Risk of new entry by potential competitorBrand LoyaltyThe existing players have been in the industry for a long period of time and have established a good reputation with their customers in domestic as well as foreign market. This has resulted in the high brand loyalty by customers. But this will not act as a potential barrier for other companies because most of the Indian textile companies operate in B-To-B segment and all the players keep competing among themselves for new consignments from the clients.Absolute cost AdvantageAbundant availability of raw material is one of the key advantages of the Indian textile industry; this also gives a major opportunity to Indian textile industry and creates a barrier for foreign players to compete with Indian companies in cost advantage.India is more cost competitive vis-à-vis countries like Brazil, China and South Korea in manufacture of textilesCost advantage arises mainly from the large pool of low cost but skilled manpower available in IndiaIn case of textured yarn and fabric, India is less competitive, which is a result of the higher tax burden (excise duty) on manmade textiles in the countryIndia’s position is strong vis-à-vis other countries in most raw materialsLargest producer of juteSecond largest producer of silkThird largest producer of cotton, accounting for nearly 16% of global productionThird largest producer of cellulosic fiber/yarnFifth largest producer of synthetic fibers/yarnEleventh largest producer of woolCotton - Predominant fabric used in the industryWith 4.13 million metric tons of production, country accounts for almost 16% of global production of cottonIndia also leads the world in cultivated area under cotton (roughly 8.82 million hectares in 2004-05)Jute - Occupies an important place in the Indian economyHas a strong contribution to direct employment as well livelihood in the tertiary sector and allied activitiesIndia leads globally in jute with its annual production of 7.5 million bales in 2004-05 Silk - Highly remunerative cash crop, with minimum investment and sustained attractive returnsIndia accounts for 18% of world raw silk production (15.74 thousand tones production in 2003-04)India has the unique distinction of being endowed with all 4 varieties of silk - Mulberry, Eri, Tasar, MugaWool - With its annual production of 50.7 thousand tons of raw wool fiber, India accounts of roughly 2% of global production Customer switching costAs earlier mentioned that the existing players are operating in this industry for a long period and also have established long term relationship with their customers, Over a period of time these companies have customised their products as per the needs of the customers therefore customers also prefer to still to the existing suppliers rather than moving to others as there is a high switching cost involved here and if the customers switch to new suppliers than again he need to train the suppliers as per their requirements
The extent of rivalry among established firmsThe textile manufacturing segment in India is made out of numerous manufacturers which all are varied in terms of size and power. It is a massive sector with thousands of companies producing apparel. The apparent high growth rate of total textile exports indicates that the rivalry between manufacturers is low. The growth rate is high in some product segments but even negative in others. Hence, the rivalry between apparel manufacturers is diverse since they enjoy different growth rates.Industry competitive structureSince this industry is highly fragmented there is always high probability during the boom phase that many new players could enter this industry which would lead to a price war and ultimately end up with the bankruptcy of some players or consolidation of industry. So, this is a treat to the existing players.But also the existing players work a lot on cost efficiencies therefore the treat of new entrant is negated by the cost efficiencies of existing players Industry DemandIn the current scenario textile exports have declined drastically and even in domestic demand there is a little slowdown. Due to which textile companies are working on reducing cost by ways of reducing the work force, decrease in operation cost etc. Also this will evoke more rivalry among the existing players as they all will like to maintain their market share in spite of the slump in industryExit BarrierThis is not just a labour intensive industry but even the cost involved in plant setup is very high along with that with the invent of many new technologies many companies have adapted to modern techniques to remain competitive in industry as well as to produce better products for their customers in lesser time and with lesser cost.Therefore because of high involvement and emotional attachment with the business as it has been a traditional business for generations for many companies they still prefer to stick and continue with the business. But in the current scenario many textile mills have closed down because of deep cut in demand and high operational cost due to severe global crisis.The bargaining power of buyersIndian textile companies are facing a tough competition from Chinese, Brazilian and South Korean companies as they are able to produce at a lower cost compared to Indian companies.This industry is fragmented and there are large numbers of players in the industry, therefore buyer get the option of choosing from many suppliers.Indian textile industry is no more just a mass producer of textile rather it has moved into niece segment and has developed capability to produce finest quality of fabric which provides them distinctive competencies against other countries as well as small players who could cater to mass consumers only.Therefore overall buying power of buyer will defer from company to company. Companies like Arvind mill, Raymond, adityabirla group have achieved certain degree of distinctive competencies therefore with them buying power of buyer is negated to large extent against their competencies.But many small companies who are mass producer of textile face a strong buying power of buyer. Global textile & clothing industry is currently pegged at around US$ 440 bn. US and European markets dominate the global textile trade accounting for 64% of clothing and 39% of textile market. With the dismantling of quotas, global textile trade is expected to grow (as per Mc Kinsey estimates) to US$ 650 bn by 2012 (5 year CAGR of 10%). Although China is likely to become the 'supplier of choice', other low cost producers like India would also benefit as the overseas importers would try to mitigate their risk of sourcing from only one country. The two-fold increase in global textile trade is also likely to drive India's exports growth. India's textile export (at US$ 15 bn in 2005) is expected to grow to US$ 40 bn, capturing a market share of close to 8% by 2012. India, in particular, is likely to benefit from the rising demand in the home textiles and apparels segment, wherein it has competitive edge against its neighbours.Hence, the bargaining power of customers is strong. For that reason, it is of importance for a producer of apparel to differentiate their products or production so it will not compete with price as primary mean.
De-risking the business modelArvind mills foray into shirtings, garments and knitting business have helped them in reducing their dependence on the denim production. Even though 60% percent of revenue of Arvind Mills is still generated from the denim, other product businesses are improving and have stabilized their revenues. IntegrationArvind Mills planned to move up in the value chain by investing in the garmenting sector. The strategy of developing its own brand and licensing of top foreign brands gave it vital presence in the garmenting sector. With the acquisition of Arvind Brands Ltd. In 2005 from ICICI, Arvind Mills is now focusing on re-vitalizeits brands. It also focused on the easy procurement of the key raw material cotton by tying up with the big farmers. This move helped them in managing their inventories in a better manner and also reduced risk against the price fluctuations.
Diversification – Unrelated DiversificationArvind Mills may sell vegetables, pulses under its own brandAt a time when input costs and oversupply is eating into its denim business, Ahmedabad-based textile manufacturer Arvind Mills is diversifying into individually quick frozen (IQF) food products. IQF food products are developed through a process, called blanching, wherein vegetables and pulses are boiled at a particular temperature and sent to quick freezing to avoid degradation and contamination, at the same time retaining their nutritional values. By end of 2008, the company will be launching frozen organic vegetables and pulses across the country. While the company is already setting up IQF plants in cities such as Pune, Nagpur and Anand at an average cost of Rs 6 crore each, Arvind is also working out its investment plans for branding and marketing of the products. The frozen food venture of the denim major is a result of its organic cotton project initiated in the backward Akola region of Maharashtra. "While working with the farmers in Akola, Arvind had set aside some acres of land for farming of rotational organic crops including vegetables and pulses. With a successful crop this year, Arvind decided to venture into IQF food products," said Mahesh Ramakrishnan, chief agri-exports manager of Arvind. The company is doing organic farming over an area of 500 acres in the Akola region, which may increase depending on the success of the venture. Since IQF food products are more popular among the western countries compared with India, Arvind will be targeting the US and European markets. The company is also willing to take up jobwork for other major food products manufacturers. "Since denim is our domain, Arvind can either go for production of IQF food products on our own or take up jobwork for other major players instead," said Ramakrishnan. Although the company is still working on the branding part, it is believed that the product could be sold under the brandname – Arvind Products. Meanwhile, the company is also expanding the acreage under its organic cotton project in Akola, apart from replicating it in other states such as Gujarat and Karnataka. "We are not only increasing the acreage by three-fold, from 3,000 acres to 10,000 in the Akola region, but also looking to replicate the project in Karnataka and Gujarat. In Gujarat, Arvind are in the process of identifying certain areas in the Kutch and Saurashtra regions for the same," added Ramakrishnan. By next year, Arvind is expecting the organic cotton production to increase from around 1,200 bales to 4,500 from the project. It is believed that the company will also set up farmers' societies in Gujarat and Karnataka, similar to the Arvind Organic Products Society in Akola. M & AIn year of 2011 Arvind limited that enters in to Arvind infrastructure. It also has successfully run the Knowledge Academy (Ahmedabad University) since 2008Arvind Mills decides to buy entire stake in Arvind Brands from icici Ventures.Arvind Fashions, doubles its capacity in the state-of-the-art manufacturing facility in Bangalore to produce lee jeans.RestructuringIn the mid 1990s, Arvind Mills undertook a massive expansion of its denim capacity even though other cotton fabrics were slowly replacing the demand for denim. The expansion plan was funded by loans from both Indian and overseas financial institution. With the demand for denim slowing, Arvind Mills found it difficult to repay the loans, and thus the interest burden on the loans shot up. In the late 1990s, Arvind Mills ran into financial problems because of its debt burden, and it incurred huge losses in the late 1990s.The company came up with a massive debt-restructuring plan for the long-term debts being taken up in February 2001. This complex financial restructuring exercise, which involved several domestic and international lenders, is considered to be the benchmark and a case study in India. The restructuring was overseen by MrJayesh Shah, CFO and advised on by a JP Morgan Hong Kong team, led by Mr Ahmad Ayaz. Corporate Governance measuresThe Company’s philosophy on Corporate Governance is to attain the highest levels of transparency, accountability and integrity. This objective extends, not merely to meet with statutory requirements but also to go beyond them by putting into place procedures and systems which are in accordance with best practices for governance. Corporate governance at Arvind means being responsive to aspirations of all the stakeholders customers, suppliers, lenders, employees, the shareholders and expectations of the society. The Board of Directors supports the broad principles of Corporate Governance and lays strong emphasis on its trusteeship role to align and direct the actions of the organisation to achieve its avowed objectives of transparency, accountability and integrity. Given below is the report on Corporate Governance at Arvind.
INDUSTRY ENVIRONMENT• Indian textile industry and Market Size Textiles sector contributes to 14 per cent of industrial production 4 per cent of National GDP 10.63 per cent of countrys export earnings• Market Size Indias share of global textile exports is expected to increase from the current 4% to around 7% over the next three-years• Growth Rate 3-4 percent during the last six decade 9-10 percent during last five year• Scope of rivalry Raymond India Welspun India Ltd Alok Industries Indian Rayon Gokaldas Exports
General Environment of Textile Industry• Technology• Demographic Trend• Economic Trends• Political and Legal• Socio Cultural• Global
Porter Five forces• Risk of new entry by potential competitor• Brand Loyalty• Absolute cost Advantage Largest producer of jute Second largest producer of silk Third largest producer of cotton, accounting for nearly 16% of global production Third largest producer of cellulosic fibre/yarn Fifth largest producer of synthetic fibres/yarn Eleventh largest producer of wool• Customer switching cost
Cont..• The extent of rivalry among established firms Exit Barrier Industry Demand Industry competitive structure• The bargaining power of buyers• The bargaining power of supplier• The threat of substitute product
Industry Analysis• Industry Attractiveness Favourable factor conditions Favourable domestic market Government initiatives to promote investment Product development and design Technology Up radiation• Current Strategies De-risking the business model Integration Product Mix Diversification
Internal Environment• Financial performance of the company• World class manufacturing capabilities• Multiple Brand Stores• Department Stores and Malls• Exclusive Brand Outlets• Utilities• Technological Resources ANUP Engineering ARVIND ACCEL
Resources• HR vision Be The Foundation That Integrates Culture, Vision & Values , Creates an Environment That facilitates The Maximization of Human Potential.• Endeavour To select, train and coach people to obtain higher responsibilities. To nurture talent to build leaders for tomorrows corporation. To reward, celebrate and activate all intellectual business contributions.
Cont• Innovation Resources o Fire Protection Fabrics o Chemically treated Flame Retardant Fabrics o Inherent Fire Resistant Fabrics o High Tech Applications • Filtration Fabrics • Anti-Ballistic Fabrics • Nylon Fabrics • Carbon-Glass-Aramid Fabrics• Core Competencies o Shuttle looms for Selvedge denim o Name selvedge and Stretch selvedge o Unique Fibers like Excel, Jute, Silk, Linen o Natural Indigo and Vegetable dyes o Unique concept products like Indigo voiles & Handspun denim o Organic, BCI & Sustainable denim
Value Chain Analysis• Primary activities – Spinning department – Weaving department – Dyeing department – Finishing department• Supportive Activities – Quality Assurance department• laboratory – Cotton laboratory – Chemical Testing Labortary – Colour Quest Labortary – Calibration Laboratory• Inspection Department• ISO & EMS Department• Marketing Department• Human Resource Department
StrengthsStrong portfolio of domestic and international Weaknessbrand Less productive machines in processEconomies of scale through complete integration Presence in only big cityLatest Manufacturing tools Not doing enough to build brand equityWide geographical presence SWOTOpportunitiesChanging retail scenario ThreatsGlobal demand of denim fabric Competition from global playerPrice CompetitivenessCheap Labor Decline in exportsDebt Restructuring Cheap import from china ,Bangladesh, ThailandProduct Diversification Rise in raw material priceForward Contracts for Naphtha and CottonDuty waive-off after post 2005 liberalization scenario
Implementation of Strategic Actions• Business level /competitive strategies Improve cash management minimize borrowing Improve collection, reduce receivables Improve capacity utilization Increase inventory turns Improve customer retention and loyalty Gain/enhance market share Enable cross sell up capabilities Improve product and customer profitability’s Enable and enhance channel partner effectiveness• Corporate Level Strategy To become the market leader Support strategic planning Product portfolio optimization Improve capital budgeting and allocation process Enhance innovativeness and change management capabilities
Ethics and Corporate Social Responsibility• Education• Upgrading slums• Vocational Training• Medical Care And Research• Education – Professional, Cultural, And Research Bodies• Human Development• Two trust run by Arvind ltd.: Sharda trust Lalbhai rural development fund