Risk analysis on textile industry

1. ABOUT THE INDUSTRY
A textile is a flexible material comprised of a network of natural or artificial
fibres often referred to as thread or yarn. Textiles are formed by weaving, knitting,
crocheting, knotting, or pressing fibres together.The Textile industry (also known in the
United Kingdom and Australia as the Rag Trade) is a term used for industries primarily
concerned with the design or manufacture of clothing as well as the distribution and use
of textiles .The textile industry grew out of the industrial revolution in the 19th Century
as mass production of clothing became a mainstream industry.
By the latter 20th Century, the industry in the developed world had developed a
bad reputation, often involving immigrants in illegal "sweat shops" full of people
working on Textile manufacturing and sewing machines being paid less than minimum
wages. This trend has resulted due to attempts to protect existing industries which are
being challenged by developing countries in South East Asia, the Indian subcontinent and
more recently, Central America. Whilst globalisation has seen the manufacturing
outsourced to overseas labour markets, there has been a trend for the areas historically
associated with the trade to shift focus to the more white collar associated industries of
fashion design, fashion modelling and retail.
Areas historically involved heavily in the "rag trade" include London and Milan
in Europe, SoHo district in New York City and the Flinders Lane and Richmond districts
in Melbourne and Surry Hills in Sydney
The Indian textile industry is very large and diverse - an hour-long presentation is
hardly adequate to cover all its aspects, but I will attempt to piece some of the pieces of
this puzzle together for this gathering.
The Indian textile sector has its roots going back several thousand years. After the
industrial revolution in Europe, this sector in India also saw growth of an industrial
complex. However, over the last 50 years the textile industry in India has shown a
chequered performance.
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2. Textile Agreements in past
MFA (Multi-Fiber Agreement) is an agreement through which a particular
country is restricted to export its textile products beyond a certain level to European and
US markets. So, a specific quota is fixed for each country, and no country can exceed the
quantity assigned. Thus, the motive behind this agreement was to provide a window of
opportunity for the under developed and developing economies, or simply to save the
interest of the domestic textile industries in the European Union (EU) and the US.
The textile segment has been governed by many agreements since last 30 years.
To name a few: the Short Term Cotton Arrangement in the year 1961, the Long Term
Cotton Arrangement from 1962 to 1973, and the Multi-fiber Arrangement from 1974 to
1994. It is clear, efforts to liberalize trade and textiles have been tough. The key players
from the developed countries took protective measures and made heavy investments in
textile, and the result, the developed countries became the most capital-intensive nations
within the textile-manufacturing segment.
At the same time, developing countries were subject to quantitative restrictions,
thus keeping a strong hold on textile exports, keeping the edge by optimum textile
production. The MFA was terminated on 31 December 1994, with entry into force of the
WTO and its Agreement on Textiles and Clothing (ATC) on 1 January 1995. It was done
in order to have a multi-lateral liberal system of trading by terminating quota from textile
exports by the end of 2005.
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3. Textile growth figures
The global clothing scenario, where the textile market stands today is worth more
than $400 billion and it is still growing every year. As a result, the recent globalization of
the textile trade has opened up highly demanding and evolving requirements for
outsourcing in textiles.
During the last quarter of the previous century as depicted from Global Trade
Analysis Project (GTAP) model, the share of developing countries in world textile
exports improved from 15 to 50 per cent. Costs remain the driving factor in the post-
quota world but now the advantage will be greater as retailers are bound to raise the bar
higher on the responsiveness and flexibility from their suppliers.
A variety of fabrics are used worldwide in different applications such as apparel,
household textiles and furnishings, medical equipment, industrial and technical products.
Recent studies have highlighted that fabric weaving alone expends around 28 million tons
of fibre every year. This figure is parallel to more than half of the global textile market. It
is predicted that global production will grow by 25% between 2002 and 2010, to reach
more than 35 million tons and Asia is one of the key regions for growth.
Post Quota Textile Scenario
In 1995, the World Trade Organization (WTO) renewed the MFA with an
Agreement on Textiles and Clothing (ATC), which agreed that all quotas on textiles and
clothing would disappear between WTO member countries on January 1, 2005.
The expiration of ATC marked the end of quotas, limiting textile and clothing
trade between the WTO members. Huge developing countries like China, India and
Pakistan were the ones most restricted by the quotas. While India and China are likely to
emerge as winners, the main losers after quota will be quota-restricted countries who
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4. have enjoyed the benefits and protection for more than 40 years. The fear that prices will
fall dramatically after quotas has been eliminated.
The post quota market has changed with producers already affected by changes in
retailing. Big retailers are buying up independent brands to give consumers more value
and enhance their shopping experience.
Textile manufacturers supplying regional and domestic apparel producers have
survived by investing in technology. It allows them to achieve some of the highest
productivity in the world. Innovative approach has helped manufacturers to differentiate
their products and maintain an edge over competitors.
Competitiveness
Manufacturers in developed countries are more likely to adapt by relocating
operations to production centers in low wage countries. Those who choose nearby
locations will also benefit from market proximity and speed of response.
Investments in the regional domestic industries have started picking up. The important
global players have started taking steps for capacity expansions and modernisation.
Quota elimination has its flip side as well. It will force down clothing prices
further and will also help retail buyers to concentrate upon the most competitive
suppliers. The focus will be on suppliers in terms of cost, quality and productivity rather
than suppliers offering shorter lead times through market proximity.
It will be a race and emerging winners would include companies who will be able
to deliver large volumes from integrated structures through partnership and other
ventures. The quantum leap in exports of textiles from developing countries occurred
despite high tariffs and quantitative restrictions imposed particularly by economically
developed countries.
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5. It is important to highlight the role of the multifunctional textiles, intelligent
textiles, eco-textiles, e-textiles and customized textiles in the future of the textile-apparel
industry.
Moving ahead
The importance of multifunctional textiles has been realized to cope up with the
changing face of textile industry. It is the role of multifunctional textiles that seem to hold
new challenge and benefit for the future of textile and apparel industry.
Stable location may slowly disappear and the globalization factor may play a
major role, building up challenges for companies to upgrade their models and
networking. In the due process of globalization, the worldwide textile market looks for
stability in the long run. It looks forward to sustainability within the modus operandi of
free textile products circulation without any barriers between countries.
It is estimated that developing countries would have an income gain of about
USD 24b per year, export revenue gain of USD 40b and employment generation of about
27m jobs in the post-ATC era. However, the textile quota system will hopefully be
behind us, effective from January 1, 2006 when the textile sector will be reintegrated into
the multilateral trading system.
The elimination of textile quotas in 2005 has opened trade to fierce competition. It
has also opened window of opportunities for the countries who rely heavily on this
particular sector. However, the benefits for the developing countries may not be spread
evenly.
Countries who are more competitive will be able to exploit better opportunities. It
would mean having an endemic textile industry. Value added products, and raw material
available at home would play a crucial role for exports from developing countries. It also
means that in-house productivity will need to be improved with emphasis shifting to
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6. quality & to meet timely delivery requirements of the buyers.
Today the industry contributes around 14% to industrial production in the
country, is estimated to directly employ approximately 35 million people apart from the
indirect employment in allied sectors, accounts for a about 27% to the country's exports,
and is, in sum, an important economic engine for the nation.
The textile industry occupies a unique place in our country. One of the earliest
to come into existence in India, it contributes to nearly 30% of the total exports and is
the second largest employment generator after agriculture.
Textile Industry is providing one of the most basic needs of people and the holds
importance; maintaining sustained growth for improving quality of life. It has a unique
position as a self-reliant industry, from the production of raw materials to the delivery of
finished products, with substantial value-addition at each stage of processing; it is a major
contribution to the country's economy.
Its vast potential for creation of employment opportunities in the agricultural,
industrial, organized and decentralized sectors & rural and urban areas, particularly for
women and the disadvantaged is noteworthy.
Although the development of textile sector was earlier taking place in terms of
general policies, in recognition of the importance of this sector, for the first time a
separate Policy Statement was made in 1985 in regard to development of textile sector.
The textile policy of 2000 aims at achieving the target of textile and apparel exports
of US $ 50 billion by 2010 of which the share of garments will be US $ 25 billion.
The main markets for Indian textiles and apparels are USA, UAE, UK, Germany,
France, Italy, Russia, Canada, Bangladesh and Japan.
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7. The main objective of the textile policy 2000 is to provide cloth of acceptable
quality at reasonable prices for the vast majority of the population of the country, to
increasingly contribute to the provision of sustainable employment and the economic
growth of the nation; and to compete with confidence for an increasing share of the
global market.
Current scenario
Developing countries with both textile and clothing capacity may be able to
prosper in the new competitive environment after the textile quota regime of quantitative
import restrictions under the multi-fiber arrangement (MFA) came to an end on 1st
January, 2005 under the World Trade Organization (WTO) Agreement on Textiles and
Clothing.
As a result, the textile industry in developed countries will face intensified
competition in both their export and domestic markets. However, the migration of
textile capacity will be influenced by objective competitive factors and will be hampered
by the presence of distorting domestic measures and weak domestic infrastructure in
several developing and least developed countries.
The elimination of quota restriction will open the way for the most
competitive developing countries to develop stronger clusters of textile expertise,
enabling them to handle all stages of the production chain from growing natural
fibers to producing finished clothing, The OECD paper says that while low wages can
still give developing countries a competitive edge in world markets, time factors now
play a far more crucial role in determining international competitiveness. Countries that
aspire to maintain an export-led strategy in textiles and clothing need to complement their
cluster of expertise in manufacturing by developing their expertise in the higher value-
added service segments of the supply chain such as design, sourcing or retail distribution.
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8. To pursue these avenues, national suppliers need to place greater emphasis on
education and training of services-related skills and to encourage the establishment of
joint structures where domestic suppliers can share market knowledge and offer more
integrated solutions to prospective buyers.
The textile industry is undergoing a major reorientation towards non-clothing
applications of textiles, known as technical textiles, which are growing roughly at twice
rate of textiles for clothing applications and now account for more than half of total
textile production. The processes involved in producing technical textiles require
expensive equipments and skilled workers and are, for the moment, concentrated in
developed countries. Technical textiles have many applications including bed sheets;
filtration and abrasive materials; furniture and healthcare upholstery; thermal protection
and blood-absorbing materials; seatbelts; adhesive tape, and multiple other specialized
products and applications. India must take adequate measures for capturing its market by
promoting research and development in this sector.
The mood in the Indian textile industry given the phase-out of the quota regime of
the multi-fibre arrangement (MFA) is upbeat with new investment flowing in and
increased orders for the industry as a result of which capacities are fully booked up to
April 2005. As a result of various initiatives taken by the government, there has been new
investment of Rs.50,000 crore in the textile industry in the last five years. Nine
textile majors invested Rs.2,600 crore and plan to invest another Rs.6,400 crore.
Further, India's cotton production increased by 57% over the last five years; and 3
million additional spindles and 30,000 shuttles-less looms were installed.
The industry expects investment of Rs.1,40,000 crore in this sector in the post-
MFA phase. A Vision 2010 for textiles formulated by the government after intensive
interaction with the industry and Export Promotion Councils to capitalise on the upbeat
mood aims to increase India's share in world's textile trade from the current 4% to
8% by 2010 and to achieve export value of US $ 50 billion by 2010
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9. Vision 2010 for textiles envisages growth in Indian textile economy from the
current US $ 37 billion to $ 85 billion by 2010; creation of 12 million new jobs in the
textile sector; and modernization and consolidation for creating a globally
competitive textile industry.
There will be opportunities as well as challenges for the Indian textile industry in
the post-MFA era. But India has natural advantages which can be capitalised on strong
raw material base - cotton, man-made fibres, jute, silk; large production capacity
(spinning - 21% of world capacity and weaving - 33% of world capacity but of low
technology); vast pool of skilled manpower; entrepreneurship; flexibility in production
process; and long experience with US/EU (European Union). At the same time, there are
constraints relating to fragmented industry, constraints of processing, quality of cotton,
concerns over power cost, labour reforms and other infrastructural constraints and
bottlenecks. E.g., cost of power was Rs. 8 per garment in India whereas in China it was
only Rs. 2 per garment.
Further, for the benefit of exporters, there should be a state-owned cargo shipping
mechanism. Several initiatives have already been taken by the government to overcome
some of these concerns including rationalisation of fiscal duties; technology upgradation
through the Technology Upgradation Fund Scheme (TUFS); setting up of Apparel Parks;
and liberalisation of restrictive regulatory practices.
Shri Kamal Nath, Union Minister of Commerce & Industry, has said that India will
take up the issue of non-tariff barriers (NTBs) in the World Trade Organisation (WTO)
Doha round of multilateral trade negotiations, which are expected to gather steam from
March 2005 onwards
On the eve of republic day president Kalam said that. "India is presently exporting six
billion U.S. Dollars worth of garments, whereas with the WTO regime in place, we can
increase the production and export of garments to 18 to 20 billion U.S. Dollars within the
next five years. This will enable generation of employment in general and in rural areas
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10. in particular. By tripling the export of apparels, we can add more than 5 million direct
jobs and 7 million indirect jobs in the allied sector, primarily in the cultivation of cotton.
Concerted efforts are needed in cotton research, technology generation, transfer of
technology, modernisation and upgrading of ginning and pressing factories and an
aggressive marketing strategy."
Latest news in textile sector
1. Ministry of finance has added 165 new textile products under duty drawback
schedule. The new products included wool tops, cotton yarn, acrylic yarn, viscose
yarn, various blended yarn/fabrics, fishing nets etc. Further, the existing entries in
the drawback schedule relating to garments have been expanded to create separate
entries of garments made up of (1) cotton; (2) man made fibre blend and (3)
MMF. Separate rates have been prescribed for these categories of garments on the
basis of composition of textiles.
2. After the phasing out of quota regime under the multi-fibre pact, India can
envisage its textile sector becoming $100b industry by 2010. This will include
exports of $50b. The proposed targets would be achieved provided reforms are
initiated in textile sector and local manufacturers adopt measures to improve their
competitiveness. A 5-pronged strategy aiming to attract FDI by making reforms in
local market, replacement of existing indirect taxes with a single nationwide
VAT, liberalization of contract norms for textile and garments units, elimination
of restrictions that cause poor operational and organizational performance of
manufacturers, was suggested.
3. The Union Minister Shankarsinh Vaghela said that the Board for Industrial and
Financial Reconstruction (BIFR) had approved rehabilitation schemes for sick
NTC mills at a cost of Rs 3,900 crore. Of the 66 mills, 65 unviable mills have
been closed after implementing voluntary retirement scheme (VRS) to all
employees. According to him, the government has already constituted assets sale
committees comprising representatives of Central and state governments,
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11. operative agency, BIFR, NTC and the concerned NTC subsidiary to effect sale of
assets through open tender system.
4. Proposals for modernization of NTC mills have been made to the consultative
committee members, including formation of a committee of experts to improve
management of these mills. Even the present status of jute industry was under the
scanner of the consultative committee.
5. The Government had announced change from the value-based drawback rate
hitherto followed to a weight-based structure for textile exports that will
discourage raw material exports and also curtail the scope for misusing the
drawback claims by boosting invoice value of exports.
6. NCDEX launched its silk contract (raw silk and cocoon) on Thursday, January
20,2005.. With this launch, the total number of products offered by NCDEX goes
up to 27.The launch of the silk contract will offer the entire suite of fibers to the
entire value chain ranging from farmers to textile mills. With the objective of
protecting the interests of those affected but WTO agreements and globalization
process, Government of India jointly with NCDEX has adopted a policy of
encouraging future contracts of silk. The Ministry of Textiles and the Central Silk
Board (CSB) had decided to introduce futures trading in mulberry cocoons and
raw silk on NCDEX. The basic purpose is to mitigate the risk associated with the
changing prices through an efficient price discovery mechanism. Futures trading
on the NCDEX will provide an alternative trading avenue for farmers, weavers
and traders and help them make a better price discovery for their produce. It will
also help them to reduce risks associated with price volatility through hedging
CDEX. The basic purpose is to mitigate the risk associated with the changing
prices through an efficient price discovery mechanism. Futures trading on the
NCDEX will provide an alternative trading avenue for farmers, weavers and
traders and help them make a better price discovery for their produce. It will also
help them to reduce risks associated with price volatility through hedging
The Tirupur Exporters Association (TEA)
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12. The Tirupur Exporters Association (TEA) has been urged to setup their integrated
textile parks in Uzbekistan by the visiting Uzbekistan deputy minister for light industries,
Nodir Kalandrov said here on December 16.The minister while addressing the members
of TEA at Tirupur on 16th December said that Uzbek is one of the largest exporters of
cotton, next only to the US. The medium and long staple varieties of cotton were also
available in Uzbekistan.
Nodir added that they offer a concession of 15 percent for procurement of cotton
for spinning of cotton yarn and another five percent for integrated garment manufacturing
units if they procured cotton. Further, he invited the knitting industry units of Tirupur to
take over spinning units available in Uzbekistan and produce garments while the facilities
available in Uzbekistan for investors in the textile field like the cheaper power tariff-three
cents a unit-and the low labour cost compared to European countries.
ABOUT THE COMPANY
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13. SAMYS INTERNATIONAL, Tirupur, manufactures & exports of
hosiery garments was started on 15thsep 2005.It is a proprietorship concern. The turnover
of the company is more than 8 crore per year.
“Customer satisfaction through the quality of work is the gateway of success of
the company”.
Motto of the company
“Weaving the faith, belief and the entrustment of a customer into a fabric of
honesty, impeccable quality & durability by being a bench mark in the apparel
industry”.
KEY PERSONNEL
Mr. P.Saravanan
Mr. .R.P.Hariharan
Mr. A.Ganesh
Mr. P. Gopala Krishnan
Managing director
Director
Director
Director
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14. The company is capable of producing all types of garments, as the company has
well experienced & quality conscience personnel, they are meeting the global quality
standards required by the overseas buyers. The main advantage of the company is their
infrastructure facility.
The company had its own In House Lab for the testing the quality. The company
it producing 100% eco-friendly products. There are about 200 workers are working in
the company under contract basis. There are about 10 supervisors & 3 executives in the
company.
The production process of garments of this company consists of 3 major
departments they are
1. Cutting
2. Stitching
3. Checking & packing.
Production facilities
Machinery: 200 nos. of hi-tech stitching machines from Japan. Including special
machines
Infrastructure facilities: one roof production hall with state of art machines
In 10,000 sq.ft.
Production information
Production capacity (yearly): 2.1 million pieces
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15. Purchase of raw materials
Products are being purchased from various parties on the contract basis for the
various production processes of the garments.
NO OF PARTIES
DYEING 20
COMPACTING 14
EMBROIDERY 12
PURCHAGING GARMENTS 7
HEAT SETTING 1
FABRICATIONS 19
LABLES & TAGS 8
PACKING MATERIAL 10
PRINTING 13
PURCHASING SWEING THREAD 3
STRITCHING 15
Production range:
 Knitted casual wear-jerseys, pullovers, mens shorty set.
 Yarn dyed polo’s, polo t-shirts.
 Night wear – ladies+girls, big tops.
 Ladies all over printed night gown, ladies pyjamas sets, men’s pyjamas
 Winter wear – rugby polo, polyester polar fleece for all ranges. Hooded shirts
 Sports wear – polo pique branded quality.
 Children’s wear – shorty sets, rugby, pullovers, skirts, leggings, wide range of
kids wear.
Speciality works:
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16.  Hand embroidery
 ADDA and AARI works
 Sequence works
 Crochet works etc.
Markets/buyers:
 RINGELLA, GERMANY
 MARTKAUF, GERMANY
 METRO GROUP BUYING, GERMANY
 EFFIGI INC, CANADA
 FAMILYDOLLAR, USA
 ROUMI S.A, FRANCE
 JERZEES, U.K
 DEUTSCHE WOOL WORRTH, GERMANY
 OTTOS, SWITZERLAND
ABOUT THE PROJECT
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17. The term risk management is applied in a number of diverse disciplines people in
the field of statistics, economics, psychology, social, sciences, biology, engineering,
toxicology, system analysis, operational research, decision theory to name few have been
addressing the field of risk management.
What is a risk?
“Risk has been defined as the combination of likelihood of a failure &
consequences of the failure”.
“Risks can be defined a many things but at the root of every definition is the fact
that risks represents uncertain outcomes. These outcomes can be either negative or
positive. They can represent positive opportunities (opportunities for excellence) as well
as negative threats”.
Risk is uncertainty & in uncertainty lays opportunity, without uncertainty, there’s
little chance to profit
“Risk is nothing more than the possibility of something unexpected happening”.
Risk= the possibility of something unexpected happening.
Risk statement.
For a risk to be understandable the risk statement must include.
 A description of the current conditions that may lead to the loss
 A description of the loss
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18. Why to manage risks?
Ignoring the risks which apply to your business activities or the events you have planned
could impact on the following:
• the health and safety of employees, customers, volunteers and participants
• your reputation, credibility and status
• public and customer confidence in your organisation
• your financial position
• plant, equipment and the environment
Risk example
A company has introduced object-oriented technology into its organization by
selecting a well-defined project ‘x’ with hard schedule constraints to pilot the use of the
technology. Although many ‘x’ project personnel were familiar with the ooconcept. It
had not been part of their development process & they had very little experience &
training in the technology’s application. It is taking project personnel longer than
expected to climb the learning curve. some personnel longer are concerned for eg.that the
modules implemented to date might be too inefficient to satisfy project ‘x’ performance
requirements.
The risk is given the lack of oo technology experience & training there is a
possibility that the product will not meet performance or functionality requirements
within the defined schedule.
Non risk example
A company is developing a flight control system. During the system integration
testing the flight control system becomes unstable because processing of the control
function is not quick enough during a specific maneuver sequence.
The instability of the system is a not a risk since the event is a certainty.
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19. What is risk management?
“Risk management is the decision making process involving considerations of political,
social, economics&engineering factors with relevant risk assessment relating to a
potential hazard so as to develop analyze & compare regulatory options & to select the
optimal regulatory response for safety from that hazard. Essentially risk management is
the combination of 3 steps: risk evaluation, emission &exposure control; risk control”.
Too many social analysts, politicians& academics it is the management of
environmental & nuclear risks, those technology-generated macro risks that appear to
threaten our existence. To bankers & financial officers it is the sophisticated use of such
techniques as currency hedging & interest rate swaps. To insurance buyers & sellers it is
co-ordination of insurable risks & the reduction of insurance costs. To hospital
administrators it may mean quality assurance to safety professionals it is reducing
accidents injuries.
“Risk management is the process of measuring or assessing risk & developing
strategies to manage it. Strategies include transferring the risk to another party, avoiding
risk, reducing the negative effect of the risk & accepting some or all the consequences of
a particular risk”.
“Risk management is the total process of identifying, measuring & minimizing
events affecting resources”.
“Risk management is a discipline that enables people organizations to cope with
uncertainty by taking step as to protect its vital assets & resources”.
All organizations face some form of risks or other. Nothing wrong with that, for
risk taking in intrinsic to growth. Taking no risks may also mean forgoing rewards.
However, there has been a tendency among organizations to focus more on financial risks
such as fluctuations into interest & exchange rates rather than viewing them as an integral
part of corporate strategy. It is time to remedy this imbalance.
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20. Risk is all about vulnerability & taking proper steps to address it. Contributing to
this state of vulnerability are many factors-both financial & non-financial. Both have to
be factored in equally a fair level of risk taking capability.
Risk management is not exactly anew idea. Even when organizations are good at
identifying the various types of risks they face, that they make the mistake of dealing
with them in a piecemeal manner. Within the same company; the finance, treasury,
human resources & legal departments may cover risks independently. An organizations-
wide view of risk management can greatly improves efficiencies & generates synergies.
At the same time, companies often do not consider all the options available to deal with
particular risk. This leads to sub optimal risk management decisions.
FUNCTION OF RISK MANAGEMENT
The function of risk management is to reduce the risk of loss and minimize its
effects through:
a. Identification of sources of Property, Net Income, Liability, and Personnel risks from
which losses may arise;
b. Evaluation of the financial risk involved in each exposure in terms of expected
frequency, severity and impact;
c. Treatment of risks by:
· Elimination or avoidance
· Reduction or control
· Transfer to others
· Funding
d. Monitoring of results continuously and systematically.
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21. STEPS IN THE RISK MANAGEMENT PROCESS
Establish the context
Establishing the context includes planning the remainder of the process and
mapping out the scope of the exercise, the identity and objectives of stakeholders, the
basis upon which risks will be evaluated and defining a framework for the process, and
agenda for identification and analysis of risk involved in the process.
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22. Risk Identification
After establishing the context, the next step in the process of managing risk is to
identify potential risks. Risks are about events that, when triggered, cause problems.
Hence, risk identification can start with the source of problems, or with the problem
itself.
• Source analysis Risk sources may be internal or external to the system
that is the target of risk management. Examples of risk sources are:
stakeholders of a project, employees of a company or the weather over an
airport
• Problem analysis Risks are related to identified threats. For example: the
threat of losing money, the threat of abuse of privacy information or the
threat of accidents and casualties. The threats may exist with various
entities, most important with shareholder, customers and legislative bodies
such as the government
The chosen method of identifying risks may depend on culture, industry practice and
compliance. The identification methods are formed by templates or the development of
templates for identifying source, problem or event. Common risk identification methods
are
• Objectives-based Risk Identification Organizations and project teams have
objectives. Any event that may endanger achieving an objective partly or
completely is identified as risk
• Scenario-based Risk Identification In scenario analysis different scenarios are
created. The scenarios may be the alternative ways to achieve an objective, or an
analysis of the interaction of forces in, for example, a market or battle. Any event
that triggers an undesired scenario alternative is identified as risk
• identification is a breakdown of possible risk sources. Based on the taxonomy
and knowledge of best practices, a questionnaire is compiled. The answers to the
questions reveal risks. Taxonomy-based risk identification in software industry
can be found in CMU/SEI-93-TR-6
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23. • Common-risk Checking In several industries lists with known risks are
available. Each risk in the list can be checked for application to a particular
situation.
Risk Assessment
Once risks have been identified, they must then be assessed as to their potential
severity of loss and to the probability of occurrence. These quantities can be either simple
to measure, in the case of the value of a lost building, or impossible to know for sure in
the case of the probability of an unlikely event occurring. Therefore, in the assessment
process it is critical to make the best educated guesses possible in order to properly
prioritize the implementation of the Risk Management Plan.
The fundamental difficulty in risk assessment is determining the rate of
occurrence since statistical information is not available on all kinds of past incidents.
Furthermore, evaluating the severity of the consequences (impact) is often quite difficult
for immaterial assets. Asset valuation is another question that needs to be addressed.
Thus, best educated opinions and available statistics are the primary sources of
information. Risk assessment should produce such information for the management of the
organization that the primary risks are easy to understand and that the risk management
decisions may be prioritized.
Rank risks
Once risks are identified, management can determine what to do them, depending
on the effect of the risk on the business. A good first step in assessing the effect is to rank
risks by some scale on impact and likelihood. The global is to make conscious decisions
about risk, including all risks facing the business.
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24. Measuring risks
Some companies implicitly or explicitly rank risks other decide to validate the
risks perceived importance. These companies want to have more evidence on importance
before they make decisions about how to manage the risk. Gathering this additional
evidence helps management allocate capital efficiently and avoid over-managing those
risks that are not as important while under managing those that are important.
Risk avoidance
Includes not performing an activity that could carry risk. An example would be
not buying a property or business in order to not take on the liability that comes with it.
Another would be not flying in order to not take the risk that the airplane were to be
hijacked. Avoidance may seem the answer to all risks, but avoiding risks also means
losing out on the potential gain that accepting (retaining) the risk may have allowed. Not
entering a business to avoid the risk of loss also avoids the possibility of earning profits.
Risk reduction
Involves methods that reduce the severity of the loss. Examples include
sprinklers designed to put out a fire to reduce the risk of loss by fire. This method may
cause a greater loss by water damage and therefore may not be suitable. Halon fire
suppression systems may mitigate that risk, but the cost may be prohibitive as a strategy.
Risk retention
Involves accepting the loss when it occurs. True self insurance falls in this
category. Risk retention is a viable strategy for small risks where the cost of insuring
against the risk would be greater over time than the total losses sustained.All risks that
are not avoided or transferred are retained by default. This includes risks that are so large
or catastrophic that they either cannot be insured against or the premiums would be
infeasible. War is an example since most property and risks are not insured against war,
so the loss attributed by war is retained by the insured. Also any amounts of potential loss
24

25. (risk) over the amount insured is retained risk.this may also be acceptable if the chance of
a very loss is small or if the cost risk transfer.
Categories of risk
Internal Fraud
Loss due to acts of a type intended to defraud, misappropriate property or
circumvent regulations, the law or company policy, excluding diversity, discrimination
events, which involves at least one internal party.
External Fraud
Losses due to acts of a type intended to defraud, misappropriate property or circumvent
the law, by a third party. These activities include theft, robbery, hacking or phishing
attacks.
Employment Practices and Workplace Safety
Losses arising from acts inconsistent with employment, health or safety laws or
agreements, from payment of personal injury claims, or from diversity / discrimination.
Clients, Products & Business Practice
Losses arising from unintentional or negligent failure to meet a professional
obligation to specific clients (including fiduciary and suitability requirements), or from
the nature of design of a product.
Damage to Physical Assets
Losses arising from loss or damage to physical assets from natural disaster or
other events.
25

26. Business Disruption & Systems Failures
Losses arising from disruption of business or system failures. This includes loss
of due to failure of computer hardware, computer software, telecommunications failure or
utility outage and disruptions.
Execution, Delivery & Process Management
Losses from failed transaction processing or process management, from relations
with trade suppliers and vendors. This includes Transaction Capture, Execution &
Maintenance Miscommunication, Data entry, maintenance or loading error Missed
deadline or responsibility, Model / system disoperation Accounting.
Risk management –traditional and new perspectives
Traditional perspectives
Fragmented - department/function manages risk independently accounting treasurer and
internal audit are primarily concerned with it.
Ad-hoc - risk management is done whenever managers believe need exists to do it.
Narrowly focused – primarily insurable risk and financial risks.
New perspective
Integrated – risk management co-ordinate with senior level oversight everyone in the
organisation views risk management as a part of his or her job.
Continuous – risk management process is a continuous process.
Broadly focused – all business risk and opportunities are considered.
26

27. OBJECTIVES OF THE STUDY
 To identify areas in which the risk are involved
 To analyze the impact of risk on the exporters.
 To analyze the basic drawbacks & constraints faced by the industry in exports.
 To analyze how the company can made free from risk.
 To give suggestion for avoiding the risk.
27

28. LIMITATIONS OF THE STUDY
• The company’s information is not disclosed fully.
• Time available for the study is not sufficient.
• The data available and collected about the risk are uncertain it may or may not
arise in future.
28

29. SCOPE OF THE STUDY
The study aims is to measure what are the risk involved in export of garments
which affect the company. From the study the researcher came to know about the risk
involved in garment export and how they can be overcome. The researcher also comes to
know about the needs of the garment exporter. The result of the study may help the
management of the company how to mitigate the risk in future.
29

30. REVIEW OF LITERATURE
A literature review is defined as the “critical analysis of a segment of a published body
of knowledge through summary, classification, and comparison of prior research
studies, reviews of literature, and theoretical articles.”
The risk is defined as “The quantifiable likelihood of loss or less than expected
returns”.
The risk management is defined as “Risk management is concerned with future
events, whose exact outcomes are categorized as ranging from favorable to
unfavorable & risk management is the art & science of planning, assessing,
handling & monitoring actions leading to future events to ensure favorable
outcomes. Thus a good risk management process is proactive in nature, & is
fundamentally different from crisis management, which is reactive”.
Douglas C. Singer1
said, “Risk management is one of the specialties within the general
field of management. It is the process of making and carrying out decisions that will
minimize the adverse effects of accidental losses upon an organization. An organization
has one or more of a variety of objectives: profit, growth, stable earnings, public service,
or the performance of a governmental function, to name a few. To achieve these
objectives, an organization must first reach a more fundamental goal: survival in the face
of potentially crippling accidental losses. Beyond survival, the top management of an
organization also may wish to prevent any accidental losses from interrupting the
organization's operations, slowing its growth, or reducing its profits or cash flows by
more than a specified amount”.
30

31. A study developed by IBM’s institute of business value2
says that “There are three
stages in the credit process: the first is the simple risk control of the business—avoiding
being over concentrated in any one sector, estimating the probability of defaulting and
assessing recovery. In emerging markets, such as China, collection and recovery
processes have to be better understood. The legal governance structure of liens has to be
vastly improved, and this will come in time with the new legal regulations being
legislated. However, banks cannot afford to count on the legal system, as has been
painfully learned from the Netting cases or the sovereign jurisprudence. These are
operational risks that must be considered.
The second phase is the link between economic capital and return. Clearly
banks would like to set minimum rates of return they expect to earn on their portfolios
after provisioning. The link between economic profit and risk is the next stage in
advancing the practice of credit risk management.
Finally the third stage is when risk management is used as a strategic
management tool to align risk adjusted return on economics capital (RAROC) with return
on equity (ROE). Each CEO must understand what drives the share price of the bank and
thus must understand the link between economic capital, intellectual property owners
(IPO’s) and ROE. Once this paradigm is understood, banks will be in a better competitive
position to compete more aggressively and likely survive in the next decade”.
Robert Courtney Jr. (IBM, 1970)11
He proposed a formula for presenting risks in
financial terms. The Courtney formula was accepted as the official risk analysis method
for the US governmental agencies. The formula proposes calculation of ALE (Annualised
Loss Expectancy) and compares the expected loss value to the security control
implementation costs (Cost-benefit analysis).
31

32. Dorfman 1997 Once risks have been identified and assessed, all techniques to
manage the risk fall into one or more of these four major categories (remember
as 4 T's)
• Tolerate (aka Retention)'
• Treat (aka Mitigation)
• Terminate (aka Elimination)
• Transfer (aka Buying Insurance)
An analysis of risk management in Heathrow airport, London, England October 24,
1994,3
A gaping hole suddenly appeared in the middle of a construction site in the
vicinity of Heathrow airport, London, England. According to reports, the hole continued
to enlarge for several days bringing disarray and confusion to the airport. Surprisingly,
and fortunately, no one was killed or even injured by the collapse, but it was arguably the
worst civil engineering disaster in the UK in the last quarter century.
Some of the report's findings are most instructive. For example:
• "The collapse could have been prevented but a cultural mindset focused attention
on the apparent economies and the need for production rather than the particular
risks."
• "Leading to poor design and planning, a lack of quality during construction, a lack
of engineering control and most importantly a lack of safety management."
• "Such accidents must be prevented through effective risk management. The
industry cannot simply rely on good fortune", and "Risk assessment should be a
fundamental step in the procedures adopted by all parties: It is inappropriate
wholly to leave the control of risk to contractors." The report particularly singles
out new forms of contract or new technologies in which the parties have a poor
understanding of their respective roles.
32

33. North Lincolnshire Council Take Steps to Optimize the Delivery of Key IT Services
Through the Use of Operational Risk Management4
The risks faced within the complex ever-changing modern IT environment are
numerous, and with the majority of business processes now heavily dependent on IT, the
impacts caused as a result of failing to control these risks can be all too critical.
In order to deliver quality IT Services, organizations need to manage risks not
only at the higher strategic and programmed management levels but also during everyday
business as usual and project work. It is here that Operational Risk Management and
Project Risk Management techniques can offer real benefits. Typical operational risks
present within IT environments include component failure, human error, loss of key skills
or staff, supplier failure and the bypassing of controls. By embedding Operational Risk
Management within their processes and culture, organizations can learn to identify,
understand and control these risks.
The Fox IT approach involves the management of operational and project risks, in
addition to controlling the more traditional security and IT service continuity risks. Its
risk management techniques are supported by the use of processes such as Change
Management and Capacity Management, further reducing risk exposure.
As part of their ongoing programmed of work with Fox IT, North Lincolnshire
Council arranged for an Operational Risk Management training session for key members
of staff. The training covered the Operational Risk Management process, the benefits of
performing Risk Management, practical ways of controlling risk and recommendations
for implementation.
33

34. The Operational Risk Management work carried out at North Lincolnshire Council has
delivered the following benefits:
• Identification both of risks and of measures to control those risks
• Increased knowledge of Operational Risk Management techniques
• Increased awareness of current and potential risks
• Promotion of a risk aware culture
• Opportunity for cross function discussion and team building
• Increased realization and understanding of risk ownership
The Graduate School of Business, University of Chicago.5
A 1998 Wharton/CIBC
World Markets survey indicated that large firms use more financial hedging than small
firms and that a majority of the hedges are short dated with maturity of 90 days or less.
The typical reasons for a risk management program are to protect against losses and to
take advantage of anticipated favorable movements to increase expected cash flows.
Hunt, Procter & Gamble 19936
.P&G has been using @RISK since 1993 when Hunt
first introduced it for modeling production-siting decisions. The company was evaluating
some cross-border siting options, and these decisions required them to take into account
not only uncertainties involving the capital and cost aspects of plant location but
fluctuations in exchange rates as well. The company has since come to rely on @RISK
for its "entire range of investment decisions" including new products, extensions of
product lines, geographical expansions into new countries, manufacturing savings
projects, and production siting.
They have been working with Precision Tree. "Its attraction is its capacity to
value complex decisions, which often involve multiple, sequential decision steps". They
find it particularly valuable in evaluating "real options". They considered using financial
option calculators to analyze the real options that are embedded in our complex decisions,
but we found that they simply can't solve for the real option value in projects with
multiple, sequential investment decisions. Decision trees are really the only tool that can
correctly value multiple sequential decisions where uncertainty is private risk." Finally
34

35. Hunt taught three business units how to use Precision Tree to test it as a tool for valuing
complex decisions made under uncertainty. After a successful test, Procter & Gamble is
now in the process of rolling out Precision Tree to all of its major business units around
the world.
An analysis of risk management in ford 20027
The automotive market was highly
competitive. The major players competed on the basis of product quality,
advertising, promotion and price. Ford faced several risks. First, competition in the
industry, often led to price wars.
In addition, the stagnant economic conditions in America might lead to a decline
in sales and leases. A third risk facing Ford stemmed from its relationship with the United
Auto Worker's union. In the past, striking workers had halted production at plants across
the world.
A fourth risk facing Ford resulted from litigation against the company. In the
recent past, deaths caused by Ford's use of certain Firestone Tires had resulted in lost
sales, as well as a tarnished reputation. A fifth risk arose from defects and recalls of cars.
Another risk Ford faced, stemmed from government policies. Ford might have to
undertake expensive projects in order to comply with any new government regulations.
Ford was also exposed to various financial risks such as fluctuating interest rates,
foreign exchange rates, and commodity prices. Ford took various steps to deal with these
market risks. For instance, to hedge against fluctuating interest rates, Ford used swap
contracts. To hedge its foreign currency risk, Ford used a value-at-risk (VAR) analysis to
evaluate its exposure to fluctuations in exchange rates. The VAR analysis, calculated
potential risk, within a 99% confidence level on firm commitment exposures, including
the effect of foreign currency derivatives.
To hedge commodity price risk, Ford entered into forward and option contracts.
These included contracts on the various raw materials the company used in the
manufacture of automobiles. Ford employed derivative contracts for hedging purposes
35

36. only. Ford’s risk management program recognized the unpredictability of markets and
sought to reduce profit volatility. Ford monitored and managed these exposures as an
integral part of its overall risk management program. This included regular reports to a
central management committee that oversaw global risk management practices. Ford in
general and Ford Credit in particular had taken various steps to ensure liquidity through
any economic or business cycle. Ford's funding sources included commercial paper, term
debt, sale of receivables through securitization transactions, committed lines of credit
from major banks, and other sources. Ford was also exposed to a variety of insurable
risks, such as loss or damage to property, liability claims, and employee injury. Ford
protected itself against these risks through a combination of self-insurance and the
purchase of commercial insurance.
According to Freeman Wood, Ford's Chief Risk Officer,"My long-term vision
involves a continual progression for the risk management function, starting with key
financial and hazard risks and broadening it out to encompass operational and business
risks - from business interruption and supply interruption, to competitive risk, brand risk,
and execution risk”.
Risk in today's banking environment Uday Chatterjee Dec 20008
Tata Consultancy
Services organized its third annual feature on banking and finance on December 12, 2000
at Mumbai, India. This year’s summit focused on risk assessment and management. The
Indian banking system, after having passed through three phases in its hundred years of
existence, is now going to face tremendous competition, despite the liberalization process
in the banking sector being a case of "two-steps-forward-one- step-back".
A lot of the challenges in this competitive scenario are a result of the increased
use of information technology in the banking sector. Banks must make use of information
technology to ensure prevention and/or early detection of frauds in the system. The need
agencies would help reduce risks in transactions by providing for final and irrevocable
delivery and payment in all currencies and in same day funds.
36

37. Speaking on technology risks, the sources of risk in the life of a banker. Citing the
case of the Barings collapse, he pointed out that technology by itself is not going to
eliminate risk unless there is an active 24/7 operation behind the scenes that is constantly
evaluating the technology and its output.
Adrian D'Silva of the Federal Reserve Bank of Chicago made a presentation on
managing risk in the capital markets. He says that the need to understand the makeup or
framework of a comprehensive risk management and measurement process. The risk
management process should be built into financial reporting, operations and compliances
and should cover the activities of the board of directors and senior management.
Ronald L. Rhames, Helen F. Koon, Marcia L. Medway Jan 2006:
An Analysis of Risk Management in a Midlands Technical College 9
The objectives identified for the review included the following:
1. Assess the current status of the college’s control mechanisms
2. Review current and relevant literature to ascertain industry standards
3. Identify opportunities for improvement
The administration believed this definition was limiting in two primary ways.
Ronald defined the risk management “Risk management is an enterprise-wide
approach to identify and analyze issues that affect the organization’s ability to meet its
goals and objectives. Issues that may impact the organization’s ability to meet its goals
and objectives are divided into five categories: strategic, financial, operational,
compliance and reputational.”
The assessment of risk management at Midlands Technical College is an
enterprise-wide approach. It involved the assessment of the college’s positions, status,
processes, programs, and operations as they relate to the five primary categories of risk,
financial, compliance, operational, strategic, and reputational.
A comprehensive review of financial risk management mechanisms include
assessment of the college’s auditing, checks and balances, assets, contracts, signatory
authority, insurance, separation of duties, purchasing, human resource programs,
budget, policies, procedures and practices. An independent audit firm performs an
annual financial audit that includes a review of internal controls, which has resulted in no
37

38. significant findings for the past ten or more years. The review of these mechanisms and
processes in aggregate suggests that the college is reasonably protected from financial
risk. The college has submitted a Comprehensive Annual Financial Report (CAFR) and
received a Certificate of Achievement for Excellence in Financial Reporting from the
Government Finance Officers Association of the United States and Canada for the past
six years. The Certificate of Achievement is a prestigious national award, recognizing
conformance with the highest standards for preparation of state and local government
financial reports. Assets are consistently reviewed and linked to the financial statements
indicating asset control and separation of duties. Changes in the accounting standards
now allow for valuation of assets providing the college with a true picture of the net
worth.
The review of potential exposure from compliance risk was divided into three
primary categories: accreditation, government controls and board policies. Institutional
and programmatic accreditation is a major indicator that an institution regards
compliance as a serious matter. Accrediting bodies have strict guidelines with an
expectation that institutions will be able to demonstrate compliance. Before accreditation
or reaccreditations takes place, a comprehensive self-study is undertaken to identify
strengths, weaknesses and strategies for improvement. Compliance with governmental
(federal, state and local) laws and regulations is essential to minimize risk. Not only does
non-compliance threaten support and credibility, it increases reputation risk. The college
is audited by various governmental entities covering a wide range of activities. Reviews
of these audit results show no major findings and would suggest the college compliant.
An assessment of the college’s operational risk involved a review of the college’s
Technology controls and security, disaster planning efforts, business continuity plans,
outsourcing, contracting, training, use of technology and implementation of procedures.
With the exception of training, it was determined that the college’s operational risks were
within tolerance. The college’s investment in technology allows it to manage operational
risk. A high volume of outsourcing in programmatic and instructional areas transfers
some risk. Strong contract management minimizes risk.
38

39. The college's strategic risks were viewed under five primary areas: institutional
Effectiveness (IE), planning process, programmatic studies, operational reviews and the
Allocation of resources. The college is viewed as a national leader in institutional
effectiveness. The college’s research shows that students, employees, and those who
support the college believe the college is meeting its vision and mission. Thus, one can
conclude that the college allocates its resources effectively.
To determine the degree of reputational risk, the college considered several
factors. First was the quality of its people. Satisfaction surveys showed that the college
employees are generally satisfied and loyal. Many are national, state and local leaders in
their fields or in civic interests and have been appropriately recognized by those in their
discipline, profession and communities. To maintain quality employees, the college
provides a comprehensive professional development program. Because of the college’s
strong commitment to employees, ethical problems are minimized. The college’s
environment encourages open communication and freedom to report unethical behavior
without fear of reprisal.
Second, the college considers the success of its students a factor that minimizes
reputational risk. If students feel that they are meeting their educational, professional and
personal objectives, they will be effective advocates for the college. The college’s
research indicates that the college’s students believe that the college is providing them
added value. In order to meet the needs of students, the college offers quality programs
and services.
However, clearly the literature also suggests that taking risks is often essential to
success. That is, if the vision is clear and the mission worthy, then the willingness to
assume risk should be welcomed.
39

40. The financial services newsletter May 2006 says that “The Basel Capital Accord has
certainly been a catalyst in spearheading the drive towards building appropriate
credit risk modeling and capital adequacy requirements. However, it is no substitute
whatsoever for designing a business risk strategy. According to Datamonitor, banks
spend less than 4% of their IT spending on compliance so that most spending is
directed towards building the right business models. Banks will have to decide what
their risk appetite is, how to allocate their resources optimally and in what markets to
compete”.
An analysis of risk management in Dell 10
• General economic and business conditions;
• The level of demand for the company's products and services;
• Armed hostilities, acts of terrorism or other conflicts;
• The level and intensity of competition in the technology industry;
• Periodic product transitions;
• The ability of the company to develop new products based on new or evolving
technology and the market's acceptance of those products;
• The ability of the company to manage its inventory levels to minimize excess
inventory, declining inventory values and obsolescence;
• The product, customer and geographic sales mix of any particular period;
• The company's ability to recover its investments in venture capital activities;
• The company's ability to manage its operating costs effectively.
Dell's future growth depended on continued growth and success in international
markets. The success and profitability of the company's international operations were
40

41. subject to numerous risks and uncertainties, including local economic and labor
conditions, political instability, and unexpected changes in the regulatory environment,
trade protection measures, tax laws and foreign currency exchange rates.
Reference
1. http://www.internalcontrols.uci.edu/framewrk.html
2. http://www.allianceonline.org/faqs/fmfaq21.html
3. http://www.aicpa.org/pubs/jofa/apr2002/gerber.htm
4. http://www.foxit.net/asp/Frames_Set.asp?go2=Operational%20Risk
%20Management
5. http://www.icmr.icfai.org/casestudies/catalogue/Enterprise%20Risk
%20Management/ERMT-003.htm
6. http://www.icmr.icfai.org/casestudies/catalogue/Enterprise%20Risk
%20Management/DELL.htm
7. http://www.maxwideman.com/musings/risk_management.htm
8. http://www.nwvg.org/pdf/artfarisk_riskmanagementreview.doc
9. http://www-
3.ibm.com/industries/financialservices/doc/content/resource/thought/1594783103.html
10. http://www.palisade.com/cases/procterandgamble.asp
11. http://oig.ufl/edu/services/internal_controls.shtml
41

42. RESEARCH METHODOLOGY
Research is common parlance refers to search for knowledge. Research can also
be defined as a scientific and systematic research for pertinent information on a specific
topic. Redman and Mory define research as a “systematized effort to gain new
knowledge”. The main aim of research is to find out the risk which is hidden and which
has not been discovered yet.
The Research Methodology is used to systematically solve the research problems.
Research connotes a systematic and objective investigation of a problem in order to
discover relative information and principles.
RESEARCH DESIGN
Research design is the plan, structure and strategy of investigation concerned
so as to answer to research questions and to control variance. Research design depends on
the depth and extent of data required the costs and benefits of the research, the urgency of
work and the time available to complete it. The study is intended to find out Risk
involved in the Exports. The research design adopted by the researcher is descriptive
research Design.
DESCRIPTIVE RESEARCH
Descriptive research studies are those studies, which are concerned
with describing the characteristics of a particular individual, or of a group Descriptive
42

43. research is used in this study, because it will ensures the minimizatation bias &
maximizatation of reliability of data collected this study is well structured. This study
tends to do be used and its approach cannot be changed every now and then the study
structured interview scheduled was used and the type of data to be collected & the
procedure to be used for this purpose were decided the main objective of this studies is to
acquire knowledge.
METHOD OF DATA COLLECTION:
Data collection is an elaborate process in which the researcher makes a
planned search for all relevant data.
The research has used both primary and secondary data for the research.
PRIMARY DATA
Primary data are those data which is collected freshly or newly for a particular
purpose & thus happen to be original in character. Here the data are collected freshly
through observation & through communication with higher officials & employees in
Samys international.
SECONDARY DATA
Any data, which have been gathers earlier for some other purpose by some one
else & which have been passed through the statistical process in the hands of the
research. Secondary data were collected from various sources like company profile,
books, and websites.
43

44. ANALYSIS AND INTERPRETATION
The term “Analysis” refers to rearrangement of the data given in the
financial statements. In other words, simplification of data by methodical classification of
the data given in the financial statements.
Analysis is an investigation of the component parts of a whole and their relations
in making up the whole. It is a resolution of anything, whether an object of the senses or
of the intellect, into its constituent or original elements; an examination of the component
parts of a subject, each separately, as the words which compose a sentence, the tones of a
tune, or the simple propositions which enter into an argument.
The term “interpretation” refers to “explaining the meaning and significance
of the data so simplified.”
Interpretation is the art or process of determining the intended meaning of a
written document, such as constitution, statute, contract, deed, or will. Interpretation is a
term used in informal education settings to describe any communication process designed
to reveal meanings and relationships of cultural and natural heritage through first hand
involvement with an object, artifact, landscape or site. This is primarily known as
heritage interpretation. An interpretation can be the part of a presentation or portrayal of
information altered in order to conform to a specific set of symbols. This may be a
spoken, written, pictorial, mathematical, sculptural, cinematic, geometric or any other
form of language. The purpose of interpretation would normally be to increase the
44

45. possibility of understanding, but sometimes, as in propaganda or brainwashing, the
purpose may be to evade understanding and increase confusion.
A systematic approach to problem solving is analysis. Complex problems are
made simpler by separating them into more understandable elements. This involves the
identification of purposes and facts, the statement of defensible assumptions, and the
formulation of conclusions.
The term ‘Analysis and interpretation are complementary. Sometimes
they are used distintictively while ‘Analysis’ is used to mean simplification of data by
methodical classification of data, the term ‘interpretation’ means explaining the meaning
and significance of the data. However, ‘Analysis’ is useless without – interpretation and
‘INTERPRETATION’ becomes difficult without Analysis.
Both analysis and interpretation are closely connected and inter related. They are
complementary to each other. Therefore presentation of information becomes more
purposeful and meaningful- both analysis and interpretation are to be considered.
Data tracking & analysis is to
increase efficiency and generate
useful information
45

46. INDIAN TEXTILE INDUSTRIES – SWOT ANALYSIS
India has a complete supply chain from fibers to finished products. At the start of
the supply chain, India is one of the world’s biggest suppliers of raw cotton. At the end of
the chain, India is capable of supplying large volumes of apparel and home textiles and
the quality of its product is improving all the time. The industry in India is vertically
integrated and new technology is being installed at an ever expanding rate. Added to that
are India’s low labour costs, its experience, entrepreneurship and strong design skills and
its large domestic market which cushions export risks. A government has helped exports,
which is highly supportive of Indian exporters. The industry in India is also highly
46
WEAKNESS
• Ability to meet market needs &
preferences
• Industrial technologies and
processes
• Final product quality
• Customer service.
OPPORTUNITIES
• Future market share.
• Reputation
STRENGTHS
• Availability of raw materials.
• Financial strength.
• Production costs.
THREATS
• Rate of real industry market
volume growth
• Potential for product
displacement by china
• Average future industry profit
level.

47. flexible large firms are able to export basic products which require large-scale
production, while small and medium size firms can offer high fashion garments which
need too be manufactured in small quantities and delivered quickly.
Global risk
This year the quota system had removed for china, so there is a tremendous
competition from china. Scale of economy does matter but is not everything. Indian
manufactures will have a tough fight in the short mid term but they will prevail in the
long run. Both India & china will continue to offer significant opportunities for
growth in sales through expanding textile.
China is an emerged market for textile industries. But India is still emerging.
Though India has its own set of challenges to tap the opportunities, future has never
looked so bright in the recent history of India.
China is having the more man power.at the same time government is supporting
the very best may in all aspects from basic amenities on wards.bulk production, labour
economic, taxes/duties less, government support all make them to meet the world big
competitions. India filled with small scale industries, less big companies, unable to give
bulk quantities in time for competetitive price, taxes/dutieshigh, government support very
less, high costs of manpower will not able to supply big orders.eventhough there is
increasing trend in textile export from India, still china has the dominated and
challenging growth in textile export. This will be deeply increased from this year.
The countries which have been imposing obstacles on import of Chinese textile
will abolish quota limitations this will improve the opportunity of export from china
which will decline the export of garments from India.
47

48. “Due to poor infrastructure facilities, the production and transaction costs
remain high in India”.
Most of the Indian Garment exports are fashion garments which have limited shelf life.
Overall infrastructure, both port and land, are not yet developed to cater huge exports.
“In China, all the industrial cities are connected by six lane express highways,” Most of
the units are in industrial zones that are set up with state-of-the-art facilities. They have
five to six tier fly-over and underground tunnels to avoid traffic problems. With good
infrastructure in place, the industry has better scope to flourish. The transit time taken by
the Chinese units to move their goods from factories to destination is just a fortnight,
compared with a month's time the Indian textile units have to take.
In India the Port infrastructure is at present highly insufficient. Also shipping a
container of garments from India to the US is costlier in India compared to other Asian
Countries. Non availability of direct sailing vessels also increases transit time. Further,
delays and inefficiencies in Indian Ports compared to other Asian Countries add huge
disadvantage to Indian exports. China enjoys 13 % cost advantage in shipping garments
from Shanghai to US East Coast and an overall advantage of 37 %. The export from
aircrafts is still quite expensive but saves a lot of time.
Two critical factors that cause problems to Indian textile industry are
• India has a very old & fragmented textile industrial infrastructure.
• India a totally inadequate & small service infrastructure for textiles.
To overcome this infrastructure problem
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49. • Increase the size of the industrial infrastructure, to capture the efficiencies of the
economies of scale, & it must cluster the textile production.
• Create the infrastructure to service the needs of European textile markets.
Let us analyze the Indian textile industry through the Porter’s five-factor model.
49
Bargaining power of
customers
• High demand
for apparels
and home
textiles in the
US and EU
markets
Bargaining power of
suppliers
• High
availability of
cotton
• Low labour
cost
Barriers to entry
• No barriers in
the domestic
market.
• New capacities
coming up.
Threat of substitutes
• Competition
from low cost
producing
nations like
Pakistan and
Bangladesh.
Industry competition
• Quota free
regime
• Competition
from china

50. Bargaining power of customers (demand scenario)
The dismantling of quotas, global textile trade is expected to grow (as per Mc
Kinsey estimates) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is
likely to become the 'supplier of choice', other low cost producers like India would also
benefit as the overseas importers would try to mitigate their risk of sourcing from only
one country. The two-fold increase in global textile trade is also likely to drive India's
exports growth. India's textile export (at US$ 15 bn in 2005) is expected to grow to US$
40 bn, capturing a market share of close to 8% by 2010. India, in particular, is likely to
benefit from the rising demand in the home textiles and apparels segment, wherein it has
competitive edge against its neighbour. Nonetheless, a rapid slowdown in the denim
cycle poses risks to fabric players.
Bargaining power of suppliers (supply scenario)
India is the third largest producer of cotton in the world after China and US and
has the largest area under cultivation. Cotton, a key raw material in the textile and
garment industry India has an abundant supply of locally grown long staple cotton, which
lends it a cost advantage in the home textile and apparels segments. Other countries, like
China and Pakistan, have relatively lower supply of locally grown long staple cotton.
Low cotton prices due to a bumper cotton crop would enable India to lower its production
cost and sustain pricing pressure.
Threat of new entrants
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51. In the quota free regime, capacity expansion is the name of the game in the textile
sector. Resultantly, smaller players who cannot venture into the global markets are
flooding the domestic markets with excess supply, thus weakening the pricing scenario
Threat of substitutes
Low cost producing countries like Pakistan and Bangladesh (labour cost 50%
cheaper) are also posing a threat to India's exports demand
Competitive rivalry
India's logistic disadvantage due to its geographical location can give it a major
thumbs-down in global trade. The country is distant from major markets as compared to
its global competitors like Mexico, Turkey and China, which are located in relatively
close vicinity to major global markets of US, Europe and Japan. As a result, high cost of
shipments and longer lead-time coupled with lack of infrastructure facility may prove to
be major hindrances.
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52. Political risk
Political risk may be defined as the probability that a political event will impact
adversely on a firm’s profit.
The risk that a new law or a change in an existing could have a significant impact
on an investment. Whatever laws the government passes today may not be extinct
tomorrow.
Political risk represents the financial risk that a country's government will
suddenly change its policies.
This risk covers.
• Restriction on remittances in the buyer’s country or any government action which
may block or delay payment in rupees to the exporter.
• War between the buyer’s country & India.
• War, revolution or civil commotion in the buyer’s country.
• Imposition or new import licensing rest ructions in the buyer’s country or
cancellation of a valid import license.
• Cancellation of an export license of imposition of new export licensing rests
ructions ion India.
• Additional handling, transport charges due to interruption or diversion of voyage,
which cannot be recovered from the buyer.
• Any other kind of loss occurring outside India & not within the control of the
export or the buyer.
52

53. It is important to note that political risk is always present since the firm exists
only at the pleasure of the sovereign nation.
Political structure and political events impact significantly on executive
decisions.wars; riots, expropriation of property; assassinations and revolutions are
obvious examples of events that can change the business environment radically.
Expropriation probably is the extreme form of political risk, when a nation expropriation,
it formally takes over the property of the firm, with or without payment. Less obvious,
but very important are changes in government policy affecting the conditions of market
entry and continued operations.
The export marketer needs to evaluate both the probability of a political event that
may change the environment, and also the probability that the event will impact on the
exporting firm.
Example
• The long-term capital gains tax has been changed 5 times in the last
20years with the most recent cut at 20%.
There is no insurance cover available for war risk in advance. It is therefore
necessary that government should take up such issues with the buyer country at the
government level so that the supplier is not put to losses. Many cases have happened in
case of war between Iran and Iraq.
The supply chain in India is highly fragmented mainly due to government policies
and lack of coordination between industry and trade bodies. Existence of large number of
intermediaries adds to the cost but also lengthen the lead times. The countries who have
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54. significantly consolidated their supply chain are globally competitive – Korea, China,
Mexico, Turkey
The main challenge is shorter lead-time, Several of our competing countries have
substantially shorter transit times to Europe and USA, which are the main markets. Non
availability of direct sailing vessels and excessive government holidays (currently about
160 days a year including Saturday and Sunday's) also lead to a lot higher transit times
from Indian ports. Most of Indian Garment exports being fashion garments, have very
limited shelf life, hence it is important company to device ways to deliver it to our
customers in the quickest possible time.
So the garment export companies recommend that all apparel shipments be given
the status of perishable items, so that it can be custom cleared on top priority, 24 hours a
day and 365 days a year, this will put export shipments on sailing vessels or flying
aircrafts, without any waste of time, to match or shorten the lead-times to various foreign
destinations.
In order to fulfill the potential of India’s textile industry, the government must
remove barriers that discourage foreign direct investment and stifle competition, thereby
perpetuating the local manufacturer’s small scale and poor organization of function and
tasks.
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55. Operation risk
Operational risk is defined as the risk of loss resulting from inadequate or failed
internal processes, people and systems, or from external events. Although the risks apply
to any organization in business it is of particular relevance to the banking regime where
regulators are responsible for establishing safeguards to protect against systemic failure
of the banking system and the economy.
“Risk associated with the potential for system failure in a given market”.
“It is associated with systems processes & people & covers such as succession
planning, human resources, information technology, control systems & compliance with
regulations”.
In day to day business affairs, besides transaction related like credit risk & market
riks, another important category are operational risk. This risk signifies that for an
organization to continue its operations, some external events like natural disasters,
political & military turmoil, not directly connected with the organization may affect its
well being.
Operational risk may be defined into 2 angles.
“Operational risks are all those risks which cannot be classes as credit or market
risks”
55

56. “Operational risk is an expression of the danger of unexpected direct or indirect
losses resulting from inadequate or failed internal process, people & systems or from
external events”.
This risk covers
• External fraud- theft of information, hacking damage, third-party theft and
forgery
• Business disruption & systems failures- utility disruptions, software failures,
hardware failures.
• Execution, delivery, & process management – data entry errors, accounting
errors, failed mandatory reporting, and negligent loss of client assets.
A 1999 survey of the fortune by Mercer management consulting in Boston reveals that
operational risk accounted for a loss of 31% of the enterprises.
Examples:
• The companies’ cash transactions are directly feed in the system if there is fault in
feeding the information then the management is not able to calculate the cash in
hand and other cash dealings so they are in critical situation to take decisions
regarding cash flows.
• The companies are getting the conformation from the buyer regarding the design,
colour are done through the electronic mail transfer if there is a network problem
in net then the conformation will get delay so the production also get delayed.
• The money transfer from buyer are done through banks and all the banking
system are now computerized so the network problem in banks or system failure
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57. will lead to delay in payment to the parties and purchase of raw materials which
lead to production problem.
.Employee risk
Health and safety issues are a constant problem in the garment industry.
It is very necessary for the management to develop the Labour welfare condition,
which will motivate the employees to do more and will help to achieve the satisfaction.
This risk covers
• Illnesses
• Infections
• Injuries
The work environment in a majority of the units is unsafe and unhealthy. The
people working in such poor or standard environmental prone to occupational diseases.
These illnesses are due to: excessively high temperature - or very low
temperatures; dust; inadequate ventilation; inadequate lighting; excessive noise; lack of
fire-fighting equipment; blocked exits; bad sanitation; unhygienic canteens; and lack of
drinking water.
The types of illnesses, which may affect the employees in company, are fevers,
headaches, eyesight problems, skin allergies, kidney infections, backache, stomach
cramps, breathing difficulties and constant exhaustion.
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58. Exhaustion, ergonomic problems - which relate to the movements necessary to carry out
the work, the conditions in the factory environment - the deprivation of basic bodily
functions such as drinking water and using the toilet are reoccurring problems for
workers. It is not just workers' physical health that is undermined by these conditions but
also their mental and emotional health as a result of excessive hours, unsustainable work
intensity due to high quotas as well as verbal and psychological harassment from
management
Examples
• Employees are the people who work in the established infrastructure. When they
are comfortable with the furniture and machinery with which they are working,
the result will be perfect. Uncomfortable furniture leads to trouble. The physical
effects of the employee’s conditions are worsened by sitting bent over a sewing
machine on stools and broken chairs or using a heavy iron all day.
• Toilet breaks are generally inadequate and some companies do not provide
drinking water in order to minimize the number of toilet breaks that women take.
The result of this is dehydration and kidney infections.
• If the employees are forced in their work place to complete their work, they might
have to meet with accidents. Forced position is also a critical factor in the work
environment
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59. • The employees need to check the cloth for selection or rejection. For this purpose
proper and adequate lighting should be provided in sufficiency if not the
employee will suffer the eyesight problem.
• Implicit overtime is when workers are not directly asked to perform overtime but
know that they are not free to leave at the end of the day. This can be as a result of
management's attitude or because quotas are so high it is impossible to finish
them during the working day, so workers are obliged to work overtime.
• Explicit overtime is where workers are forced to work overtime because there is a
physical barrier stopping them leaving the factory.
• Turnaround time of 70-100 days for an export order (which included procuring
the fabric, getting it dyed, knitted and stitched) this means that time available for
stitching was very limited which in turn entailed long working hours and night
shifts for the workers.
• Small & medium size firms can offer high fashion garments which need to be
manufactured in small quantities & delivered quickly so the employees are
compelled to work in overtime.
• Employee strike for bonus, salary etc. Now dyeing/bleaching units in Tirupur has
undergone strike in order to find out the solution for the ground water pollution.
Even though the labor laws are not strict the social welfare of the workers are being
looked after by the companies. Also the buyers insist for social audits to be conducted by
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60. the third audit .if they found any default then the buyers company cancel the order which
they gave.
Benefits of Employee risk management
• Labour turnover and absenteeism are reduced to the minimum.
• Minimizing industrial disputes and peace.
• Creating permanent and settled labour force.
• Improvement in the efficiency of workers.
• Reducing damages to equipment, machinery and workers.
• Medical inspection is provided to the employees.
• Worker’s efficiency is considerably enhanced when they feel safety in work
environment.
• Workers begin to feel interested in their work when they find that they are being
well looked after by their employers. Thus, their morale is raised and industrial
relations improve.
• Employee will be able to concentrate on his work.
Inflexible labour laws and too much job security are harming the performance of
industries greatly dependent on the performance of its workforce. As a result, the
manufacturers in India have been urging the government to relax the laws. India's labour
laws date back to the time when socialism appeared to be for eradicating India's poverty.
But now in global scenario, productivity linked wage system and some amount of
flexibility in laws would give tremendous boost to Indian Industry.
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61. Purchasing power risk
The loss of purchasing power due to the effects of inflation. When inflation is
present, the currency loses its value due to the rising price level in the economy. The
higher the inflation rate, the faster the money loses its value. This risk is also known as
inflation risk.
“The risk of loss in the value of cash due to inflation”.
Example
• The cotton textile industry is dependent in the vagaries of nature. Availability of
the required quality & quantity of cotton is critical for business and any damage
or fall in crop production can adversely impact the price of cotton, which can
impact business performance & profitability.
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62. Technology risk
Many institutions such as banks, investment management firms, insurance
companies, brokerage firms, technology is a critical component of any risk management
initiates for institutions which rely heavily on technology, there is always a risk
technology becoming the focus on risk management.
“Technology can response corporate cultures & facilitates innovative procedures”.
In a garment manufacturing firm, the production manager has been with the firm
for over thirty years and has thus seen all the changes and transformations in the
production processes over time. These have involved changes in aids to manufacture,
fusing processes and the introduction of automatic markers. There are, however, quite
glaring differences in the technological processes adopted by companies in the sample.
They range from firms with outdated plant and machinery to a few companies that can
boast of the most modern plant by any standards.
The Indian textile sector weakness is their industrial technologies & process
because of this reason for the next five years china will be the strongest manufacturing
center. China has built up a very efficient & scalable system for sourcing fabric &
manufacturing garments using recent technology.
In order to survive in the highly-competitive market, India’s cotton-centric textile
manufacturers need to focus on upgrading their machinery besides creating new facilities
and additional capacities. They require better machinery. Though domestic machines are
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63. competitive in terms of quality and price, the delivery schedule, which even extends to
two to three years, is a matter of concern. Chinese machines require a delivery time of
only four to six months; the Indian textile machinery manufacturers are not able to
bridge the demand-supply gap.
The government of India has to extend the technology up gradation fund scheme
in order to support industry. The Indian textile industry has to invest heavily in systems
and technology to reduce costs and lead times, also development of collaborative
links between customers, vendors and partners to make the supply chain more
efficient
Example
• The specialty work of companies garments are hand embroidery, sequence works,
crochet works etc, now china is producing garments in different varieties using
various technologies this lead to reduce the export of garments from India.
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64. Counter party risk
The risk that the other party in an agreement will default is known as the counter
party risk. In an option contract, the risk to the option buyer that the writer will not
buy and sell the underlying as agreed. In general, country party risk can be reduced
by having an organization with extremely good credit act as an intermediary between
the two parties.
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65. This risk covers
• Insolvency of the buyer.
• Buyer’s protracted default to pay for goods accepted by him
• Buyer’s failure to accept goods, subject to certain conditions.
• Buyer’s failure to obtain necessary import or exchange authorization from
authorities in his country
Example
• The companies are allowing 100 days credit to the buyers & because of delay in
payment by buyer the Indian companies are not able to continue their further
production for next order & not able to settle their credit.
Company risk
Company risk is the risk that the individual company in which you invest will fail to
perform as expected.
This risk also includes the uncertainty associated with business firms operating
environment & reflected in the variability of earnings before interest & taxes.
Due to the lack of planning, coordination & because of no systematic process many
loss arise in the companies.
The competitions among the Indian companies are more & the new companies are
not in a position to withstand in these competitions.
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66. Example
• The company is producing night wear for ladies, winter wear children’s wear
etc.when they started their production of sports wear they face a problem of size
variation in sports pants and because of that the orders from buyers get cancelled
• The growing companies are planned to open their branch in some other place if
they didn’t plan correctly and invest their money, loss will arise and they may fail
in their business.
• Due to lack of systematic process of where to give for designing the garment i.e.
finding the right person for the designing purpose they are delay in shipment.
• There are so many competitors for the company & so because of that there arise a
problem for fixing the price for garments in order to capture the market.
Hazard risk
It is related to natural hazards, accidents & fire that can be insured.
This risk covers
• Natural disaster
• Air pollution
• Water pollution
• Soil pollution
• Land pollution etc.
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67. Examples
• The shipments are done through the waterways or airways. So the natural disaster
such as tsunami, cyclones may affect.
• The ship may starve, sunk or burnt.
• There are about 750 dyeing & bleaching units in Tirupur causing ground water
pollution & effluents generated by these units are discharged into Noyyal River.
The units have still not found suitable technology for treating effluents, including
dissolving of salts. Discharging into oceans is not economically affordable.
There are many possible risks for goods that are shipped abroad apart from the
possibility of the sinking of the ship itself. They may run into a heavy storm and the
cargo may be damaged by rain or sea water. There is always the risk of fire or some of
the goods being stolen. Some letters of credit specify the risks which must be insured
against.
The usual procedure, therefore, is to have an “all risk policy”. It is not worthwhile
for an exporter to try to save on premium payments and hence a less comprehensive
policy because a few banks, negotiating letters of credit, accept such a policy.
This risk is unavoidable & it cannot be transferred but this risk can be mitigated
or accepted. Mitigation is a control approach that attempts to reduce the impact of an
exploited vulnerability. Acceptance of risk is the choice to do nothing to protect an
information asset & to accept the outcome from any resulting exploitation.
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68. Currency risk
It is the uncertainty associated with changes in the relative value of currencies.
“Currency risk arises due to uncertainty in exchange rates”.
Currency risk is a form of risk that arises from the change in price of one currency
against another. Whenever investors or companies have assets or business operations
across national borders, they face currency risk if their positions are not hedged
The risk that a business operations or an investments value will be affected by
changes in exchange rates. These risks usually affect business, individual investors who
make international investors. This is also called as exchange rate risks.
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69. The fluctuations in the exchange rate are caused basically by the supply of and the
demand for the currencies being exchanged.
Effect of exchange fluctuations
When quoting prices in terms of the foreign currency, the exporter knows how
many rupees are to be received at the current rate of exchange. However, when the
customer pays in sterling pounds, pesos, us dollars, Japanese yen or some other
acceptable currency, the amount received in terms of rupees will depend upon the rate of
exchange when the currency is converted. When the price is quoted in the foreign
currency, the exporter accepts the risk of exchange fluctuations. Unless steps are taken to
protect expected profits, a decline in exchange rates may reduce profits or even convert
them into a loss.
Indirect risk involved in foreign exchange fluctuations.
The most completed safeguard against unfavorable exchange fluctuations is when
payment is to be made in their domestic currency, but even then they have an interest in
exchange fluctuations. Fluctuations following the closing of the sales contract may be so
unfavorable that the foreign customer may refuse to accept the delivery, or unwilling to
meet the financial obligations. Thus the exchange rate obligations rate fluctuations may
increase the exporter’s credit and commercial risks
Any government measures affecting the volume of exporters and importers
influence exchange rates. A country may restrict the importation of certain goods in
conformance with its economic development programmed in order to converse foreign
exchange for projects with a higher priority, furthermore protective tariff rates, import
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70. quota, licence requirements, export subsidies, governmental price control and trade
agreements all imply a certain amount of exchange control.
The exchange risk associated with a foreign denominated instrument is a key
element in foreign investment. This risk flows from differential monetary policy and
growth in real productivity, which results in differential inflation rates.
The hurdle in the path of growing textile exports from India is Artificial pricing of
the Chinese Currency: which is giving undue advantage to the Chinese industry in the
Global Market. Hardening of the Indian Rupee against US$ has also seriously affected
and eroded the bottom-lines of textile and garment exporting companies. If government
offers income- tax exemption to the textile industry in particular for the next 5 years, so
that, the garment export companies are more equipped to face undue competition from
China and other competing nations.
Price risk
Risk resulting from the possibility that the price of security or physical
commodity may decline
Price risk is defined as “The risk that the value of a security or portfolio of
securities will decline in the future”.
The Indian exporter faced competition internationally & also from within the
country. This has load to intense pressure on the profit margin for Indian exporters &
buyers were squeezing the prices every year.
70

71. A product pricing strategy by which a firm charges the highest initial price that
customer will pay. As the demand of the first customers is satisfied, the firm lowers the
price to attract another, more price-sensitive segment.
Therefore, the skimming strategy gets its name from skimming successive layers of
cream or customer segments, as prices are lowered over time.
Government intervention to set an artificially high price through the use of a price
floor designed to aid producers.
It’s the risk that you will lose money due to a fall in the market price of a security
that the company own.
Financial risk
It is the uncertainty associated with how firms finance its business.
Finance for the exporters is needed at 4 stages
• 1st
an exporter may need finance to develop an exportable product.
• 2nd
finance is needed to upgrade export production through acquisition of new
equipments, new technology.
• 3rd
pre-shipment is needed to acquire inputs that get converted into an export
product.
71