Hamstrung by liquidity crunch, soaring costs, frequent power outages (around eight-ten hours a day in parts of Tamil Nadu and Andhra Pradesh) and archaic labour laws, many domestic textile companies have gone abroad in recent years, mainly to Bangladesh, or are looking for acquisitions, say several textile industry executives. Worse, mills that have not yet set up base in Bangladesh are also opting for sourcing supplies from there, they add.
Arvind Mills is expanding its denim manufacturing capacity by around 27%, or 30 million metres, by setting up a plant in Bangladesh in a joint venture with Nitol group expected to be completed in a year with a projected investment of $60 million. The Aditya Birla Group inked a deal in July to buy assets of Ontario-based Terrace Bay Pulp Mill for roughly $110 million through a special purpose vehicle in which two group companies Grasim Industries and Thailand-based Thai Rayon Public would hold stake. Its move was aimed at achieving higher growth in the viscose staple fibre business, of which its a pioneer, through an integrated business model spanning the entire value chain, from plantation to pulp to fibre.
Surat-based polyester yarn maker Nakoda Limited has acquired manufacturing facilities at South Korean firm Kyunghan Industry Company and has announced an investment of $40 million. These apart, Chennai-based apparel manufacturer Rattha Overseas, Jay Jay Mills of Tirupur and Mumbai-based Creative Casuals, among others, have firmed up plans for sourcing from Bangladesh. Some mills are looking at acquisitions in Uzbekistan and Kazakhstan too.
The list is expected to grow once more mills manage to tide over the current liquidity crisis, stoked by a sudden slump in product prices in 2011 following two successive years of a steady rise in raw material costs. Its because India allowed duty-free access to 48 textile and apparel products from Bangladesh last year.
During the course of a recent meeting in Bangladesh, I realised there were more Indians in the meeting than natives of Bangladesh. I asked the owner of a big Indian firm, who was present in the meeting, and he said he was adding to staff there, says a senior textile ministry official.
Labour cost is at least 30% cheaper in Bangladesh than India and labour laws very flexible. Duty-free access is a big advantage, says DK Nair, secretary general, Confederation of Indian Textile Industry.
Bangladesh also offers incentives to run garment units, says Rahul Mehta, president, Clothing Manufacturers Association of India. You can import fabric from China at zero duty if you are based in Bangladesh, he adds. The government support there is so much that imported capital equipment are exempt from tax, while other industries are required to pay high duties for the machinery they require, says another industry executive.
Another crucial reason is that garments exports to Europe from Bangladesh is duty-free. Many Indian mills that have not yet set up base in Bangladesh still have their agents there to source supplies, says Premal Udani, chairman of the Apparel Export Promotion Council. This means Bangladesh is snatching away buyers from India, as traditionally Europe accounts for around 30% of Indias total textile exports.
The result is Bangladesh, which was trailing India in apparel exports as late as 2005-06, has not just overtaken us, but its exports of around $25 billion are 70% higher than ours, says another executive.