A

GLOBAL COUNTRY STUDY REPORT

ON

“COTTON INDUSTRY OF UZBEKISTAN”

 Name of Students Enrollment No.

ISHAN PAREKH 127550592073DARSHAN PARMAR 127550592074JAGRUTI PARMAR 127550592075MAYA PARMAR 127550592076MITTAL PARMAR 127550592077MONICA PARMAR 127550592078

CONTENT

NO. PARTICULAR

1. Summary of Cotton Cultivation sector of Uzbekistan2. Summary of Comparison of cotton industry in India and

Uzbekistan3. Introduction & SWOT analysis of Birla Cotsyn4. Introduction & SWOT analysis of Hennes & Mauritz

5. Market opportunities for export import trade 6. Policies & norms of India for import & export to the Uzbekistan7. Winning strategy for the company8. Resources required to tap the business opportunity9. Business Development strategy

INTRODUCTION OF UZBEKISTAN

Uzbekistan, officially the Republic of Uzbekistan has an area of 447,400 square kilometers (172,700 square miles).

Bordering Turkmenistan to the southwest, Kazakhstan and the Aral Sea to the north, and Tajikistan and Kyrgyzstan to the south and east.

Population 28 mln people ( 28.1% younger than 14) Language

Official state language is Uzbek. Education

Basic public education consists of two levels 9-year primary secondary school and 3-year college.

INTRODUCTION OF COTTON SECTOR IN INDIA India was recognized as the cradle of cotton industry for over 3000

years (1500 BC to 1700 AD). India produces 75 number of varieties in cotton cultivation, but 98%

of the production is contributed by about 25 varieties. The textile industry accounted for 14.4% of the country’s export

earnings as of 2013. Language

Official state language is HINDI Education Basic public education consists of three levels,

10-year primary2-year secondary school5-year college

Summary of Cotton Cultivation sector of Uzbekistan

Cotton production and export have a long history in Uzbekistan. The production of cotton, also called “white gold”

Uzbekistan is the 7th largest global cotton producer and 3rd largest cotton supplier for world markets.

Uzbekistan had been one of the poorest republics of the Soviet Union; much of its population was engaged in cotton farming in small rural collective farms.

The stakeholders of cotton production in Uzbekistan—the government, farmers, the textile industry, and the rural population.

Uzbekistan constitutes approximately 40 percent of total export revenues and taking up 1/3rd of agricultural land.

CONTINUED….

Uzbekistan only exporting cotton it does not importing from other countries because it has surplus of production of cotton.

Uzbekistan's economy has continued its strong performance, registering 8.1% growth in 2009.

In Uzbekistan, as of today the government has already modernized more than 45 cotton gins and closed 25 old cotton gins in big cities.

In Uzbekistan, basic public education consists of two levels – 9-year primary and secondary school and 3-year college.

Approximately 75-80% of the raw cotton processing plants currently function with outdated technology.

The government has often stated that it would like to process more of Uzbekistan’s cotton production domestically, Nowadays around 30 percent of all cotton is consumed domestically.

Summary of Comparison of cotton industry in India and Uzbekistan

The Indian Textiles Industry has been a concurrent presence in the economic life of the Country.

The Indian authorities believe that the technical textile sector is another potential area for foreign investment.

India is highly competitive in spinning sector and has presence in almost all processes of the value chain.

The readymade garment segment will be the principal driver of growth even in the domestic industry of India.

India is a growing source of supply of textiles and apparel to the world market

CONTINUED….

Uzbekistan, unlike other competing countries, does not have adequate manufacturing capacities for the production.

Uzbek textile manufacturers cannot follow evolving fashion trends and move up the market.

The government Of Uzbekistan generally welcomes investors and investment projects.

Uzbekistan’s import-substitution and export-oriented industrialization policy.

Uzbekistan appears to be slowly approaching a full open economy.

Annual investment capacity of Uzbek market amounts for 5-6 billion US dollars of foreign investments.

Forced child labour in cotton production is a problem in Uzbekistan.

INTRODUCTION OF BIRLA COTSYN

PARENT COMPANY Birla Cotsyn

Established 1932

Founders Sun Flag group and Yash Birla Group

Headquarters Mumbai, India

Area served Worldwide

Key people P.B Bhardwaj (Chairman) , Yash Birla , (Co-Chairman) ,Suresh Gupta (Managing Director)

Joint venture Sunflag Group in the year 2007

Warehouse / Production Capacity

Khamgaon  19040 spindles (Synthetic

Division) 1728 Open end spinning  Rotors

on Cotton

Malkapur (Cotton Division) 36000 spindles on cotton 114 Airjet weaving machines

under installation Process house with a capacity of

50000 meters per day under progress

Cotton Ginning & Pressing 60000 Shirts per annum 60000 Trousers per annum

Retail Own showrooms under progress

Infrastructure Having acquired 100 acres of land at

MIDC, Malkapur, we are expanding current capacities from 21000 spindles to 36,000 spindles. With a proposed 1728 rotors and 114 looms,

Our Products Ring Spinning Cotton (100% Cotton) Ring Spun yarn from Count Ne 20' to Ne 60's. 1. Combed Compact Weaving & Knitting yarn.

2. Combed Weaving & Knitting Yarn.

3. Carded Weaving & Knitting Yarn.

Any Other count according to Customer need.

Cotton Open End 1. Weaving Yarn - From Count Ne 6s to Ne 30s.

2. Knitting Yarn- From Count Ne 6s to Ne 30s.

Any Other count according to Customer need.

CONTINUED….

Synthetic Division Ring Spinning Dyed Yarn (Synthetic Div- Polyester/ Viscose / Acrylic/ Silk etc..)

Count:- Ne 6's to 40's

1. Polyester / Viscose yarn(Dyed)

2. 100% Polyester Yarn.

3. Polyester / Acrylic Yarn.

4. 100% Acrylic Yarn.

5. 100% Viscose Yarn.

6. Polyester / Viscose Melange Yarn.

7 Fancy Effect Yarn i.e Injection Slub / Slub / Neps. Neps Slub in Grey & Dyed.

All above are available in Raw White , Melange and Dyed .

Contact us for any other specific count .

SWOT ANALYSIS OF BIRLA COTSYN

India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc

Indian garment industry is very diverse in size, manufacturing facility, type of apparel produced, quantity and quality of output, cost, and requirement for fabric etc.

Labour force giving low productivity as compared to other competing countries.

Low bargaining power in a customer-ruled market.

India seriously lacks in trade pact memberships, which leads to restricted access to the other major markets.

STRENTH WEAKNESS

CONTINUED….

Domestic market extremely sensitive to fashion fads and this has resulted in the development of a responsive garment industry.

India’s global share is just 3% while China controls about 15%. In post-2005, China is expected to capture 43% of global textile trade.

Companies need to concentrate on new product developments.

Competition in post-2005 is not just in exports, but is also likely within the country due to cheaper imports of goods of higher quality at lower costs.

Alternative competitive advantages would continue to be a barrier.

Standards such as SA-8000 or WARP have resulted in increased pressure on companies for improvement of their working practices.

OPPORTUNITY THREATS

INTRODUCTION OF HENNES & MAURITZ

PARENT COMPANY H & M Hennes & Mauritz AB

Established 1947 in Sweden

Existence 53 countries

CATEGORY Apparel and Accessories

SECTOR Lifestyle and Retail

TAGLINE/ SLOGAN Who’s next; Get ready to do some serious shopping; You look nice today

COMPETITORS 1.Zara2.Forever21 3.Gap

TARGET GROUP Women, Men , Teenagers who have medium to high purchasing power and have a completely vibrant and rebellious attitude.

LOCATION OF COMPANY BRANCHES IN WORLD

Turkey Middle East Philippines China Hong Kong Indonesia

Japan Malaysia Singapore South Korea Ireland Lithuania

Tashkent Croatia France Mexico Australia India

The design team in the company’s Sweden office controls the steps of

production, from merchandise planning to establishing specifications,

and production is outsourced to approximately 800 factories in

Europe and Asia.

SWOT ANALYSIS OF HENNES & MAURITZ

They are the one of the largest global clothing retailer.

The store offers quality and trendy clothing at affordable price, we can say designer clothes at department store prices.

They also keep the prices affordable by using few middle-men and buying large volumes cost consciously

Buying large volumes could lead to overstocking and later on lead to lowering of the already affordable prices.

They have put in a lot of capital and maintenance fee for all the different types of machines required to produce clothes for each target segment.

STRENTH WEAKNESS

CONTINUED….

Online shopping is gaining a lot of importance

Emerging economies will support H & M’s expansion plans.

They are well positioned to tap the niche organic apparel market.

Weak competitive situation as the prominence of value retailers and premium luxury brands increases.

Their newest business line home-ware has not been able to click in Europe and hence is leading to lowering sales.

Unemployment is also continuously pressurizing their target segment to discretionary spending.

OPPORTUNITY THREATS

MARKET OPPORTUNITIES FOR EXPORT IMPORT TRADE OF BIRLA COTSYN WITH UZBEKISTAN

The Indian Textiles Industry has been a concurrent presence in the economic life of the Country, since the Industrial revolution has come in, Its overwhelming presence can be felt, through its contribution to industrial output.

At present, exports constitute around 20 per cent of Birla Cotsyn India ltd’s revenues and the company expects the export share to touch 50 per cent after it starts exporting yarn to South America, UK and Nigeria.

In China, India and Pakistan today, the preparation of an industrial piece with accessories and ornaments takes 7-10 days. In Uzbekistan this process can take up to 20-30 days

COTTON IN UZBEKISTAN

2011/2012 2012/2013

USDA OFFICIAL NEW POST USDA OFFICIAL NEW POST

Area planted 0 1330 0 1340

Area Harvested 1310 1320 1350 1315

Beginning Stock 1148 1148 1498 1198

Production 4200 4450 4500 4500

Total Supply 5348 5598 5998 5698

Import 0 0 0 0

Export 2500 3050 3000 3000

Use 1350 1350 1500 1400

ECONOMIC ACTIVITIES RELATED TO COTTON SECTOR

Export/ import trade of Uzbekistan

Between 2004–2008, exports of Uzbekistan increased by 76.1% from USD 213 million to USD 375.5 million.

Uzbekistan is 5th in the world for cotton output, only 20.4–21.5% of total cotton output was consumed domestically in 2005–2007, In 2008, this figure increased to 39.6%, but went down to 28.2% in 2009.

Trade & commerce related to cotton in Uzbekistan

Uzbekistan does not importing cotton from other countries because Uzbekistan producing cotton more than their consumption level.

Uzbekistan exporting its surpluses of production of cotton to China, Kazakhstan, Russia. For exporting cotton to other countries, producer of cotton require special license. However there is not requirement of any type of exporting license for exporting goods in Kirghizstan and Kazakhstan.

Export of cotton 2003-2010, Thousand US$

Year Thousand US$

2003 925243

2004 1062780

2005 1189938

2006 126987

Year Thousand US%

2007 1371648

2008 1292057

2009 1278128

2010 2019430

COTTON AREA AND YIELD The area under cotton production in the world are estimated at

around 30-31 million hectares. The major cultivators of cotton in the world are America, India, China, Egypt, Pakistan, and Eastern Europe. India has the largest area under cotton production. China is the largest producer of cotton in the world, whereas India is the second largest.

COUNTRY

Area ( million 1000 HA ) Yield ( Kg. Per Hectare )

2011-12 2012-13 2011-12 2012-13

INDIA 9.41 10.26 523 505

UZBEKISTAN 1.42 1.3 705 737

MARKET OPPORTUNITIES FOR EXPORT & IMPORT TRADE OF H&M WITH INDIA

H&M is engaged in the design, manufacture and marketing of clothing items and related accessories.

The Company outsources product manufacturing to around 700 independent suppliers through its local production offices in Asia and Europe.

H&M started using organic cotton in 2004, incorporating it into a selection of garments, Organic cotton has a market share of little less than 0.2% today and the area under organic cotton cultivation is close to 0.76% of the total cotton production.

H&M, has get permission from the Foreign Investment Promotion Board to invest Rs 720 crore (approx 100 million) in India to start a fully-owned company that will open 50 H&M stores in India.

COTTON SUPPLY,USE AND TRADE (MILLIONS OF METRIC TONS)COTTON PRODUCTION

COUNTRY 2009-10 2010-11 2011-12 2012-13

INDIA 4.7 5.2 4.9 5.2

UZBEKISTAN 1.2 1.2 1 1

COTTON EXPORT

INDIA 1 1.5 0.5 1.5

UZBEKISTAN 1 0.9 0.7 0.9

COTTON CONSUMPION

INDIA 3.9 4 3.9 4.1

UZBEKISTAN 4.7 4.2 3.9 4

UZBEKISTAN IMPORTS FROM AND EXPORTS TO INDIA

YEAR Imports from India(in US$ million)

Exports to India(in US$ million)

2005 29.7 11.32006 16.4 5.72007 25.9 12.92008 14.45 10.852009 15.9 17.52010 15.4 25.12011 18.2 90.42012 27.2 122.92013 35.8 25.3

INVESTMENT OPPORTUNITIES IN INDIA

Foreign direct investment (FDI) of up to 100% is allowed in the textiles sector through the automatic route.

The sector is targeting US$ 6 billion foreign direct investment (FDI) by 2015 to be invested in textiles machinery, fabric and garment manufacturing, as well as technical textiles.

The expected growth of Indian textiles industries will be worth about $220 billion by in the year 2020.

The investment scenario is becoming rise day by day, India is a growing source of supply of textiles and apparel to the world market, the exports are growing rapidly as more and more buyers around the world turn to India as an alternative to China.

INVESTMENT OPPORTUNITIES IN UZBEKISTAN

The government Of Uzbekistan generally welcomes investors and investment projects that are in line with its import-substitution and export-oriented industrialization policy.

The Government has adopted more than 40 laws regulating processes of privatization and attraction of investments.

Depending on the extent of foreign participation, a business may be considered an “enterprise with foreign capital” (less than 30% foreign-owned) or receive special status as an “enterprise with foreign investment” (more than 30%, with a minimum charter capital).

Annual investment capacity of Uzbek market amounts for 5-6 billion US dollars of foreign investments.

POLICIES & NORMS OF INDIA FOR IMPORT & EXPORT TO THE UZBEKISTAN

Import Policy

The economic needs of the Birla Cotsyn, effective use of foreign exchange and industrial as well as consumer requirements.

On the import side the policy has three objectives: To make necessary imported cotton clothes more easily

available. To simplify and streamline procedures for import licensing. To promote efficient import substitution and self-reliance.

Imports are allowed free of duty for export production under a duty exemption scheme.

There is an Export Promotion Capital Goods (EPCG) Scheme under which exporters are allowed to import capital goods (including computer systems) at concessionary customs duty.

EXPORT POLICY

Exports are the major focus of Birla Cotsyn trade policy and a thrust area is exports involving higher value additions.

Export profits are exempt from income tax.

Higher royalty payments of 8% (net of taxes) are permitted on export sales as compared to 5% on domestic sales.

Inputs required to be imported for export production are exempted from the basic customs duty.

Export Oriented Units (EOUs) and Export Processing Zones (EPZs) enjoy special incentives such as duty free import of capital goods and raw materials for the purpose of export production.

TAXATION POLICY Current tax of Birla Cotsyn ltd is determined at the applicable rates

based on assessable income.

Deferred tax is determined using the rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date.

However in case of carried forward losses and unabsorbed depreciation under the Income Tax Act, 1961, the Deferred Tax Asset is recognized only if there is virtual certainty backed by convincing evidence of its realizations.

Licensing policy

The most common instruments of direct regulation of imports (and sometimes export) are licenses and quotas.

The main 2 types of licenses, General license that permits unrestricted importation or

exportation of goods included in the lists for a certain period of time.

One-time license for a certain product importer (exporter) to import (or export).

In particular, these agreements include some provisions of the General Agreement on Tariffs and Trade and the Agreement on Import Licensing Procedures, concluded under the GATT (GATT).

Global strategy problems of H & M company, Uzbekistan

H&M takes steps to stop complicity in Uzbek forced labour.

H&M requires direct suppliers to sign a commitment to not use Uzbek cotton.

H&M has asked its 300 most important fabric suppliers to stop sourcing Uzbek cotton.

H&M has made a commitment to stop doing business with direct suppliers and strategic fabric mills that do not stop sourcing Uzbek cotton.

Global Fashion Company H&M tackles business and environmental risk with cutting-edge water strategy.

WINNING STRATEGY FOR THE COMPANY

BIRLA COTSYN

Birla Cotsyn having Winning Strategy based on following question, Is it getting harder for your company to deliver profitable growth? If so, you are not alone.

Birla Cotsyn draws up Rs 500-crore Capex plans for expansion

There would be Rs 200-crore investment in retail foray, Rs 150-crore in yarn processing and Rs 75 crore each in expansion of existing yarn capacity and manufacturing of garments.

Training youths to wean them away from terrorism

Birla Cotsyn has embarked upon a project to impart basic vocational training to youths in Reasi district of Jammu and Kashmir to wean them away from terrorism.

Manage what matters

In the world of strategy, there is this big war between the capabilities-orientated people, who have a resourced-based view of a firm, and the positioning people, who focus more on the “where to play” and “how to win”.

Where to play- It is a question of what business you are really in. It is a choice about where to compete and where not to compete.

How to win – To determine ‘how to win’, any organization must decide what will enable it to create unique value and sustainably deliver that value to customers in a way that is distinct from its competitors.

Building capabilities

Capabilities are the map of activities and competencies that critically underpin specific ‘where to play’ and ‘how to win’ choices.

This question relates to the capabilities cotton needed to have in place in order to win where they had chosen to play, and to meet their winning aspirations.

In that case we had to develop some capabilities on producing better active ingredients that allowed us to compete with the prestige brands.

Winning aspirations

Means, is the heart of any strategy and sets the frame for all the other choices.

A company must seek to win in a particular place and in a particular way. If it doesn’t seek to win, it’s wasting its resources. But to be most helpful, the abstract concept of winning should be translated into defined aspirations: statements about the ideal future.

Playing to win

The purpose is to make strategy simple, fun, and effective. I don’t want strategy to be complicated, and that is why you’ll see

phrases like “Where to Play” and “How to Win”.

H & M HENNES & MAURITZ AB

Identify the Big Issues

Excessive costs Bureaucracy and complexity Ineffective listening to customers Poor value projection Inadequate store environment Unclear product offer

Be Distinctive What makes you unique to your target customers. Company chose to reassert the retailer’s traditional values like,

Quality, Value, Service, Innovation and Trust.

Create A Compelling Vision

Identifying how you are distinctive is a start, but, for most organizations a clear sense of direction is required.

Company response was to go back to the M&S tradition, Offering customers, under the Company’s brand name a

selected range of high quality Well-designed and attractive merchandise at reasonable

prices which represent outstanding value

A Focused Agenda For Action

An early action by company is to cut 31 strategic projects

Learn and understand

No one has ever advanced in any career field without seeking to understand their role and responsibility in that field

RESOURCES REQUIRED TO TAP THE BUSINESS OPPORTUNITY OF BIRLA COTSYN IN INDIA

Investment opportunities in India

The Indian authorities believe that the technical textile sector is another potential area for foreign investment due to the rapid growth of the demand for industrial and technical textiles in the nation.

The sector is targeting US$ 6 billion foreign direct investment (FDI) by 2015.

The expected growth of Indian textiles industries will be worth about $220 billion by in the year 2020.

In Indian textile market there is emergence of mall culture and retail expansion. So there are opportunities for foreign companies to enter in Indian textile market in retail segment.

Raw Material

The basic raw materials for the cotton textile industry are Cotton fiber , Viscose staple fiber , Polyester staple fiber (PSF) Polyester filament yarn (PFY), and Acrylic fiber Cotton is a natural fiber.

The production of cotton in 1980-81 was 78 Lakh bales, which is doubled to 156 Lakh Bales in 1999-2000.

Technology

Two basic technologies are being used in the cotton textile industry - mechanical processing for the conversion of fiber into yarn and yarn into gray fabrics and chemical processing for converting gray fabrics into finished fabrics.

Resources required to tap the business opportunity of H & M in Uzbekistan

Investment opportunities in Uzbekistan

The government Of Uzbekistan generally welcomes investors and investment projects that are in line with its import-substitution and export-oriented industrialization policy.

The GOU prefers ‘strategic’ investors with long-term technical assistance commitments and usually does not welcome portfolio investors.

The lack of transparency and predictability has deterred many potential investors.

A foreign investor may participate in a variety of legal forms of business, ranging from partnerships to joint-stock companies to wholly-owned enterprises.

Natural Resources and Energy Minerals and mining also are important to Uzbekistan's economy Uzbekistan has an abundance of natural gas, used for production

consumption. oil used for domestic consumption; and significant

reserves of copper, lead, zinc, tungsten, and uranium.

Land for cotton production The area under cotton plantation was about 1.3 million hectares

and the yield of lint reported was 752 kg/hectare. Okdare 6, Namangan 77 and Tashkent 6 are the common varieties

of cotton planted in the country.

TECHNOLOGY

The ginning outturn is lower and losses at the ginneries are much higher than in the countries using modern cotton-gins.

In many developing countries the ginning outturn is on average 39%, whereas in Uzbekistan it has been below 32%.

The modernization of existing cotton plants is estimated to cost $50 million.

financing for this modernization through credits or investments can only be assured if cotton plants are privatized and face competition.

H & M BUSINESS MODEL

BUSINESS DEVELOPMENT STRATEGY Product range

H&M offers a broad and varied range that allows customers to find their own personal style.

H&M is aimed at everyone with an interest in fashion. The collections are extensive and new items come into the stores

every day.

Idea and Design

In this work it is incredibly important to understand what customers want –from the idea, through the creation of a new product to the customer buying it.

Getting the right item to the right store at the right time is the key to H&M customers always finding something new and exciting.

Always with a focus on the customer

H&M’s collections always emerge with the customer in focus. To meet demand from customers of all ages, each with their own particular style.

H&M offers many different concepts. Trends and influences are adapted to styles and models that will suit the customers.

Planning the range

H&M builds up its range by putting together a balanced mix of modern basics, current fashions and high fashion within each concept.

The aim is that the range should reflect what customers want at all times.

Customer demand in different markets and in different stores determines the mix of the product range.

BUSINESS PLAN ASSESSMENT

Particular Amount

Initial Investment $100 Million

Tax Rate@30% $13.93 Million

Export-Import Tax $15.72Million

State Tax Rate $1.35 Million

Total Investment Requirement $131 Million

The Assessment of the business plan H&M investment is high but in compare to expenses it may tap the higher profit from Indian market.

FINDINGS AND SUGGESTION From the research and then find India is one of the leading

producers of organic cotton in the world. India is highly competitive in spinning sector and has presence in

almost all processes of the value chain. Exports constitute around 20 per cent of Birla Cotsyn

India ltd’s revenues. Domestic market extremely sensitive to fashion fads

and this has resulted in the development of a responsive garment industry.

Competition in post-2005 is not just in exports, but is within the country due to cheaper imports of goods of higher quality at lower costs.

As per the Assessment of the business plan H&M investment is high but in compare to expenses it may tap the higher profit from Indian market.

CONCLUSION Cotton is an important agricultural commodity, heavily traded in

more than 150 countries. In many developing and underdeveloped countries, cotton exports

are not only a vital source for generating foreign exchange earnings. H&m Company outsources product manufacturing to around 700

independent suppliers through its local production offices in Asia and Europe.

Organic cotton still only accounts for a very small percentage of world cotton production.

The Indian authorities believe that the technical textile sector is another potential area for foreign investment .

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