Full text of DOI:10.1111/j.1746-1049.2000.tb00876.x

The Developing Economies, XXXVIII-2 (June 2000): 186–210
INDIA’S APPAREL EXPORTS: THE CHALLENGE OF
GLOBAL MARKETS
K. V. RAMASWAMY
GARY GEREFFI
I. INTRODUCTION
NDIA has initiated, since August 1991, a far-reaching structural adjustment pro-
gram (SAP) to reduce policy-induced rigidities in the functioning of the economy
and to achieve competitiveness in the international market. The SAP involves
I
reducing state intervention in product and factor markets and correcting the import
substitution bias that characterized India’s industrial development strategy and policy.
The policy reforms include industrial deregulation, reduction of tariffs and quanti-
tative restrictions on imports, access to disembodied foreign technology, and liber-
1
alization of exchange rate and foreign direct investment policies. The primary ob-
jective of policy changes has been to improve the efficiency of the manufacturing
sector through increased competitive pressure and access to imported inputs at in-
ternational prices. A comprehensive assessment of the impact of the 1991 reforms
on industrial and trade performance is not yet available. However, India’s penetra-
tion of world export markets is very low, at 0.60 per cent in 1996, relative to many
other Asian developing countries. In particular, the share of manufactured exports
in total exports has remained stagnant at around 74 to 75 per cent in the nineties.
Consequently, the emphasis of government policy will continue to be on achieving
export growth and integration with the world economy.
Given the emphasis on export growth performance, it is especially important to
understand the nature of the global production system that shapes the insertion of
third world countries, like India, into the international economy. In this paper we
focus attention on the apparel sector in India. The reasons are twofold. First, the
textiles and apparel complex, despite its status as a declining sector in developed
countries, represents the leading edge of economic globalization for many third
–
–––––––––––––––––––––––––
We are grateful to Mr. Saumitra Chaudhuri and the anonymous referees of this journal for their exten-
sive and critical comments. The usual disclaimers apply. Useful comments were also received from
the conference participants at the NIPFP-Ford conference, November 6–7, 1998. The first author
gratefully acknowledges the financial support from the Ford Foundation.
1
The ongoing reforms are documented in the annual Economic Surveys of Government of India.

INDIA’S APPAREL EXPORTS
187
world countries including India. Second, the share of India in world clothing ex-
ports has not risen since 1994 (2.6 per cent) and in fact declined marginally in 1997
(2.3 per cent). The growth rate of exports (U.S. dollar value) is reported to be only
0
1
.6 per cent in the year 1997–98 and 2.1 per cent in 1996–97 (Government of India
999, p. S-90). The immediate cause of this lower export growth is apparently the
slowdown in the import growth of India’s major apparel markets, namely, the United
States and the European Union (EU). A closer look at the industry reveals the ab-
sence of structural change and policy reforms. The policy reforms of the 1990s
have not substantially impacted the apparel sector as it is still subject to entry re-
striction (licensing for large-scale plants) through product reservation, import con-
trols, and foreign direct investment. Restructuring the apparel sector to meet the
competitive challenges of the post–Uruguay Round world economy is of crucial
importance
This paper presents a perspective that focuses on two themes: first, the process of
globalization of apparel production and the changing competitive conditions in the
global apparel market; second, the characteristics of India’s apparel exports, the
production structure that supports the export profile, and the effects of policy regu-
lations. The paper is divided into five sections. Following this introduction Section
II discusses the concept of globalization and trends in world apparel trade. Section
III introduces the perspective of global commodity chains (GCC) to understand the
linkages in the global apparel trade. Section IV discusses the main features of India’s
apparel sector and its strengths and weaknesses. Section V presents the conclusions
and implications for policy.
II. GLOBALIZATION AND WORLD TRADE IN CLOTHING
The increasing interaction of domestic economies with the world economy is gen-
erally termed as “globalization.” Globalization is reflected in the rising share of
international trade in world output. The volume of world merchandise trade is esti-
mated to have increased at an average annual rate of more than 6 per cent, during
the period 1950–94, compared with an output growth of less than 4 per cent (WTO
1
995). This means each 10 per cent increase in world output has on average been
associated with a 16 per cent increase in world trade (WTO 1995, p. 15). The more
interesting development has been the steady rise in the ratio of trade growth to
output growth for manufactures, from an average of 1.3 in 1950–64 to 3.2 in 1984–
9
4. It is clear that the pace of global integration has been mainly driven by the
manufacturing sector (WTO 1995, p. 19).
The relatively new aspect that makes globalization different from earlier stages
in the international division of labor, is the ability of producers to slice up the value
chain. That is, breaking up of the production process into many geographically
separated steps (Krugman 1995). A good is produced in a number of stages in a

1
88
THE DEVELOPING ECONOMIES
variety of locations, adding value at each stage. Producers locate the different stages
such that it improves access to resources and capabilities and facilitates penetration
of newly expanding markets. In effect globalization promotes specialization in terms
of the development of market niches. This process of slicing up of the value chain
provides greater room for developing countries to specialize in the labor-intensive
stages of the manufacturing process of a commodity, which as a whole might be
capital-intensive. This increases opportunities for developing countries to partici-
pate and gain from trade. For example, production of semiconductor chips (inte-
grated circuits used in a wide range of electronic products) is a capital-intensive
process. It involves three basic stages excluding final testing, namely, the design
and generation of photomasks, wafer fabrication, and assembly and packaging of
the assembled device. The assembly stage is a labor-intensive activity using un-
skilled labor in which developing countries have comparative advantage.
In the apparel industry, globalization of production activities has meant that a
garment can be designed in New York, produced by using the fabric made in the
Republic of Korea, cut in Hong Kong, and assembled in China, for eventual distri-
bution in the United Kingdom or the United States. Frontiers of nation-states no
longer determine the business strategies of producer firms or the purchasing strate-
gies of large distribution networks. The main factors which have contributed to the
globalization of world apparel industry are the labor-intensive nature of apparel
production technology, the loss of comparative cost advantage of developed coun-
2
tries, dramatic decline in transport and communication costs, search for produc-
tion sites with lower labor costs, and the shift in apparel exports from more re-
stricted to less restricted among the developing countries due to the discriminatory
nature of the restrictions imposed by the Multifibre Arrangement (MFA). It is re-
ported that roughly half of the total production capacity in the apparel industry has
shifted from developed countries to less developed countries over the past three
3
decades. The fundamental factor which explains this relocation movement in the
global apparel industry and the emergence of new producing countries is the inter-
national differences in hourly wage costs in the clothing industry as shown in Table
I.
World clothing exports increased faster than total trade in manufactured exports
between 1983 and 1993. It is also the second fastest growing product category next
only to office and telecom equipment, perhaps the prime mover of global integra-
tion (GATT 1994). Particularly, the second half of the 1980s was a period of rapid
growth in world exports of clothing (Table II). World exports of clothing increased
2
It is important to note that technical progress has been slower in clothing production, and the
developed countries have regained some strength in textile production due to progress in labor-
saving technology.
This is based on the paper “Trends in Textile Capacity” by Udo Hartmann (1993) of Gherzi Textile
3
Organization, Zurich.

INDIA’S APPAREL EXPORTS
189
TABLE I
INTERNATIONAL LABOR COST DIFFERENCES, 1981–93
(U.S.$ per hour)
Country/Region
1981
1990*
1993*
United States
Mexico
Germany
Hong Kong
Taiwan
Republic of Korea
China
Indonesia
India
7.03
3.06
8.17
1.42
1.32
1.35
1.35
0.63
0.69
6.56
0.92
7.23
3.05
3.41
2.46
0.26
0.16
0.33
8.13
1.08
17.22
3.85
4.61
2.71
0.25
0.28
0.27
Sources: Extracted from Toyne et al. (1984) and ILO (1995).
*
Wage costs + social security contribution.
TABLE II
GROWTH OF WORLD TRADE IN CLOTHING
(Average annual percentage change)
1
980–85
4
1985–90
17
1990–94
7
World
1
980–93
1990–94
India
China
Indonesia
Thailand
Republic of Korea
Pakistan
15
21
32
24
6
8
25
18
13
−8
12
n.a.
Sources: GATT (1994, p. 84); WTO (1995, pp. 121, 124). Estimates for
Pakistan are based on annual figures given in WTO (1995).
at the rate of 17 per cent between 1985 and 1990. This is higher than the world trade
in manufactures of 15.5 per cent during the same period (WTO 1995, pp. 25, 121).
The value of world apparel exports is estimated to have been $166 billion in 1996
4
(
WTO 1998, vol. 2, p. 132). Until the end of the 1980s the top four garment export-
ers were Hong Kong, Italy, Republic of Korea, and Taiwan. China emerged as a
leading exporter in the second half of the 1980s and today occupies the number one
position in the world. In 1995 China and Hong Kong together had a share of 21.2
per cent of the world markets, and they pose a formidable challenge to other devel-
oping countries (Appendix Table I). The United States and the EU together im-
4
The composition of world apparel exports consists of women’s outerwear (26 per cent), men’s
outerwear (20 per cent), and knitted outerwear (22 per cent). These estimates are taken from
Export-Import Bank of India (1995).

1
90
THE DEVELOPING ECONOMIES
ported more than 70 per cent of world’s clothing imports in 1996. In that year the
United States and the EU imported clothing worth $43.3 billion and $80.9 billion
5
respectively (WTO 1998, vol. 2, p. 133). Both of these markets have experienced
structural changes in the composition of their major supplier countries/regions
(
Tables III and IV). The share of the big three suppliers of U.S. imports, namely,
Taiwan, Hong Kong, and the Republic of Korea declined from 59 per cent in 1983
to 38 per cent in 1990 and to 18 per cent in 1996. The biggest gainers have been
Mexico and the Central American countries which raised their combined share from
6
per cent in 1983 to more than 24 per cent in 1996. It is reported that in 1997
Mexico ($5.9 billion) moved ahead of China ($4.5 billion) as the largest supplier of
apparel imports (USITC 1998). For the European Union, China and Turkey re-
placed Hong Kong and Republic of Korea as the largest suppliers in 1996.
The Multifibre Arrangement and Its Phaseout
The bulk of world trade in textiles and clothing is regulated by the Multifibre
Arrangement (MFA), which came into force in 1974. This was in response to the
rapid growth of textile exports, both cotton as well as man-made fiber, from the
developing to the developed countries during the period 1962 to 1974. Under the
MFA the developed countries negotiate bilateral agreements with individual trad-
ing partners in order to restrict the quantity of exports of specific product categories
by their trading partners. The intention of MFA is to protect domestic producers in
the developed countries from market disruption. The annual quotas are not to be
lower than trade in a specified twelve-month period and they must be enlarged by
not less than 6 per cent every year. It is important to note that the MFA provides for
certain flexibility provisions in quota administration like the “swing provision”
(
switching of quotas among product categories), the carryover of the preceding
year’s quota, and carryforward of the following year’s quota. Most studies agree
that the MFA has been highly discriminatory and restrictions have become more
6
comprehensive and severe over time (Goto 1989).
The MFA is to be phased out under the Uruguay Round agreement in three stages
by the end of the year 2005. The ATC (Agreement on Textiles and Clothing) speci-
fies the phaseout program during which international trade in textiles and clothing
will be gradually integrated into the GATT/WTO framework between 1995 and
2005. At the start of each phase of integration, importing countries must integrate a
specified minimum portion of their textile and garment imports. This is to be based
on total trade volume in 1990 for the items listed in the annex to the agreement, and
5
The figure for the EU includes intra-union imports.
It is interesting to note that the rapid growth of apparel exports from developing countries took
6
place in spite of tariff and nontariff barriers (Goto 1989). This suggests that trade quotas were not
stiff and the imposed quota growth of 6 per cent in volume was sufficiently high to facilitate growth
in exports.

INDIA’S APPAREL EXPORTS
191
TABLE III
U.S. APPAREL IMPORTS BY MAJOR SUPPLIERS
(U.S.$ million)
1
983
1990
1996
Country/Region
China
Value
759
Share
7.8
Value
3,439
Share
13.5
Value
6,340
Share
15.2
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Big Three
Hong Kong
Taiwan
5,734
2,249
1,800
1,685
58.9
23.1
18.5
17.3
9,807
3,976
2,489
3,342
38.4
15.6
9.8
7,595
3,998
2,066
1,531
18.2
9.6
4.9
Republic of Korea
13.1
3.7
.
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast Asia
806
8.4
3,436
13.5
5,886
14.1
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Asia
Of which:
India
385
220
3.9
2.3
1,716
636
6.7
2.6
4,175
1,350
10.0
3.2
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central America
Mexico
389
199
4.0
2.0
1,985
709
7.8
2.8
6,076
3,850
14.6
9.2
.
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others
1,328
14.0
4,009
16.0
6,996
17.0
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
9,731
100
25,518
100
41,679
100
Source: Authors’ estimates based on the official statistics of the U.S. Department of Com-
merce, U.S. Imports for Consumption, customs value. Columns do not add up exactly due to
round-off errors.
TABLE IV
EU APPAREL IMPORTS BY REGION, 1996
(
%)
Country/Region
1981
1996
China
1.7
10.5
6.2
7.7
5.6
0.8
0.6
Hong Kong
Republic of Korea
Chinese Taipei
Central/Eastern
Europe, CIS, and
Baltic states
Southeast Asia
India
2.4
4.5
n.a.
2.3
8.9
4.4
3.3
Turkey
European Union
n.a.
47.2
9.9
6.1
44.5
17.3
Others
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All
100
100
Sources: WTO (1995, p. 123; 1997, vol. 2, p. 109).
Note: “Others” includes intra-union imports. Southeast Asia denotes Phil-
ippines, Indonesia, Thailand, and Malaysia.

1
92
THE DEVELOPING ECONOMIES
it provides for a progressive increase in quota growth rates for products remaining
under quota.
The United States has published a list of products that it intends to integrate in
each of the three stages. However, the objective is to defer the most sensitive prod-
ucts until the end of the ten-year period. Consequently, the most import-intensive
items like shirts and women’s outerwear, in which India has an advantage, will not
have their quotas removed until 2005. However, the permitted quotas will be rela-
tively more generous for developing countries like India with a permitted growth of
6–7 per cent per year. Imports from the “dominant” supplier economies like Hong
Kong, China, and the Republic of Korea have restricted quota growth rates of 0–2
per cent per year (Majmudar 1996). The U.S. most favored nation (MFN) tariff
rates on apparel will have higher tariff rates relative to all other MFN products in
2004 (Ramaswamy and Gereffi 1998).
III. GLOBAL COMMODITY CHAINS, EXPORT NETWORKS,
AND U.S. IMPORTS
A. Global Commodity Chains and Export Networks
Who are the primary agents driving and organizing globalization process of ap-
parel production? What are the implications for developing countries like India? To
understand and analyze the implications of this globalization of production for spe-
cific countries, like India, it is useful to utilize the concept of commodity chains.
7
This is essentially a network-centered view of the world economy. The concept
recognizes that in the global economy, economic activity is not only international
in scope, it also is global in organization. “Internationalization” refers to the geo-
graphic spread of economic activity across national boundaries. “Globalization”
implies the functional integration of internationally dispersed activities. The GCC
approach emphasizes the global coordination system that integrates the organiza-
tion of international production networks (Gereffi 1995). Commodity chains are
conceived as networks of business units involved from the stage of supplying raw
materials to production, exporting, and finally marketing and retailing. It includes
both forward as well as backward linkages from the production stage in the com-
modity chain. The business units may be subsidiaries of transnational corporations
(
TNCs) or independent companies of varying size. The apparel industry can be
8
characterized as a buyer-driven commodity chain.
Buyer-driven commodity chains (BDCCs) are found in those industries where
7
For initial formal discussions of the concept see Gereffi and Korzeniewicz (1994) and Gereffi
(
1994). The following discussion borrows heavily from Gereffi (1995). Also see Gereffi (1999) for
a discussion on industrial upgrading in the apparel commodity chain.
The alternative is producer-driven chains in automobile and electronic industries. See Ramaswamy
and Gereffi (1998).
8

INDIA’S APPAREL EXPORTS
193
large retailers, brand-name marketers, and trading companies play the key role in
setting up decentralized production networks in a variety of exporting countries,
typically located in the third world. Locally owned third world factories, which
make the finished goods (rather than components or parts) for foreign buyers, mostly
9
carry out production. The brand-name company or a large retailer that designs and
10
orders the goods supplies the specifications. In BDCCs the main leverage is exer-
cised by retailers and brand-name merchandisers at the marketing and retailing end
of the chain. The essence of BDCCs is the separation of physical production activ-
ity from the design and marketing stages. The companies constituting the BDCCs
are “manufacturers without factories.” For example, retailers like Wal-Mart, Sears
Roebuck, and J.C. Penney, athletic footwear companies like Nike and Reebok, and
fashion-oriented companies like Liz Claiborne and The Limited, do not manufac-
ture the products that they design or sell. The sources of profit are a unique combi-
nation of high-value research, design, sales, marketing, and financial services. They
link overseas factories and traders with evolving product niches in the main con-
sumer markets.
The East Asian newly industrializing economies (NIEs) became successful ex-
porters in the late 1960s and 1970s, primarily by mastering the dynamics of BDCCs.
Apparel was a leading export sector for each of the four East Asian NIEs, namely,
Hong Kong, Singapore, Republic of Korea, and Taiwan. Toys were the same for all
except Singapore, as well as footwear for Korea and Taiwan. These economies
moved from assembly to OEM (original equipment manufacturing) production in
BDCCs. OEM is also known as specification contracting and has the following
features: the supplying firm makes a product according to the design specified by
the buyer; the product is sold under the buyer’s brand name; the supplier and buyer
are separated; and the supplier lacks control over distribution. East Asian firms
11
became full range “package suppliers” for foreign buyers.
B. Who Is Sourcing U.S. Apparel Imports?
In 1994 approximately 44 per cent of all apparel sold in the United States was
made outside the United States. This figure excludes imported fabric and yarn that
1
2
went into apparel that was produced domestically within the United States. The
9
In many instances they are wholly or jointly owned by U.S. firms located close to the United States
(
for example, in the Caribbean area) or in far-off areas like Mauritius. However, ownership of
production facilities is not a significant feature of BDCCs.
BDCCs tend to be labor intensive at the manufacturing stage. Consequently, they are characterized
by very competitive and decentralized factory systems.
The supplier countries can be either CMT (cut, make, and trim) or package program suppliers. In
the former case, the supplier gets the fabric and the trim from elsewhere or it is supplied by the
buyer. In the latter locally produced fabric is used.
The U.S. market can be divided into three categories: (1) fashion products (women’s wear) with an
average ten-week product life make up about 35 per cent of the market; (2) seasonal products
1
0
1
1
12

1
94
THE DEVELOPING ECONOMIES
TABLE V
U.S. IMPORTERS AND THEIR BUYING CHARACTERISTICS
Type of Importers
Representative Firms
Wal-Mart, Kmart, Target
Characteristics of Buyer’s Orders
Discounters/outlet
Low-priced store brand products.
Huge orders.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
stores
.
Mass merchandisers
J.C. Penney, Sears, Woolworth
Good quality, medium-priced
goods sold under private labels.
Large orders.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Department stores/
specialty stores
The Gap, The Limited, Bloomingdale’s, Top quality, high-priced national
May Department Stores
brands. Medium to large orders.
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brand-name marketers Liz Claiborne, Calvin Kline,
Tommy Hilfinger
Same as department stores.
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brand-name apparel
manufacturers
VF Corporation, Sara Lee,
Levi Strauss & Co.
National brands. Medium to large
orders.
Source: Partly based on Gereffi (1994).
three principal firms sourcing U.S. apparel imports are: retailers, brand-name mar-
keters, and brand-name apparel manufacturers. They have developed extensive glo-
bal sourcing capabilities. Their characteristics as buyers are summarized in Table
13
V. The American retail sector is under continuing transformation. Due to mergers
and acquisitions, there has been a consolidation of buying power among retailers.
The trend in the value of their sales and market shares for three selected years is
shown in Table VI. In 1996 the top ten companies accounted for more than 70 per
cent of retail sales. It was only 46.2 per cent in 1987.
U.S. retailers have increasingly turned to imports in order to satisfy consumer
demands for better value. In 1975 only 12 per cent of the apparel sold by U.S.
retailers was imported. By 1984 retailers had doubled their dependence on im-
ported garments (AAMA 1984). In 1993 retailers accounted for 50 per cent of the
total value of imports of the top 100 U.S. apparel importers. Initially, American
retailers relied on apparel wholesale-importers to source their imports. Now most
of them have their own buying offices in many parts of the world. They have started
to promote Mexican goods through their North American networks (Economist
1997).
The other segment consists of brand-name marketers like Liz Claiborne ($4 bil-
lion) and apparel manufacturers like VF Corporation ($5 billion). In 1996 these
–
–––––––––––––––––––––––––
(
cotton shirts) with a twenty-week product life make up about 45 per cent; and (3) basic or stan-
dardized products (blue jeans, children’s wear) sold throughout the year make up the remaining 20
per cent of the market (Standard & Poor’s Industry Surveys, vol. 2, July 1996).
Department stores are more upscale and sell relatively high quality and high-priced apparel. J.C.
Penney is upgrading itself into a department store. Woolworth is diversifying. Mass merchandisers
are facing severe price competition from discount stores.
1
3

INDIA’S APPAREL EXPORTS
195
TABLE VI
U.S. RETAILERS AND THEIR MARKET SHARE
(
U.S.$ billion; %)
1996
1
987
1992
Share
Sales
Share
Sales
Sales
Share
Discounters/outlet stores:
Wal-Mart
Kmart
16.0
25.6
5.9
9.5
55.5
37.7
19.1
13.0
93.6
31.5
26.1
8.8
Mass merchandisers:
Sears
Dayton Hudson
28.1
10.7
7.1
10.4
4.0
2.6
32.0
17.9
10.0
11.0
6.2
3.4
38.0
25.3
8.2
10.6
7.1
2.3
Woolworth
Department stores:
J.C. Penney
May Department Stores
Dillard’s
16.4
10.3
n.a.
6.1
3.8
n.a.
19.1
11.2
n.a.
6.6
3.9
n.a.
29.0
12.3
6.6
8.1
3.4
1.8
Specialty stores:
Melville
The Limited
The Gap
5.9
3.5
1.1
2.2
1.3
0.4
10.4
6.9
3.0
3.6
2.4
1.0
11.5
7.8
4.5
3.2
2.2
1.3
Toys R Us
3.3
1.2
7.2
2.5
9.4
2.6
Others 142.4 52.7 79.7 27.4 80.3 22.4
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail sales
270.4
100
290.6
100
358.0
100
Source: Authors’ estimates based on Standard and Poor’s Industry Surveys, annual reports of
corporations, and American Apparel Manufacturers Association data.
companies account for 30 per cent of the total wholesale volume and 44 per cent of
the top 100 U.S. apparel importers. They can outsource by building factories abroad
(foreign direct investment) or by establishing agents in foreign countries who own
local factories, or by having the designed apparel made in locally owned factories.
The first option does not seem to be growing in importance. This is indicated by the
fact that the U.S. investment abroad in the apparel industry was just over 1 billion
dollars in 1994 and 1.3 billion dollars in 1997.
The growth in the size of retailers and their consolidation over time has had
several consequences. First, the retailers have acquired greater leverage over manu-
facturer-suppliers in setting prices and dictating product lines. Second, it has in-
creased pressure on apparel suppliers to adopt order fulfillment practices and infor-
mation systems like electronic data interchange that enable suppliers to fill retailer
1
4
orders rapidly, efficiently, and flexibly. Lean retailers penalize suppliers if ship-
ments do not accurately reflect retailer orders. Buyers expect more services as mini-
mum performance standards. Third, retailers are offering a greater variety of ap-
parel products in order to increase their market share. This drive by retailers (and
14
See the discussion in Abernathy et al. (1995).

1
96
THE DEVELOPING ECONOMIES
their manufacturer-suppliers) to increase market shares through increasing product
variety has led to higher demand uncertainty (Abernathy et al. 1995). As a result the
demand uncertainty previously associated with fashion products has spread across
product categories affecting basic products like men’s shirts. Consequently, retail-
ers are giving up the practice of ordering large quantities well in advance of the
selling season. They prefer to order in smaller initial quantities and replenish as the
season advances. This has led to shorter lead times for apparel suppliers and it is
forcing them to develop capabilities to respond to this change. In effect market
power is shifting from manufacturers to retailers.
A similar shift in power from manufacturers to distributors and retailers appears
to be under way in the European Union as well. For example, in Germany, the EU’s
largest national market, the top five clothing retailers have a market share of 28 per
cent. In the United Kingdom the top two clothing retailers (Marks & Spencer and
the Burton group) control 25 per cent of the U.K. market. The Japanese also predict
that there will be fewer clothing retailers in the year 2000 than in the 1980s (Gereffi
1
999, p. 45). This will continue to provide retailers and designers unprecedented
scope for reshaping international supply networks.
How do countries in BDCCs deal with the competition from low-cost suppliers?
One of the important adjustment mechanisms for maturing export industries in East
Asia has been the process of “triangle manufacturing” (Gereffi 1994). The essence
of triangle manufacturing is that U.S. (or other overseas) buyers place their orders
with NIE manufacturers from whom they have sourced in the past (e.g., Korean or
Taiwan apparel firms). These manufacturers in turn shift some or all of the requested
production to affiliated offshore factories in low-wage countries (e.g., China, Indo-
nesia, or Bangladesh). The triangle is completed when the finished goods are shipped
directly to the overseas buyers from the low-wage country using the allocated U.S.
quota. The two primary reasons behind foreign direct investment in the textiles and
clothing industry in the Southeast Asian countries of Indonesia, Malaysia, and Thai-
land were the rising labor costs in and quota restrictions on the big three suppliers:
Hong Kong, Republic of Korea, and Taiwan.
The key asset of the East Asian NIEs is their close relationship with foreign
clients which is based on the trust developed through numerous successful transac-
1
5
tions. Another way to counter loss of competitiveness in mature products is to
move from simple to more sophisticated items within an export niche. One impor-
tant reason for the continued apparel export growth of Hong Kong, Taiwan, and
Korea, even in the face of rising labor costs, is that they have upgraded the quality
of their apparel products and moved to higher-value-added segments (see below for
some evidence). Further they are in the process of making the transition from OEM
1
5
For an informative discussion of buyer-seller links in export development see Egan and Mody
1992).
(

INDIA’S APPAREL EXPORTS
197
to OBM (original brand name manufacturing) whereby manufacturers make goods
for export and sell under their own label. The strategy is to carry out forward inte-
gration into retailing. Most of the leading Hong Kong apparel manufacturers now
have their own brand names and retail chains for the clothing they make. There are
Hong Kong–owned retail stores throughout East Asia, North America, and Europe
(Gereffi 1994). With the restoration of Hong Kong to mainland China in July 1997,
a combination of Hong Kong’s marketing expertise and China’s production capac-
ity is likely to give the People’s Republic of China an enormous clout in world
clothing markets.
An important factor reinforcing and accelerating the reorganization of apparel
commodity chains is the U.S. and EU tariff provisions relating to “offshore assem-
bly processing” (OAP). The effect of OAP provisions, combined with the enact-
ment of NAFTA (North American Free Trade Agreement) in 1994, is that the mar-
ket shares in the U.S. textile and apparel market have shifted in favor of Mexico,
1
6
Canada, and the Caribbean Basin Initiative (CBI) countries. Under NAFTA ap-
parel and other textile articles assembled in Mexico from fabric both made and cut
in the United States can enter duty free. Under the OAP tariff provisions (9802), the
United States provides duty exemption for U.S.-made components returned to the
United States as parts of articles assembled abroad. Duty is assessed on the value
added and not on the value of the U.S. parts sent offshore for assembly. This has led
to the rapid growth of what is known as “production sharing” arrangements. Under
these arrangements parts made in the United States (or cloth cut to shape in the
United States) are sent abroad to countries with low labor cost for assembly and
1
7
imported back to the United States. Apparel is especially suited to production
sharing because of relatively high U.S. duty rates, the value of U.S. components,
and the high import volume.
Three-fourths of the U.S. imports from Mexico have been under special tariff
provision 9802 and are free of duties and quotas (USITC 1997). Consequently,
Mexico has emerged as the largest supplier by value ($5.9 billion in 1997) of total
U.S. imports of MFA products. More than 85 per cent of Mexican MFA exports
consist of apparel goods. This suggests the potentially dramatic impact that im-
proved market access can have on developing country exports. In the case of Mexico,
the growth in U.S. apparel imports seems to have come at the expense of other
Asian countries (see Table III above). Mexico is the number one supplier of men
and women’s cotton trousers which is part of the category of basic and standardized
garments.
1
6
The CBI beneficiaries are: Antigua & Barbuda, Aruba, Bahamas, Barbados, Belize, Costa Rica,
Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica,
Montserrat, Netherlands Antilles, Panama, St. Kitts-Nevis, St. Lucia, St. Vincent & the Grena-
dines, Trinidad & Tobago, and British Virgin Islands.
17
Compare the labor costs in the United States and Mexico in Table I above.

1
98
THE DEVELOPING ECONOMIES
In Europe OAP is known as “outward processing trade” (OPT). EU tariff sched-
ules contain provisions similar to those of the United States and allow components
made in European countries to be exported for further processing or assembly. Upon
reimport, products are partially or totally exempted from duties. The principal im-
ports of the EU under OPT are apparel and other textile products which accounted
for 43 per cent of the total OPT trade in 1994. Germany accounted for over two-
thirds of the EU’s OPT. Textile and apparel companies in Germany ship fabric
mostly to Central Europe where it is cut and sewn into garments. There is potential
and considerable scope for Eastern and Central European countries to increase their
level of exports via OPT and establish market niches. Their labor costs are lower,
and more importantly the trade with these countries will be liberalized well before
2
005.
IV. INDIA’S GARMENT EXPORT AND PRODUCTION STRUCTURE:
MAIN FEATURES
The remarkable export performance of India’s garment sector beginning in the late
980s and its underlying production base are well documented (Chatterjee and
Mohan 1993; Uchikawa 1998). In this study we focus on more recent years and
1
18
summarize the main features.
1
. The garment sector’s exports in the year 1995–96 were worth $3,675 million.
They were worth just $1,598 million in 1989–90 meaning they have more than
doubled in the last five years. India’s share in world exports of clothing in 1994
was 2.6 per cent up from 1.5 per cent in 1980. However, its share in such ex-
ports has not improved since 1994 and declined marginally to 2.3 per cent in
1
9
1997. The value of its garment exports was $3,753 million in 1996–97 and
3,776 million in 1997–98, a growth rate of only 0.6 per cent (Government of
$
India 1999, p. S-89).
2. India’s garment exports are predominantly cotton fiber–based which constitute
1
1
8
The garment industry has been classified in the United Nations International Standards Classification
as including “those establishments, which cut, and/or stitch/make up garments out of woven or
knitted fabrics without being involved in the manufacture of fabrics.” Thus, the term apparel or
garments would include ready-made garments as well as knitwear/hosiery.
India’s exports closely follow the world trend. However, other Asian countries like China, Thai-
land, and Indonesia have achieved higher growth rates relative to India and have increased their
share of world exports (see Table II). In 1980 Thailand and Indonesia had respectively 0.7 and 0.2
per cent share of world clothing exports. In 1994 their share had risen to 3.3 and 2.3 per cent
respectively. During the same period Bangladesh, a country with zero exports in 1980, emerged as
a new garment exporter and currently has a 0.9 per cent share of the world market. Its growth is
largely attributed to its initial access to markets without quota restrictions, and its continued quota
free access to the EU. Pakistan also penetrated world markets with significant growth rates in the
9
1
990s. The estimate for the year 1997, cited in the text, is taken from World Trade Analyzer, a trade
data bank maintained by Statistics Canada, Ottawa, using United Nations data.

INDIA’S APPAREL EXPORTS
199
71 per cent of total garment exports. Synthetic fiber garments had a 28 per cent
share in 1992. Appendix Table II shows that garment exports are concentrated
in only a few items. Women’s outerwear made up a 40.8 per cent share in 1991
but declined to 38 per cent in 1994. Men’s shirts had a 17.8 per cent share in
1
994. These two items contribute more than 50 per cent of India’s garment
exports.
3
. Since 1983 the two quota markets of the United States and the EU have been
India’s principal markets. The combined share of these two markets is 71 per
cent; the share for restricted countries is 76 per cent, and non-quota countries
2
0
share the remaining 24 per cent. In recent years India has fully utilized the
imposed quota levels (Chatterjee and Mohan 1993). The concentration in a few
items noted above is also found in the two quota markets (Tables VII and VIII).
In the U.S. market women’s outerwear (842) makes up more than a 50 per cent
share. In 1993 India exported more than a billion dollars worth of women’s
outerwear, and more than half of it went to the United States. The European
Union data is based on a different classification system. However much the
same sort of picture emerges, as shown in Table VIII. Women’s outerwear (non-
knit) has a 38 per cent share and men’s outerwear (shirt non-knit) a 29 per cent
share in the extra-EU imports of apparel from India.
4
. Two items contributing more than 50 per cent of garment exports might appear
to be high but this is not unusual. Appendix Table II presents data on the com-
position of garment exports for India and its comparator countries. The share of
the top item ranges from 36 per cent for Malaysia (SITC category 848) to 21
per cent for Bangladesh (category 845). For Indonesia and China the top two
items (men and women’s outerwear) contribute more than 50 per cent of the
value of their garment exports. This indicates that they have developed a mar-
ket niche.
5
. Appendix Table III presents the market shares for India and other comparator
countries which are leading suppliers to the United States in seventeen product
categories. A striking feature is the wide diversity of specialization by country.
No single country dominates across product categories. This supports the propo-
sition that globalization promotes specialization in the development of market
niches. Specialization is not by fabric alone but by product. However, China
and Hong Kong together are the number one suppliers in eight of the seventeen
categories. This indicates their higher level of production capability to supply a
variety of products to penetrate global markets.
6
. Producers in developing countries face volume restrictions on their exports.
20
See Chatterjee and Mohan (1993) and Export-Import Bank of India (1995) for a discussion of the
diversification of garment exports relative to quota and non-quota countries. In the 1990s India has
not been able to reduce its reliance on quota countries.

2
00
THE DEVELOPING ECONOMIES
TABLE VII
U.S. APPAREL IMPORTS FROM INDIA AND THEIR SHARE IN INDIA’S EXPORTS, 1993
(U.S.$ million)
U.S. Apparel Imports
from India
India’s Total Apparel
Exports
SITC Rev. 3 Groups
Value (1)
Share
Value (2) Share of (1) in (2)
8
41 Men’s shirts, etc., NK
42 Women’s blouses, etc., NK
43 Men’s shirts, etc., knitted
44 Women’s blouses, etc., knitted
45 Other articles of apparel
48 Apparel and clothing
accessories, excluding
144.1
581.3
15.5
25.0
185.1
13.5
54.4
1.5
2.3
17.3
578.9
1,067.0
323.7
189.1
281.8
24.9
54.5
4.8
13.2
65.7
8
8
8
8
8
textiles 117.1 11.0 383.5 30.5
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
1,068.2
100.0
2,977.0
35.9
Sources: U.S. Department of Commerce, U.S. Foreign Trade Highlights, 1995; United Na-
tions international trade data, 1993.
Note: NK = non-knit.
TABLE VIII
EUROPEAN UNION APPAREL IMPORTS FROM INDIA, 1995
Value
1,000 ECUs)
Share
(%)
Market Share*
(%)
Rank as
a Supplier
Product
(
Men’s cotton shirts
MMF shirts
259,801
13,587
29.3
1.5
15
3
1
7
Cotton T-shirts
125,967
118,083
102,217
108,938
4,765
14.2
13.3
11.5
12.3
0.5
8
29
9
33
1
3
1
4
1
Women’s cotton blouses
Women’s MMF blouses
Women’s MMF dresses
Men’s cotton trousers
Others
11
154,073
17.4
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
887,431
100
Sources: Based on Euro-Stat data; and Foreign Trade Trends and Tidings, June 1997.
Note: MMF denotes man-made fiber.
*
India’s share of total extra-EU imports of that product.
They can enlarge the value of their sales by moving up the market segments
into higher quality lines in their product categories, for example, moving from
cotton to blends. This quality upgrading brings about an increase in unit value.
The classic case has been Hong Kong whose realized sales have risen while the
quantity sold has declined. The base of competitiveness need not be only low
cost and high volume but one based on quality, design, and service. Product
quality can be conceived as the absence of defects and the degree to which a

INDIA’S APPAREL EXPORTS
201
2
1
garment conforms to specifications (Moore 1997). Production cost, quality,
and design content together cause variations in unit values. We have estimated
the unit values of four selected MFA categories for U.S. imports from India,
China, Bangladesh, Pakistan, Indonesia, and Hong Kong. They are presented
in Appendix Table IV.
•
The prices (unit values in U.S. dollars per dozen) received by Hong Kong
for cotton apparel are at the top of the distribution followed by China and
Indonesia. The high prices received by Hong Kong indicate specializa-
tion, high design content, and the use of high quality fabrics. Chinese prices
reflect the networking with Hong Kong traders who provide the marketing
expertise. Unit value for Bangladesh and Pakistan are together with the
lowest value for all products for all years. India is in the middle.
Consistent with the views of industry observers, Indian apparel products
do show an improvement in unit values for their main products except in
cotton women’s shirts. In 1996, excluding cotton women’s shirts, Indian
prices were above average. They were below the average in 1993.
Unit values of different countries for the same product also provide infor-
mation on the market segments of each supplier country. India is the large
supplier of casual shirts and not formal/business shirts. This shows up in
the large difference in unit prices between India and Hong Kong in the
shirt market.
22
•
•
Production Structure
Large differences in consumption patterns have separated domestic and export
markets for apparel. The consumption of traditional tailor-made garments, i.e., con-
sumption of piece lengths later made into garments by neighborhood tailors, domi-
nates the domestic market. The domestic market is price sensitive while insensitive
to variations in quality. During the 1990s the demand for modern casual ready-
made garments appears to have increased. Industry reports (India Today 1994) in-
dicate a rapidly emerging market for brand-name apparel that is sensitive to quality,
such as jeans/trousers, printed shirts, and T-shirts; and there has been the entry of
several large established companies into ready-made garment manufacturing. How-
ever, export-oriented apparel production is largely divorced from production for
the domestic market, and the above signs of change are only very recent. In this
context it would be useful to describe some features of the manufacturing sector in
India and the system of industrial regulations affecting it.
2
1
2
See Koshy (1997, chap. 4) for an extended discussion of quality issues in the garment industry.
Indian garments are no longer in the basement. They haven’t moved to the top floor either but have
2
“
definitely reached the first floor,” according to the director general of Apparel Export Promotion
Council (AEPC) of India (India Today, May 15, 1994, p. 133). Mill-made poplin is being used
instead of cheap sheeting and embroidery to embellish shirts.

2
02
THE DEVELOPING ECONOMIES
India’s manufacturing sector can be divided into two segments based on whether
employment is registered or unregistered. The registered sector consists of facto-
ries registered under the Factories Act of 1948 and covers those factories employ-
ing ten or more workers and using powered machinery, and those employing twenty
or more workers and using manually operated machinery. All other factories con-
stitute the unregistered sector and are outside the purview of industrial and labor
legislation. Government policy for promoting small-scale industries uses the value
2
3
of capital investment to define small-scale factories. Under this policy all indus-
trial units with an investment in plant and machinery to a maximum of Rs 6 million
(raised to Rs 30 million in 1997) are designated as small-scale units and are eligible
for a variety of promotional measures like preferential credit, investment subsidies,
etc. In addition the government has declared more than 800 products for exclusive
production by small-scale factories. Under this reservation policy only small-scale
units can undertake the production of the products, and large factories cannot enter
these lines unless they commit themselves to meet certain export obligations. At
present there are thirty-one textile products (National Industrial Classification [NIC]
26) reserved for production by small-scale factories. These cover a range of knitted
and woven garments. Their share in the total value of production is more than 80
per cent (Ramaswamy 1994).
Production structure of the Indian apparel industry is segmented into two distinct
categories:
•
the unorganized sweatshop supplier who sells to the local merchant export-
24
ers,
the organized factory-based manufacturer-exporter, such as Gokaldas Exports.
25
•
The bulk of India’s apparel production takes place in small producers with manu-
ally operated sewing machines. The unregistered sector contributes more than 90
per cent of the value added of the garment sector (NIC 26). The share for factories
with more than 200 workers in this product group is only 25 per cent in the seg-
26
ment-registered manufacturing. Large units are found only in the export-process-
ing zones or as 100 per cent EOUs (export-oriented units). This is a consequence of
the government’s reservation policy. Garment production for domestic use in India
is reserved for small-scale producers. Large firms can produce the reserved items
under license provided they undertake to export 75 per cent (reduced to 50 per cent
2
2
2
2
3
4
5
6
For a description of the structure and growth of small-scale industries in India, see Ramaswamy
1994).
In 1994, 90 per cent of the registered exporters were merchant exporters, and only 10 per cent were
(
exporters with manufacturing facilities (Koshy 1997).
Gokaldas Exports has forty factories and maintains its own dyeing facilities, laundries, and em-
broidery machines, and manufactures its own zippers, labels, cartons, chords, etc.
Note that in 1992–93 the value of production in factories with more than 200 workers was Rs 3,800
million, and the total value of exports was Rs 69,000 million.

INDIA’S APPAREL EXPORTS
203
in 1997) of their production from the third year of production. Half of their export
should go to non-quota areas. Given the cyclical nature of demand in export mar-
kets and the uncertain domestic demand for ready-made garments, large firms have
been reluctant to invest in the garment industry.
The small-scale nature of Indian production has resulted in flexibility advantage.
It can handle a wide range of orders, even as low as 500 pieces. Small-scale pro-
ducer demand for specific fabrics for specific purpose is largely met by the power
loom sector. The power looms have the advantage of shorter lead time in the deliv-
ery of fabrics, which is critical for apparel manufacturers supplying largely to fash-
ion-oriented niche markets. However, as the industry attempted to produce stan-
dardized garments based on standardized cloth, it faced severe problems of quality
2
7
fabric. It has been difficult to procure certain types of heavy cotton fabrics and
fabrics in required counts and widths (Uchikawa 1998, p. 85). Apparel producers
could not import these fabrics due to quantitative restrictions and high tariffs. The
nominal tariff rate on synthetic and cotton fabrics was as high as 156 per cent and
1
29 per cent in 1989–90. In the 1990s the tariff rates have been progressively re-
duced and at present the nominal tariff rate is 50 per cent on cotton and synthetic
fabrics. However, the import licensing system has continued to operate under which
exporters can import fabric to a limit of 20 per cent of the f.o.b. value of exports. In
January 1995 the import of most of fabrics and textile products was allowed under
OGL (open general license). The system of duty-free import of textile fabrics, com-
ponents, and accessories for export production requires special import licenses.
The value of goods that can be imported duty-free is determined either on the basis
of the f.o.b. value of exports of the exporter (the value-based license) or the physi-
cal quantity of inputs required for per unit of output (the quantity-based license). In
the latter case detailed input-output norms have been specified for obtaining duty
exemptions on the imported items. Licensing always causes delays, a crucial factor
for an industry specializing in fashion and seasonal garments.
A constraint often noted is the availability of good quality trimmings and embel-
lishments such as laces, buttons, zip fasteners, thread interlinings, and packaging
2
8
materials. All these products are reserved for small-scale industry, and their pro-
duction lacks international quality which has forced large exporters to vertically
integrate (for example, Gokaldas Exports). Since 1993 exporters have been allowed,
after obtaining a license, to import all trimmings by paying a duty of 40 per cent
(raised to 75 per cent in 1994 but the current rate has been reduced again to 40 per
cent). The license requirement for the import of these items was abolished in April
2
7
8
“
Most of the mills will not print the kind of designs that we want because they themselves export
the best cotton fabric,” according to the owner of the Shirt Company (Business India, July 5, 1993,
p. 103). This company has been forced to make only white clothes.
Current import policy lists twenty-one types of trimmings and embellishments which are exempt
from duties for exporters.
2

2
04
THE DEVELOPING ECONOMIES
TABLE IX
TRADE IN CLOTHING ACCESSORIES AND TRIMS, 1994
(U.S.$ million)
8
46: Clothing
656: Trimmings, Lace,
Embroidery, Labels
Accessories
Exports
Imports
Exports
183
61
316
8
Imports
289
China
856
81
642
321
52
87
Indonesia
Republic of Korea
Malaysia
Hong Kong
Thailand
47
57
28
72
32
184
106
35
527
14
128
2
116
61
36
425
52
177
17
Mexico
India
179
31
Source: United Nations, International Trade Statistics, SITC Revised 3 (UNITC).
1
996. It is important to realize that trims and accessories add value to the final
product. Leading exporting countries of garments are also large importers of trims
and accessories (Table IX).
The reservation of clothing products and accessories for the small-scale sector
has closed the entry for both large domestic firms and foreign direct investment into
the apparel sector. This has severely restricted the flow of new investment and tech-
nology upgrading. Garment industries in China, Malaysia, Sri Lanka, and Mauritius
have achieved rapid progress due to foreign investment.
V. CONCLUSION AND POLICY IMPLICATIONS
India has initiated economic policy reforms in order to improve efficiency and achieve
international competitiveness. Apparel is India’s leading export product and achieved
rapid growth in the late 1980s and the first half of the 1990s. However, India’s share
of world apparel exports has not risen since 1994. The immediate cause is appar-
ently the slowdown in the import growth of India’s major markets, namely, the
United States and the EU. A more significant observation is that the apparel indus-
try has remained outside the industrial reforms of the 1990s. An important and
difficult task is the restructuring of the Indian apparel industry to meet the competi-
tive challenges of the post–Uruguay Round world. In this context we surveyed the
recent developments in the globalization of the world apparel industry to better
understand its implications for the Indian apparel industry.
The process of globalization involves the slicing up of the value chain and forces
countries to become niche players in the global market. Specialization in the global
apparel market is not based on fabric alone but on product. The strategy is to ensure

INDIA’S APPAREL EXPORTS
205
that players enter the most attractive export niches in which they have relative ad-
vantage. In the world apparel market the main leverage is exercised by retailers,
brand-name marketers at the marketing and retailing end of the chain. They outsource
to meet their customer demands and depend on package suppliers who can procure
fabric, cut, make, trim, and pack the final product. They scout the world looking for
low-cost suppliers and locations. Even brand-name manufacturers are turning more
to outsourcing and tend to focus on design and marketing. The consolidation of
market power in the buyers, product diversity, and the higher demand uncertainty
in product markets put pressure on the apparel supplier countries to adopt informa-
tion systems to fill their orders efficiently. Special tariff provisions, namely, off-
shore assembly processing (OAP) and outward processing trade (OPT) have speeded
up the globalization of the apparel trade. These provisions favor the countries in
close proximity to the United States (Mexico) and the EU (Eastern Europe). Re-
gional trade arrangements like NAFTA and the OAP provisions have led to the
rapid growth of non-Asian suppliers to the U.S. apparel market. The rapid growth
markets are the clothing segment, basic and standardized garments.
India is at present a niche player in the low-value market segment based on cot-
ton fabrics and for seasonal and fashion garments. This reflects India’s comparative
advantage in cotton cloth and its flexibility advantage in meeting small orders.
However, its future export growth potential depends on two factors: (1) its ability to
move up the value chain in cotton garments, and (2) the diversification of its prod-
uct lines to include basic and standard garments, and synthetic fiber garments. With
the targets of enhancing quality, establishing new market niches, and moving up the
value chain, the strategy should be concentrated on the restructuring of the produc-
tion base. This requires new investment and access to imported inputs. Government
policy should remove two impediments to investment: product reservation and for-
eign investment restrictions. This would facilitate the entry of large domestic and
foreign firms into apparel products and accessories. Our analysis suggests two ma-
jor policy initiatives. First, the removal of textile products (woven and knitted) and
clothing accessories from the list of items reserved for small-scale industries. Sec-
ond, the inclusion of the apparel industry in the list of industries for which auto-
matic approval by the Reserve Bank of India (RBI) of foreign direct investment up
to 51 per cent equity is permitted. The current rules require prior approval by the
Indian government’s Secretariat for Industrial Approvals (SIA).
Access to imported inputs, fabric, trimmings, and accessories appear to have
become easier with their removal from the restricted list. The current fall in the
international prices of MMF (man-made fiber) fabric should help the industry to
change its fiber base to cotton blended with synthetics. The reforms would enable
the garment industry to develop the capability of meeting the challenge from com-
petitors in the global market.

2
06
THE DEVELOPING ECONOMIES
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APPENDIX TABLE I
WORLD’S LEADING EXPORTERS OF GARMENTS, 1980–95
Share of World Exports
Growth (%)
1
980
1990
1995
1980–93
1990–95
1
2
3
4
5
6
7
8
9
.
.
.
.
.
.
.
.
.
Hong Kong
China
Italy
Germany
Republic of Korea
United States
France
11.5
4.0
11.3
7.1
7.3
3.1
5.7
0.3
0.7
1.6
6.0
1.5
0.2
4.6
2.2
8.6
8.9
10.9
7.3
7.3
2.4
4.3
3.1
2.6
3.2
3.7
2.3
1.5
2.8
2.0
6.0
15.2
8.9
4.7
3.1
4.2
3.6
3.9
2.9
2.3
2.1
2.6
2.1
2.9
1.8
5
21
8
6
6
11
5
31
24
17
3
15
32
5
1
20
3
−1
−9
21
4
13
10
1
−4
10
15
9
Turkey
Thailand
1
0. Portugal
1. Chinese Taipei
2. India
3. Indonesia
4. United Kingdom
5. Netherlands
1
1
1
1
1
8
5
Sources: GATT (1994, p. 84); and WTO (1996, p. 111).

2
08
THE DEVELOPING ECONOMIES
APPENDIX
COMPOSITION OF CLOTHING EXPORTS OF
India
Pakistan
Bangladesh*
SITC Rev. 2 Groups
Value
$ Million)
Share
(%)
Value
($ Million)
Share
(%)
Value
($ Million)
Share
(%)
(
8
4
Clothing &
accessories
3,711.9
100
4.2
1,618.0
100
15.0
11.4
6.8
1,245.7
100
15.7
13.0
19.0
21.4
11.0
0.1
8
8
42 Men’s outerwear,
non-knit
156.8
1,409.2
658.9
338.5
480.3
172.6
429.9
243.0
185.0
109.8
183.6
320.5
139.2
390.5
196.1
162.3
236.6
267.0
136.5
1.7
43 Women’s outerwear,
non-knit
38.0
17.8
9.1
8
441 Men’s shirts,
non-knit
8
8
8
8
45 Outerwear, knit
nonelastic
11.3
19.8
8.6
46 Under garments,
knitted
12.9
4.7
47 Textile clothing
accessories, nes
48 Headgear, non-
textile clothing
11.6
24.1
19.2
1.5
Source: United Nations, International Trade Statistics Yearbook, 1994.
Note: Men’s shirts (8441) is a subgroup of category “under garments, non-knit (844).” The data
For 1993.
*
APPENDIX
MARKET SHARE FOR SEVENTEEN CATEGORIES OF
Category Description
All Countries
U.S.$ Million)
(
India
Bangladesh
3
41 Cotton women’s non-knit shirts
38 Cotton men’s knit shirts
40 Cotton men’s non-knit shirts
69 Cotton other manufactures
36 Man-made fiber dresses
59 Cotton other apparel
39 Cotton women’s knit shirts
41 MMF women’s non-knit shirts
42 MMF skirts
891.6
2,919.1
2,137.3
812.5
24.9
6.4
7.7
21.7
8.7
4.7
2.6
9.0
10.9
8.4
11.5
2.6
7.9
6.3
5.6
0.7
0.9
6.5
1.7
7.6
3.2
0.9
10.5
0.7
2.8
0.6
3.9
3.4
3.1
4.1
4.5
0.7
3.5
1.4
3
3
3
6
3
3
6
6
3
3
6
3
3
3
3
3
904.6
1,157.7
1,937.2
555.1
419.7
36 Cotton dresses
403.4
63 Cotton/terry towels
35 MMF women’s coats
42 Cotton skirts
264.2
1,066.9
345.0
35 Cotton women’s coats
45 Cotton sweaters
47 Cotton men’s trousers
48 Cotton women’s trousers
354.4
336.5
2,942.2
2,288.7
Source: U.S. International Trade Commission, April 1997.
Note: The classification is based on the Harmonized Tariff Schedule (HTS). MMF denotes man-

INDIA’S APPAREL EXPORTS
209
TABLE II
SELECTED ASIAN COUNTRIES, 1994
Indonesia
Malaysia
Republic of Korea
China
Value
Value
Share
(%)
Value
Share
(%)
Value
Share
(%)
Share
(%)
(
$ Million)
($ Million)
($ Million)
($ Million)
3
,272.9
100
25.2
26.3
7.6
2,075.8
100
9.6
5,692.6
667.2
100
11.7
18.2
8.5
23,793.5
100
8
8
2
5
4
23.6
60.6
47.5
78.0
25.9
199.5
210.9
192.6
405.3
243.9
5,464.7
6,613.2
1,638.6
3,908.3
2,332.3
664.9
23.0
27.8
6.9
10.2
9.3
1,035.0
484.4
17.7
13.0
2.3
19.5
11.7
1,468.4
652.8
25.8
11.5
9.6
16.4
9.8
7
6.2
547.5
2.8
1
94.5
5.9
755.0
36.4
804.3
14.1
2,452.8
10.3
for the group 844 is not presented.
TABLE III
MFA IMPORTS TO THE UNITED STATES, 1996
U.S. Imports
Percentage Share by Country/Region
Pakistan
Sri Lanka
Indonesia
Thailand
Philippines
China
Hong Kong
1
.5
0.2
.3
5.4
5.9
3.0
3.2
1.2
4.9
5.3
1.5
4.2
4.5
3.2
1.0
3.3
7.7
7.6
1.2
1.9
2.1
5.6
2.9
5.9
0.5
6.6
4.6
1.7
15.7
5.3
3.5
0.0
2.9
4.0
2.6
9.6
3.8
2.4
2.9
4.5
1.1
2.3
1.5
1.5
1.4
0.4
4.6
3.1
6.7
5.5
5.2
4.3
7.3
1.1
1.5
1.5
4.5
2.8
3.7
9.9
6.2
2.4
1.9
7.3
12.9
0.0
5.2
3.5
2.7
6.0
3.0
2.5
7.2
5.1
24.8
4.1
1
1
2.9
13.7
0.9
1
23.9
18.5
15.3
2.5
20.7
8.3
5.4
14.8
15.9
5.6
21.0
8.1
3.8
4.8
0
2
2
0
0
4
.1
.1
.4
.1
.1
.1
5.7
10.3
10.5
8.6
6.6
6.4
1
7.9
0.4
0.7
1.9
0.8
0.1
0.8
0.6
9.6
14.5
14.3
23.0
8.1
17.4
made fiber.

2
10
THE DEVELOPING ECONOMIES
APPENDIX TABLE IV
U.S. IMPORTS FROM INDIA AND OTHER COMPARATOR COUNTRIES (UNIT VALUES)
(U.S.$ per dozen)
Average Price
1
993
1994
1995
1996
(
1996)
3
3
3
6
38: Cotton men’s knit shirts
40: Men’s & boys’ shirts, NK
41: Cotton women’s shirts, NK
36: MMF dresses
42.5
73.1
58.9
50.0
83.1
65.4
54.6
85.1
57.6
62.1
87.4
53.4
50.1
82.9
67.4
127.7
147.8
131.6
144.6
129.8
.
.
.
.
.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
3
6
38: Cotton men’s knit shirts
40: Men’s & boys’ shirts, NK
41: Cotton women’s shirts, NK
36: MMF dresses
65.6
83.1
85.9
75.6
80.8
80.4
86.4
82.4
79.1
98.5
94.3
95.0
50.1
82.9
67.4
286.8
254.5
282.0
304.7
129.8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
3
6
38: Cotton men’s knit shirts
40: Men’s & boys’ shirts, NK
41: Cotton women’s shirts, NK
36: MMF dresses
43.7
54.3
41.8
63.7
43.5
55.7
47.1
59.9
49.6
63.9
45.4
55.7
53.5
61.2
46.7
61.6
50.1
82.9
67.4
129.8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
3
6
38: Cotton men’s knit shirts
40: Men’s & boys’ shirts, NK
41: Cotton women’s shirts, NK
36: MMF dresses
43.2
59.9
44.5
76.5
44.7
60.6
47.3
79.0
49.9
60.2
44.8
71.5
57.9
54.9
45.2
62.3
50.1
82.9
67.4
129.8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
3
6
38: Cotton men’s knit shirts
40: Men’s & boys’ shirts, NK
41: Cotton women’s shirts, NK
36: MMF dresses
79.7
83.5
65.5
91.2
84.7
89.6
60.5
97.1
86.9
93.2
61.7
96.0
95.5
68.1
50.1
82.9
67.4
114.5
130.8
129.8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
338: Cotton men’s knit shirts
340: Men’s & boys’ shirts, NK
341: Cotton women’s shirts, NK
636: MMF dresses
109.7
115.9
97.2
111.1
114.0
87.7
126.0
117.7
89.9
125.0
114.0
93.3
50.1
82.9
67.4
202.2
223.0
247.7
230.3
129.8
Source: Authors’ estimates based on annual statistical reports for U.S. imports.
Note: The classification is based on the Harmonized Tariff Schedule (HTS). Average price =
unit value of U.S. imports from all countries. NK = non-knit. MMF = man-made fiber.