Dr D K Batra NIFT -- IFFTI Conference

1. Dr D K Batra NIFT -- IFFTI Conference

2. Call of the Customer - The Fragmentation of Fashion

3. Business coming full cycle… • Prior to 80’s, the different parts of apparel supply chain lay disjointed. • Then came the age of consolidation – different parts of supply chain came together. • Business is coming full cycle for last few years – re-emergence of fragmentation.

4. Reasons for this U-turn • Customer becoming over-demanding. • Erratic changes in customer preferences and demands. • Quickly changing fashion cycles. • Customers’ demanding – • Frequent innovation • Greater exclusivity • More choice • Better service

5. Key Issues • Changing consumer lifestyles and needs, affecting the entire supply chain • Changes in Retail Industry and supply chain, impacting sourcing and lead times • Emerging partnerships in sourcing • Political and regional trade affiliations, preferential trade agreements influencing trade flows • Preparedness of Textiles and Clothing Industry for Free Trade regime

6. The Evolving Consumer Timeis more precious than money (A consumer in USA spends 4.3 hours per month on Clothing shopping) The consumer is becoming individualistic - “Market of One” Lost Sales Opportunity 68% of 49% can’t “... don’t like the style” consumers find what enter a store “... not my size” they are with a clear looking for “... price too high” idea ... doesn’t fit” Availability is essential

7. Trouble begins … Challenges Galore • Unpredictable demands of customer. • Tilted balance between competitive offerings to customer and economies of scale to manufacturers. • Risk of losing competitiveness in business. • Enterprises not able to anticipate priorities and decision criteria. • Powerful investments in customer intelligence • Tremendous innovation in supply side required.

8. Fragmentation of demand • more informal and active lifestyles has created new demand for innovative products. • high degree of segmentation has occurred as New niches New micro-segments on age, ethnicity, income, lifestyle appear • Superimposed on these is emergence of new international market segments,as a result of convergence of lifestyles towards an industrialized, urbanized consumer lifestyle model.– Benetton, Polo Ralph Lauren, Laura Ashley, Nike,

9. Effects of demand fragmentation • Mass production no longer viable for many • Companies racing to embrace ‘Mass Customization’. • ‘Market Turbulence’ • Firms getting specially created to implement the mass customization model.

10. What’s Special? “Customers will try ‘low cost providers’ because the Majors have not given them any clear reason not to.”Leading Insurance Industry Analyst (10-98)

11. Direct to Dell-Dell Computers Dell’s "direct" model dramatically transformed the value chain architecture – • Outsourced all components; performed assembly. • Eliminated retailers; shipped directly from factories to end customers. • Designed an integrated supply chain linking its suppliers closely to its assembly factories and the order-intake system. Following suit – Levi’s • Using mass customization with its Personal Pair women’s custom fitted jeans program. • Measurements entered into the computer, to suggest a prototype-test garment. • Specs of the best fitting prototype sent for manufacturing.

12. Opposing Fragmentation – Mergers &Acquisitions • the trend is still of consolidation – big fish grow bigger. • Increased efficiencies – • Economies of scale • Lower overheads • Greater leverage with vendors. Trend forcing vendors to consolidate

13. Increasing Value, Convenience and Selection USA Europe • Discounters and Mail-Order formats growing • E-tailing redefining the future of retailing, with internet accounting for 2% of sales of clothing by 2003.

14. Stagnating Retail Prices 258 222 119 109 43 44 1990 1991 1992 1993 1994 1995 1996 1997 AverageRetail Prices in UK (in US$)

15. Impacting the Retail Industry Non-Store 2000’s? 1960’s 1980’s WalMart Category Killers Sears S JCP JCP Consolidation and Migration MW Kmart WalMart Woolworth Dayton Hudson Sears Fed. Dayton Hudson Kmart Dillards May Category Killers JCP May Fed. Merc. MW Merc. Non-Store Dillards Entertainment

16. Situation arising… • Fewer buyers each with greater power. • Consolidated purchasing in handful of low cost countries. • Within exporting countries, consolidation of sellers. • Vendors getting forced to design lines for each chain.

17. Parallel Trend –Fragmentation of Production • International fragmentation of production – - whereby integrated production activities are segmented and spread over an international network of production sites. • Opportunity for smaller companies • It allows production in different countries to be formed into cross-border production networks -within or between firms. • confluence of “integration of trade” with disintegration of production” in global Economy.

18. International fragmentation • Delocalization of production, • Vertical specialization, • Outsourcing, etc Occurs when: A good is produced in two or more sequential stages Two or more countries provide value-added during the production of goods; At least one country must use imported inputs in its stage of the production process Some of the resulting output must be exported

19. Relocation of production to LDCs and NICs Subcontracting production within AICs to inner-city manufacturers 3 MODELS competitive advantage -Cheaper Labour New forms of Production and subcontracting (flexible specialisation) women work on a casual basis wages comparable to LDCs and NICs . economic production in small batches and just-in-time production.

20. Effects of Fragmentation: Supply Chain • Extra costs (offset by reduction in other production costs) paid for the needed services –transportation of goods between production locations, quality controls, etc • East Asia and Mexico in a new light witnessing concepts such as – • “Supplier-oriented industrial upgrading” • “Demand-driven development” • ‘Vendor Development’ as a function of Buyers.

22. The Shakespearean Dilemma Which models must do we adopt to remain competitive in a system as dynamic as this? Consumer unleashing a new power

23. +ves of Italian Model • Extremely flexible regard to labor factor firms. • Join creating industrial districts-- productive flexibility, Globally competitive • Market power remains equally distributed between domestic suppliers and retailers. • Instead of efficiencies of scale, scope, and information technologies, the Italian model competes through flexibility, specialization, and an emphasis on product design and quality

24. India as a Fragmented Sourcing base in Asia

25. Level of Fragmentation in different stags of Value chain across countries Japan Korea China Bangladesh India Turkey Pakistan Italy Mexico USA Spinning - C F C C C C C -- C Weaving F F C/F C F C C F F C Processing C C C F F C/F C C/F C C Made-ups C C C F F C/F F C C C RMG C C C C F C/F F C C C C: consolidated F: Fragmented

26. However, small scale also brings with it the problem of productivity. Various authors and researchers have placed the current productivity of Indian factories to as low as one-third of levels that might otherwise be achievable. Smaller companies often do not have the resources to invest in appropriate technology or retraining, or in the re-engineering of processes. While skilled Indian labour is inexpensive in absolute terms, due to lower productivity levels, small firms lose much of this advantage.

27. India’s unit value realization • Scope for the consortium approach- enhancing exports growth-using fragmentation results of the study conducted on improving unit value realization in Indian Garment Exports

28. UVR of India’s Export categories: Primary Survey Fig in Rupees

29. UVR as a Differentiatior • If one analysis the UVR (unit value realization) results obtained from the survey, it is quite clear that on the one hand, some Indian exporters managed to get a good price of their garments. On the other, there is one set of exporters who have been shipping the garments at a very low price.

30. UVR as a Differentiatior • For example, in the case of outerwear, the standard deviation from the mean for the UVR was found to be maximum. This means that the Indian exporters exporting outwear are way erroneous in nature in terms of UVR(unit value realization)obtained through exports. The study showed that for instance in outerwear category, the minimum price which an Indian exporter got was Rs. 247(US$ 6), whereas the maximum price of the outerwear garment went up to Rs.575( US$12).

31. CLUSTER ANALYSIS Rational Intuitive (44) (64) - Not giving due importance to design development but understand the potential of design. - Stress on need basis design development - Tech Savvy - Design Process Oriented - Understand trends - Ornamentation is important (33) (55) Standardised Non Rational - Give stress to sell more - Believe in standardisation of design - Aware of the importance of design & product development - Designs are meant for all people - Non Tech Savvy - Non Process Oriented - Does not give importance to design development - Ornamentation is unimportant

32. RATIONAL Characteristic Channel - Importers/Wholesalers abroad - Indian buying house - Medium in size - Woven & Knit Both - Export destination : EU & USA - Av. Turnover : 26 Cr. - Location : Bangalore, Chennai & Delhi Capabilities` Branding - High capabilities index - Finance flexibility - Product quality advantage - Delivery schedule adherence - High Branding Initiative - Interest in tie up with foreign brand - Strongly believes that retail stores will be set up by Indians abroad - 1/3 rd have own apparel brand

33. INTUITIVE Characteristic Channel - Importers/Wholesalers abroad - Indian buying house - Speciality chain abroad - Department stores abroad - Mixed of Medium & large in size - Majority Woven - Export destination : EU only - Av. Turnover : 30 Cr. - Location : Mumbai Capabilities` Branding - Medium capabilities index - Finance flexibility - Raw material sourcing - Cost competitiveness of dept - High Branding Initiative - Interest in almost all initiative. Looking for the success formula in branding

34. STANDARDISED Characteristic Channel - Importers/Wholesalers abroad of Indian origin - Indian buying house - Foreign Buying house - Department stores abroad - Large in size - Woven & Knit - Export destination : EU only - Av. Turnover : 40+ Cr. - Location :Delhi & Mumbai Capabilities` Branding - High capabilities index - Finance flexibility - ERP system usage - Ability to import raw material - LAN Integration - Medium Branding Initiative - Interest in store promotion ( India) - Cautious on Indian brands - 1/3 rd have own apparel brand

35. NON RATIONAL Characteristic Channel - Importers/Wholesalers abroad of Indian origin as well as non Indian origin - Department stores abroad - Majority small in size - Majority Knit - Export destination : EU & USA - Av. Turnover : < 20 Cr. - Location : Bangalore & Chennai Capabilities` Branding - Low capabilities index - Merchandising system - Low on raw material sourcing - Low on delivery schedule adherence - Low Branding Initiative - Interest in tie up with foreign brands - Believes retailers abroad will be willing to stock Indian brands

36. Major Findings • Too much of dependence on one product. • Few exporters are offering all products type but are catering to EU only • On the other hand few exporters are offering the single product but to both USA • and EU markets. • Merchant exporters are having better product mix than Manufacturing exporters. • Similarly Knit exporters are doing better on product diversification front as • compared to woven exporters • Indian exporters have made the beginning of building relationship with the • buyers directly. • Men`s wear exporter are doing better in terms of channel mix as compared to • women`s wear exporters

37. Strategies Orientation • The small and medium scale exporters can create differentiation through product development & design Initiatives Differentiation Cost Leadership Focus Differentiation Focus cost Leadership Leadership BROAD NARROW • Large-scale Exporters falling in the Standardized range Should be using Focus cost leadership-Process Engineering based etc.

38. Impact on the Supply Chain Consumers’ Demands Retailers’ Key Issues Supply Chain Needs In the increasingly competitive environment, there would be greater emphasis on a “Responsive Supply Chain”. Information technology will become a primary agent of change. “In Stock” On Shelf Performance Replenishment Sourcing “Right Product” Inventory Turn Speed Sourcing Efficient Communication and Product Development “Low Price” Efficiency

39. Business life cycles have come a full circle

40. Resetting the Horizon • Qualifying elements • Cost advantage (C) • Product quality advantage (PQ) • Reliability advantage (R) • Delivery advantage (D) • Fabric advantage (F) • Order winning elements • Time/Speed advantage (T) • Design/Product Devt advantage (DP) • Productivity advantage (P) • Service Advantage (S) • Image advantage (I) Source : Koshy, Darlie O. (1997). Garment Exports: Winning Strategies, Prentice-Hall India, p.241

41. Consumer Focus: Time for Partnerships Consumer Selling Floor Marketing Retailer Supplier Supply Chain Management Inventory Management /Forecasting Product Development/ Merchandising / Line Planning Joint Activities

42. Conclusion • In conclusion, the global economy is increasingly concentrated at the top and fragmented at the bottom, both in terms of countries and firms. Given this consolidation, profits are driven down at the base of global value chains because of intense competition, leaving little money for reinvestment, innovation, or wage increases.

43. Conclusion • Thus, sourcing structures for such a dynamic industry have shifted from large-scale set-ups to smaller fragmentized sourcing bases, which are more flexible in nature. Whether such a phenomenon will oscillate back to the former in the future is a challenge for researchers

44. Conclusion • The real opportunities to move up value chains in the global economy appear to be increasingly concentrated in a very small number of developing countries, and within the largest of these economies (like China and India), in particular sub-national regions.

45. The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.Michelangelo