How did china become a manufacturing giant?
China, over the years has established itself as the world leader in Textile and Apparel (T&A) production and export. China currently accounts for 34% of the world’s T&A trade with an export volume almost 7 times the second largest exporter Vietnam. But how did China become this dominant force in global textile industry?
China has a strong business ecosystem that helped it to become the world’s factory. Abundant supply of young low-wage workforce made China the preferred sourcing and investment location across sectors and industries. Moreover, most of the rural Chinese population was either from the middle or low class up until the end of the 20th century when internal migration changed the distribution of land and rural areas changed their economic status. These immigrants were always willing to work long hours to earn a living.
Along with the cheaper wages, China benefited from a huge investment in production and logistics supply chains. Western brands have spent years and decades building supply chains in China setting up factories and industrial zones. These factories not just manufacture in China but also use suppliers from China, who, in turn, use other internal chain supplies within the country. China is trying to retain its position as global manufacturer by continuous investment in technology. As a result, China is developing and making more high value goods implementing this innovation. Chinese government’s subsidies for implementing robotics automation facilitates investment in robotics. Such investment is accompanied with developments in artificial intelligence and sensor technology, both enablers of robotics and sophisticated automation.
However, the reign of China on the top may be at risk with brands and companies wishing to move out of China
What are the factors compelling brands and manufacturers to move out of China?
1. Increasing Labour Costs:
Increasing labour cost is one of the key reasons for brands to move their sourcing out of China. Labour cost in China grew at a CAGR of 9% over the last decade itself. Labour costs are a major share in the factory overheads and the product costing. Thus, brands are mulling moving to countries like Sri Lanka, Bangladesh, where labour costs are much lesser.
2. All Eggs in the Same Basket:
The Covid pandemic demonstrated that relying too much on China left global companies and supply chains vulnerable to costly breakdowns in the event of disasters. The world has realized its over-reliance on China. Moreover, over the last few years, China has been found to exploit its monopoly over products to favourably regulate product prices.
Even traditionally Chinese industries such as electronic chips and electronics manufacturing are also moving to other parts of Asia to compensate for the high wages and production monopoly. Even with these apprehensions about China, the country still has a lot to offer to the brands and manufacturers. China may not lose their manufacturing to countries like India, Bangladesh, and Vietnam, rather these countries need to attract buyers and investors on their merit.
How can India attract brands to increase sourcing from India?
India has a wide raw material base covering all types of natural and synthetic fibres which has helped it to achieve a global stature. India is also the largest cotton producer in the world with a share of approx. 27% of the global cotton production. India is also the second largest producer of polyester globally with 8% global share. Viscose is another key fibre for which India is 3rd largest producer in the world. Moreover, India’s nylon manufacturing capacity is growing rapidly.
Many other Asian and African countries like Bangladesh, Vietnam, Myanmar, Ethiopia, Kenya, Cambodia and Sri Lanka lack such diversity. Their value chain remains dependent on import of raw materials from other countries which has its fair share of business risks and Covid pandemic further accentuated this. India, however, for most of the products stands self-reliant in fulfilling its raw material requirements for textile and apparel manufacturing.
India also has the largest youth population in the world with 65% of its population below 35 years of age. The demographic dividend provides India the potential to successfully leading as a manufacturer of labour-intensive products such as apparel in the foreseeable future. With increasing emphasis on quality, demand of skilled labour will rise in the coming time. Realizing this, the Government of India has implemented several initiatives to develop pool of skilled manpower in India.
Indian garment manufacturers should increase their focus on Product Development. Though creative pattern making and innovative construction is not yet the forte of Indian manufacturers owing to the use of traditional making patterns techniques. The industry should leverage the skills of their experienced pattern masters to develop innovative products. The switchover from existing methods to creative pattern making and innovative constructions will take some time to realize as it involves huge cost and skilled employment. However, it is a major attraction for buyers.
Further, Indians can take benefit of “China +1” strategy. Brands tend to keep backup suppliers in another country in addition to China for contingency as an alternative against total dependency on China. India is well placed to attract such brands with its balance of skill, raw material and cheap workforce. Indian manufacturers can further develop relations with these brands to increasingly occupy share of Chinese manufacturers.
You can further read about how you can attract buyers through compliance here.
What would attract investors to India?
Attracting brands to India for sourcing would help the current manufacturers in increasing their export business; however, foreign investments and partnerships into the sector would result in actual growth of the industry. Government of India has launched various schemes for investment promotion and for making the textile and apparel manufacturers globally competitive. The Schemes target technology upgradation, infrastructure development, export promotion, etc. Various State Governments have also announced their Textile Policies aimed at attracting investments in their respective states.
India has a stable and a supportive government which has been instrumental in developing business friendly policies. The steady government facilitates secured environment for the global companies to establish their base in India that is in contrast to other emerging textile bases like Bangladesh, Pakistan, and Ethiopia, etc. which are marred by political and social instability. Indian government has made focused efforts in improving economic systems to attract foreign investors, enhance international trade, and increase transparency. With the increasing support from Indian government and focused efforts by large integrated and private players, the country is expected to lure significant global businesses to India.
What would attract investors to India?
As stated earlier, China manufactures more than a third of garments and textiles globally. China was the initial epicentre of the coronavirus outbreak and the production lockdown enforced in the country vastly disrupted the textile & apparel supply chains. Apparel brands that sourced goods solely from China were in a fix and were forced to explore other countries for sourcing in a short time period.
Some brands will follow the strategy of diversification and reduce their dependency on China to prevent any such situation in the future. Brands were already actively pursuing the move of diversifying from China, owing to increase in manufacturing costs and tariff issues with USA. The supply chain gap developed due to this pandemic has added more weightage to this strategy.
Many Asian manufacturing nations such as Bangladesh and Vietnam are dependent on China for their fabric supply. India, currently holds a huge supply of such raw materials and could potentially be a suitable replacement to China, given that the Indian manufacturers assure buyers of timely deliveries and consistent quality.
While the government support is an incentive, the manufacturers need to strengthen their manufacturing systems to deliver internationally competitive products. The time has come for the Indian apparel industry to break away from the support provided by the governments and look inwards for achieving higher productivities. Wastra can help you choose the ideal products to manufacture with the fast-moving sourcing world. We can also assist investors to setup factories that are export compliant and have all the boxes checked when it comes to the major buyers. Wastra can also assist you in achieving the compliance level of any specific buyer in your existing factory. Wastra’s tailored re-engineering modules customized to the client’s requirements, offer a unique solution improving on critical operations of your factory.