Thursday, November 26, 2009

More foreign players in the textile sector in 4-5 months



While the global slowdown may still be far from over, the Indian textile industry is expected to have tie-ups with foreign companies in the next four to five months. The foreign investment through the direct route is likely in apparel sourcing, fabric manufacturing and textile machinery manufacturing.

The foreign joint ventures are expected to fructify following Union Minister of Textiles Dayanidhi Maran’s recent visit to Europe along with an industry delegation to attract FDI into the sector. The delegation held meetings with textile companies in Switzerland, Italy and Turkey. Talks with some companies have progressed which is expected to result in foreign textile players setting up bases in India in varying capacities.

Most investment would be in the form of joint ventures between Indian and foreign companies. However, a foreign player is expected to set up a green field machinery manufacturing unit on its own accord.

Some of the prominent companies the delegates had held discussions with include Italian companies Gruppo Coin, Radici Group and Miroglio, among others. For investment in the textile machinery sector, the delegation held discussions with Swiss companies like Beninger, Reiter, Jacob Muller, among others. Other prospective investors are Turkish companies Bilsar and Yunsa Yunlu san Tic A.S. "Currently, all prospective investors with whom the initial talks were done are exploring how big the Indian market is and the right time to enter into partnerships. In the next four to five months you will see agreements being signed in both the machinery and the apparel sector," said Prashant Agarwal, vice-president in consultancy agency Technopak. Agarwal was part of the minister’s delegation.

Investments are expected, however, to be slow in the areas of apparel retail as policy restrictions, limited understanding of the Indian retail market and apparent lack of suitable domestic players for joint ventures act as major hurdles.

"Foreign players are interested to invest in India in varying capacities. They are interested in setting up green field machinery (textiles) units as India really lacks in this sector. Apparel sourcing hubs are also one of the sectors which are attractive for foreign players. There are some players who want to set up retail outlets but sourcing hubs are more popular," said M Senthil Kumar, chairman and managing director of Tamil Nadu-based Palladam weaving park and a member of the trade delegation.

Countries like India and China have acted as sourcing hubs for foreign players primarily due to the cost-effectiveness of the locations. India, however, has constantly lost to China as a contender for location for sourcing hubs as Indian manufactures are unable to satisfy the large volumes needed by major brands. However, major foreign retailers like JCPenney, Nautica, Dockers and Target have their own sourcing network in India. Foreign players are less apprehensive about setting up sourcing bases than setting up retail outlets as it is considered a safe venture, as many foreign players have already established themselves. Even as many major global retail brands have announced their intention to enter the Indian market, several high-priced international apparel brands were earlier forced to close shop due to sluggish demand. Few other brands like Jimmy Choo and Bottega Veneta changed hands from the Murjanis to Genesis Colors and Springfield in order to sustain growth.

"Sourcing is one of the most lucrative options for foreign players in India and they can use it as their export base too. Foreign players are apprehensive about retail ventures as there are already established players and brands and some functioning through franchisee outlets," said the chairman of another mid-sized textile firm requesting anonymity.

Sourcing hubs use the Indian base to source their fabric and export them to other countries. Sourcing hubs do not cater to the needs of the domestic market. However, some players like the Kohlapur-based Tessitura Monti India Private limited, which began its business in India as a sourcing hub, also established a brand for the domestic Indian market.

The Indian textiles sector has been able to attract only $200 million, which is a mere 0.6 per cent of the overall FDI of $33 billion, in the year 2008. In comparison to India’s dismal figures, the Chinese textiles industry has been able to attract foreign investment of $10 billion during the same period.

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