FW
The Synthetic and Rayon Textile Export Promotion Council (SRTEPC) wants a reduction of GST on yarns from 18 per cent to 12 per cent. With GST, the tax rate on manmade yarns has been increased from 12 per cent to 18 per cent, which has made the cost of fabrics higher.
SRTEPC says, GST has had an adverse impact on the exports of manmade fiber textiles and if the decline is not arrested employment generation and foreign exchange earnings will be affected. GST duty on spun, textured, fully drawn, warp and knit yarns is 18 per cent. The GST on fabrics is five per cent. This has resulted in huge accumulation of unutilized credit with weavers.
Blocked un-rebated state input taxes and duties like transmission charges, electricity duty, cross subsidy on electricity bills, water cess, green tax, local body taxes, road taxes, labor cess etc. are about five per cent of the freight on board value of textile exports. These are not adjusted in drawback or rebate of state levies scheme to yarn and fabric exporters.
SRTEPC has urged for an immediate reduction of GST on yarns. Another fallout from GST is the big threat of imports of fabrics and garments from China, Bangladesh and Sri Lanka. Earlier imports had a 12.5 per cent countervailing duty, which wasn’t adjustable. Now they would attract five per cent GST, which is adjustable against subsequent sales.
Turkey's home textile makers are hiring people to represent their brands in other countries, to help market their products better and increase sales. One of the biggest problems Turkey’s mill owners face when doing business abroad is not knowing the language and culture of particular regions. Brand ambassadors are expected to smoothen the interface.
In terms of business, Turkey feels the bad days are over in terms of exports and that reaching double digits in home textile exports to Europe is a promising improvement. The industry has the necessary infrastructure and raw materials. Each kilogram of home textile product is priced around $12, making it more profitable than the automotive sector. Eighty per cent of the value produced in the automotive comes from abroad, while in the case of home textiles it is only 25 per cent. The rest is processed in Turkey.
The Russian crisis has forced Turkish exporters to enter new markets as far as the Far East. Turkey mostly exports towels to the US and upholstery fabric and curtains to the EU and China. China's growing number of wealthy wants Turkish fabric on their furniture. The home textile industry is seeking permanent markets in order to be able to expand in other countries.
"The latest Wazir Textile Index (WTI) highlights that raw material prices increased in Q1 FY18 compared to Q1 FY17. On an average, raw cotton, viscose staple fibre and polyester staple fibre prices increased by 15 per cent, 10 per cent and 3 per cent respectively in Q1 FY18. Cotton yarn and polyester viscose blended yarn prices grew at 10 per cent and 11 per cent respectively. However, polyester cotton blended yarn saw a decline of 9 per cent in Q1 FY18 compared to Q1 FY17 on an average."
The latest Wazir Textile Index (WTI) highlights that raw material prices increased in Q1 FY18 compared to Q1 FY17. On an average, raw cotton, viscose staple fibre and polyester staple fibre prices increased by 15 per cent, 10 per cent and 3 per cent respectively in Q1 FY18. Cotton yarn and polyester viscose blended yarn prices grew at 10 per cent and 11 per cent respectively. However, polyester cotton blended yarn saw a decline of 9 per cent in Q1 FY18 compared to Q1 FY17 on an average. The WTI shows that overall, Indian textile and apparel mill sector exhibited growth in sales during the first quarter of financial year 2017-18. However, there has been tremendous pressure on margins due to increased input factor costs like raw material and manpower resulting in steep decline in EBIDTA levels.
Consolidated sales of top 10 selected companies was Rs 10,122 crores in Q1 FY18 compared to Rs 8,961 crores in Q1 FY16. The WTI EBITDA was calculated to be 77.7 in Q1 FY18. This reflects an overall decline of 25 per cent in EBITDA margin in Q1 FY18. EBITDA decreased significantly due to impact of increase in raw material cost and employee costs. Consolidated EBITDA margin of top selected companies was 12 per cent in Q1 FY18 declining from 16.6 per cent in Q1 FY17. The WTI Cost for raw material (RM), manpower and others were 122.2, 130.5 & 112.9 in Q1 FY18. There was a significant increase in raw material prices, which resulted in overall cost, while manpower costs increased on the back of increasing labour wages. Consolidated RM cost constituted 54.9 per cent of sales in Q1 FY18, while consolidated manpower cost constituted 9.8 per cent of sales. The impact of the cost increase was visible in the declining EBITDA margin.
Growth in exports
Overall textiles and apparel exports in Q1 FY18 was $9.5 billion increasing at a healthy 8 per cent from previous year. Export of fibre, apparel, home textiles and filament has grown in Q1 FY18 as compared to Q1 FY17, fibre having the majority share. Highest growth was observed in exports of fibre growing at a rate of 48 per cent. Exports of yarn fell by 11 per cent in Q1 FY18. US and UAE were the largest export markets for India with a cumulative share of ~35 per cent. Share of UAE increased slightly in Q1 FY18.
Increased imports
The overall textiles and apparel imports in Q1 FY18 was around $1.7bn increasing significantly at 23 per cent from the previous year. Imports growth in Q1 FY18 was primarily due to a tremendous increase in fibre imports by 99 per cent over Q1 FY17. However, imports of other major categories yarn, home T&A declined significantly. China continues to be the largest import partner for India. Import share of USA increased significantly from 7 per cent to 13 per cent in Q1 FY18 while import share of Bangladesh declined from 10 per cent to 4 per cent in Q1 FY18.
In the first eight months of 2017, Vietnam’s exports of textile fibers increased 15 per cent in volume and 24 per cent in value over the same period last year. Fiber and yarn exports to Taiwan surged sharply, up 70 per cent in volume terms and 58 per cent in value terms. In addition, exports to Hong Kong, India, Egypt also reached over 30 per cent growth. Exports to Japan were up 35 per cent in volume and 40 per cent in value terms.
The quality of Vietnam’s cotton fiber is good and meets importers requirements. Vietnam’s yarn industry is well positioned on the world’s fiber map and is able to compete well with major countries such as India, China, Turkey and some Middle East countries.
Besides the satisfactory export results, Vietnamese yarn industry is now actively involved in the development of yarn industry for the domestic textile and dyeing. In addition, Vietnam has also been active in high-end cotton yarn products for high quality of textiles. In addition to domestic production, Vietnam's yarn industry is also exporting large volumes annually.
Currently almost the entire cotton needed for production in Vietnam is imported. In the first eight months of 2017, Vietnam’s imports of cotton were up 25 per cent in volume and 47 per cent in value terms.
In 2001, China paid the lowest real wages in the textile industry among all Asian countries. Salaries however began to grow, eventually rising by 124 per cent in 10 years. This wage rise brought about an increase in the levels of quality in Chinese apparel manufacturing, to allow the industry to compensate for its cost increases.
China’s neighbors have largely benefited from this: they took over as suppliers for entry-level products, while they also had to deal with growing wage demands from their workers. These demands generated robust salary increases in Vietnam and in Indonesia in the same decade. Due to its economic situation and proximity to the US, Haiti too seems to have benefited from this phenomenon.
However, these positive trends hide a rather different reality. Once adjusted for exchange rates and purchasing power parity, textile industry real wages in most countries analysed have declined in the decade in question. Real wages in Mexico posted a record 29 per cent decrease, while in Cambodia they decreased by 22 per cent, starting from a very low salary base.
For some markets, it is hard to calculate the value of paid overtime, which makes up a large part of textile workers’ income in the countries in question. All the more so since such overtime often exceeds the ceilings locally set by law.
Cotton prices are likely to witness a depressing trend. There is going to be a lot of cotton the world over. In spite of losses due to the recent hurricanes in the US cotton belt, the size of the US crop is expected to be larger. Indian acreage for the current season is expected to jump about 12 per cent compared to last year. Expecting yield to increase by about the same percentage points, India will have a bumper crop. If this scenario turns out to be correct, it may create a situation that will warrant India to support farmers by minimum support price operations. In the country, 350 lakh bales were produced last season and the number is expected to reach 385 lakh bales.
Among the many factors that have led to an increase in Indian acreage, an important aspect has been the shift from oil seeds and pulses to cotton due to lack of remunerative prices. There has been a stagnancy in prices of these commodities, and MSP has had to be applied for these products. Cotton prices are under pressure as mill demand is not high. To exacerbate this situation, confusion is prevailing with regard to the implementation of GST.
The European Union will modify its sales taxes rules. The aim is to close tax loopholes and eliminate fraud. The new measures on value-added tax would mostly tackle frauds in which companies pocket VAT revenues from cross-border sales instead of paying them to the local government.
The move would also end the practice of companies avoiding VAT by basing themselves in countries with low VAT rates. They will now, as a general rule, have to pay the VAT charged by the country where their products are sold.
The proposed changes are expected to permanently end tax advantages for supplier companies that serve the EU market from a low-tax country, like Amazon, which is based in Luxembourg. The changes would reduce the need for a harmonised VAT rate policy. By November, it will make new proposals to reform VAT rates, giving states more power to set them. The move is also aimed at reducing scams that deprive EU states of large amounts of VAT revenues. Often such fraud involves companies collecting tax when a product is sold but not paying it to the government of its home country. Collecting the tax in the country where a product is sold would eliminate that fraud.
Amazon has acquired 3D body modeling startup Body Labs that. Body Labs creates 3D human forms for B2B purposes that can be used, among other things, for virtually trying on clothing. Its technology can be used to accurately predict and measure the 3D shape of customers using just a single image.
Amazon is using its resources to drive e-commerce ahead for a new digital fashion experience for mass consumers. Amazon Prime members currently have access to a wardrobe service, offering customers free returns for product that does not fit. Improving fit with Body Labs technology could boost the e-commerce giant's fashion business by reducing the amount of returns, for example.
Body Labs was founded in New York in 2013. Its CEO and co-founder Bill O'Farrell has a track record of developing technology that has been bought out by major companies. His resume includes Adobe and Netsuite buyouts. Amazon has also recently introduced a fashion specific Echo device called Look, to take fashion selfies. Body Labs has a number of similar features that can add filters much like those of a Snapchat lens. Integrating the two platforms could create a consumer experience where customers could try on a dress, send the photo to someone for a second opinion and then circle back and purchase it immediately.
Vietnam’s textile and garment industry will use technologies such as AI and robots for work replacing humans. In 10 years, 86 per cent of workers will become redundant. A Hanoi-based company has dismissed 80 per cent workers as robots now undertake the work. The revolution is expected to have a big impact not only on labor intensive industries, but in all socio-economic fields.
Vietnam’s industrial production is mostly primary production which does not create high added value, with exports mostly raw materials. The production cost in Vietnam is much higher than that in other regional countries but China can make products at low cost because it has modern technology and large-scale production.
The biggest obstacle for Vietnamese enterprises is the outdated technology. It will take time and great effort but if Vietnam cannot catch up with the development pace in the world and the region, the country will have to face many risks including production decline. There might be a wave of outdated technologies from developed to developing countries including Vietnam.
The impact of the industrial revolution, both positive and negative, is unavoidable. The only thing Vietnamese enterprises can do is take full advantage of the opportunities and confront challenges.
A conference on achieving sustainable growth in the textile and apparel industry through manufacturing excellence will be held in Mumbai, October 6, 2017.
It will be hosted by the Confederation of Indian Industry (CII).
One session will be dedicated to deliberating upon the need for implementing standardized manufacturing systems and processes in order to attain manufacturing excellence. In many companies, the systems and processes are established, or rather discovered, by a trial and error method, while this need not be the case.
In today’s globalized world, the learning curve for organizations can be accelerated by use of benchmark operating procedures which once adopted can improve the system efficiency and output quality tremendously.
Another session will focus on the influence that innovation and new technologies have on manufacturing in terms of quality and cost. This session will include discussions on the use of the latest technology for producing better quality products more competitively; IT as a tool for effective planning and monitoring; development of smarter designs, better performance, efficiency, ergonomics and aesthetics; product lifecycle management – material savings/efficiency, resource efficiency etc; and use of integrated monitoring systems.
A third session will focus on ways to achieve high productivity and quality from the manpower employed in the industry. There will be discussions on current issues with the productivity and efficiency levels of the workforce in the textile industry; comparative assessment of the skill levels of Indian workers with top manufacturing nations such as China, Bangladesh, and Vietnam; skill gap present in the textile and apparel industry; and steps taken by the industry and government for reducing this gap and upgradation of skills.
