Case study on The denim war will Arvind come out a winner

Under the guidance of Dr.R. venkatesh

Submitted by:Sunit MishraMandvi guptaAbhinav SharmaJeetu JoseBhaskar Thakur

Introduction:

This article deals with an analysis of the Indian textile industry and the strategies applied by Arvind

mills for their future growth perspectives.

The Indian Textile industry adds 14% to the industrial production and 8% to the GDP of India. It

provides employment to 38 million people and thus, is the second largest employment provider

after agriculture. The Indian Apparel & Textile Industry is one of the largest sources of foreign

exchange flow into the country with the apparel exports accounting for almost 21% of the total

exports of the country. Currently the Indian textile and apparel is US$62 billion out of which US$22

billion is contributed by exports and the rest US$40 billion is by the domestic market. According to

the textile ministry, Indian textile market is expected to reach US$115 billion by 2012. In this span of

three years, the domestic market is expected to reach US$60 billion and India’s share of global

textile exports is expected to increase from 4% to 7%.

Breif History of Arvind Mills

The three brothers, Kasturbhai, Narottambhai and Chimanbhai decided to put up a mill to produce

superfine fabric. And a company called Arvind Mills was born in 1931. With the aim of

manufacturing the high-end superfine fabrics Arvind invested in very sophisticated technology. With

52,560 ring spindles, 2552 doubling spindles and 1122 looms it was one of the few companies in

those days to start along with spinning and weaving facilities in addition to full-fledged facilities for

dyeing, bleaching, finishing and mercerizing. Steadily producing high quality fabrics, year after year,

Arvind took its place amongst the foremost textile units in the country.

Section A

Tows analysis of arvind mills

Stratergies to convert threats and weakness to strengths and oppurtunities.

1. Competition from global players:

It is largely believed that china will be the largest beneficiary of No Quota regime.

According to Mickinsey, china will garner 50% exports. China currently has 17%-18%

global market share which is a threat to Indian textile industry and arvind mills. To

overcome this threat arvind mills has plans to export for industrial wear segment of

US$ 3 billion dollars. This segment has a constant requirement.

2. Decline in exports

There has been a decline in the exports to US and Europe due to recession by 13% in

2009. This has an impact on the business of arvind mills. To overcome this threat

THREATSCOMPETITON FROM COUNTRIES LIKE CHINA.DECLINE IN INDIAN TEXTILE EXPORT BY 13%RISE IN RAWMATERIAL PRICESOPPURTUNITIESDEMAND IN DOMESTIC MARKETVALUE IN INDUSTRISL WEAR SEGMENT VALUE IN DOMESTIC GARMENT RETAIL MARKET.WEAKNESSINEFFICIENT PRODUCTION PROCESSFINANCIAL WEAKNESSTOWS

arvind mills has started its retail chains in the domestic market(Megamart) to

capitalise the domestic market which has seen a growth of 35% in 2008-09.

3. Rise In raw material prices

To over come the rise in raw material prices arvind mills has its presence across the

textile value chain.

Weakness

1. Inefficient production process

The inefficient production process of arvind mills has put arvind mills in financial

crises in the past hence the company has started working on stream lining the

production process

2. Financial Weakness

Due to wrong strategic decisions the Arvind mills has suffered financial crises in the

late 1990’s. The liquidity ratio of the firm was 2.25 when compared to 1.3 industry

standard. Arvind mill promoters are increasing their investment from 34% to 47%

which make the firm financially stable.

Section B

Strategies of Arvind Mills to become Market leader

1. The Arvind Mills franchise had formulated an aggressive strategy to streamline its

current operations by setting up top scale garmenting facilities and providing

services through a one-stop shop by offering garment packages to all its

international and domestic customers.  The textile business is likely to become one

of the largest apparel brand in India, with its international licenses for Wrangler, Lee,

Tommy Hilfiger and Arrow along with its domestic brands. The domestic brands of

the apparel franchise include Newport, Flying Machine, Excalibur and Ruf & Tuf. The

Arvind Mills franchise has been a pioneer in changing customer demands for textiles

across the globe and it has focused on selecting core products. This focus has

enabled the textile business to play a dominant role in the world textile arena.

With the presence of the Arvind Mills franchise across the textile value chain, it

endeavours to be a one-stop shop for all the leading garment brands.

2. Arvind mills have plans of catering to the industrial wear segment. The industrial

wear segment is a US$ 3 billion dollars market globally. This diversification is

beneficial as the demand for this segment is necessity and hence is not volatile like

the retail market.

3. The company has changed its name from ‘Arvind Mills Ltd’ to ‘Arvind Ltd’ with a new

logo and identity to reflect a company which is diversified with focus on branded

apparel and retail.

The strategy of concentrating on the domestic market along with the international market

may work out to be rewarding for the company as it has a good portfolio of domestic and

international brands, and has been a established national player. The move also helps it to

ward off any risk it faces from the recession in export markets.

Section C

What is multifibre agreement and how did it affect the textile industry.

Definition

International trade agreement under which two countries may negotiate quota restrictions

on textile and apparel imports from each other. MFA restrictions are normally prohibited

under World Trade Organization (WTO) rules and must have been phased out by 2005.

History :

The aim of the Multi-Fibre Agreement (MFA) was to allocate export quotas to low-cost

developing countries, limiting the amount of imports to countries whose domestic

industries faced serious challenges from rapidly increasing imports. The expiration of the

MFA did not, however, mean the end of quotas on textile and clothing exports from

developing countries. The MFA regime served to protect newly industrialised countries like

Korea, Taiwan and Hong Kong that have now become non-competitive due to substantial

increases in domestic wages.

Implications :

Trade-restricting quotas on textiles and clothing have changed the global nature and

location of production. The two key outcomes with regard to geographic location have been

the protection of production centres in quota-imposing countries, mainly the United States

and Europe, and the concurrent dispersion of production in quota unconstrained locations.

An absence of quotas would in all likelihood have lead to higher concentrations of textile

and clothing production centres in a small number of low-cost destinations.

Protectionist measures ensured the continuation of an incentive for the sector to operate in

an environment characterised not merely by low input costs, but also by other competitive

factors such as design, technical attributes and fashion elements, which were allowed to

flourish.

Since quotas provide an absolute rather than a relative measure of protection, they

immunised to a large extent against the downward pressure on prices that other countries’

increasing competitiveness and generally low-cost base brought with them.

Quotas therefore played a key role in preserving and expanding the sector in the countries

such as the US, and the EU.

Quotas also helped drive a much broader worldwide dispersion of the sector than would

have taken place otherwise.

Section D

Present position of the jean industry

The global US$55 billion denim fabric industry, like many other sectors, has been

negatively affected by the global recession. Faced with rising unemployment and

falling household incomes, customers have been spending less on clothing—

including jeans and other denim apparel. As a result, the demand for denim

fabric fell. However, the prospects for denim fabric exporters in 2010 will improve

provided world economic growth can be maintained.

There has been an considerable increase in the demand of personalised jeans

started by levi’s. Hence the concept of mass customization and introduction of new

styles can help the jeans market.

The current demand for denim from Bangladesh stands at 280 million meters a year

and is growing 25 per cent annually. Arvind expects revenues from the textile

business to increase from Rs 2,200 crore in FY10 to Rs 4,000 crore in the next three

years.