) Level of Integration Very few exporters have gone in for integrated production facility. It has been noted that countries that are globally competitive are the ones with significant integration facility and consolidated supply-chain. A visit to Ludhiana, Gujarat and Coimbatore will display poor condition of Indian textile industry both in cotton and woolen sectors. This decentralized sector has been suffering from low productivity, old technology, and lack of scale of economies. That is why GOI de-reserved the garment industry and our RMG units will have to set up integrated manufacturing facilities. India should also embark on textile processing facilities (Post fabric and garment production) of world-class level. Supply Chain Management Indian textile and clothing industry has one of most complex, fragmented and long supply chain in the world right from raw material procurement to shipping port handling facilities. The average manufacturing and delivery lead time from fabric buying to shipment of apparels comes to 45-60 days and in most cases can extend to 80 days. The mean delay in procurement of raw materials for garments and then exporting finished garments form India is estimated to be 15.5 days. Since shelf life of fashion driven products is hardly 45 days, such delays are untenable. In contrast Turkey has flat 30 days cycle from approval of design to delivery in warehouse. Turkey is also strategically located for EU markets and has a favorable liberal political climate.

55

It won't be out of place for some Indian exporters to locate facilities in Mexico, Turkey, Maldives and Mauritius. According to AEPC member database of garment units in India, there are only few companies with high turnover, whereas over 1000 firms are with a turnover of less than Rs 100 Million and, similar is the situation in fabrics. To conclude India has low competitive position with regards to availability and price of cotton (good quality), low level of technology, poor automation, and lack of scale economies in weaving and processing sector, and low brand image in textile garment sector Strategies for Indian Exports Quota free market means competition amongst firms and not nations. Quotas have frozen the growth in market share. They encouraged the high cost domestic industry in many textile-importing countries by freezing the market share. Even the high cost exporting countries (Hong Kong, South Korea, Taiwan) continued to have high market share taking advantage of quotas. Quotas also assured fixed market opportunities in early years to Indian garment industry and textile industry despite low productivity, poor time delivery and quality. Number of incentives was provided in India including Duty drawback and cash compensatory support. Garment quotas are distributed by AEPC based on Government policy from time to time regarding past performance, etc and quotas were traded in gray market for long time. This is in sharp contrast to world-class manufacturing and supply chain tried by some units in Europe and USA in online transmission of high sale garment designs in departmental stores and replenishing the sold stocks quickly through a very low delivery cycle. Where as Indian domestic market shall hot up by entry of both retailing chains in India (FDI has been now permitted up to 51% in single brand stores) and Outsourcing centers for International chains like Wal-Mart, the Indian exporters will get on one hand newer opportunities to enter restrained markets, while on other hand they will face stiff competition from countries like Turkey, Brazil, Mexico, Korea, China, Tunisia, Romania, Bangladesh and Pakistan. Quotas by restricting market supply have also kept the export prices artificially high. There is bound to be a price war in post quota regime. Already it has started happening with Indian exporters (at least for price elastic goods). Developed countries have relocated facilities offshore or have shifted to high value products. Developing countries that were free from MFA restraints will loose out due to fall in prices. The Indian textile and clothing Industry except for cotton yarn sector should test waters within domestic markets to establish their global competitiveness and consumer acceptance. Developed countries and many other countries are trying to extend quotas up to end of 2007 as evident from Istanbul declaration in March 2004.USA is developing a DNA

56

marker system to trace the fabric origin. The technology can identify the US produced cotton yarn and check illegal textile imports. Instead of criticizing, India should hold high vision as regards standards of health, safety and child labor to conform to international standards and to avoid non-tariff barriers. Technology Up gradation Fund (TUF) has to be better utilized and textile technology training infrastructure has to be improved in country. The textile sector should take lead in this. As on date China has distinct advantage in terms of supply chain management, low cost and better designs. Whereas Morgan Stanley has projected India to be one of top three exporters of textile and garments, another study by Indian Cotton Mills Federation has estimated Indian textile exports to reach US $ 40 Billion by 2010. GOI on other hand has projected exports to double from US $12 Billion to 25 Billion in next couple of years and eventually to US $ 50 Billion by 2010. Whereas new buying season starting Jan 2005 already has seen demands for 1015% price reduction by the importers. China lacks capability in value addition and fashion design. India stands to gain in ladies blouses because of strength in hand-works, like embroidery, sequins, printing etc. On the other hand China has clear advantage in Nightwear due to large capacity and lower costs. Therefore, while China will focus on low value high volume capabilities, India should gain through fashion content. India will also be favorite destination as alternative source other than China for major retailers globally. India can emerge as good outsourcing center for EU and US giants. Another important factor is under valuation of Chinese currency by at east 20% vis-àvis Dollar. China may retain their operations in Sri Lanka, Cambodia and Vietnam due to low costs prevailing there, when china set up facilities there for taking quota advantage. Internationally, trading in textile and garment sector is concentrated in the hands of large retail firms. Majority of them are looking for few vendors with bulk orders and hence opting for vertically integrated companies. Thus, there is need for integrating the operations in India also, from spinning to garment making, to gain their attention. This would also bring down the turn around time and improve quality. Indian players should also improve upon their soft skills, viz., design capabilities, textile technology, management and negotiating skills. Garment manufacturing business is order driven. It would be difficult for the players to keep the workforce full time, even in lean season. This calls for changes in contract labor laws. To offset competitive disadvantage Indian industry will have to expand vertically and set up scale of economies units while grappling with infrastructure bottlenecks and high cost limited power availability.

57

The main factors identified in a study by Ramaswamy and Gereffi as having contributed to the globalization of world apparel industry includes: o o o o o

Labor intensive nature of apparel industry Loss of comparative cost advantage of developed countries Dramatic decline in transport and communication costs Search for production sites with lower labor costs Shift in apparel manufacturing from more restricted to less restricted developing countries due to the discriminatory nature of restrictions imposed by erstwhile MFA (Multi Fiber Agreement 1974)

Another strategy Indian exporters and garment manufacturers can adopt is coming together privately or through State sponsored agencies to do joint Brand marketing. If not done early, then MNC retailing organizations will hijack the Indian garment Industry initiative and India may simply get reduced to outsourcing center for major textiles and Garment exports, although there is nothing serious about it, but India may well loose status of being independent India Brand garment exporter with higher value realization to the national exchequer. Conclusion: While Indian exports to the US has risen 22 per cent in the first quarter of 2005, profits are sliding as prices have dropped 8-20 per cent and the industry is on the verge of a shakeout. With importers preferring suppliers that have 'vertical' production systems rather than dispersed production facilities, Indian exporters need to shore up their mass production techniques. Of the 1,500 Indian exporters only 15 have turnovers of $50 million-plus. Infrastructure development is the need of the hour. Power and water contribute to nearly 37 per cent of total production costs. In contrast, in China, this cost comprises just 24 per cent. India also has to deal with inefficient port handling facilities. The Chinese figures have less credibility including their artificially fixed high exchange rate. The key advantages of the Indian industry are : * India is the third largest producer of cotton with the largest area under cotton cultivation in the world. It has an edge in low cost cotton sourcing compared to other countries. * Average wage rates in India are 50-60 per cent lower than that in developed countries, thus enabling India to benefit from global outsourcing trends in labor intensive businesses such as garments and home textiles. * Design and fashion capabilities are key strengths that will enable Indian players to strengthen their relationships with global retailers and score over their Chinese competitors. This is also visible in auto sector and many other industries like IT and software and Pharma research. * Production facilities are available across the textile value chain, from spinning to garments manufacturing. The industry is investing in technology and increasing its capacities, which should prove a major asset in the years to come. * India has gathered experience in terms of working with global brands and this should benefit Indian vendors.

58

Companies with integrated capacities, such as Arvind Mills and Vardhman Spinning, capable of delivering large volumes are likely to gain. Alternatively, market leaders in niche segments, such as Alok Industries, Abhishek Industries and Welspun India (both in cotton pile towels), may also emerge as gainers. Some of the largest garment exporters, such as Orient Craft and Gokuldas Exports, which supply to international retailers, could gain considerably.

59

Statement of limitations

•

•

•

• •

In projecting demand, regard has been had to the BRIC report working paper no 99 prepared by Goldman Sachs. The underlying assumptions of that paper in effect have a bearing on my projections in so far as I have used their per capita income growth projections. Population projections have been used from United Nations, US Census and National Population Commission of India, the underlying assumptions made there are therefore applicable. Production capacities for China and for the world as a whole were not available for 2004. To arrive at this, to 2003 data we have added 2004 shipments data so as to arrive at a approximate estimate. Cost data was available for only select countries and that too for the year 2003. Qualitative assessment is subjective and they have been done by reference to international surveys and data available in The World Competitiveness Report 2003-04 and World Development Indicators published by the World Bank.

60