PESTEL Analysis of India's Textile Industry

✅ Paper Type: Free Essay	✅ Subject: Management
✅ Wordcount: 5426 words	✅ Published: 4th Jan 2018

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Introduction

In analyzing the macro-environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organization’s supply and demand levels and its costs. The “radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization. A number of checklists have been developed as ways of cataloguing the vast number of possible issues that might affect an industry.

A PEST analysis is one of them that are merely a framework that categorizes environmental influences as political, economic, social and technological forces. Sometimes two additional factors, environmental and legal, will be added to make a PESTEL analysis, but these themes can easily be subsumed in the others. The analysis examines the impact of each of these factors (and their interplay with each other) on the business. The results can then be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans.

Kotler claims that PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

Use whatever factors you feel are appropriate. Other variations include:-

PEST analysis (STEP analysis)- Political, Economic, Sociological, Technological.
PESTLE/ PESTEL analysis – Political, Economic, Sociological, Technological, Legal, Environmental; PESTEL analysis.
PESTEL analysis – Political, Economic, Sociological, Technological, Environmental, Labors (Labor) related; PESTEL analysis (rare no references available).
PESTLIED analysis – Political, Economic, Social, Technological, Legal, International, Environmental, Demographic.
STEEPLE analysis- Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.
SLEPT analysis -Social, Legal, Economic, Political, and Technological.
STEPE analysis-Social, Technical, Economic, Political, and Ecological.
ETPSanalysis-Economic,Technical, Political andSocial- Scanning the business environment.

Choose the acronym that most suits you or your organization.

History of PESTLE

Where did the term PEST or PESTLE derive?
What were the origins?

The term PESTLE has been used regularly in the last 10+ years and its true history is difficult to establish.

The earliest know reference to tools and techniques for ‘Scanning the Business Environment’ appears to be by Francis J. Aguilar (1967) who discusses ‘ETPS’ – a mnemonic for the four sectors of his taxonomy of the environment: Economic, Technical, Political, and Social.

Shortly after its publication, Arnold Brown for the Institute of Life Insurance (in the US) reorganized it as ‘STEP’ (Strategic Trend Evaluation Process) as a way to organize the results of his environmental scanning.

Thereafter, this ‘macro external environment analysis’, or ‘environmental scanning for change’, was modified yet again to become a so-called STEPE analysis (the Social, Technical, Economic, Political, and Ecological taxonomies).

In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro, Boucher, Mecca and Porter included variations of the taxonomy classifications in a variety of orders: PEST, PESTLE, STEEPLE etc. Why the slightly negative connotations of PEST have proven to be more popular than STEP is not known. There is no implied order or priority in any of the formats.

IMPORTANCE

It is important to take into account PESTLE factors for the following main reasons –

Firstly, by making effective use of PESTLE analysis , you ensure that what you are doing is aligned positively with the powerful forces of change that are affecting our environment by taking advantage of change , you are much more likely to be successful than if your activities oppose it.
Secondly, good use of PESTLE analysis helps you taking action that is likely to lead to failure for reasons beyond your control.
Thirdly, PESTLE is useful when you start a new product or service. Use of PESTLE analysis helps you break free of assumptions and helps you quickly adapt to the realities of the new environment.

ThePESTLE Analysisis often used as a generic ‘orientation’ tool, finding out where an organization or product is in the context of what is happening out side that will at some point effect what is happening inside an organization.

APESTLE analysisis a business measurement tool, looking at factors external to the organization.It is often used within a strategic SWOTanalysis (Strengths, Weaknesses, Opportunities and Threats analysis).

OBJECT

Any organization or industry influenced by factors as political factors, economical factors, social factors, technical factors, legal factors, and environmental factors in addition to government policies, labor factors, competitive market condition locational factors, and emerging globalization. So we have defined PESTLE analysis of textile industry. Until the economic liberalization of Indian economy, theIndia Textile Industry was primarily unorganized industry. But now the Indian textile industry is the second largest in the world-second only to China. Indian textiles also account for 38 percent of the country’s total exports and are, therefore, a very important industry. And these factors affected the textile industry as political factors are most important for this industry because lack of stability in politics. And Indian economy is largely dependent on textile manufacturing and exports. India earns around 27% of the foreign exchange from exports of textiles so economical and environmental factors influenced.

So we have discussed on these factors and define the problems of textile industry which is suffered by these factors.

TEXTILE INDUSTRY

The industries in India can be broadly classified into organized and unorganiased.Textile industry is under unorganized and relatively small. There is some potential for real growth. Textile Industry is related to clothes. Until the economic liberalization of Indian economy, theIndia Textile Industry was primarily unorganized industry. The opening up of Indian economy post 1990s led to a stunning growth of this industry.

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India Textile Industry is one of the largest textile industries in the world. Today, Indian economy is largely dependent on textile manufacturing and exports. India earns around 27% of the foreign exchange from exports of textiles. Further, India Textile Industry contributes about 14% of the total industrial production of India. Furthermore, its contribution to the gross domestic product of India is around 3% and the numbers are steadily increasing. India Textile Industry involves around 35 million workers directly and it accounts for 21% of the total employment generated in the economy.

The Indian textile industry is the second largest in the world–second only to China. An Indian textile also has account for 38 percent of the country’s total exports and is, therefore, a very important industry. The forecast is that textiles exports will reach USD 35 billion by the year 2000.

The total Indian market for the textile machinery in 1997 (the latest year for which complete data are available) was estimated at USD 895 million. The market is projected to grow at an average annual nominal growth rate of 6 percent during the next 2 years.

There are at least 20 domestic companies offering textile machinery for spinning, weaving, texturizing and finishing. The Lakshmi Group of Coimbatore has been the most successful of these companies. Lakshmi’s success is attributable to its longevity in the sector and its ability to offer a range of textile machinery directly or through its sister companies. Consequently, Lakshmi can meet the needs of a variety of end users. For the past two years, the market has been in a recession. As a result, market players have become very cost conscious and price sensitive. However, the future looks bright used textile machinery. This market segment is likely to grow faster than the broader market. The major factors that are likely to produce growth for this sector include –

A worldwide increased in demand for Indian textiles and garments.
The lowering of customs duties on imported textile machinery.
Reduced government restrictions on the import of the used capital goods.
The reduced cost of the used equipment which makes textile manufacturing operations more viable.

Reliance Industries Limited (RIL) is India’s private sector company, involved in textiles. It is headquartered in Mumbai, India and employs approximately 12,500 people. The company recorded revenues of INR1, 108,860 million (approximately $25,537 million) during the fiscal year ended March 2007, an increase of 24.4% over 2006. The U.S. market share of imported textile machinery is only approximately 3 percent. Competitors from European countries such as Germany, Switzerland and the United Kingdom have taken the lead and are concentrating on equipment for cotton spinning, weaving, carding, winding and finishing. To become more competitive, U.S. companies need to shift their focus from only offering new equipment to offering both new and used textile machinery to the Indian market. Given this type of shift in focus, it is estimated that U.S. companies could increase their share of textile machinery imports to 10 percent over the next four to five years. In addition, U.S. firms can increase their competitiveness by forming alliances with experienced Indian partners who are very familiar with Indian market conditions. Another strategy for increasing the competitiveness of U.S. companies in the Indian market would be to focus on marketing used textile machinery on a turn key basis, and coupling the transfer of machinery with technological transfers, training, and buy-back commitment for the Indian textiles and garments. This type of strategy is highly supported at the national and regional levels by the Government of India (GOI).

MARKET PROFILE OF TEXTILE INDUSTRY

The Indian textile industry is the second largest in the world–second only to China. Indian textiles also account for 38 percent of the country’s total exports and are, therefore, a very important industry. The forecast is that textiles exports will reach USD 35 billion by the year 2000.

To sustain this growth, it is imperatives that the textile industries produce goods of high quality at reasonable prices. This means that the industry must continuously modernize its machinery. Therefore, the textile machinery industry sector has an integral role to play in the growth of India’s textile exports.

Industry analysts note that textile prices are increasingly competitive worldwide as more and more developing countries enter the global textile trade. To maintain, if not increase, its global market share, the Indian textile industry must procure modern, low-cost, textile machinery so that it can produce high quality textiles and garments for export at competitive prices. It is in this context that the market for used textile machinery is viewed as very promising. Used textile machinery permits India to incorporate new technology at low cost.

Here are a few important facts about India’s textile:

there are approximately 1200 medium to large scale textile mills in India. Twenty percent of these mills are located in Coimbatore (Tamilnadu).
India has 34 million cotton textile spindles for manufacturing cotton yarn. Cotton yarns account for 70 percent of India’s textile exports. (China has 40 million cotton spindles.)
Of the Indian textile yarn exports, almost 80 percent come from coarser yarns (counts below 40s). Consequently, there is a need to upgrade the technology.
For the past two years, there has been a significant slow-down in the cotton spinning segment, mainly due to the spiraling price of cotton.
The domestic knitting industry is characterized by small scale units which lack adequate facilities for dyeing, processing and finishing. The industry is concentrated in Tirupura (Tamilnadu) and Ludhiana (Punjab). Tirupura produces 60 percent of the country’s total knitwear exports. Knitted garments account for almost 32 percent of all exported garments. The major players include Nahar Spinning, Arun Processors and Jersey India.

Status of the Textile Machinery Industry

Approximately 120 companies manufacture the complete range of textile machinery. Gross receipts for the Industry in 1997 were nearly USD 700 million. The industry employs about 150,000 workers directly and an equal number indirectly. The demand for textile machinery is mainly from end user in the cotton textiles, manmade fibers and wool unit’s textile sectors. The industry’s major problems are –

Inadequate design and engineering capabilities.
The high cost of raw material and components.
The high cost of finance.
Demand constraints.
Competition from foreign countries as a result of the lowering of import duties on textile machinery.
The high quality of imported textile equipment.

The textile machinery industry sector experienced between 7 and 8 percent nominal growth in 1997.

SWOT ANALYSIS OF TEXTILE INDUSTRY

SWOT analysis defines all over condition of any industry or organization. This describes strength, weaknesses, opportunity, and threat of the textile industry. It contains astudy of the major internal and external factors affecting the company in the form of a SWOT analysis.

Strengths:

Indian Textile Industry is an Independent & Self-Reliant industry.
Abundant Raw Material availability that helps industry to control costs and reduces the lead-time across the operation.
Availability of Low Cost and Skilled Manpower provides competitive advantage to industry.
Availability of large varieties of cotton fiber and has a fast growing synthetic fiber industry.

India has great advantage in Spinning Sector and has a presence in all process of operation and value chain.

India is one of the largest exporters of Yarn in international market and contributes around 25% share of the global trade in Cotton Yarn.
TheApparel Industryis one of largest foreign revenue contributor and holds 12% of the country’s total export.
Industry has large and diversified segments that provide wide variety of products.
Growing Economy and Potential Domestic and International Market.
Industry has Manufacturing Flexibility that helps to increase the productivity.

Weaknesses:

Indian Textile Industry is highly Fragmented Industry.
Industry is highly dependent on Cotton.
Lower Productivity in various segments.
There is Declining in Mill Segment.
Lack of Technological Development that affect the productivity and other activities in whole value chain.
Infrastructural Bottlenecks and Efficiency such as, Transaction Time at Ports and transportation Time.
Unfavorable labor Laws.
Lack of Trade Membership, which restrict to tap other potential market.
Lacking to generate Economies of Scale.
Higher Indirect Taxes, Power and Interest Rates.

Opportunities:

Growth rate of Domestic Textile Industry is 6-8% per annum.
Large, Potential Domestic and International Market.
Product development and Diversification to provide global needs.
Exclusion of Quota Restriction leads to greater Market Development.
Market is gradually shifting towards Branded Readymade Garment.
Increased not reusable Income and Purchasing Power of Indian Customer open New Market Development.
Emerging Retail Industry and Malls provide huge opportunities for the clothes, handiwork and other segments of the industry.
Greater Investment and FDI opportunities are available.

Threats:

Competition from other developing countries, especially China.
Continuous Quality Improvement is need of the hour as there are different demand patterns all over the world.
Elimination of Quota system will lead to fluctuations in Export Demand.
Threat for Traditional Market for Power loom and Handloom Products and forcing them for product diversification.
Geographical Disadvantages.
International labor and Environmental Laws.
To balance the demand and supply.

To make balance between price and quality

Research Methodology

In order to evaluate the PESTLE analysis of Indian textile and clothing exports, the study has analyzed the political technical, economical, social, legal, and environment factors of the textile industry.

Information Sources –

The information has been sourced from various authentic and reliable sources like books, newspapers, trade journals and white papers, industry portals, government agencies, trade associations, and monitoring industry.

To assess these factors of the industry, a preliminary interview conducted with a few industrialists. The interview sought their views and opinions chiefly respect of the pestle factors that they are facing in India. With the help of Internet sites we have found many key factors of this industry.

Analysis Method –

Textile industry forecast and analysis is based on various macro- and microeconomic factors, sector and industry specific databases, and our in-house statistical and analytical model. This model takes into account the past and current trends in an economy, and more specifically in an industry, to bring out an objective market analysis.

Our industry experts study the relationship between various industry and economic variables to ensure the required accuracy and desired check on the quality of data and information given in the report.

PESTLE ANALYSIS OF TEXTILE INDUSTRY

The textile industry grew out of theindustrial revolutionin the 18th Century asmass production of clothing became a majority industry. Until the economic liberalization of Indian economy, theIndia Textile Industry was primarily unorganized industry. The opening up of Indian economy post 1990s led to a stunning growth of this industry. But now Industry has influencing by many factors as political factors, economical factors, social factors, technical factors, legal factors, and environment factors. Here we will describe all those factors affected to Textile Industry.

The Working Group on Textiles & Jute Industry for the 11th Five Year Plan (2007-2012) has studied the major problems being faced by the textile industry.

POLITICAL FACTORS

The management of business enterprises and their policies are considerably influenced by the existing political systems. And India is a democratic country, there are probably problem of stability in politics.

Political and Government Diversity:

The reservation of production for very small companies that was imposed with an intention to help out small scale companies across the country, led substantial fragmentation that distorted the competitiveness of industry. However, most of the sectors now have been de-reserved, and major entrepreneurs and corporate are putting-in huge amount of money in establishing big facilities or in expansion of their existing plants.

Secondly, the foreign investment was kept out of textile and apparel production. Now, the Government has gradually eliminated these restrictions, by bringing down import duties on capital equipment, offering foreign investors to set up manufacturing facilities in India. In recent years, India has provided a global manufacturing platform to other multi-national companies that manufactures other than textile products; it can certainly provide a base for textiles industry.

And some motivating step taken by the government, other problems still sustains like various taxes and excise imbalances due to diversification into 35 states and Union Territories. However, an outline of VAT is being implemented in place of all other tax diversifications, which will clear these imbalances once it is imposed fully.

But now the Indian government has introducing measures such as the national technology up gradation fund and removing the differential taxation scheme which discriminated against large units.

ECONOMICAL FACTORS

Economical factors such as per capita income, national income, resources mobilization, exploitation of natural resources, infrastructure development, capital formation, employment generation, and industrial development influence textile industry.

Textile industry provides one of the most fundamental necessities of the people with huge value-addition at every stage of processing.

Today textile sector accounts for nearly 14% of the total industrial output. Indian fabric is in demand with its ethnic, earthly colored and many textures. The textile sector accounts about 30% in the total export. This conveys that it holds potential if one is ready to innovate.

The textile industry is the largest industry in terms of employment economy, expected to generate 12 million new jobs by 2010. It generates massive potential for employment in the sectors from agricultural to industrial. Employment opportunities are created when cotton is cultivated.

Current Scenario

Textile exports are targeted to reach $50 billion by 2010, $25 billion of which will go to the US. Other markets include UAE, UK, Germany, France, Italy, Russia, Canada, Bangladesh and Japan. The name of these countries with their background can give thousands of insights to a thinking mind. The slant cut that will be producing a readymade garment will sell at a price of 600 Indian rupees, making the value addition to be profitable by 300 %.

SOCIAL FACTORS

Managers and policy makers can not disregard social variables like education, knowledge, rural community norms and beliefs which are predominant in India, especially in the rural society while cultural differences are unthinkable for any international manager or even an urban Indian manager. Textile industry of India based on cotton and cotton as the agriculture product, which found in rural areas so the social responsibility of the textile industry. Social stratification plays a vital role in rural societies.

TECHNOLOGICAL FACTORS

Technology is considered to be one of the most important factors of textile industry. That is why the government, in its industrial policy resolutions, industrial licensing policies, MRTP and FERA regulation, and in liberalization policies, assigned great importance to sophisticated technology and technology transfer.

The Working Group on Textiles & Jute Industry for the 11th Five Year Plan (2007-2012) has studied the major problems being faced by the textile industry which include:

Structural weaknesses in weaving and processing,
Fragmented and technologically backward textile processing sector,
Fragmented garment industry,
Inadequate capacity of the domestic textile machinery manufacturing sector,
Inadequate training facilities in textile sector.

The Government has undertaken a series of progressive measures like introduction of Technology Mission on Cotton (TMC), Technology Upgradaiton (sp) fund Scheme (TUFS), Scheme for Integrated Textile Park (SITP), reduction in customs duty on import of state-of-the-art machinery, Debt Restructuring Scheme, setting up of Apparel Training and Design Centers (ATDCs), 100% Foreign Direct Investment in the textile sector under automatic route, setting up of National Institute of Fashion Technology (NIFT) etc, for upgrading and strengthening the textile sector in India.

At present, the textile industry is undergoing a substantial re-orientation towards other then clothing segments of textile sector, which is commonly called as technical textiles. It is moving vertically with an average growing rate of nearly two times of textiles for clothing applications and now account for more than half of the total textile output. The processes in making technical textiles require costly machinery and skilled workers.

LEGAL FACTORS

Legal environment plays very vital role in textile industry. Laws relating to industrial licensing, factory administration, industrial disputes, monopoly control, and foreign exchange regulation are examples of legal business environment in India.

Textile industry has suffered by legal rules as unfavorable labor laws. Government has created strong labor laws. In India, labor laws are still found to be relatively unfavorable to the trades, with companies having not more than ideal model to follow a ‘hire and fire’ policy

And other factors are lack of Trade Membership, which restrict to tap other potential market. And also lacking to generate Economies of Scale is another legal factor to this industry. Government has charged higher Indirect taxes, power and Interest rates. The uneven supply base also leads barriers in attaining integration between the links in supply chain. This issue creates uncontrollable, unreliable and inconsistent performance. The liberalization being carried in the 1990’s also ushered in a new era for India’s textile industry. It led to the relaxation of many of the constraints previously imposed on the textile sector. Licensing was removed in the early 90`s by the Statement of Industrial Policy and the Textile Development and Regulation Order. In 1995, India signed the General Agreement of Tariffs and Trade bringing some of its policies at par with those at an international level.

At present, the single biggest factor influencing the textile industry appears to be the end of the textile quota regime of quantitative import restrictions under the multi-fiber arrangement (MFA) on 1st January, 2005 under the World Trade Organization (WTO) Agreement on Textiles and Clothing. The removal of quotas, seen as an opportunity by many, including the government, is driving investment and liberalization in the textile space.

India can also grab opportunities in the export market. The industry has the potential of attaining $34bn export earnings by the year 2010. The regulatory polices is helping out to enhance infrastructures of apparel parks, Specialized textile parks, EPZs and EOUs.

ENVIRONMENTAL FACTORS

Environment protection and preservation is responsibility of the textile industry. The Government of India is committed to the preservation of ecological balance.

Pollution free technology and recycling of industrial wastes and effluents has become a corporate concern now. Legislative measures have been adopted for this purpose, important legislations in this connection are-

The water (preservation and control of pollution) Act, 1974 provides for the prevention and control of water pollution. The Air Act, 1981 aims at preventing, controlling, and reducing air pollution. The environment (protection) Act, 1986 ensures the protection and improvement in the quality of the environment.

TEXTILE COMPANIES IN INDIA

There are many textile companies in India as –

Reliance Textiles- Reliance Textiles is one of the major textiles Company. That is in business of fully integrated man made fiber. It has capacity of more than 6 million tones per year.
Vardhaman Spinning-Vardhman deals in spinning, weaving and processing segment of the industry. It is planning to double its fabric processing capacity to 50 million meters.
Welspun India is Asia’s largest terry towel manufacturer and fourth largest in the world. It supplies to leading global retailers, meeting 15 per cent of Wal-Mart’s terry towel requirements, 85 per cent of Tom Hilfiger.
Alok Industries has the largest processing capacity in India and offers fully integrated facilities for yarn text rising, weaving, knitting, processing, made-ups and garments. It has initiated plans to expand capacities across all segments by investing Rs. 10 billion.
Arvind Mills boasts of a wide product range in value added fabric, from fabric to garments in denim, shirting and knits.
Gokaldas exports have more than 40 factories spreading in 37 locations in India, manufacturing more than 2.4 million garments per month.

Other major players like Raymond, Siyaram silk mills, mahavir spinning mills etc. have also shown strong performance in the past two years.

INTERPRETATION

The textile industry holds significant status in the India. Textile industry provides one of the most fundamental necessities of the people. It is an independent industry, from the basic requirement of raw materials to the final products, with huge value-addition at every stage of processing

The textile industry is the largest industry in terms of employment economy, expected to generate 12 million new jobs by 2010.

Today textile sector accounts for nearly 14% of the total industrial output.

So I have interpreted that government should take action in favors to textile industry. In India, there are two issues unemployment and standard of living. Textile industry can help in employment and raising standard of living.

At this time textile industry is facing very problems due to government policies. Other problem is recession in country. The textile industry also suffered because of the high cost of raw cotton. The government had increased the minimum support price by 40 per cent in 2008-09. So government should decrease the price of row material as cotton. And should make easy labor laws.

CONCLUSION

We have conclude that if any industry or organization want to retain in the market then follow the government rules and regulation, social responsibility, and maintain pollution environment. In India growth rate is depend upon textile industry. Indian Textile Industry is an Independent & Self-Reliant industry but government stated strong labor laws for this industry. Market is gradually shifting towards Branded Readymade Garment and has opportunity in foreign market and domestic market.

So the government should be introducing measures such as the national technology up gradation fund and removing the differential taxation scheme which discriminated against large units. They have also allowed textile units to build and operate captive power plants, which should ease the power problem. Although Textiles have historically formed an important part of India’s economy. India’s cotton and silk production were among the highest in the world.

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