Can India Capitalise on China's Shift Away from Low-End Manufacturing?

Over the last decade, Bangladesh and Vietnam have eaten India's lunch when it comes to everything, from apparels to furniture.

A boy separates starched sarees left to dry on the roof of a cotton factory in Hyderabad, November 30, 2012. REUTERS/Krishnendu Halder/Files

A boy separates starched sarees left to dry on the roof of a cotton factory in Hyderabad. Credit: Reuters/Krishnendu Halder/Files

New Delhi: India’s hope that it will benefit from China’s shift away from low-end, labour-intensive manufacturing, is unlikely to be fulfilled with rivals like Bangladesh, Vietnam, Cambodia, Mexico and Poland giving it tough competition.

China currently dominates the global market of textiles and apparel, footwear and furniture. But with rising wages threatening to erode its global competitiveness in labour-intensive sectors, China is moving up the value chain of manufacturing, vacating space for other low-cost producers in the developing world. For instance, in 2010, low-value apparel and home textiles accounted for 51% and 29% of China’s textile industry respectively. But in 2014, their shares came down to 46.8% and 28.6%, with the share of value-added industrial textiles rising from 20% to 24%.

Shares of apparel and home textiles in China’s basket of textile products are projected to further decline by 2025, creating a$50 billion opportunity for other low-cost producers in apparel market alone, according to FASH455, a global apparel and textile trade and sourcing agency.

Major clothing exporters and their shares in export market

Country % share in global exports in 2000 % share in global exports in 2005 % share in global exports in 2010 % share in global exports in 2016 % Annual change during 2010-16
China 18.2 26.6 36.7 36.4 4
Bangladesh 2.6 2.5 4.2 6.4 11
Vietnam 0.9 1.7 2.9 5.5 15
Cambodia 0.5 0.8 0.9 1.4 13
India 3 3.1 3.2 4 8

Source: WTO Trade Statistical Review 2017

Apparel accounts for as much as 40% of India’s textile exports. The country hopes to take advantage of China’s shift away from apparel manufacturing and ramp up exports. However, data shows that rivals like Bangladesh, Vietnam and Cambodia have stolen India’s thunder.

In 2000, India held 3% share of apparel export market while Bangladesh’s and Vietnam’s shares stood at 2.6% and 0.9% respectively.

But the scenario has drastically changed in 2016, with Bangladesh and Vietnam seeing their market shares jump to 6.4% and 5.5%  respectively, zooming past India whose share modestly increased to 4%.

Top footwear exporters in 2016

Country Exports ($bn)
China 47
Vietnam 18
Indonesia 4.6
India 0.42

Source: Tradingeconomics

Meanwhile, Ethiopia too is emerging as a serious player in the global apparel market. The African country exported textile and apparel worth $7.32 billion in 2015, which it has targeted to raise to $30 billion by 2025.

Among all industries, apparel has the highest employment generation potential. For every Rs 1 lakh of investment, nearly 24 jobs are created, compared to 1.3, 0.3 and 0.1 in food processing, auto and steel respectively. Moreover, it has the highest potential to absorb women workers.

Also read: To Save ‘Make in India’, Fix GST for Small and Medium Businesses

Footwear and furniture

India fares even worse in footwear and furniture export markets. Country’s footwear exports, valued at $2.54 billion in 2013, came down to $0.42 billion in 2016. In comparison, new player Vietnam exported footwear worth $18 billion during the same year, next only to China.

As far as furniture export is concerned, India does not have any significant presence in this market. Its export of furniture bedding and mattress shrunk to $0.2 billion in 2016 from $1.09 billion in 2013.

Top furniture exporting countries in 2016

Country Exports ($bn)
China 89.5
Poland 11.7
Mexico 10.35
Vietnam 7.96
Czech Republic 4.6

Source: Industry

While China remains the largest global supplier of furniture, developing countries like Poland, Mexico and Vietnam have significant presence in this segment.

Significantly, Bangladesh does not get foreign direct investment (FDI) inflows unlike India. What is more, it also ranks low on the World Bank’s Doing Business Index.

According to credit rating agency Fitch, Bangladesh and Vietnam already have strong footholds in these sectors. Together they accounted for 8% of global clothing, footwear and furniture exports in 2015, up from 3% in 2010. This established scale could be an advantage. Bangladesh, for example, has a ready-made garments industry that accounts for over 80% of its exports, and has the capacity to meet large orders swiftly.

Also read: Is India’s Economic Growth Slowdown Temporary or Technical?

Employment generation potential of apparel industry

Sector Jobs per Rs 1 lakh investment Female jobs per Rs 1 lakh investment
Apparel 23.9 8.2
Leather goods 9.9 3.9
Food processing 2.4 1.3
Auto 0.3 0.1
Steel 0.1 0.05

Source: NSSO 68th round, Investment means gross fixed capital formation

According to UN Comtrade, a significant drop in China’s low-end manufacturing over the coming decades would leave a large gap for lower-cost countries to exploit. China’s global share of exports of clothing, footwear and furniture is still almost 40%. However, the decline now appears to be gathering momentum – China’s exports of these labour-intensive goods fell by 10% in dollar terms in 2016.

According to a 2014 Boston Consulting Group report, the cost of Indian labour has remained virtually flat over the past decade when adjusted for productivity gains. By contrast, labour costs in China’s coastal provinces have nearly tripled.

Noor Mohammad is a financial journalist.