Can India tap Japan's apparel market?

NEW DELHI: Indian garment exporters faced with dwindling orders due to global meltdown may turn towards Japan which has now decided to move its purchases from China to other Asian countries.

Presently, India’s exports to European Union and USA constitute 77 percent of its total garment exports, according to industry sources. Garment exports, which contribute close to 20 percent of India's gross domestic product, began contracting in October after the global financial crisis froze credit markets and sent developed economies into recession.

The Japanese government’s recent announcement to source garments and apparel from countries other than China could have profound implications for buyers and sellers alike.

With total apparel exports possibly doubling for some apparel and textile factories in Bangladesh and South East Asia, the policy could increase the purchasing costs for many European and American buyers. But at a time of increasing uncertainty about garment orders, it offers many Asian factories the prospect of really profitable new business.

In the latest update to THE SOURCE, its review of sourcing trends,Clothesource analyses the implications of the announcement by Shigeru Takagi, Director of Japan’s International Textile and Clothing Trade Office at Japan’s Ministry of Economy, Trade and Industry. Takagi revealed that Japan wants clothing and textile imports from China to drop to around 50% from their current 77% .

“If this happens, it could transform the profitability of many Bangladeshi and South East Asian clothing factories – however long the current recession goes on” said Clothesource CEO, Mike Flanagan. “But there are real questions about how serious the Japanese really are – and about how long it would take”

“Japan imports practically all the clothes it wears” added Flanagan, “and 93% of those clothes imports come from China. Just 7% of its clothing imports come from South East Asia or Bangladesh – the countries with which Japan has, or is negotiating, agreements to import clothes duty-free. Moving a third of Japan’s clothes imports to those countries could mean a 400% increase in their clothing exports to Japan – and in some cases, that could well double their total clothes sales.”

But the Clothesource analysis wonders how easily government policy can influence Japan’s clothes buyers. “Japanese clothing retail is in turmoil right now” Flanagan went on. “Fast Retailing, with its ultra-cheap, highly innovative business model, is rapidly taking share of a falling market from Japan’s mainstream clothing sellers. It’s not obvious Fast’s interests are the same as its competitors”

Just as important for Asian factories is the timescale many need to bring their operations up to the standard needed by Japanese buyers. “Cambodians have found the Japanese want twice as many supervisory staff on a production line as European or American buyers” , the Clothesource CEO pointed out. “That adds to cost – and improving operations takes time. Japan won’t save Asian factories from the problems of falling European or American orders this year.

“But, for factories that survive this year, coming up to Japanese standards will be a real profit improver in the years to come. Ultimately, there could well be factories in Thailand, Cambodia, Indonesia or Bangladesh that might be able to afford to turn some American or European business away”

India Government a few days ago had reduced the rate of Service Tax from 12% to 10% as a relief measure to the industries.

A. Sakthivel, President TEA said that 2% reduction in Service Tax will give only a very minimum relief to the ailing exporting industries and added considering the gravity of impact of economic slow down in the global market, the Central Government should give a complete exemption to the exporting industries from the payment of Service Tax immediately.

Sakthivel further said that when the exporting industries were undergoing a severe crisis and struggling to save job losses, at this juncture, a piece-meal measure from the Government would not be anyway helpful to bail out the exporting industries. He added that in view of the mounting problems, Government should immediately announce the measures requested by the exporting industries.

Iniitally it was the appreciation of the rupee against the dollar last year that led to crisis in textile industry. However, on the whole rupee depreciated against the dollar by about 19 percent in 2008, making Indian exports cheaper for buyers overseas. But of late, Bangladesh and Vietnam are ahead of India in securing export orders as they are more cost-competitive compared to India thanks to lower labour cost and taxes prevailing in those economies.
 (With inputs from PRLog.org and other sources)