Foreign Investment and Collaboration in India's Textile and Apparel Industry

Foreign investment and collaboration in India�s textile and apparel industry has increased significantly in recent years. The increase is attributable partly to the derestriction of foreign direct investment (FDI) and partly to the fact that domestic demand for textiles and apparel in India is large and buoyant. It also stems from a recognition that the sector has strong export potential. While FDI in the textile and apparel sector has been modest in past years, there is now evidence of a major acceleration. Indeed, FDI inflows in this sector have roughly doubled every year since 2003�from Rs838 mn in 2003 to Rs1,785 mn in 2004 and Rs3,462 mn (US$79 mn) in 2005.
Foreign companies have been motivated to enter into collaborations with Indian firms by the increasing gains that can be made by producing brands in India and selling them into the Indian market. Indian companies have been motivated by the scope for gaining technical and marketing expertise from foreign partners. Foreign and Indian partners in such collaborations include Armani, Arvind Brands, Barbara, Benetton, De Witte Lietaer, Esprit, Gokaldas, Jockey, Levi Strauss, Marzotto, Rajasthan Spinning & Weaving Mills, Raymond, Vardhman Group, Vincenzo Zucchi, and Welspun. On the other side of the coin, Indian companies are acquiring foreign companies�notably in the USA and Europe�which are suffering from declining competitiveness and facing severe financial problems. Indian firms are attracted in particular to companies whose brands enjoy considerable popularity in their home markets as those brands can be manufactured more cheaply in their Indian plants. Welspun has acquired UK-based Christy, GHCL has acquired UK-based Roseby�s and USA-based Dan River, Malwa Industries has acquired Italy-based Emmetre and Jordan-based Third Dimension Apparels, and Alok Industries has bought UK-based Hamsard. In February 2006 the Indian government started to open up the retail sector by allowing FDI of up to 51% of the equity�with prior government approval�in the retail trade of �single brand� items. However, many firms will continue to pursue franchising rather than investing in their own outlets as it offers a cheaper and faster way of expanding retail networks and increasing the spread of product distribution. This is particularly true in a country as large as India where it is costly to achieve a wide geographical spread. Apparel companies such as Benetton, Lacoste and Levi Strauss have adopted this approach�as has the Spanish retailer Mango and the UK retailer Marks & Spencer.