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Indian denim producers overrun Chinese dragon
05
Nov '09
Despite the lull in demand in recent months, the domestic manufacturers of denim fabric in India are agog with excitement due to the overflowing order positions most of them are having since the last few months.

Thanks to the problems the Chinese textile and apparel sector is facing in current times, the biggest hub of denim in India; Gujarat, which has around 10 denim players has after a long gap, been able to use their full capacity.

Fibre2fashion spoke exclusively to Mr Dudeja, Founder, Denim Club India to understand the reasons for the turnaround. He explained by saying, “China emerged fast as a leader in the apparel, and specifically denim, industry. Guangdong province of China, with a completely integrated denim production industry, is the largest denim manufacturing hub in China.

“However, recently the Chinese textile industry has been faced with several challenges, and as a direct consequence, China has been fast loosing its competitive advantage in terms of cost to other Asian countries like India, Bangladesh, and Vietnam.

“Raw materials costs, including cost of cotton, which is the main material for manufacturing denim, have risen in the past more than two years and despite the large volume of cotton produced in China, there has been a need to import cotton to fill the gap and it has been estimated that the Chinese textile industry on an average faces a 10% increase in raw material costs, each year.

“Labour shortage has been a common and frequent problem faced by the textile industry of China and the implementation of Chinese Labour Contract Law in January 2008 requiring employers to contribute to employee's social security fund has also contributed in increasing operational costs and tightening of operating margins.

Competition within Chinese denim manufacturers has been fierce and expansion of denim production has resulted in excess production capacity. A large number of denim mills in China are reportedly operating below normal capacities. Chinese Yuan (RMB) has also appreciated and as of May 2009 the exchange rate has seen a rise of 8% increase since October 2007 resulting in shrinking OEM margins.

Some manufacturers have resorted to using flexible exchange rates in their export contracts to cope with the pressure of RMB appreciation. As a cumulative effect of the various mentioned factors, the Chinese industry has lost the cost advantage it offered and the denim industry in countries like India and Vietnam which have become more competitive and quality conscious have been gainers.

He concluded by saying, “The same is evident by the fact that most Indian denim mills are currently running at full capacity and have their hands full with not just domestic but export orders as well”.

Fibre2fashion News Desk - India

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