EAI 01 ISSUE 04
100
GSP Withdrawal to have minimal Impact
Slow
recovery for Indian exporters
McKinsey Report:
Indian Ascent in global industry APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | APRIL 2019
AppArel / Global affairs
Withdrawal of GSP benefits to have minimal impact on Indian apparels and textiles • US plans to scrap GSP benefits to India within the next two months • Around $17.97 million worth of Indian imports currently enjoy GSP benefits • Women’s or girls dresses containing 70 per cent or more of silk or silk waste are likely to be highly impacted • India is likely to impose higher duties on 29 goods imported from the US from April 1 have adapted by increasing local hiring, this comes at the cost of lower margins.
India to address US Concerns on medical devices and diary market access
T
he US plans to scrap the generalised system of preferences (GSP) benefits for India within the next two months that allowed the Asian country to export up to $5.6 billion worth of products to America duty-free. This withdrawal of the GSP scheme comes on the back of far greater restrictions on visa issuances for Indian firms under the Donald Trump administration. While Indian IT companies
2 / APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | April 2019
The US initiated the review of the GSP status to India on the basis of representations by the US medical devices and dairy industries but it subsequently included numerous other issues on a self-initiated basis. These included issues related to market access for various agriculture and animal husbandry products, easing of procedures related to issues like telecom testing, conformity assessment and tariff reduction on ICT products. According to the commerce ministry, India was ready to address US concerns regarding medical devices in principle, by putting in place a
AppArel / Global affairs
“The US imports $586.58 million worth of RMG products under 15 categories that currently enjoy GSP.” suitable trade margin approach in a reasonable timeframe to balance concerns about fair pricing for the consumers and adequate remuneration for the suppliers. On the issue of dairy market access, India has clarified that while its requirement for certification is non-negotiable given the cultural and religious sentiment, simplified dairy certification, without diluting this requirement, could be considered. India is also willing to consider discussions for a mutual recognition agreement on telecom testing,
Minimal impact on apparel exports
The scrapping of GSP will not have any significant impacts on India’s shipment to the US. According to the Apparel Export Promotion Council (AEPC), the US imports $586.58 million worth of RMG products under 15 categories that currently enjoy GSP. India’s share of this pie is $17.97 million. The MFN (most favoured nation) tariff in 15 products varies from 0.86 per cent to 14.6 per cent in which India gets duty access with 100 per cent margin of preference. These 15 products contribute to only 0.46 per cent of India’s apparel exports. The bulk of the benefit is concentrated on Woven silk dresses for women, which make up 58.5 per cent of India’s total trade under GSP. AEPC has identified, on the basis of current trade with US, that GSP withdrawal on as many as 11 products of the 15 may have a negligible impact on India’s apparel exports to US. APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | April 2019
/3
AppArel / Global affairs
“GSP removal would lead to a loss of hundreds of jobs.” The high impact would be on women’s or girls dresses, not knitted or crocheted, containing 70 per cent or more by weight of silk or silk waste. The moderate impact will be on shawls, scarves, mufflers, maintillas, veils and the like, not knitted or crocheted, containing 70 per cent or more silk or silk waste. India believes the duty reduction would almost entirely benefit third countries and accordingly conveyed to the US its willingness to extend duty concessions on specific items in which there is a clear US interest. Referring to the India-US trade being heavily tilted towards India, the commerce ministry said that due to various initiatives resulting in enhanced purchase of US goods like oil and natural gas and coal, the trade deficit with India substantially reduced in 2017 and 2018. This reduction is estimated to be over $4 billion in 2018, with further reduction expected in future years on account of factors like the growing demand for energy and civilian aircraft in India.”
GSP removal to affect jobs
The financial markets are doing extremely well currently and one of the reasons for this the prospect of an end to the US-China trade war. Howev-
4 / APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | April 2019
er, the current trade tension between the US and India clearly does not bode well for the industry According to M Shanmugam, President, Tirupur Exporters Association, the GSP removal would lead to a loss of hundreds of jobs . He urged the Centre to help the industry in the form of incentives.
India’s retaliatory tariffs to derail substantive package
Now, with the US terminating preferential treatment to Indian exports under GSP, India is likely to impose retaliatory tariff although it has maintained that these tariffs are a separate issue and no knee-jerk reactions are warranted. India is likely to impose higher duties on 29 goods imported from the US from April 1, adopting a firmer stance in relations with one of its biggest trading partners, which withdrew benefits under the Generalised System of Preferences (GSP). Higher duties have been proposed on US walnuts, chickpeas, lentils, boric acid and diagnostic reagents, among other goods, imposing an additional burden of $290 million on them. The increased levies, proposed in June 2018 have been already deferred six times in view of the bilateral trade dialogue. These tariffs are likely to derail the substantive package that India and the US were working on to resolve trade issues. n
APPAREL / MARTETS
Global adaptive apparel market to reach $349.9 billion by 2023
A
ccording to a report from Coresight Research, the global adaptive apparel could reach $288.7 billion globally this year and grow to $349.9 billion in four years. In the U.S. alone, the market will grow to $54.8 billion by 2023. Adaptive apparel addresses the needs raised by a variety of situations, including some disabilities and health conditions; mobility, sensory or motor processing difficulties; and various medical treatments. According to WHO’s 2011 World Report on Disability, around 785 million people aged 15 and older have a disability. The retail think tank notes that more brands have moved into the market in recent years, including Nike, Tommy Hilfiger, Target, and Zappos, which launched collections in 2016 and 2017. Last year, U.K. department store Marks & Spencer
Digital textile print bureau generates huge potential
debuted a children’s Easy Dressing line and Nike a self-lacing basketball shoe operated with a smartphone. n
Winter wear grows globally at CAGR of 5.8%
R
F
uelled by three enablers, digital textile printing, web to print software and vibrant ecommerce platforms, the Digital Bureau has generated huge potential from start-ups all the way through to mass manufacture. The bureau creates unique fabrics on the roll that can then be used in a myriad of applications from fashion to homewares, craft to interior design. It employs only two or three people and yet is capable of beating larger enterprises in terms of service, delivery and price. In this entry-level Bureau, all the skills are present through multitask training from design to pre-press and on to printing, inspection and dispatch. Typically they cater for a broad base of demand. Many of these Bureau’s offer over 50 standard fabrics and a full range of printing ink-set options from latex to dyesub and from reactive to pigment. In many cases Bureau’s work with simple workflow software based around Adobe Photoshop for design, and RIPs (Raster Image Processing Software) supplied by the manufacturer. Yet, the system gives the entry level printer the ability to manoeuvre images and print quickly and accurately to satisfy the requirements of their clients who need customisation and personalisation in a hurry. n
evenues of the global winter wear market are expected to increase at a CAGR of 5.8 per cent during 20182027. Favorable trade policies, growing apparel production globally, rise in per capita income, favorable demographics, and shifting consumer preference to branded products will boost this demand for winter wear. Other key factors driving the growth are population density, downstream industry effectiveness, and changing economic policies as well as business legislation. Abundant availability of raw materials such as wool, silk, cotton, and others is another driver of the winter wear market. Companies across the globe are launching new products with latest fashion and high quality along with expanding market presence through establishing new manufacturing facilities as well as sales channels to reach potential customers. Manufacturers have also adopted various key differentiation strategies to have a competitive edge. n
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | APRIL 2019
/5
AppArel / emerging india
Year 2019 will be India’s ascent in global fashion industry: McKinsey study
T
hough economic expansion is happening across Asia, 2019 will be the year when India will take center stage. As highlighted in McKinsey’s latest ‘State of Fashion report written in partnership with the Business of Fashion, India’s ascent is one of 10 trends the fashion industry needs to watch out for in 2019.
Retailers leverage technology
As per data from McKinsey’s FashionScope, India’s apparel market will be worth $59.3 billion in 2022, making it the sixth largest in the world, comparable to the United Kingdom’s ($65 billion) and Germany’s ($63.1 billion). The aggregate income of the addressable population is expected to triple between now and 2025. According to Sanjay Kapoor, Founder of Genesis Luxury, a luxury retail conglomerate, higher incomes are likely to create a whole new class of consumer: Retailers are moving on toward the ‘gold collar’ worker, term that defines the highly paid professionals. Over 300 international fashion brands are expected to open stores in India in the next two years. To build momentum around conventional stores, Indian players are innovating: retailers are leveraging technology to enhance the instore experience with digital marketing displays
6 / APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | APRiL 2019
AppArel / emerging india
with just five million smartphones in a country of 1.2 billion people and only 45 million Internet users. These figures have since increased to 355 million and 460 million, respectively, in 2018, and they are expected to double by 2021, when more than 900 million Indian consumers will be online. E-commerce leaders are moving to solutions based on artificial intelligence.
Consumption patterns, preferences in focus
and improved checkout. For instance, Madura Fashion & Lifestyle launched the Van Heusen Style Studio, which uses augmented reality to display outfits on customers. Malls have also increased their share of space devoted to food service and entertainment. Growth in the apparel sector is also being driven by increasing tech savviness among consumers. Ten years ago, technology was for the few,
Successful brands have studied the consumption patterns of their consumers, their preferred colors, designs and touchpoints. Indian women have beautifully amalagated the Indian and Western sensibilities across the spectrum. Traditional clothing made up almost 70 per cent of women’s apparel sales in 2017. It is expected to account for a 65 per cent market share by 2023. With nearly 40 per cent of the Indian network unpaved till 2016, India’s infrastructure too continues to lag behind that of many other Asian countries. In addition, retail stock is often below expectations. However, there are signs of improvement. Reliance Brands, which operates over 500 stores for International brands is de-
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | April 2019
/7
AppArel / emerging india
veloping two fantastic luxury malls in Mumbai along with the convention center.
Offering a great promise
Many brands are determined to take advantage of India’s blossoming growth. The majority are likely to choose one of the three routes. First, players can partner with existing e-commerce platforms. This is most suitable for players with low brand awareness and relatively little capital to invest; it also offers a good way to test demand and customer preferences. Second, brands that have little local knowledge and are looking to enter the market quickly can do so with a franchise model, developing brick-and-mortar retail spaces. Finally, players that have significant local knowledge and capital resources can create fully owned and operated stores. In short, the Indian market offers great promise. Despite structural challenges that include inequality, infrastructure, and market fragmentation, strong economic growth, scale and rising tech savviness will combine to make India the next destination for global fashion and apparel business.n
8 / APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | April 2019
APPAREL / INDIA
Global Consumer Confidence at its peak in India: Survey
A
s revealed in the latest Conference Board Global Consumer Confidence Survey, global consumer confidence in India is at peak. The survey, conducted in collaboration with Nielsen, polls more than 32,000 consumers in 64 countries across Asia-Pacific, Europe, Latin America, the Middle East, Africa and North America. India had a Consumer Confidence Index (CCI) score of 133 in the fourth quarter of 2018 edging past the Philippines (131) and Indonesia (127). India maintained its number one position from the third quarter when it scored 130 on the index whereas Philippines and Indonesia were joint fourth in Q3 of 2018 with an identical score of 126. South Korea has the most pessimistic consumers in the world. People there are worried about rising inflation, lower wage growth, a weak stock market, unemployment and global trade uncertainties. Meanwhile, the Global Consumer Confidence Index increased one point to 107 in fourth quarter of 2018, the highest in 14 years.
Indian e-com set for huge growth
I
ndia’s e-commerce marketplace is growing at a compound annual growth rate of 32 per cent. Factors responsible for this growth include changing purchase patterns, high-intensity online shopping and heightened use of smart phones. Mobile commerce is growing at an exponential pace. The millennial population has mostly championed this trend across Tier I, II and Tier III markets. Social mediarelated commerce in India has been on the rise, with 28 per cent millennials purchasing products due to social media recommendations and 63 per cent millennials staying updated on brands through social media. Experiential retail offerings have picked up with the use of advanced data analytics, bots and drones, beacons, cloud platforms and virtual reality to understand consumer needs. Despite the stress faced by the Indian rupee and the rising crude oil bill, the Indian retail market is expected to grow at a compound annual growth rate of 7.8 per cent between 2021 and 2026. Given the strong retail and consumer outlook, India is expected to witness redefining trends in the consumer market which will shape the future of the retail industry. The share of the organised retail market is expected to increase from 12 per cent in 2017 to about 25 per cent by 2021. n
The main indicators measured by Conference Board CCI are optimism towards job prospects, health of personal finances and spending intentions in the next 12 months. n
Textile Ministry launches scheme for the knitting & knitwear sector
S
mriti Zubin Irani, Union Minister of Textiles, recently launched the much awaited “Comprehensive Scheme for the Development of Knitting & Knitwear Sector (CSDKKS) with various components under PowerTex India”. The scheme will help to promote knitting and knitwear sector and thereby achieve the inclusive growth in the country. It will also enhance the sector’s contribution to the nation building as knitting and knitwear sector is one of the major segments of the entire textile value chain and contributes about 27 per cent of the total cloth production and about 15 per cent of knitted fabric is being exported besides export of knitted apparel. The main clusters to benefit from this announcement are Tirupur, Kolkata, Ludhiana, Kanpur and NCR. n
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | APRIL 2019
/9
AppArel / Exports
Slow recovery for Indian apparel exports amidst challenging environment • India’s apparel exports in Q3 FY2019 remained lower than the average quarterly exports during the past five years. • Incremental developments on CTPPP could considerably strengthen Vietnam’s competitiveness. • EU-Vietnam FTA could weaken India’s positioning in the Vietnam market
F
ollowing a decline of 4 per cent in FY 2018, India’s apparel exports are further estimated to decline by 4-5 per cent in FY2019. India’s apparel exports in Q3 FY2019 remained lower than the average quarterly exports during the past five years. ICRA expects this trend to bottom out and recovery to set in with internal challenges and abrupt pressures subsiding, though the pace of
10 / APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | April 2019
recovery is likely to remain muted considering the challenging environment. India continues to experience intense competitive pressures from nations that offer a cost advantage over India as this constrains the overall momentum of the apparel export sector of India.
FTAs to alter global trade dynamics
India continues to experience intense competitive pressures from nations that offer a cost advantage over India as this constrains the overall momentum of the apparel export sector of India. The concerns are heightened by the progress on certain large free trade agreements (FTA) which can materially alter the global trade dynamics. The most prominent amongst these is the Comprehensive and Progressive Trans Pacific Partnership (CP TPP), which is the third largest free trade area in the world by GDP. By mid-January 2019, the agreement had entered
AppArel / Exports into force between seven of the eleven nations. Even though there is some respite for India considering that the leading apparel importing regions are not yet a part of the CP TPP, any incremental developments on this front could prove to be a potential threat as it could considerably strengthen Vietnam’s competitiveness. Another FTA being closely watched is the EU-Vietnam FTA. Conclusion of the FTA can weaken India’s competitive positioning in one of the key apparel markets, accounting for ~37 per cent of India’s apparel exports in CY2018. This can be corroborated from the fact that Bangladesh, which enjoys a duty-free access to the EU market since 2001 under the Generalised Scheme of Preferences, has been able to expand its market share in EU from less than 7 per cent in 2001 to ~20 per cent at present, while India has been able to barely maintain its share at ~6-7 per cent.
Presence in the niche and valueadded product segments alongwith with access to an established client base has helped export-based companies to maintain revenue growth, in contrast to the broad industry trend
Value added markets and established client base help growth
ICRA research also notes that a sample of large, listed, domestic as well as export-focused garment-manufacturing companies has continued to perform well, reporting a 13per cent (YoY) growth in Q3 FY2019, following the similar average growth rate during the previous four quarters. ICRA believes that presence in the niche and value-added product segments, together with access to an established client base has helped export-based companies to maintain revenue growth, in contrast to the broad industry trend. This, together with a revival in domestic demand, particularly in metros and tier-I markets where the larger listed players are predominantly present, translated into a healthy growth for ICRA’s sample during the current financial year. Besides, favourable currency movement and healthy growth in revenues facilitated. Going forward, steps taken by the Government of India to address the challenges, will remain crucial for a broad-based recovery across the sector. This also remains critical for the domestic apparel exporters to capitalise on the revived global apparel trade as well as the continuing loss of market share by China, which opens up a lucrative opportunity for key players such as India, Vietnam and Bangladesh. n
APPAREL EXPORT PROMOTION COUNCIL MAGAZINE | April 2019
/ 11