Navdeep Singh Sodhi
According to the Financial Times Lexicon, in economic theory, value added refers to the worth added to a product during the production process-i.e.,the difference between what the producing company paid for its inputs and the price it charges for the finished goods. Inpractice, the term is used more commonly to describe how a service or component can add to a product’s usefulness, and thus potentially to the final price charged to customers. By contrast, commodity products such as metal, farm goods and oil are hard to differentiate from other products of the same kind.
Textiles is the among the world’s most basic industries and it is often the cornerstone of economic progress in most developing countries. Textile and clothingsector contributes a significant share of the manufacturing GDP in developing countries such as China, India, Pakistan, Bangladesh, Turkey and Indonesia. Textiles& clothing is among the Top 5 traded manufactured product groups in the world-others being chemicals,office equipment & telecom, automotive products and iron & steel. This means that textile producers face a great challenge to offer a unique value proposition and differentiate their products from the rest.
It is quite often heard in policy forums that we need to add value to our textiles. It is said that China generates $ 4 billion from one million bales of cotton, India $ 2 billion whereas Pakistan is lagging behind at $ 1 billion only.In 2013, the Technology Upgradation Fund Scheme (TUFS) was tweaked in favour of value added downstream textiles.
This article describes how value could be added to textile and clothing by five features such as, Function, Fashion &style, Operationalperformance, Sustainability and Service. The readers will also benefit from anecdotal evidence about potential for value addition in Yarn and Fabrics shared below.
5 features of value added textiles & clothing
Value addition to textile products could be achieved by enhancing either the form or function or both. There are several facets of value addition to a basic article of textiles or clothing.
Functional textiles are engineered to meet specific performance requirements whereby value is added through functionality. One such prominent consumer application is wrinkle free or easy care fabrics whereby a finish is applied to fabrics or garments to improve the crease recovery and smooth-drying properties. The demand for wrinkle free apparels is increasing. Nowadays even for bed linen, there is a growing demand for easy care bed sheets. Functional clothing is used for several applications among which sports and defence are prominent.
Fashion and style
Stretch element, especially in women’s clothing is de rigueur. Stretch yarns and fabrics are used particularly for “body conforming garments (comfort stretch) and for figure controlling purposes (power stretch)”. Therefore for value addition to basic yarns, an elastrometriccore is incorporated while spinning to produce core spun yarn used in weaving of stretch fabrics for bottom weights and even shirting fabrics. Lifestyle dressing now influences previously stable sectors of the market such as basic suiting and shirting.
Value is also added by improving the in-production performance of intermediate textile products. Compact yarns are produced by compaction which increases yarn strength, reduceshairiness and liberation of fly. These properties add significant value in downstream processing.
According to Rieter, lowerhairiness and improved yarn abrasion resistance reduce the production of fly in weaving and knitting, which in turn reduces the number of fabric defects and increases machine efficiency. The improved properties of compact yarns also include fabric strength and pilling behaviour. Compact yarns are now regarded as standard for shirt weaving and are also penetrating into the knitting applications due to the perceived added value.
Fig. 1Impact of compact yarn on hairiness and fiber fly Source :Rieter
Use of sustainable raw materials and processes enhances perceived value of the textile products in the eyes of the consumer. Consumers are increasingly exercising their choice in favour of textile materials produced by environmentally sustainable and socially responsible methods.
A Greenpeace report published in 2011 and provocatively titled ‘Dirty Laundry’ was instrumental in generating a positive industry response and led to the creation of an alliance of global fashion brands to works towards elimination of hazardous chemicals used in textile processes by 2020. Huntsman is a leading chemical supplier actively involved in helping the mills to benchmark their processes to optimise their performance. It promotes “positive list” of chemicals and partners in developing cleaner supply chain.
The demand for apparels produced from cotton certified under the Better Cotton Initiative (BCI) is growing as more and more apparel brands are switching over to it and there is a rise in “consumer demands about transparency about the impact of their purchases”. Hence, the perceived value added.Global retailers such as H&M have made BCI central to their sustainable marketing strategy. Spinners are able to fetch premiums of 5-10 cents per kilo. According to the annual report published by Geneva based not- for- profit organisation Better Cotton Initiative,the production of BCI cotton witnessed a dramatic increase from 35,000 MT in 2010 to 623,000 MT in 2012. BCI cotton is now grown in all five continents. In India, Arvind and Trident group have partnered with BCI for promotion of the initiative. Notably, Arvind is working with 5600 farmers covering 47,000 hectares under BCI cotton.
Today, the Higg Index developed by San Francisco based Sustainable Apparel Coalition is being used by hundreds of textile and footwear manufacturers,brands,retailers and other stakeholders. The latest version of the Higg Index 2.0 launched in 2013 is a tool to help organisations standardize how they measure and evaluate environmental performance of apparel products across the supply chain at three levels vizbrand, product and facility level. India’s Arvind and KG Denim have now adopted the Higg Index as their commitment to environmental sustainability in their textile business practice.
Two trends that are driving today’s apparel markets are shortening shelf life and internet retailing. This brings us to an intangible area of customer service but with a rather tangible value added. These two trends were captured with authority in the book titled The Textile/Clothing Pipeline and Quick Response Management published by the Textile Institute.
The old summer vs winter breakdown first segmented into four seasons, and now ‘high fashion’ is heading towards seasons of 8-10 weeks; the signs of ‘continuous fashion’ Not only the retailer, but the entire pipeline is under pressure to provide greater variety. To meet the changing demand patterns, textile and clothing retailers have to react with speed to reduce time to market.
The internet is radically transforming both B2B (business-to-business) and B2C(business-to-consumer) commerce. It is predicted that,by the year 2015, there will be 38 million on-line shoppers-in India that compares to 11 million in 2011. Online retailing has been drawing the maximum interest among all segments of the e-Commerce market. The Indian retail industry estimated at $ 528 billion in 2012 is growing at 11 per cent per annum.Although 90 per cent of the Indian retail is unorganized; the share of organized retail is growing at 24 percent per annum. According to a survey carried out by Boston Consulting Group,India,clothing enjoys the highest market(36 %) share among various products sold through organized retail.Currently, online retail constitutes 1 percent of the total organized retail which is also set to expand.
Fig. 2Product category wise share of organized retail sales in India Source :BCG
Fig.3 Traditional and future retail structure Source : The Textile Institute International
The influence of e-commerce on garment retailing is tremendous. According to a study conducted by Ernst & Young, while electronic goods with a market share of 61 percent enjoy the maximum population in India, apparel and accessories are the largest- selling categories in leading markets such as the US,UK and Germany. “This is because of the higher margins that this category generates for e-Commerce players. The preference for apparels in online shopping is a global phenomenon.” The share of apparels in online retail sales in India is expected to increase.
Value added yarns and fabrics
A glimpse into two value added segments would- core spun yarns and yarn dyed shirting fabrics- will give the readers an opportunity to visualise the horizons available for creating a differentiation through value added textiles
Core spun yarns
Texhong is among the world’s largest cotton core-spun yarn producers offering a wide variety of core-spun yarns for casual fabrics, denim, knitting, yarn-dyed fabrics and home textiles. The company boasts of 1.85 million spindles of which 1.5 million are equipped with core-spun devices, 250,000 compact-siro spinning spindles, 100,000 spindles equipped with slub device and 100,000 dyed yarn spinning spindles.
Texhong produced 284,000 MT of yarns in 2013 of which 65% were core-spun yarns. The average selling price for Cotton Core-spun yarns was $ 4.45/kilo vis-à-vis 4.10 /kilo for 100 % Cotton yarn. The gross margin on the two yarns was respectively 23% and 14%.
India’s largest spinner Vardhman with nearly one million spindles boasts of 52% yarn generated from value added speciality and compact yarns.
Yarn dyed shirting fabrics
The global high end shirting fabric market was estimated at 900 million metres in 2012 dominated by China (40% share).India had a market share of 11 %. According to Lu Thai, the world’s largest producer of high end shirting fabrics,the yarn-dyed shirting market is divided into three segments:
Fig. 4Global high end shirt fabric marketB Source:Gherzi database
The premium segment is characterized by high count above Ne 100’s,high-density and delicateness after finishing. Such fabrics are produced by a few leading textile manufacturers in Italy,France, Germany and Japan targeted at top shirt brands.
The high-end fabric market consists of fabrics produced from above Ne 70’s (mainly compact yarns). The pure cotton yarn-dyed fabric has characteristics of dyeing fastness, clear striped weave, wide variety of designs and comfort.
The medium segment consists of fabrics produced from counts above Ne 50’s and below Ne 70’s while the low end comprises fabrics produced from counts below Ne 50’s.
India has further potentials to move up the shirting fabric value chain. Admittedly,the market is highly challenging with long technology-absorption curve and knowhow being the key success factors. However on the positive side, there are attractive opportunities for Indian textile mills such as availability of cotton, spinning capacity and growing domestic demand due to changing lifestyles and penetration of organized retail.
Segmentation of yarn-dyed shirting market
Fig. 5 Segmentation of yarn dyed shirting market Source: Gherzi database
The article clearly reveals that successful textile and clothing manufacturers worldwide have adopted value addition as their strategy to differentiate themselves and their products from the rest.India has further potentials to enhance value addition by strengthening the downstream textile value chain.
Mr. Navdeep Singh Sodhi is a partner with GherziTextilOrganisation(www.gherzi.com) and an international textile industry economist.Gherzi is an international consulting organisation established in Zurich since 1929 and with presence of over 50 years in India, providing consulting services in the area of management and operations, engineering, technical textiles and corporate finance.