AUSTRALIAN TEXTILE INDUSTRY

13 Pages   |   3,079 Words

Competitive Analysis
Australian Textile Industry
 

 
Table of Contents
Executive Summary. 3
Introduction. 4
Industry Overview. 4
External Environmental Analysis 5
Competitive Environment 6
Resource Capabilities 7
Possible Solutions 8
Recommendation. 9
Conclusion. 9
References 9 The competitive environment of Australian textile industry is quite dynamic. The industry comprises mostly of small-sized manufacturing units. Australian textile manufacturing is losing market share to cheaper manufactures in Asia-Pacific region. Consolidation is taking place among textile manufacturing firms round the globe. The high projected growth rate of apparel industry is the key opportunity for all textile manufacturers including Australian manufacturers. Increased automation in textile manufacturers is also opportunity because producers in third-world countries rely mostly on low cost labor. Previous competitiveness of Australian textile manufacturing sector was owing to protectionism provided by government through trade restrictions on imports. There are several resource capabilities for Australian textile manufacturing firms as well. These include profits, availability of credit, formation of cluster and presence of research facilities. The strategy for revival of Australian textile manufacturing is based on differentiating its products and branding its modernized manufacturing processes. This will position Australian manufacturing of textile products as a high-end process.
  The paper carries out a competitive analysis of Australia textile industry. Initially, basic factual information about the size of the industry, its structure and dynamics is reviewed. Segments within the industry are identified and behavior of the industry in terms of its lifecycle is listed through online research from governmental and industry association sites. These websites include those of Australian Bureau of Statistics, Textile Distributors’ Association, and Commercial Textile Association of Australia. Review of fundamental information also includes current and future trends of the industry along challenges confronted by industry segments.

Later part of the paper analyses the competitors of Australian textile industry in terms of their size and resource capabilities. The analysis comprises on an in-depth look into the resource endowment of competitors along with cost structures. If competitors receive subsidies from government or support from other agencies, then their true impact on competitiveness is evaluated.  Strategic alternatives for Australian textile industry are reviewed in terms of their suitability to the competitive environment and capabilities of this industry. Eventually, the paper presents a set of recommendations to the industry keeping in perspective the best interest of the industry.    

 
 

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Textile manufacturing industry of Australia is among the major component of Australian economy in terms of being a source of employment for a significant percentage of employed population. Current total manufacturing output of textile production systems within Australia is estimated at AUD 5 billion per year. The total volume of textile production in Australia, for the year 2010-2011, is 22.8 million items per year (Australian Bureau of Statistics). Even though, competition has been growing stiff from various developing countries, however, the clothing manufacturing in Australia continue to survive. It is estimated that there is a drop of 20% volume in textile manufacturing of Australia as compared to the previous year. The textile manufacturing sector of Australia comprises of a very large number of small-sized manufacturing units comprising of flat organizational structure and skilled workforce (Technical Textile and Non-woven Association, 2008). The small size of the firms can be estimated from the fact that round 25% percent of textile manufacturing units in Australia comprises of five or less workers. Majority of the textile production units of Australia is concentrated in the southern state of Victoria (Environment Protection Authority State Government of Victoria, 1998). During recent years, those textile manufacturing firms grew which were relatively larger in size. The major industry segments of textile manufacturing include dyeing, stitching, desizing, scouring, bleaching, raising, calendaring and printing (Technical Textile and Non-woven Association, 2008). Production units are majorly employed in downstream processes. The lifecycle of textile production is quite short because it is driven by fashion trends. Fashion trends are not long lasting. The two major association bodies related to the textile industry in Australia are Textile Distributors’ Association and Commercial Textile Association of Australia.   
   
The external environment of industry in Australia is growth oriented. The textile industry in Australia is expected to grow to annual consumption of AUD 700 billion by the end of the year 2012. The industry used to be governed by various international treaties and agreements which imposed trade restrictions on textile trade. The contemporary trend is towards the elimination of such treaties and to move towards free trade. For instance, Multi-Fiber Arrangement which was in place since decades was eliminated in the year 2004. The external environment, hence, continue to become close to free market scenario (Weller, 2007). Producers succeed in such markets on the basis of efficient and cost-effective production methods rather than on the basis one’s geographical location. The other major trend in the textile sector is that of shortening life cycle of the industry, increasing product variety and growing unpredictability of demand (U.S. International Trade Commission, 2001). Consolidation is taking place among textile manufacturing firms round the globe. Another major trend is towards growing capital intensiveness in the industry especially among firms located in third-world, cotton-producing countries.

Internationally firms tend to specialize in either natural or man-made fiber in the production process. The region with most competitive prices and greatest consolidation of manufacturing units is the Asia-Pacific region. Most prominent producers in this region are China, Bangladesh, Thailand and Pakistan. Interestingly, despite presences of such regions with low production costs, textile manufacturing sector exists in USA, Italy and Germany. These countries also have considerable presence of textile manufacturing clusters. The size of the global apparel industry is growing every year. It is estimated that the cumulative size of the textile market stands at USD 1,252 billion for the year 2011-2012 (Australian Bureau of Statistics). Roughly, half of the production of the above mentioned figure will take place in manufacturing unites located in the developed world, of which Australia comprises of a very small share.    

The implication of the above mentioned changes which have occurred and forecasted changes is significant for future opportunities and threats. The high projected growth rate of the apparel industry is the key opportunity for all textile manufacturers including Australian manufacturers. Increased automation in textile manufacturers is an opportunity because producers in third-world countries (Patterson & Tai, 1991). The apparel industry is becoming increasingly fashion driven. This is yet another opportunity for Australian manufacturers since textile products of Australian manufacturers are of higher quality and more upscale in terms of fashion-sense than those produced by low-priced competitors. Also, fashion conscious consumers purchase textile products more frequently, which will automatically translate into higher sales for Australian producers, provided they adequately capture the fashion-conscious target market.        

The treats which are likely to be faced by Australian textile manufacturing is the availability of raw material because raw material or semi-manufactured materials are imported by Australian manufacturers from Asia-Pacific region. Removal of trade agreements related to the textile industry, like Multi Fiber Agreement, will intensify competition with manufacturers in other regions.    
  The competitive environment of Australian textile manufacturing comprises of industrial giants with huge factories located in cheap labor regions like China, India and Bangladesh. The mass scale production of textile products in the above mentioned industrial units is the chief competition in the sector. The major determinants of competitiveness of third-world textile manufacturing are the low labor cost, considerable inflows of foreign capital investment in textile manufacturing industry, a ready supply of raw materials and depreciation in the value of national currency (Industry Commission, 1997). On the other hand, Australian textile manufacturing comprises of home-based production units with low automation. The medium-sized manufacturing units in Victoria and South Wales region are considerably automated and consequently produce output at lower average cost. Competitiveness of Australian textile manufacturing sector was also attributed to protectionism provided by government through trade restrictions on imports (Industry Commission, 1997). The determinants of competitiveness in this industry extend beyond economic factors also include the level of implementation of human rights in different manufacturing regions. 

The cost of production associated with labor is low in competitors’ manufacturing unit. In factories of countries like Thailand and Pakistan, labor is employed without overhead costs of health insurance or other benefits (Elbehri & Martin, 2003). In those countries workers are frequently employed at wages lower than minimum wage rate in the absence of any job contract. Seasonal fluctuations in demand are easily adjusted by those manufacturers by discharge workers on short notice. Interestingly, such practices prove very beneficial for these firms by enabling them to schedule production much closer to the market (Greig, 1990). It enables these firms to keep inventories low and produce small customized volumes too.  In contrast, Australian manufacturers are regulated under Australia’s Award framework which keeps a check on occupational health and safety, as well as on incremental tax obligation for each worker employed.

Another challenge for Australian manufacturers is recent times is appreciation in Australian dollar in recent years against currencies of Asia-Pacific region (Environment Protection Authority State Government of Victoria, 1998). This makes imports relatively cheaper in Australian consumer markets and causes them to gain market share. One positive aspect of the competitive environment is that textile manufacturing industries in cotton producing regions tend to specialize in upstream processing of cotton like spinning, weaving, ginning, blending, etc. While Australian textile manufacturing sector is focused on downstream processing or in woolen garments manufacture (Environment Protection Authority State Government of Victoria, 1998). Wool is produced in significant quantities in Australia and is a superior quality than other regions of the globe. In broad-woven fabric production, hosiery production and knitting sector of Australian firms still remain competitive based on the use of high-tech, efficient machinery.  The fundamental resource capability for textile manufacturing firms is the profits made by these companies. The most positive aspect of the textile industry of Australia is that despite above mentioned challenges of international competition it is still making money. Being able to make profits is a major resource capability given that several industries in the developed world are incurring annual losses (Elbehri & Martin, 2003). For instance, automobile manufacturing of US is making losses year after year, and is dependent on external sources of funds for investment. For textile manufacturing of Australia, corporate profits are a source of fund for the industry to invest in major strategic initiatives. The industry can improve its competitive positioning by exploring new strategic alternatives.

Credit is not a major concern for Australian textile cluster. A likely resource capability for the textile manufacturing firms is the ability to borrow funds from financial institutions of the country. Majority of firms are quite satisfied with credit availability (Industry Commission, 1997). The financial sector of the country is highly developed and bank loans can be obtained with ease. Facility for liquidation of assets is another capability of Australian manufacturers due to a ready market for used machinery present in third-world countries. It is easier for Australian firms to update its technology by regaining cash through sell of used machinery.

Another major resource capability in textile manufacturing is research and development. Various research institutes are present in different parts of the country which has the potential to provide a competitive edge to the textile manufacturing sector of the country. There are eight research centers which are funded by university budgets, while National Textile Centre is funded by a consortium of major textile manufacturers in the country (Tao, 2007). A grant is also provided by the federal government’s Department of Commerce. Research through these institutes has the capability to provide a competitive edge to the textile manufacturing sector of Australia through innovation in manufacturing processes. Also, there is potential for advance production processes.

The increasing participation of women in the workforce and adoption in improved communication technologies has the potential to increase efficiency of the production sector. These factors represent a major resource capability for Australian textile manufacturing sector. The physical presence in a large consumer market of textile products is a key resource for the organization. The consumer market is sophisticated and fashion conscious, as well. Formation of a cluster is yet another resource capability for Australian manufacturers (Tao, 2007). The cluster comprises of wholesalers, retailers and manufacturers supported by specialized consumer research services, designers, lending organizations and specialized logistics handlers for the industry. The presence of this aggregate of support services is a major resource capability which is yet to be utilized effectively by the organization. There are a number of possible solutions available to the Australian textile manufacturing sector to counter the trend of declining competitiveness. Branding is foremost solution among them. Textile manufacturing sector of Australia can adopt branding as means to differentiate its production from rival low-cost imports from developing countries. At present, branding in the textile sector is restricted to retailer brands not manufacturer brands. Even high end consumer brands are created in factories of Thailand, Bangladesh and China. Hence, when consumers make a choice to purchase Burberry, Chanel, Louis Vuitton and Levis, they are purchasing production of developing countries, since manufacturing is not differentiated at all. Branding of the manufacturing process will create awareness among consumers about the underlying functionality of the product as well, rather than mere appearance.
This branding initiative will be much akin to Intel Inside campaign. Branding will position Australian manufacturing of textile products as a high-end process which includes the application of nanotechnology. Consumers will be communicated that nanotechnology-based production adds value to basic cloth by embedding specialized polymers in the clothing. The net outcome is the creation of odor-resistant and light-sensitive fabric. The cloth will prevent body odor from diffusing into the environment. End users will also be informed about advanced flexibility of clothing resulting from advanced manufacturing processes of Australian firms. Clothes produced by these firms will also be able to protect users from harmful effect of ultraviolet radiation of the sun, which is a major cause of skin problems. Endorsement from government-owned research centers can be use to lend credibility to campaign. It can be reasonably deduced that end consumers will prefer to pay a higher price for textile products which bear the logo of being manufactured in Australia. Also, several consumers brand will opt to carry Australia-made products in the stores. Hence, Australian-made textile products will be demanded by the consumers all over the globe even if the cost is higher than the ones made in cheap-labor countries.

Australia contains a big consumer market itself. Australian manufacturers should initiate a marketing campaign to appeal to patriotism of Australians. Australian consumers should be exhorted to consume textile products made in their own country to generate economic activity in their country. The marketing endeavor can be carried out through public relations and use of social media channels.

Another solution to gain market share can be a major investment in technological advancement by Australian manufacturers of textile products. Technological advancement and product innovation in Australian companies can be achieved through collaboration with global research institutes rather than relying on research facilities available within Australia. The manufacturers should take a lead in manufacturing innovation by investing in new machinery and production processes. Financing for implementation of this technological change can be attained from financial institutions of the country. Depreciated machinery can be auctioned off to manufacturers in developing countries.

The manufacturing segment in which capital investment should be made is the downstream segment of textile manufacturing. Printing, dyeing, raising, mercerizing and calendaring are the segments of textile manufacturing in which Australian firms should specialize in. The advantages of investing in the above mentioned segments are that these are technology oriented rather than labor intensive. Therefore, Australian manufacturers will be at a comparative advantage than their counterparts in developing countries. The best approach to ensure success by Australian manufacturers is to focus on differentiating their products from the competition. This will impart a sustainable competitive advantage to Australian producers and they will most likely be able to reverse the trend of declining market share in the international market. The holistic approach for differentiation would be transform entire production process to support the claim of differentiated production and final product. It is not sufficient for the product to be differentiated only; rather it is recommended that the unique positioning is communicated to consumers through the marketing campaign.  The competitive analysis of Australian textile manufacturing revealed that the sector is becoming uncompetitive in the face of low cost imports from developing countries in Asia-Pacific region. There are a number of reasons for the cost of production to be low in the region, which makes it challenging for the Australian industry to sustain its market share. Australian industry is endowed with several unique resource capabilities. The industry can use these capabilities to regain its lost market share. Abernathy, D., & Hammond, W. (1999). Lean Retailing and the Transformation of Manufacturing – Lessons from the Textile and Apparel Industries. Oxford: Oxford University Press.
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Environment Protection Authority State Government of Victoria. (1998). Environment Guidelines for the Textile Dyeing and Finishing Association. Working Paper No. 26, (pp. 1-43).
Greig, A. (1990). Technological Change and Innovation in the Clothing Industry: The Role of Retailing. Labour and Industry, 2(3) , 330–353.
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Technical Textile and Non-woven Association. (2008). Review of Australia's Textile Clothing and Footwear Industry. Submission from the Technical Textiles and Nonwoven, (pp. 1-38).
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