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How These Companies are Remodeling to Sustain the Megatrend
Thu, 29 Jun Pre-Open

India is among the countries worldwide having cheap labour. Cheap labour lowers operating costs and aids in making India's exports competitive in the world market.

Unfortunately, the cost of doing business in the country has been on an uptrend. Add to it, technological advancements have led to increased competition from neighboring countries . Therefore Indian businesses are remodeling their export markets to stay on course, if not ahead of the competition.

A case in point is the textile industry.

We came across an article in Business Standard which states how garment manufacturers are looking to set up their manufacturing facilities overseas.

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The nation they have their eye on is Ethiopia and have lined up over Rs 6 billion in investments in the country.

One of the main reasons why Indian garment manufacturers are flocking to Ethiopia is because the country gives duty-free access to Europe and US markets. Also, the labour costs in Ethiopia for these firms is half that in India. Add to it lower shipment time to the US which results in big cost savings.

Besides that, power cost is also low (below Rs 2 as compared to Rs 7 in India) and the Ethiopian local government does not insist garment manufacturers to invest in land and buildings.

India, on the other hand, does not give duty free access to Europe and the US making it difficult for domestic garment manufacturers to compete with Bangladesh and Sri Lanka.

Companies such as Raymond, Arvind Ltd, Best Corporation and JJ Mills are setting up manufacturing plants in Ethiopia to regain their competitive strength in global markets.

While challenges remain such as training of local labour and developing the manufacturing landscape, we believe the above development will unleash the megatrend opportunity for Indian textile manufacturers and exporters.

And companies with solid fundamentals and a competitive moat will capture most of the value from the above trend.

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