Textile Industry in India v2.0

The Textile Industry
of India
I n t e r n a t i o n a l B u s i n e s s
E n v i r o n m e n t
S a q i b S h a k i l
1 5 6 0 0 4 7 9 9

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Table of Contents
1 India and International Trade................................................................................................... 3
1.1 Balance Of Payments ....................................................................................................... 4
1.2 Foreign Direct Investments and Tariff Policies ............................................................... 5
1.3 Trading Relationships and Top Exports/Imports of India................................................ 7
1.4 Non-Tariff Barriers .......................................................................................................... 8
2 Introduction to the Indian Textile Industry.............................................................................. 9
2.1 State of Global Textile Industry..................................................................................... 10
2.2 Demand Conditions........................................................................................................ 11
2.3 Related and Supporting Industries ................................................................................. 13
2.4 Factor Conditions ........................................................................................................... 15
2.5 Structure, Strategy and Rivalry in Indian Textile Industry ............................................ 16
2.6 Government policies ...................................................................................................... 19
3 Culture and Business Practices in India................................................................................. 20
3.1 General Description of Country Culture and Cultural Do’s and Don’ts........................ 20
3.2 Culture Specific Business Practices, Protocol and Communications ............................ 21
3.3 Negotiating Style and Tactics ........................................................................................ 23
3.4 Cultural difference between India and USA .................................................................. 24
4 Conclusion............................................................................................................................. 24
Exhibit 1: Global Retail Development Index - Country Attractiveness ....................................... 26
Exhibit 2: 2013 Global Retail Development Index....................................................................... 27
Exhibit 3: Most Prominent FDIs in Indian Textile Sector............................................................ 28
Exhibit 4: Trading Agreements of India ....................................................................................... 29
Exhibit 5: Top Exports and Imports of India ................................................................................ 30

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Exhibit 6: Ease of Doing Business in India .................................................................................. 31
Exhibit 7: Input Cost Ranking of India among Close Competitors .............................................. 32
Exhibit 8: Government Institutions to Support the Textile Industry in India ............................... 33
Exhibit 9: Hofstede Cultural Analysis of India............................................................................. 34
References..................................................................................................................................... 35

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1 India and International Trade
India is a country inhabited by 1.2 billion people, with the five largest cities accounting for over
70 million of this population. With nearly 65% of the population in the 18-64 years age bracket,
India boasts a healthy middle class of over 200 million consumers and a GDP of over $4.4
trillion (4th in the world) growing at almost 7% annually since 1997 (CIA, 2014). All this
translates into a consumer culture that is growing rapidly within the country, especially in the
large urban centers. India is currently considered as most suitable place for international
expansion despite the political and bureaucratic hassle. It is the 2nd largest economy among the
emerging nations and promises high prospects of growth and earning potential in all areas of
business (Ahya & Sheth, 2006). Indian retail sector is worth $435 billion, with low organized
retail penetration of 7%. (AT Kearney, 2011)
India is a resource rich country with not only natural resources but also intellectual and
technological resources. Major resources include petroleum products, precious stones,
machinery, iron and steel, chemicals, vehicles, agri-produce and apparel. These resources
coupled with low cost labor provide valuable resourcing opportunities for retail chains whose
primary sales come from the fast moving consumer goods such as cooking oil, apparel, and
products of daily consumption (Bhandari & Tandon, 2002; CIA, 2014). The current report by
A.T. Kearney projects the size of retail sector to be $535 billion by 2013 with only 10% coming
from organized retail. Also India is one of the major countries under observation for retail
development, as shown in Exhibit-1 (AT Kearney, 2011).

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1.1 Balance Of Payments
In the past couple of years, especially since the economic recession of 2008, the industrial sector
of India has shown resilience to the external economic shocks. However, the balance of
payments has been constantly under the stress as the exports have declined without significant
reduction in the imports. This has resulted in increased trade and current account deficits that
have been marginally absorbed by capital account surplus but the nature of portfolio capital has
resulted in greater Rupee volatility and financial fragility as the official reserves depict wide
changes in its value from year-to-year as shown in figure-1 (Reserve Bank of India, 2014). This
increasing exposure to global macroeconomic conditions can also be attributed to the increasing
integration of Indian in the international trade which is reflected in both current and capital
account transactions. This integration can also be judged from a fact that the net exports of the
country have increased from 14% of GDP in 1991 to 43% of the GDP in 2012 and the gross
current account and capital account has increased from 30% in 1991 to more than 100% in 2012
(Reserve Bank of India, 2014).
Figure 1: India's Balance of Payments.
While the globalization of Indian economy has resulted in economic growth in the country, it has
also made the country more prone to external shocks and a review of domestic macroeconomic
Year ending on March of 2013 2012 2011 2010 2009 2008
Current Account, net (87,843.24)$ (78,179.86)$ (45,958.07)$ (38,411.00)$ (29,817.00)$ (17,034.00)$
Capital Account, net (293.84)$ (60.90)$ 40.48$ 53,602.00$ 9,146.00$ 107,993.00$
Official Reserves, net (3,825.97)$ 12,831.15$ (13,050.35)$ (13,441.00)$ 20,080.00$ (92,164.00)$
Errors and Omissions, net 2,688.37$ (2,432.00)$ (2,996.00)$ (1,745.60)$ 591.00$ 1,205.00$
(US$ million)

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environment may be necessary to rebalance the risks and rewards of operating an international
market.
1.2 Foreign Direct Investments and Tariff Policies
Historically, India failed to attract FDI because of fledgling infrastructure, but this scenario is
changing with Indian government investing heavily in transportation and energy. The projects
for developing energy sector are worth $167 billion and for developing rails, roads, and ports
these projects are worth $170 billion (DIPP, 2010). Such advancements in infrastructure will
greatly help the foreign investors to setup their transportation and logistics to procure resources
from rural, agricultural and mining centers of India. Also the energy need of these foreign
investors will also be fulfilled through the current investment in Civil Nuclear Technology, by
Govt. of India which expects to have 20,000 MWe nuclear capacities on line by 2020 and 63,000
MWe by 2032. By 2050 India aims to provide 25% of total electricity through nuclear plants
(World Nuclear Organization, 2012).
Despite the recent retail reforms, corruption is hindering the FDI in retail sector. FDI has
dropped by 28% from March 2010 – March 2011 and predictions of economic growth have been
revised from 9% earlier in 2011 to 7.5% by Nov (The Economist, 2011). The situation worsened
as the global economic meltdown hit the Indian economy with a lag as the GDP growth in 2013
was revised down to 5% from 10 year average of 7.8% (AT Kearney, 2013). The retail spending
slowdown and India fell by nine sports on retail development index to 14th place from its
previous low ranking of 6th place in 2002 (see Exhibit-2). Besides low consumer spending a
number of other such factors as high operating costs, low bargaining power with local suppliers,

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low profitability, increased real estate cost and lack of retail space slowed down the aggressive
FDI growth in India. The impact of recent economic recession and the slowing pace of foreign
direct investment can be seen in figure-2 that depicts the declining levels of FDI and portfolio
inflows and outflows over last five years (Reserve Bank of India, 2014).
Figure 2: Inflows, Outflows, and Stock
However, in 2012 when the retail sector in India achieved an important milestone in the form of
higher percent FDI in single brand retail for the first time in several Western retailers, especially
those in apparel beauty industry, took advantage of this opportunity and these include such
global names as Brooks Brothers, Kenneth Cole, Sephora, Armani, Roberto Cavalli and
Christian Louboutin, IKEA, Starbucks, and Dunkin Donuts. This development also encouraged
global retail chains as Carrefour, Metro, and Bharti-Walmart to increase their presence outside
major metro areas because of increasing land prices. This development portrays an encouraging
picture for FDI in India, especially for textile industry, as the entrance of global retail chains will
drastically increase and improve the demand for high-quality local cotton and textile output. FDI
is also encouraged by the fact that the Indian rupee is freely convertible on current account and
the profits earned by foreign investors are fully repatriable.
For textile industry Indian government claims to have the most generous and transparent policies
for FDI amongst BRIC countries as 100% FDI is allowed in the textile industry through
automatic route. Such policies have resulted in spurt of FDI in Indian textile sector that has
Year ending on March of 2013 2012 2011 2010 2009 2008
Direct Investment in India 26,953.14 32,952.40 25,883.74 31,682.00 34,992.20 34,728.08
Direct Investment by India (7,133.79) (10,891.73) (16,523.84) (11,953.00) (17,494.65) (18,835.24)
Portfolio Invesment in India 27,582.36 17,409.21 31,471.10 32,376.00 (13,853.19) 27,270.43
Portfolio Invesment by India (878.32) (239.22) (1,178.53) 20.00 (177.10) 162.77
Foreign Direct Investment (US$ million)

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attracted $855 million between April 2000 and May 2013 (IBEF, 2013). The list of most
prominent foreign direct investments in Indian textile industry is shown in Exhibit-3 (Ministry
of Textiles India, 2012):
Although India has liberalized its economy its tariffs continue to remain high as compared to
other emerging countries and it retains the right to protect the local industries when required. On
one hand such policies show India as an aggressive globalizer and on the other hand as the
protectionist economy. The agricultural tariffs average between 30 to 40% and anti-dumping
measures are commonly used against foreign companies (World Bank, 2014). Nevertheless,
because of negative impact of such protectionist policies on consumers, the government has
shifted its focus from protecting producers to benefiting consumers by enhancing trade
relationships with neighboring countries as discussed in the following section. To become more
globally integrated, India is promoting global trade regime both products and services and is
playing an important role in the current round of WTO’s Doha negotiations.
1.3 Trading Relationships and Top Exports/Imports of India
Since the trade liberalization in 1991, India views regional trade agreements as vital building
blocks to greater economic and trade integration with the rest of the world and hence it engages
in a number of regional and bilateral trade agreements, especially with its neighboring countries
and the emerging markets (World Bank, 2014). Most popular trade agreements include:
 South Asia Free Trade Area (SAFTA)
 Association of Southeast Asian Nations (ASEAN)
 Asia-Pacific Trade Agreement (APTA)

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 BIMSTEC ( Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation)
 India-Mercosur Preferential Trade Agreement (PTA)
An extensive list of trading relationship of India is shown in Exhibit-4 and It is apparent from
such a large number of trading agreements that over past two decades India has been striving to
become increasingly integrated into the global economic environment and with these trading
agreements India has been aiming at eliminating the trade barriers, promoting cross border
transactions, adopting free-market economics, encouraging foreign direct investment, increasing
transparency in trading relationships, and ultimately providing local manufacturing and service
powerhouses to expand their business horizons beyond the home borders. It is important to
understand that the areas of cooperation under these trade agreements involve such sectors as
agriculture, transportation and infrastructure, manufacturing (automotive, petrochemicals,
textiles, engineering goods, jewelry, food processing), education and technology, and intellectual
property rights, and this clearly shows the strategic direction of the government and the private
sector that are looking forward to long-term economic growth of the country (see Exhibit-5).
1.4 Non-Tariff Barriers
Although India has liberalized its trade regime and has lowered the barriers to trade in order to
pursue economic progress and greater integration with the global economy, its trade policies and
overall regulatory environment remains comparatively restrictive as can be seen in Exhibit-6
highlighting the ease of doing business in India as compared to the other emerging markets
(World Bank Group, 2014). India imposes a number of non-tariff barriers in the form of import
licensing, certification products, testing, quantitative restrictions, and bureaucratic customs

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procedures. India is now ranked 134th among 189 nations and in South Asia is only better than
Bhutan and Afghanistan that are ranked at 141 in 164 respectively, and in BRIC countries it is
far behind rest of the economies.
2 Introduction to the Indian Textile Industry
The Indian textile industry is one the largest and oldest sectors in the country and among the
most important in the economy in terms of output, investment and employment. The sector
employs nearly 35 million people and after agriculture, is the second‐highest employer in the
country. For the purpose of this report all the cotton related products such as textiles, garments
and accessories will be categorized as textiles. The importance of textile industry can be
understood from the fact that it is one of the top five exporting commodities of the country,
accounting for almost 10% of its annual exports in 2012 as shown in figure-3, and it contributes
about 14% to industrial production and 4% to the country’s gross domestic product (GDP) (The
Guardian, 2012).
Abundant raw materials, healthy foreign direct investments (FDI) and willingness of the
government to invest in textile industry ensures a bright future for India’s textile sector, which is
expected to reach US$ 220 billion by 2020, according to estimates by Alok Industries (2010).
With government support and improving economic outlook, India has the capacity to improve its
textile and apparel share in the world trade from the current 4.5% to 8% and reach $80 billion by
2020. The high growth of Indian textile exports is also probable due to increased sourcing shift
from developed countries to Asia and India’s strengths as a suitable alternative to China for
global buyers (Alok Industries, 2010). The signs of increasing market share are already apparent
as the garment exports from India grew by 19% in the period July 2012–July 2013 to reach US$

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1.27 billion, on the back of increasing demand in developed economies such as the US (AEPC,
2013).
Figure 3 - Commodity-wise Top-10 Indian Exports
2.1 State of Global Textile Industry
The textile and garment industry globally is recovering from the economic recession of 2008-09,
and is expected to reach $1 trillion by 2020 from the current $510 billion status (Alok Industries,
2010). The growth in trade is driven by increased outsourcing of western / developed countries
towards lower cost countries in Asia. According to chairman of Confederation of Indian Textile
Industry (CITI, 2014) “the global markets are showing signs of a gradual recovery and there has
been a growth momentum in sourcing of textiles and clothing by major importing countries like
USA, EU, Japan and China. India has a significant competitive advantage at present because of
Petroleum products
26%
Gems & Jewellery
22%
Pharma Products
11%
Garments,
Textiles, Yarn
and Fabrics
10%
Transport
Equipments
10%
Machinery &
Instruments
6%
Manufactures of
Metals
5%
Electronic Goods
4%
Rubber, Glass &
Products
3%
Cotton Yarn &
Fabrics
3%
Commodity-wise contribution to Exports in 2012

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increasing cost of production in China and concerns on wages and workers’ security in
Bangladesh as these two countries are the direct competitors of India in textile and garment
manufacturing and export.” However, the Indian textile industry recognizes that the only way to
capitalize this opportunity is through aggressive efforts on product innovation and market
development (CITI, 2004).
2.2 Demand Conditions
The local demand conditions for textile products in India are sophisticated and are important in
shaping the innovation and investments of the textile industry towards growing customer needs
and wants. The demand conditions in India are characterized by swelling middle class with
increasing disposable income, young population, and strong market segmentation due to
demographic and geographic diversity across the nation that constantly pushes the textile
industry towards developing improved textile products. The demand for Indian textile output
comes from three major segments - household segment, commercial segment, and export
segment. The household segment constitutes the largest consumer of Indian textile output with
about 60% share, followed by commercial consumption of 21% and the export of 19% of the
output (Ministry of Textiles India, 2012).
Since India is the home to the second largest population in the world with over 330 million
households, its demand for textiles and garments has been growing at an increasing rate because
of high proportion of young and working population with increasing disposable income that
clearly demarcates the Indian consumers into four categories of rich, middle class, aspiring and
poor (Bijapurkar, 2008). Although, the segment of rich consumers that constitute 1.71% of all
households represent an increasing demand for haute-couture, luxury apparel, and high-end

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foreign brands, the real driver of textile demand comes from Indian middle class that represents
almost 34% of Indian households, which is also projected to increase tenfold by 2025 (Biswas,
2006; BSCAA, 2009).
According to the recent estimates the disposable income of Indian middle class ranges between
$4,000-$21,000 per year and is projected to increase, thereby making it a huge potential market
for Western brands because of the increasing convergence of fashion preferences among youth
around the globe (BSCAA, 2009; Srivastava, 2008). This convergence in demand preferences is
closely related to the increased exposure of Indian population to the Western lifestyle through
mass media and foreign travel that has also introduced a variable of ‘value’ in the textile buying
process, which was previously dominated by high price orientation of the consumers (Bhardwaj
et al., 2005; Srivastava, 2008). The middle-class consumers, especially the young ones, have
been demanding high-quality product with modern design and a popular brand name that has
triggered a number of foreign direct investments in textile manufacturing and retail sector in
India by known Western brands as discussed previously. Moreover, this shift has also forced the
previously export oriented textile manufacturers in India, which were producing textile products
for such international brands as Tommy Hilfiger, Levis, Lee, Wrangler, Espirit, Reebok, Nike
and Adidas; to launch high-quality local brands to cater to the needs of local consumers (Batra
and Niehm, 2009).
Besides the demand for Western apparel and textile, traditionally the local demand for these
goods has been influenced by ethnicity, gender, and geographic location. Clothing and textile
products have traditionally been the symbol of social status and such outfits as shalwar kameez
and sari has been widely used by Indian consumers who tend to dress moderately in their

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personal and professional lives. However, because of increasing proliferation of mass media,
including both local and international channels, the textile and apparel sector in India has been
facing high innovation that has given rise to a large number of textile boutiques that not only use
local textile output but also import specialty fabrics from other countries. Thus the demand
conditions for textile industry in India have been highly favorable to contribute to a competitive
advantage of the country over its rivals such as Bangladesh, Pakistan, Turkey, Vietnam, Mexico
and Indonesia.
2.3 Related and Supporting Industries
In order to support the textile and garment industry the production of high quality thread and
cloth are vital and are achieved through the processes of spinning and weaving that are carried
out on spindles and looms respectively. Fortunately, India accounts for 22% of the world’s
installed capacity of spindles and is one of the largest exporters of yarn in international market. It
also has second highest spindleage in the world after China. Additionally, Indian textile has the
highest loomage (including handlooms) in the world and contributes about 61% to the world
loomage and these two processes convert natural and man-made fibers into cloth, which is later
bleached and used in textile and apparel manufacture (Ministry of Textiles India, 2012).
Traditionally, the textile industry in India has not been vertically integrated and the processes of
spinning and weaving have been carried out by different companies than those which produce
finished textiles and garments. So, the investments in spinning and weaving have followed the
growth in the total textile output and during the last ten years capacity addition has increased at a
CAGR of 6.46% for man-made filament yarn, 4.48% for man-made fibers, 4.4% for rotors,
2.97% for power looms, and 2.11% for spindles. However, there was no significant growth in

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capacity addition in respect of looms in organised sector; rather it faced a huge decline of 8.67%
(Ministry of Textiles India, 2012). Furthermore, there was a decline in the number of handlooms
units, composite mills and exclusive weaving mills, which does not paint a very positive picture
for supporting the increasing demand of Indian textiles in the coming years with the signs of
global economic recovery.
Moreover, the textile industry is also an ideal consumer of IT infrastructure in order to develop,
monitor, and control its production and logistics and to reduce cost of production to compete
with its biggest rival, China. Fortunately, today India is considered as one of the global leaders in
IT as it has developed its IT sector in last few years and most of the known firms around the
world (such as IBM, Microsoft and Google) are outsourcing their technology needs to India. IT
investment is a major part of textile industry, so presence of such industry will not only result in
easy deployment of IT infrastructure but also a low cost maintenance of ERP systems used by
large textile firms to manage their complicated supply chains from demand forecasting to
sourcing to final delivery of goods. Also literacy, especially English language proficiency is high
among Indian youth providing educated local managerial resource that gives India a big
advantage over other developing nations (GOI, 2007; World Bank, 2004).
While the availability of technology is a favorable condition, the use of IT in the textile
manufacturing is still relatively low as the recent survey by NMCC (2010) has pointed out that
only 29% of textile and garment manufacturers use information communication technologies at
various levels of their operations. However, IT utilization is high in high-tech manufacturing and
organized textile sector that frequently coordinates with foreign buyers in the form of exports
and strategic alliances. On one hand it can be seen that the supporting IT industry in India is

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well-developed and advanced in nature, but the utilization of this industry is not widespread
among textile manufacturing. Nonetheless, the greater integration of Indian textile industry in
international trade is resulting in a shift in this scenario, which is encouraging and important for
Indian textile manufacturers to reduce their cost of production and coordination in the coming
years in order to remain viable suppliers to large foreign textile retailers.
2.4 Factor Conditions
India has the advantage of abundant resources of raw materials as it is one of the largest
producers of cotton yarn in the world and there are good resources of fibers such as polyester,
silk, viscose, etc. The country is also home to a wide range of cotton fiber and has a rapidly
developing man-made synthetic fiber industry. The most significant evolution in the Indian
textile industry has been the advent of man-made fibers (MMF) and India’s innovative range of
MMF textiles finds presence in almost all the countries across the globe. MMF production
recorded an increase of 7% in the month of August 2013 and grew by 4% during April–August
2013 (AEPC, 2013). Due to strong cotton output, the total cloth production grew by 6% during
August 2013 and by 3% during April–August 2013 (AEPC, 2013). Furthermore, India has the
largest amount of land under cotton cultivation and it is the 3rd largest producer of cotton in the
world after China and U.S. Cotton is a key raw material in the textile and garment industry
besides polyester and it accounts for nearly 30% of the fabric cost and 13% of the garment cost
(NMCC, 2010) and fortunately India has an abundant supply of locally grown long staple cotton,
which is a source of cost-based advantage in the home textile and apparel sectors.
India has abundant high-quality and low cost labor force with 50% of its population less than 25
years of age, which makes it the world’s youngest nation and an attractive destination for

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manufacturing, especially human intensive textile and garment manufacturing (BSCAA, 2009).
Although the low-cost of labor provides the basic impetus to invest in India, the skill of the labor
force is also an important criterion to make long-term investment decisions in India.
Traditionally, Indian labor has long been known for their skills in textile and garment
craftsmanship, expensive garments and embroidered apparel. These skills create favorable factor
conditions for the textile industry to flourish in India. However, this factor of production is often
criticized for lower productivity as the majority of textile and garment mills are family run
businesses that are highly fragmented with little or no emphasis on increasing per-person
productivity (Bheda et al., 2003),. Therefore, the foreign investors planning to start textile and
apparel operations in India may need to invest in human resource training in order to meet the
firm’s quality and quantity requirements.
Lastly, the survey conducted by NMCC(2010) reveals that more than 80% of textile
manufacturers are not satisfied with the quality of physical infrastructure (such as power
generation, rail, seaport, airport and road system) and it is a major cause of concern along with
the government interface with the business sector that is marked by bureaucratic red tape. The
deplorable conditions of infrastructure are a known hindrance for foreigners and local
manufacturers to expand in Indian textile market. However, recently the Government of India is
attempting to resolve the infrastructure problems by allowing private sector companies to invest
in highway development and railway mass transit projects (Halepete and Iyer, 2008).
2.5 Structure, Strategy and Rivalry in Indian Textile Industry
Although the Indian textile industry has some big companies that constitute its organized sector
and often engage in strategic alliances and export-based contracts with popular Western brand

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names, the national competitiveness of Indian textile industry is limited by its fragmented
structure and obsolete technology. The most known names in Indian textile industry include
Wardhman textiles, Arvind Mills, Bombay Dyeing, Raymonds, Grasim Industries, Reliance
Textiles, Fabindia, JCT Limited, Lakshmi Mills, and Mysore Silk Factory. The textile weaving
sector is highly fragmented leading to lack of organization and an inability to achieve economies
of scale (Ministry of Textiles India, 2012). So, the Indian government is consistently striving to
increase its share of export markets in order to achieve minimum efficient scale to incur the
lowest production costs in textile industry. Unfortunately, the textile industry in India comprises
mostly of small-scale, non-integrated spinning, weaving, finishing, and apparel-making
enterprises. Such a structure arose due to the policies on tax, labor and other regulations that
favored small-scale, labor-intensive enterprises, while discriminating against large-scale, capital-
intensive operations.
However, the encouraging news is that the textile industry in India is arranged in geographical
clusters, thereby resulting in greater transfer of knowledge, processes, human capital and
technology among the manufacturers that has helped this industry so far to compete effectively
in the global market. There are more than 70 textiles and clothing clusters in India comprising
about 80% of total production. Bhiwandi and Malegaon are the two largest power loom clusters.
The major readymade garments clusters are located in Delhi, Mumbai, Gurgaon, Nagpur,
Madurai and Salem and the state of Maharashtra has10 textile clusters (NMCC, 2010).
Structurally, the organized factory sector mainly consists of large-scale enterprises and it will not
be wrong to consider the organized factory sector as a representative of the entire textile and
garments sector in India.

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Considering the strategy of the textile sector in India, the most popular mode of increasing
profitability and attaining the profit growth is via expanding in international markets through
‘textile exports’. Almost every major manufacturer of textiles and garments engages in export
contracts with major US and European retailers such as Walmart, Target, JCPenney, Carrefour,
Otto, Tesco, Asda, Marks & Spencer, Sainsbury’s, Haggar Clothing, Kellwood, Little Label,
Boules Trading Company, Castle, Alster International, Quest Apparel Inc. etc. and as a result the
India's exports of textiles and clothing are currently valued at $65 billion and are 11% of the total
exports by the country (Ministry of Textiles India, 2012). The major textile manufacturers in
India not only compete with international suppliers but they also compete with each other
vigorously in order to gain exclusive supplier contracts with aforementioned global retailers. On
one hand such a rivalry contributes to the overall improvement in the manufacturing process and
the lowering of costs of production but on the other hand it also limits the potential of
cooperation among the textile manufacturers, which rarely form a strategic alliance among
themselves in order to complete collectively for an export contract against suppliers from other
countries (Batra and Niehm, 2009).
Besides profit growth, profitability through aggressive cost reduction is another major strategy
followed by Indian textile manufacturers as the standard costs of production is the major factor
in determining international competitiveness of Indian textile industry. The most prominent cost
categories for textiles include cost of land, labor, power, ocean transportation, taxation,
inventories and capital investments. Since textile raw material (e.g. cotton and polyester) is a
commodity that is traded in international markets, the efforts to minimize costs have traditionally
focused on increasing labor productivity, improving labor working hours, minimizing overtime

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payments to labor, reducing power costs and cutting down transportation costs. Indian textile
industry constantly faces strong competition from Pakistan, Bangladesh, and China and
according to most recent figures the Indian textile industry is not ranking well against its
competition as shown in Exhibit-7 (Ministry of Textiles India, 2012).
2.6 Government policies
The role of government is vital in developing a competitive advantage in an industry and
unfortunately the Indian government has long been criticized for its lethargic bureaucratic
system, but over last five years it has been making efforts to act as a catalyst in attracting foreign
investments as it has recently allowed 100% FDI in retail and textile manufacturing. With
respect to the textile industry the Indian government has been consistently relaxing its trade
policies, attempting to develop transparent taxation system and is investing in infrastructure to
allow for industry expansion as discussed previously. The Indian government has been engaged
in setting up a world-class integrated textile parks, developing of clusters of powerlooms ,
investing in textile workers skill development, and encouraging research in textile design and
fashion through such institutes as National Institute of Fashion Technology (NIFT) and Sardar
Vallabhai Patel International Institute of Textile Management.
The government of India is planning to reform its taxation system that has previously favored the
organized industrial sector due to multiple points of taxation and inconsistent taxation policies
between states and federal government (e.g. octroi and VAT) (Dimri, 2009). Such complications
have deterred the development of optimal supply chain management required by industrialized
manufacturing and has increased the cost of doing business in India. Furthermore, the

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government is assisting the textile industry in developing localized manufacturing parts to
facilitate small and medium industries to compete in the global market. This scheme was
introduced in 2005 and so far 40 industrialized parts have been developed with state-of-the-art
facilities (Ministry of Textiles India, 2012). Furthermore, the government has set up the
Technology Upgradation Fund (TUF) in 1999 in order to promote Indian textile manufacturers to
improve the quality of their manufacturing facilities, avoid the technological obsolescence, and
to minimize the cost of production in order to compete with global suppliers of textile (Ministry
of Textiles India, 2012). Lastly, to improve the overall competitiveness of textile manufacturing
in India and to show a genuine commitment of the country to compete in global markets the
government has setup a number of institutions/committees to support the textile industry in India
(see Exhibit-8).
3 Culture and Business Practices in India
3.1 General Description of Country Culture and Cultural Do’s and
Don’ts
For international corporations and foreign executives the experience of doing business in India
for the first time can be bewildering due to drastic cultural differences from Western countries,
bureaucracy and a dizzying size of population despite the fact that a number of business
executives in India are graduates from top Western universities and are fluent in English.
Culturally, India is a very diverse country characterized by multiple religions, languages, caste
systems, disparities in the distribution of wealth and the prevalence of both communist and
capitalist ideologies in various parts of the country (Worldguide.EU, 2014). An interaction in

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Indian culture starts with ‘namaste’ greeting that shows respect towards the other person,
although the handshake among men, with right hand, at the time of meeting or leaving is also a
common norm, but a handshake with Indian women is not an acceptable norm unless such a
greeting is initiated by woman (Consulate General of India, 2014).
Unlike Western cultures, public display of affection is inappropriate and it is wise to allow for an
arm’s length distance while speaking to another person. Women should dress modestly and it is
uncommon for men to wear shorts in public spaces and it is also unwise to point the bottom of
feet or shoes at anyone as it is considered an insult. Selection of footwear is not restricted and
one can choose between sandals or shoes depending upon the complete attire. Lastly, in public
transportation people are free to sit together as women and men, but one should not presume to
sit next to a person of the opposite gender, unless you or they are elderly (Consulate General of
India, 2014).
3.2 Culture Specific Business Practices, Protocol and
Communications
Business practices in India are different than those in Western countries. For instance, if a
documented timeline of a process is 10 days then realistically it will not take exactly 10 days to
complete the work because of bureaucratic hurdles and unannounced expectations of grease
money or personal playoffs (CNN, 2012). So, it is important for a foreign company to identify a
reliable local partner that can better handle the local cultural dynamics. Furthermore, it is
important to understand that decision-making in Indian organizations is strongly influenced by
top management and owners, so, in order to get things done quickly it is important to access
these decision-makers.

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Moreover, foreign executives often face problems in getting the work done because of lack of
appreciation for highly relationship-based application of Indian businessmen (Worldguide.EU,
2014). Since US is much more transaction-oriented society, where the discussion rotates around
the transaction at hand, the same approach is not a smart way to proceed in Indian business
environment where development of personal relationship and trust is given preference over
business transactions. Thus, it is important to find right people to gain access to important
business networks that can help a foreign investor to establish successful operations in India.
Business relationships are commonly developed through dining and entertainment activities,
where spouses are often invited and rather than directly plunging into business discussions, it is
wise to inquire about counterpart’s family, interest, and hobbies (CNN, 2012).
Furthermore, the business protocol dictates to present the business cards (written in English) at
the time of first introduction and customers should be treated as guests and should be presented
with tea or coffee. The orientation of time is volatile and it is not uncommon that Indian
counterparts may show up late for the meeting or even reschedule the meeting at some future
time (CNN, 2012). Also, India is a difficult place to do business, but particularly tough for
women as it is a male-dominated society. Western women may be accepted, but must establish
their position and title immediately to warrant acceptance. Lastly, the religious sensitivity is
important as Muslim businessmen do not drink alcohol and Hindu businessmen don’t consume
beef or other meat product and these limitations should be taken into account while selecting a
dining venue for business meetings.

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3.3 Negotiating Style and Tactics
Indian businessmen are characterized as complex and highly imaginative negotiators that are
often aggressive and collectivist in their negotiations. Indian businessmen often hold high
aspirations for their businesses and tend to make business plans on the fly, so, the discussion may
not always be restricted towards the agenda of current meeting but it may also include plans for
future growth and cooperation (Kumar, 2005). A consequence of such negotiations tactic is the
need for more information by Indian businessmen and customers, which results in lengthy
negotiations process and hard bargaining to squeeze out as much benefit as possible.
Furthermore, business relationships are not of utmost importance in the beginning of
negotiations, however once the deal is done the emphasis on interpersonal relationships tend to
increase during the operational stage of the venture (Kumar, 2005).
Relationship building during the operational stage is important in order to align the expectations
of both the parties and it is important in building the trust necessary for negotiations regarding
long-term partnership. This becomes even more important due to the fact that contractual
obligations do not hold the same sanctity in India as they do so in America due to lack of
adequate legal and political environment, judicial delays and nationalistic concerns (Kumar,
2005). So, in order to succeed in negotiations with Indian businessmen it is advisable to foreign
executives to be ready to make personal and business concessions, be patient but firm during
negotiations, remain flexible and avoid aggressive stance, and expect the negotiated agreement
not to be implemented in a timely fashion and 100% according to the specifications.

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3.4 Cultural difference between India and USA
A complete comparison of India and USA on Hofstede’s (2014) five cultural dimensions is
presented in Exhibit-9 and it can be seen that India differs markedly from US culture on the
dimensions of power distance, individuality and long-term orientation. Traditionally, high power
distance is prevalent in Indian culture which depicts that the top management or the owner of the
organization is the primary decision-making unit in an organization and the superiors in the
organization are generally non-accessible to the people down in the organizational hierarchy.
Unlike USA, the interaction between subordinates and supervisors is formal and the
communication and feedback often takes place in a top-down and directive manner.
Additionally, India is a collectivist society, where high importance is given to loyalty, trust and
sense of belonging to a larger social framework. Unlike USA, the management style is often
paternalistic nature in India and hiring and promotion decisions are based on the personal
relationships between high-level managers and their reporting subordinates (Hofstede, 2014).
Lastly, unlike USA, India is a long-term oriented and pragmatic culture that usually forgives lack
of punctuality and human control on destination. So, as discussed previously it is important for
foreign investors to understand that time and contractual obligations in India are volatile and are
often subject to change that can often prove to be frustrating for foreign investors.
4 Conclusion
In conclusion, it can be said that overall India’s textile industry is competitive in nature owing to
the favorable factor conditions and supporting government policies. However, the fragmented
structure of textile spinning and weaving sectors is a major hurdle in profitability growth through

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cost reduction and increase in labor productivity. To tackle this issue it is advisable to the
organized textile sector in India to vertically integrate their operations to reap maximum cost
advantages through control over processed raw material (yarn and weaved cloth) as stringent
cost control will be vital to attract export contracts and compete against Chinese textile base.
Furthermore, the traditional mode of entry in international market has been through exports with
significant investment in local production base, it is advisable to major Indian textile
manufacturers to take advantage of location economies by setting up manufacturing plants in low
cost countries known for textile production, such as Cambodia, Vietnam, China and Brazil. This
will not only minimize their sole reliance on Indian economy, but will also provide them direct
access to international markets and consumers and that can enable these manufacturers to capture
a larger portion of textile value chain including product design, which is currently done by
Western retailers.
Lastly, the government policies are supportive towards FDI in textiles and the trade liberalization
has provided valuable opportunities to foreign textile manufacturers to invest in India, but the
government should strive to increase the ease of doing business in India.

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Exhibit 1: Global Retail Development Index - Country
Attractiveness

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Exhibit 2: 2013 Global Retail Development Index

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Exhibit 3: Most Prominent FDIs in Indian Textile Sector
1. Plans by Tommy Hilfiger to open 500 retail stores in India over next five years.
2. Canclini Tessile’s joint venture with Tirupur-based Emperor Textiles to stitch shirts in
India and to set up a separate manufacturing plant to produce Italian fabric for Indian
consumers.
3. The announcement by US-based Trident Group to develop an integrated textile complex
for yarn production in Budni, Madhya Pradesh (MP) and the initial estimate for this
investment values up to $654 million as a new manufacturing plant will engage in the
production of towels, home textiles, and value added yarns.
4. Strategic alliance between DuPont and Arvind to manufacture and market DuPont
Nomex® brand fiber based Flame Resistant (FR) fabrics and Industrial apparels in India.
5. 51:49 JV between Italian luxury brand Canali and Genesis Luxury Fashion to market
Italian fashion apparels in India as Canali pledges to invest $1.39 million in India.

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Exhibit 4: Trading Agreements of India
According to the Business Portal of India (2014), the country has struck a number of bilateral
trade agreements as:
1. India and Singapore Comprehensive Economic Cooperation Agreement (CECA)
2. India-Sri Lanka Free Trade Agreement (ISFTA)
3. India-Chile Preferential Trade Agreement (PTA)
4. India-Afghanistan Preferential Trade Agreement (PTA)
5. India-Bhutan Trade Agreement, India-Nepal Trade Treaty
6. Framework Agreement For Establishing Free Trade Between India And Thailand
7. Free Trade Agreement (FTA) Between India And Gulf Cooperation Council (GCC)
8. India- Japan Trade Agreement
9. Joint Study Group Between India And Korea
10. Trade Agreement Between India And Bangladesh
11. Comprehensive Economic Cooperation And Partnership Agreement (CECPA) Between
India And Mauritius

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Exhibit 5: Top Exports and Imports of India
56
47
24 21 21
14
10 9 7 7
Top Export Items (US$ bn)
155
62
33 31 30
19 17 14 13 12
Top Import Items of India (US$ bn)

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Exhibit 6: Ease of Doing Business in India
0
20
40
60
80
100
120
140
160
180
200
BRIC Nation Comparison (lower the better)
Russia Brazil China India

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Exhibit 7: Input Cost Ranking of India among Close
Competitors

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Exhibit 8: Government Institutions to Support the Textile
Industry in India
1. National Textile Corporation Limited (NTC)
2. National Jute Manufactures Corporation Limited (NJMC)
3. Handicrafts & Handlooms Exports Corporation Of India Ltd.(HHEC)
4. Jute Corporation Of India Ltd., Kolkata (JCI)
5. The British India Corporation Limited (BIC)
6. National Handloom Development Corporation (NHDC)
7. Central Cottage Industries Corporation of India Ltd. New Delhi (CCIC)
8. The Cotton Corporation of India Ltd., Navi Mumbai. (CCI)

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Exhibit 9: Hofstede Cultural Analysis of India
Power Distance India scores high on this dimension indicating an appreciation for
hierarchy and a Top – Down Structure in society and
Organizations. Communication is top down and directive in its
style and often feedback which is negative is never offered up the
ladder.
Individualism India is a collectivist society with a high preference for belonging
to a larger social framework. This means strong team orientation,
group work and group incentives for motivation.
Masculinity India is considered a masculine society where the focus is on
success and achievements, validated by material gains. Work is the
center of one’s life and visible symbols of success in the work place
are very important.
Uncertainty
Avoidance
In India there is acceptance of imperfection; nothing has to be
perfect nor has to go exactly as planned. India is traditionally a
patient country where tolerance for the unexpected is high; even
welcomed as a break from monotony.
Long Term
Orientation
The Indians score 61, making it a long term, pragmatic culture.
Societies that have a high score on Long Term Orientation,
typically forgive lack of punctuality, a changing game-plan based
on changing reality and a general comfort with discovering the
fated path.
77
48
56
40
61
40
91
62
46
29
Power Distance Individuality Masculinity Uncetainty
Avoidance
Long-term
orientation
India USA

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