Industrial Analysis of Arvind Mills

Introduction
The national focus paved way for international focus and Arvinds markets shifted from domestic to global, a market that expected and accepted only quality goods. An in-depth analysis of the world textile market proved an eye opener. People the world over were shifting from synthetic to natural fabrics. Cottons were the largest growing segments. But where conventional wisdom pointed to popular priced segments. Arvind has carved out an aggressive strategy to vertically its current operations by setting up world scale garmenting facilities and offering a one-stop shop service, by offering garment packages to its international and domestic customers. With Lee, Wrangler, Arrow and Tommy Hilfiger and its own domestic brands of Flying Machine, Newport, Excalibur and Ruf & Tuf, Arvind set its vision of becoming the largest apparel brands company in India.

Summery
In 1980s Arvinds Mills ltd. The 10 years old Textile mills at Ahmadabad was struggling for market place but within a decade it not only survived but has also become impotence parts of stock exchange. In 1986, Indian textile was dominated by mills with obsolete and marching producing un acceptable quality in international market. The main reason behind for this was state of affair largely the protected domestic market and governments policies discouraging modernization , rigid licensing, high import tariffs and modernization cost was high. The combination of highly negative technology and economic environments and existing of global opportunity in textile industry called bold and innovative approach for survival and growth. Arvind mills examined the textile industry in relation to govt through Portors five forces framework from the analysis it become clear that there was intense rivalry. The government policy in macro economy in the country 1986 gave two clear signals. a) Mounting deficit in budget in pressure on in directed taxes to continue. One could not expect relief on excise taxes and other government controlled input like power, coal, freight etc. b) Rupee would continues to depreciate and government policies always favourable to exporters. The strategic options for Arvind mill to have competitive market with high technology content and capital intensive so that entry barrier for competitors to be high and focus of market shifted to international trade in textile. KIIT SCHOOL OF RURAL MANAGEMENT Page 1

Industrial Analysis of Arvind Mills

The product market segment for the product of Arvind Mills was standard high quality product, high entry barriers, technical competence and specialty products command premium. The strategic implementation faced challenges such as financial, human resources and work culture and government policies (100% export oriented unit policy to remove operational irritants, quota allotment policy for Europe, modernization and revival of closed mills. In new structure of Arvind mills, it focused on just in time delivery, altered its structural relationship based on core processes and concept of value addition, abolishing the hierarchical senior manager. The Arvind mills worked on its human resource by sourcing of proper managerial talent from diverse backgrounds with fresh perspective and preconceived mindset. Finally, the performance of Arvind mills have been have been outstanding with huge export earnings, increase in sales and simultaneously earned huge profit till the 1996. The company realized that major challenges in the next few years would be non-stop renewal of strategy to stay ahead from the competitors, developing better customer orientation and maintaining technological lead for product innovation.

Industry Analysis
Fabrics Industry
Indian fabrics industry is highly fragmented , has excess capacity and is dominated by unorganized sector (97%). The main reasons for this state of affairs are because of past unfavourable and restrictive government policies as the sector was reserved under small-scale industries. Obsolete technology did not allowed for excess to bigger market and as such resulted in low margins and profitability. This restricted the expansion and thus the players got stuck in a vicious cycle of low profitability and resulting inability to upgrade. FDI was not allowed in this sector and as the financial power of Indian players was weak industry consolidation did not happen. Industry is highly capital intensive and economies of scale are highly visible. The production strategy requires long and continuous production runs. Different fabric types and coloring etc. requires different pricing which becomes highly difficult to determine and communicate to customer. Industry does not have a clear market leader, which impedes its development. A clear market leader may have guided the industry and also provided the bargaining power with different stakeholders and would have helped in creation of demand. There are some positives like the cheap availability of raw material and easy access to labor. But these are negated to some extent when we consider that the quality of cotton is questionable and the productivity of labors is lower then those in competing countries. Indian fabric market is very different as it is predominantly rural (65%). This market is dominated by regional players who offer traditional clothing like dhotis etc. at cheap prices. Because of this inherent constraint the regional players are difficult to displace and compete KIIT SCHOOL OF RURAL MANAGEMENT Page 2

Industrial Analysis of Arvind Mills

against. But there are some positive emerging trends in the fabrics industry. The North American and European players are transferring their supplies to Asia and neighbouring countries. This has meant that quality players like Arvind Mills and Raymond have to increase capacity to take advantage of this shift in supplies. Globally a player prefers sourcing form 2-3 manufacturers and follows a long-term commitment. But the negative thing happening now is that some small players have also understood this shift and has invested in technology up gradation. But as these players has not, as of now, any credibility regarding the quality and consistency of their products, they are reduced to competing with established players in the domestic market and this has led to price wars. This resulted in average price realization dropping 5% in denim and 18% in shirting (for Arvind Mills). Players in fabric segment have not been able to capture value in both domestic and international markets. In domestic market this is because the regional players cannot be matched on prices and they make use of their excess capacity by offering at marginal price. The inability of communicating the value to customer has resulted in failure of players like Arvind Mills to capture value. As such the margins and profits are low. In the exports market Indian manufacturers are competing against countries, which have better labor productivity and huge economies of scale. These advantages are overcome by use of cheaper labor and cheaper raw material costs. By matching the quality and prices the margins come under pressure and profitability is reduced and thus failure to fully capture the value.

Garments Industry
As with the fabric's industry garments segment is also characterized by high level of fragmentation and obsolete technology. But the drivers here are different, as the operations strategy requires small batch production and industry is affected by fashion trends. Indian houses do not have the design competencies and is incapable of forecasting the fashion trends. The industry is highly labor intensive and the economies of scale are not there. This segment of industry has also not been able to capture value because there are no established brands. As the industry is plagued by low margins the kind of expenses required to build and sustain a brand is not possible for majority of them. Thus value communication to customer and then capturing the value has been elusive to Indian houses. What has been observed is that the international brands have been able to establish themselves because of huge marketing budgets. They are the one who are capturing the value. One more drawback has been poor infrastructure, which has prevented the expansion into rural India. Weak supply chains have also resulted in high inventory costs and as the garments inherently have low shelf life weak supply chains present some challenge. To recover some costs out of the out of fashion inventory Indian manufacturers resort to discounts and distress selling which dilutes the brand image and destroys the value. In the past because of poor infrastructure, underdeveloped retail channels demand creation and brand building was neglected by majority of players.

Growth Drivers
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Industrial Analysis of Arvind Mills

We believe that the growth for the industry will come from the demand created by setting up of organized retail/multi retail players. With growing economy, more urbanization, younger and fashion conscious population, increasing disposable incomes and the mall mania, the demand is expected to increase. As customers become more quality conscious and demanding, the small players will need to upgrade the technology and bigger players have to lead the industry by investing in supply chain networks and brand building. Thus we expect industry to consolidate in an interdependent way. Larger players will be focusing on retailing, branding and strengthening the supply chain networks. Small players will upgrade their technology and work as suppliers to larger players fulfilling their fabric and garment needs. But the integrated players will have the competitive advantage. With increasing competition from other countries especially in exports market there will be need for process innovation, which will make Indian products more competitive with an ability to capture value. Once the industry will be able to capture the value it will also build design capabilities and also see product innovation.

The organisation competency over the competitors is as followed :a) The products selected involved high technology contacts and capital intensive so that entry barrier for competitor high. b) The products segments be relatively less dependent on fashion changes. c) The focus should shift to information trade in textile and garments from purely domestic orientation. d) Domestic market is premium price category to prevent imitation.

Major Issues
a) b) c) d) Competitions producing low cost products from China and south east nations. Competitive from domestic market regarding price and quality products. Non stop renewal of strategy to stay ahead of competitions. Develop better custom orientation and maintaining technology lead for product innovation.

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Industrial Analysis of Arvind Mills

Arvind mill must develop internal organisation to achieve the competitive advantage over the competitors.

Products New
Existing

Products/ build consolidation of existing brands of Arvind Mills Existing

Products developments new products of Arvind Mills

Markets

Market developments. Market developments for new products New

Diversification Products Diversification

Methods
Internal developments methods:
- It is where strategy is developing by building and developing and Arvind mills own capabilities.

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Industrial Analysis of Arvind Mills

The organisation competency over the competitors is as followed:e) The products selected involved high technology contacts and capital intensive so that entry barrier for competitor high. f) The products segments be relatively less dependent on fashion changes. g) The focus should shift to information trade in textile and garments from purely domestic orientation. h) Domestic market is premium price category to prevent imitation.

The challenges faced during implementation of the strategy are:a) Financial: - they borrowed large borrowing to implements the modernization programme. Arvinds proven performance in international trade appealed to investor and large fund mobilised through the capital market. Arvind resave long term financial from ICICI. b) Human resources:- Arvind will realised the import once of human resource to implement its strategy the company inducted professional managers. c) Work Culture:- The shift in focus from domestic to international trade demanded a change is work cultural both in and out side the shop floors new expansion were carried out at new location with fresh personal who could be trained in a conducive work cultural. d) Governments policies:- Arvind mills took a lead in influencing governments to remove herders. These are 100% export oriented unit policy to remove operational irritants. Change in quota allotment policy for Europe to encourage export of high value fabrics. Textile machinery inputs allowed for modernisation. Policy on revival closed will and governments cause forward with a package of incentives for revival of closed mills.

CONCLUSION
A huge window of opportunity has opened up the Indian textile industry for various players need to get act together. Government is playing the role of facilitator by taking various majors. Its now for players to make investments in building the capacities and making them integrated manufacturers. The industry enjoys significant strength and advantages, such as availability of KIIT SCHOOL OF RURAL MANAGEMENT Page 6

Industrial Analysis of Arvind Mills

raw materials, labour, domestic market and supportive government policies. As we analyzed the various data based on questionnaire, a fact has came into light that Arvind Mills is the most known and popular Brand in context of major Textile giant followed by Reliance and Birla Group. Because of applying innovative ideas such as providing various facilities, launching new schemes & offers Arvind Mills garments are more used by people as compared to other one. Except it, people firstly prefer for good quality and comparatively low prices Textile garments then they emphasized on qualities and durability.

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